Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. There is no impact from the adoption of ASC 842, as of January 1, 2019 as the Company did not have any existing leases with a lease term in excess of twelve months on January 1, 2019.

In January 2019, the Company entered a new office lease agreement with a 5-year lease term starting in March 2019 and terminating in February 2024. Upon adoption of ASU 2016-02, the Company recognized lease labilities of approximately $618,000, with corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.78%, which is determined using an incremental borrowing rate. The remaining lease term of the lease is 4.67 years.

The Company also leases a factory space on a month-to-month basis, which it classifies as an operating lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three months ended June 30, 2019 and 2018, lease expenses amounted to $45,287 and $22,318, respectively, of which, $10,500 and $0 are short-term lease expenses, respectively.

For the six months ended June 30, 2019 and 2018, lease expenses amounted to $67,382 and $41,974, respectively, of which, $21,000 and $0 are short-term lease expenses, respectively.

The five-year maturity of the Company’s lease obligations is presented below:

Twelve months ended June 30,	Operating lease amount
2020	$	121,806
2021		136,740
2022		140,844
2023		145,064
2024		98,624
Total lease payments		643,078
Less: interest		(70,322	)
Present value of lease liabilities	$	572,756