5. Commitments and Contingencies

Leases

The Company entered into an operating lease agreement in May 2010 for its San Jose headquarters that was subsequently modified in Nov 2013 and May 2015. The building lease expires in June 2025. Rent expense is being recognized on a straight-line basis over the lease term.

The following table presents rent expense included in the Condensed Consolidated Statement of Operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Rent expense	$	557	$	566	$	1,118	$	1,129

During the second quarter of 2017, the Company made payments of $0.6 million related to this operating lease.

In December 2015, the Company signed a sublease to lease out a portion of office space. The term of the lease is for three years and annual gross rent is approximately $0.3 million. The sublessee moved in during the second quarter of 2016. The Company received $0.1 million in rent payment under the agreement in the second quarter of 2017.

Capital Lease Obligations

During the third quarter of 2016, the Company leased a furnace under a three year lease agreement which was accounted for as a capital lease under ASC 840-30; the underlying asset is included in lab equipment and machinery. The current portion of the capital lease obligations of $25,000 is included in accrued liabilities and the non-current portion of $26,000 is included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2017. The capital lease is discounted using an annual rate of 16.7%. The lease agreement requires annual payments of $31,000, contains a cancellation option after 12 months and automatically transfers ownership of the property to the Company, the lessee, at the end of the lease term.

Depreciation expense of the furnace recorded under the capital lease obligations was $5,000 for the three months ended June 30, 2017, and none for the three months ended June 30, 2016.