3. Operating Lease

6 Months Ended

Jun. 28, 2019

Notes to Financial Statements

3. Operating Lease

3. OPERATING LEASE

The Company leases its office, shop and warehouse space in Salt Lake City, Utah under a non-cancellable operating lease agreement. The lease agreement had an amended term set to expire October 2019 (the “Previous Facility Lease”). On April 15, 2019, the Company signed an amendment to the Previous Facility Lease (the “Lease Amendment”). The Lease Amendment effectively terminated, as of April 30, 2019, the Previous Facility Lease, and revised the terms whereby, effective May 1, 2019, the Company continues to lease 60% of the space, while the other 40% is leased from the Landlord by a third-party tenant (“New Facility Lease”). The Company continues to pay 100% of the maintenance and utility costs for the buildings and grounds, of which approximately 40% is reimbursed by the third-party tenant in accordance with terms set by the New Facility Lease. The New Facility Lease has seven

year term with two five-year renewal options with monthly base rent of $35 during the first year with a 3% escalation per year.

As a result of the adoption of ASC 842, the Company recognized an operating lease liability with a corresponding right-of-use (“ROU”) asset of the same amount based on the present value of the minimum rental payments of the Previous Facility Lease as of January 1, 2018. The discount rate used to compute the present value of the minimum rental payments of the Previous Facility Lease is the Company’s estimated borrowing rate of 7.5% as of the inception of the term of the Previous Facility Lease. The operating lease expense was computed on the straight-line basis which amounted to $289 reported as rent expense in the six-month periods ended June 28, 2018 and $183 for the first four months of 2019 through the April 30, 2019 termination of the Previous Facility Lease.

For the New Facility Lease, the Company recognized an operating lease liability in the amount of $2,678 and a ROU asset in the amount of $2,742 as of May 1, 2019. The operating lease liability consists of the present value of the minimum rental payments of the New Facility Lease. The discount rate used to compute the present value of the minimum rental payments of the New Facility Lease is the Company’s estimated current borrowing rate of 5.25%. The ROU asset consists of the lease liability plus an indirect cost of $44 attributable to negotiating and arranging the lease. The operating lease expense is computed on the straight-line basis which amounts to $78 reported as rent expense for the final two months of the period ended June 28, 2019.

Balance sheet information related to Previous Facility Lease and New Facility Lease are as follows:

The components of lease expense are as follows:

	June 28,		December 31,
	2019		2018
Operating lease right-of-use asset	$	2,675	$	187
Operating lease liability, current portion		293		188
Operating lease liability, net of current portion		2,347		-
The components of lease expense are as follows:
	June 28,		June 29,
	2019		2018
Amortization of right-of-use asset recorded as rent expense	$	246	$	270
Interest on lease liability included in other expense		15		19
Total lease cost	$	261	$	289

Maturities of the lease liability for the twelve months ended June 28, 2019 are as follows:

Future Minimum Lease Payments
2020	$	424
2021		437
2022		450
2023		464
2024		478
Thereafter		912
Total future minimum lease payments	$	3,165
Less: amount representing interest		(525)
Present value of future payments	$	2,640
Current portion		293
Long-term portion		2,347

Other information related to the lease:

	June 28,		June 29,
	2019		2018
Operating cash flows
Cash paid related to operating lease obligation	$	248	$	281
Remaining lease term (in years)
Operating lease		6.8		0.8
Weighted average discount rate
Operating lease