5. Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

In September 2015 the Company agreed with North American Production Sharing, Inc. (“NAPS”) to extend the Company’s Tijuana facility’s lease in connection with the Production Sharing Agreement (“PSA”) entered into between the Company and NAPS. That extension went through November 30, 2018 and also facilitated the Company’s contracting with Mexican personnel to work in our Tijuana facility. The Company currently has signed a lease extension to stay in the existing facilities through at least November 30, 2020. Rent expense was $26.6 thousand for both the second quarter of 2019 and the second quarter of 2018. Rent expense was $53.1 thousand for both the first six months of 2019 and the first six months of 2018.

The Company had a lease for 11,480 square feet at 99 High Street, Boston, MA that expired on June 29, 2019. The Company signed a twelve month lease agreement for offices at 225 Franklin Street, Boston, MA and completed the move to this location on June 28, 2019. The lease has an automatic renewal option provision and renews unless cancelled under the terms of the agreement. The Company has elected to apply the short-term lease exception under ASC 842 which does not require the recognition of an operating lease liability or right-of-use asset on the condensed consolidated balance sheet in relation to the lease at 225 Franklin Street. Rent expense was $98.6 thousand for the second quarter of 2019 and $104.6 thousand for the second quarter of 2018. Rent expense was $207.8 thousand for the first six months of 2019 and $214.4 thousand for the first six months of 2018.

At inception of a lease the Company determines whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component.

Operating Leases

Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and long-term operating lease liabilities on the condensed consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. The Company used 10% as its secured incremental borrowing rate when calculating the present value of remaining lease payments over the lease term. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in general and administrative expenses on the condensed consolidated statements of operations.

The following table presents information about the amount and timing of the Company’s operating leases as of June 30, 2019.

	June 30, 2019
Maturity of Lease Liabilities	Lease Payments
2019 (remaining)	$	53,113
2020		106,226
Total undiscounted operating lease payments	$	159,339
Less: Imputed interest		(7,617	)
Present value of operating lease liabilities	$	151,722
Balance Sheet Classification
Operating lease liabilities	$	99,564
Long-term operating lease liabilities		52,158
Total operating lease liabilities	$	151,722
Other Information
Weighted-average remaining lease term for operating leases		1.50
Weighted-average discount rate for operating leases		10.0	%

Cash Flows

Upon adoption of the new lease standard, the Company recorded a lease liability in the amount of $420,899, right-of-use assets of $399,565, and reclassified deferred rent of $25,334 as a reduction of the right-of-use assets. During the six months ended June 30, 2019, the operating lease liability was reduced by $269,177 and we recorded amortization of our right-of-use assets of $243,843.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

	Six Months Ended June 30,
	2019		2018
Operating cash flow information:
Amounts included in measurement of lease liabilities	$	271,333	$	––
Non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	395,565	$	––