Commitments

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments

NOTE 14.  COMMITMENTS

Operating & Capital Lease Obligations

On August 20, 2012, the Company entered into a Lease Agreement (“Lease”) with Pima County, a political subdivision of the State of Arizona (“Landlord”), pursuant to which the Company will lease approximately 15,096 square feet of office space located in Tucson, Arizona for a period of three years (the “Initial Term”), which may be extended by the Company for up to three additional one-year periods (each a “Renewal Term”). The Lease also provides that the Company has the option, with six months prior notice to Landlord, to lease either or both of two additional areas with an aggregate size of approximately 7,920 square feet.

Pursuant to the Lease, the Company agreed to: (i) pay rent equal to $9.25 per usable square foot per year (approximately $140,000 per year) during the Initial Term and $19.80 per usable square foot per year (approximately $298,900 per year) during any Renewal Term; (ii) relocate its corporate offices to the Tucson area and begin operations within 30 days of the date that the tenant improvements are substantially completed (the “Commencement Date”); and (iii) within 18 months of the Commencement Date, employ at least 30 individuals with a median salary of at least $70,000, which median salary must be maintained throughout the term of the Lease. If the Company fails to satisfy the condition described in clause (iii) of the preceding sentence, the rental rate under the Lease will be increased by a percentage that is twice the percentage by which the Company’s annual payroll has fallen short of the specified goal (subject to a cap equal to $19.80 per usable square foot per year). The Lease also provides that Landlord will pay for tenant improvements (up to a cap of $1,400,000) as well as certain repairs, utilities and insurance. As of February 1, 2013, we relocated our headquarters into the above described leased space in Tucson, Arizona.

On October 15, 2013, the Company executed the First Amendment to the Lease with Pima County to exercise its option and to expand its lease premises by 4,551 square feet whereby Pima County provided tenant improvements. After the completion of tenant improvements, the Company occupied this additional space in January, 2014. Pursuant to the First Amendment, the Company agreed to (i) pay rent equal to $9.25 per square foot per year (approximately $42,000 per year) and (ii) repay tenant improvements over the remaining lease term. These tenant improvements are treated as a capital lease whereby both an asset and a liability have been recorded and periodic interest and depreciation will be recorded to amortize the value of this asset and the liability over the remaining lease term. Further details regarding this capital lease are included in Note 5, Property and Equipment.

The future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of September 30, 2014 are as follows:

Capital Lease Obligations (in thousands)
Year ending December 31:
Remaining in 2014	$	38
2015		151
2016		13
2017		—
2018		—
Total minimum lease payments	$	202
Less amount representing interest		(6	)
Present value minimum lease payments	$	196

In April 2014, the Company entered into a Second Amendment to the Lease with Pima County, pursuant to which the Company exercised its option to build-out and occupy 3,594 square feet and an additional 4,163 square feet not contemplated in the Lease for manufacturing and other operational requirements. Pursuant to the Second Amendment, the Company also agreed to: (i) pay rent equal to $9.25 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during the Initial Term; (ii) pay rent of $19.80 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during any Renewal Term; (ii) restore the 3,594 option space and the 4,163 additional space to a reasonable office typical tenant space at the end of the Lease; and (iii) adhere to all other terms of the Lease. The Company estimates that the costs for restoration at the end of the Lease as described in (ii) of the Second Amendment are immaterial and, therefore, no accrual has been recorded.

Total rent expense for the Tucson facility, including common area charges, for three-month periods ending September 30, 2014 and 2013 was approximately $85,000 and $30,000, respectively, and for the nine-month periods ending September 30, 2014 and 2013 was approximately $198,000 and $123,000 respectively. Future minimum lease payments under this agreement are as follows (in thousands):

Operating Lease Obligations (in thousands)
	Year ending December 31:
	Remaining in 2014	$	72
	2015		289
	2016		24
	2017		—
	2018		—
	Thereafter		—
	Total operating lease obligations	$	385