Lease Obligations

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Lease Obligations

9. Lease Obligations

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. The Company determines if an arrangement contains a lease at inception. For the Company, Accounting Standards Codification (“ASC 842”) primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

The Company leases its facilities under operating leases, which were previously not recognized on the Company’s balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. Many of our leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs) and non-lease components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. A portion of our principal executive office is subleased to a third party through 2021. The sublease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. In addition, the sublease does not contain contingent rent provisions nor are there options to extend or terminate the sublease.

The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months or less) on the balance sheet.

The calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception. At December 31, 2019, the weighted average discount rate for operating leases was 9% and the weighted average remaining lease term for operating lease term is 2.0 years.

The following table represents lease costs and other lease information.

	Year Ended
	December 31, 2019
Operating lease cost	$	2,342,344
Short-term lease cost		77,185
Sublease income		(986,123	)
Total lease cost	$	1,433,406
Cash paid within operating cash flows	$	2,458,606

The initial recognition of the right of use assets was $6.2 million. Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.

The future minimum lease payments under non-cancelable leases as of December 31, 2019 are as follows (excluding any potential sublease income):

	December 31, 2019
2020	$	2,339,810
2021		2,382,661
2022 and thereafter		-
Total lease payments	$	4,722,471
Less: Interest		(384,745	)
Present value of lease liabilities	$	4,337,726

The undiscounted future cash flows to be received under the sublease are $1.0 million in 2020 and 2021.