|6 Months Ended|
Jun. 30, 2019
We lease facilities under two non-cancelable operating leases. The leases expire between January 2022 and August 2024 and include renewal provisions for two to five years, provisions which require us to pay taxes, insurance, maintenance costs or provisions for minimum rent increases. We also lease facilities and equipment under short-term agreements for a period of 12 months or less. All of the information presented below, with the exception of total lease costs, relates to our two non-cancelable operating leases.
One lease requires us to maintain a cash security deposit of $50,000 and also a $200,000 letter of credit in favor of the lessor. The letter of credit steps down $50,000 at each anniversary date if there have been no monetary defaults. The letter of credit is secured by a pledge in favor of the issuing bank of a $211,000 mutual fund account which is classified as restricted cash in our balance sheet.
Lease renewal options are at our discretion. No renewal options have been recognized in our right-of-use assets and lease liabilities as of June 30, 2019. Our lease agreements do not require material variable minimum lease payments, residual value guarantees or restrictive covenants.
The table below presents the operating lease assets and liabilities recognized on the condensed consolidated balance sheet as of June 30, 2019:
The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term.
Our leases generally do not provide an implicit rate, and therefore we use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. We used a weighted average incremental borrowing rate of 4.75% as of January 1, 2019 for operating leases that commenced prior to that date. The discount rates applied to each lease reflect our estimated incremental borrowing rate. This includes an assessment of our credit rating to determine the rate that we would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment.
The Company's weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2019 is shown below:
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the total operating lease liabilities recognized on the condensed consolidated balance sheets as of June 30, 2019:
Operating lease costs were $263,000 for the three months ended June 30, 2019, of which $196,000 and $67,000 are included in research and development expenses and sales, marketing and administration expenses, respectively. Operating lease costs were $527,000 for the six months ended June 30, 2019, of which $393,000 and $134,000 are included in research and development expenses and sales, marketing and administration expenses, respectively. Prior to the adoption of ASC 842, we recorded rent expense for the three and six months ended June 30, 2018 of $142,000 and $284,000, respectively, which was included in sales, marketing and administration expenses.
Cash paid for amounts included in the measurement of operating lease liabilities were $269,000 for the six months ended June 30, 2019, and this amount is included in operating activities in the condensed consolidated statements of cash flows.
The future minimum obligations under operating leases in effect as of December 31, 2018 having a noncancelable term in excess of one year as determined prior to the adoption of ASU 842 are as follows:
The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef