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12. Leases

6 Months Ended

Jun. 30, 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				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease cost	$	143	$	134	$	287	$	268
Short-term lease cost		—		6		2		10
Variable lease cost		32		31		63		63
Total lease cost	$	175	$	171	$	352	$	341

Supplemental cash flow information related to leases was as follows:

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows (fixed payments)	$	122	$	118	$	243	$	236
Operating cash flows (liability reduction)		83		78		164		156

ROU assets obtained in exchange for lease obligations:
Operating leases		26		—		35		2,840

Other information related to operating leases was as follows:

	June 30, 2020
Weighted average remaining lease term (in years)		6.60
Weighted average discount rate		5.50	%

Maturity of lease liabilities as of June 30, 2020 were as follows:

	June 30, 2020
Remaining six months of 2020	$	281
2021		560
2022		447
2023		456
2024		464
Thereafter		1,193
Total payments		3,401
Less: imputed interest		558
Total liability	$	2,843

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 recorded the ROU asset and related lease liability for this lease upon its commencement.