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12. Leases

3 Months Ended

Mar. 31, 2020

The Company adopted ASU No. 2016-02, “Leases” (Topic 842) on January 1, 2019 and applied the modified retrospective approach to adoption whereby the standard is applied only to the current and future periods. The Company leases manufacturing and office facilities and equipment under operating leases and determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has lease agreements with lease and non-lease components, which are accounted for separately.

The Company leases approximately 54,000 square feet (not in thousands) of industrial space in West Melbourne, Florida, under a non-cancellable operating lease. The lease has the expiration date of June 30, 2027. Annual rental, maintenance and tax expenses for the facility are approximately $491.

The Company also leases 8,100 square feet (not in thousands) of office space in Lawrence, Kansas, to accommodate a portion of the Company’s engineering team. In November 2019, this lease was amended to extend the lease term until December 31, 2021. Annual rental, maintenance and tax expenses for the facility are approximately $121.

Lease costs consist of the following:

	Three Months Ended
	March 31, 2020		March 31, 2019
Operating lease cost	$	143	$	134
Short-term lease cost		2		4
Variable lease cost		32		32
Total lease cost	$	177	$	170

Supplemental cash flow information related to leases was as follows:

	Three Months Ended
	March 31, 2020		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows (fixed payments)	$	122	$	118
Operating cash flows (liability reduction)		82		78

ROU assets obtained in exchange for lease obligations:
Operating leases		9		2,840

Other information related to operating leases was as follows:

	March 31, 2020
Weighted average remaining lease term (in years)		6.81
Weighted average discount rate		5.50	%

Maturity of lease liabilities as of March 31, 2020 were as follows:

	March 31, 2020
Remaining nine months of 2020	$	541
2021		526
2022		444
2023		451
2024		461
Thereafter		1,074
Total payments		3,497
Less: imputed interest		593
Total liability	$	2,904

In February 2020, the Company entered into a lease for 6,857 square feet (not in thousands) of office space at Sawgrass Technology Park, 1619 NW 136th Avenue in Sunrise, Florida, for a period of 64 months commencing July 1, 2020. Annual rental, maintenance and tax expenses for the facility will be approximately $196 for the first year, increasing by approximately 3% for each subsequent twelve-month period. The Company will record the ROU asset and related lease liability for this lease upon its commencement.