2. LEASES

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

LEASES

NOTE 2: LEASES

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“ASC Topic 842”). Under this guidance, lessees are required to recognize on the balance sheet a lease liability and a right-of-use (“ROU”) asset for all leases, with the exception of short-term leases with terms of twelve months or less. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs.

The new guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application (ASU 2018-11). Consequently, the Company's reporting and disclosures for the comparative period presented in the financial statements will continue to be in accordance with ASC Topic 840, Leases. The Company completed its evaluation of the impact on the Company’s lease portfolio, and the adoption of this guidance resulted in the addition of right-of-use assets and corresponding lease obligations to the consolidated balance sheet. The adoption of ASC Topic 842 did not impact the Company’s results of operations or cash flows, and there were no adjustments to opening accumulated deficit on adoption.

Practical Expedients

ASC Topic 842 provides for certain practical expedients when adopting the guidance. The Company elected the package of practical expedients allowing the Company, for all leases that commenced prior to the adoption date, to not reassess whether any expired or existing contracts are, or contain, leases, the lease classification for any expired or existing leases or initial direct costs for any expired or existing leases.

The Company utilizes the land easements practical expedient allowing the Company to not assess whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under the existing leasing guidance. Instead, the Company will continue to apply its existing accounting policies to historical land easements. The Company elects to apply the short-term lease exception; therefore, the Company will not record a right-of-use asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes.

The Company elects to not capitalize any lease in which the estimated value of the underlying asset at commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative expenses. The accounting for some of our leases may require significant judgement, which includes determining whether a contract contains a lease, determining the incremental borrowing rate to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate and assessing the likelihood of renewal or termination options.

During the year ended December 31, 2019, the Company removed $164 in lease liabilities and ROU assets associated with a related party lease that was on a month-to-month basis.

As of December 31, 2019, we do not have any finance lease assets or liabilities, nor do we have any subleases.

The following tables present information about our operating leases:

	December 31, 2019		January 1, 2019
Assets:
Right-of-use operating lease assets	$	4,334	$	5,707
Liabilities:
Current lease liabilities		1,181		1,215
Non-current lease liabilities		3,180		4,492
Total lease liabilities	$	4,361	$	5,707

The components of our lease expense were as follows:

	Year Ended
	December 31, 2019
Operating lease expense included in Cost of sales	$	1,238
Operating lease expense included in SG&A		240
Short term lease expense		309
Total lease expense	$	1,787

Lease Term and Discount Rate:	December 31, 2019		January 1, 2019
Weighted-average remaining lease terms (years) on operating leases		3.28		4.50
Weighted-average discount rates on operating leases		5.374%		5.374%

For the year ended December 31, 2019, the Company did not have any sale/leaseback transactions.

Present value of lease liabilities:
Years ending December 31,	Operating Leases
2020	$	1,383
2021		1,391
2022		1,407
2023		589
Thereafter		–
Total minimum lease payments	$	4,770
Less: Interest		(409	)
Present value of lease liabilities	$	4,361