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LEASES

6 Months Ended

Jun. 30, 2020

NOTE 7: LEASES

On March 23, 2020, the Company entered into an agreement to expand its corporate headquarters in Houston, Texas, which is expected to commence in the third or fourth quarter of 2020. The initial lease term is ten years with two five-year renewal options. Fixed rent payments under the initial term are approximately $5.6 million. Additionally, the Company is also responsible for its share of operating expenses.

On April 30, 2020, the Company entered into a lease for a research facility in Houston, Texas. The lease term is 71 months. Fixed rent payments under the initial term are approximately $1.1 million. In the second quarter of 2020, the Company recorded right-of use assets and related operating lease liabilities of approximately $0.9 million as result of entering into the lease for our research facility.

On June 26, 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. The initial lease term is ten years from the expected commencement date in the third quarter of 2020 with two five-year renewal options. Fixed rent payments under the initial term are approximately $11.1 million. Additionally, the Company is also responsible for its share of operating expenses. In the second quarter of 2020, the Company recorded right-of use assets and related operating lease liabilities of approximately $8.3 million as result of entering into the lease for its manufacturing facility.

The Company also leases office space under agreements classified as operating leases that expire on various dates through 2022. The Company has a remaining lease liability of $0.2 million and $0.2 million of the related right-of-use asset resulting from the lease of its corporate headquarters in Houston, Texas, which expires in 2021. In addition, the Company has a remaining lease liability of $0.2 million and $0.2 million of the related right-of-use asset from the lease of its Jacksonville, Florida office space, which expires in 2022.

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right-of-use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases.

The Company excludes short-term leases having initial terms of 12 months or less from the new accounting guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company has two lease agreements, an office at the Florida Atlantic Research and Development Authority and laboratory space located at the Texas Medical Center in Houston, which are included in short-term lease expense below.

At June 30, 2020, the Company had operating lease liabilities of approximately $9.5 million and right-of-use assets of approximately $9.5 million, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases for the three and six months ended June 30, 2020 and 2019, respectively:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Operating lease expense summary:
Operating lease expense	$	103,000	$	55,000	$	158,000	$	110,000
Short-term lease expense		3,000		24,000		22,000		46,000
Variable lease expense		5,000		23,000		16,000		38,000
Total	$	111,000	$	102,000	$	196,000	$	194,000


Other information:
Operating cash flows - operating leases	$	248,000
Weighted-average remaining lease term as of June 30, 2020 – operating leases		9.6
Weighted-average discount rate as of adoption date – operating leases		5.6	%

Maturities of the Company's operating leases, excluding short-term leases, are as follows:


Six months ended December 31, 2020	$	286,000
Year ended December 31, 2021		1,379,000
Year ended December 31, 2022		1,253,000
Year ended December 31, 2023		1,219,000
Year ended December 31, 2024		1,254,000
Thereafter		7,114,000
Total		12,505,000
Less present value discount		(3,024,000)
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at June 30, 2020	$	9,481,000