LEASES

9 Months Ended

Sep. 30, 2020

LEASES

LEASES

NOTE 7: LEASES

On March 23, 2020, the Company entered into an agreement to expand its corporate headquarters in Houston, Texas, which commenced in the third 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. In the third quarter of 2020, the Company recorded right-of use assets and related operating lease liabilities of approximately $4.1 million as result of entering into the lease for its new corporate facility.

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.

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 rent commencement date in the fourth quarter of 2020 with two five-year renewal options. Fixed rent payments under the initial term are approximately $9.8 million. Additionally, the Company is also responsible for its share of operating expenses. In connection with the lease for the manufacturing facility, the Company is to receive $1.0 million as reimbursement for out of pocket buildout costs.  Accordingly, during the third quarter of 2020, the Company recorded a $1.0 million receivable, and a reduction in right-of use assets, in its condensed consolidated financial statements.

The Company also leases office space under agreements classified as operating leases that expire in 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 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.  

At September 30, 2020, the Company had operating lease liabilities of approximately $12.2 million and right-of-use assets of approximately $11.1 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 nine months ended September 30, 2020 and 2019, respectively:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Operating lease expense summary:
Operating lease expense	$	375,000	$	55,000	$	533,000	$	165,000
Short-term lease expense		—		27,000		22,000		73,000
Variable lease expense		69,000		27,000		85,000		65,000
Total	$	444,000	$	109,000	$	640,000	$	303,000
Other information:
Operating cash flows - operating leases							$	362,000
Weighted-average remaining lease term as of September 30, 2020 – operating leases								9.6
Weighted-average discount rate as of adoption date – operating leases								5.7	%

Maturities of our operating leases, excluding short-term leases, are as follows:

Three months ended December 31, 2020	$	205,000
Year ended December 31, 2021		1,077,000
Year ended December 31, 2022		1,278,000
Year ended December 31, 2023		1,542,000
Year ended December 31, 2024		1,826,000
Thereafter		10,540,000
Total		16,468,000
Less present value discount		(4,241,000)
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at September 30, 2020	$	12,227,000