Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

(11)  Leases

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). We adopted ASC 842 on January 1, 2019, by applying its provisions prospectively. The financial results reported in periods prior to January 1, 2019 are unchanged. Upon adoption, we recognized all of our leases on the balance sheet as right-of-use assets and lease liabilities. For income statement purposes, the FASB retained a duel model, requiring leases to be classified as either operating of finance. Classification is based on certain criteria and we have determined that all of our retail building leases fall into the operating lease category. Our leases are included in our consolidated balance sheet as right-of-use assets along with the the current operating lease liabilities and long-term operating lease liabilities. We have also applied the ASC 842 provisions to the two leases purchased by the Company related to the Echo Transaction.

When the provision was first adopted by the Company on January 1, 2019, we recognized $1,994,840 of operating lease right-of-use assets, $446,462 in short-term operating lease liabilities and $1,609,891 in long-term operating lease liabilities on the consolidated balance sheet. The operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities, adjusted for deferred rent balances of $61,500, which were previously included in other liabilities.

Due to the acquisition, referred in note (6), we recognized an additional $2,350,781 of operating lease right-of-use assets, $703,523 in short-term operating lease liabilities and $1,647,258 in long-term operating lease liabilities on the consolidated balance sheet. The operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities.

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. If we cannot readily determine the discount rate implicit in the lease agreement, we utilize our incremental borrowing rate.

The Company has seven operating leases, six in the Dallas/Fort Worth Metroplex and one in Charleston South Carolina. We have four leases expiring next year. Our Euless, Texas lease expires March 31, 2020, with an option for an additional five years which we are reasonably certain to exercise. Our Southlake, Texas location expires July 31, 2020, and with no current options. We will evaluate whether to continue to lease in the present location. Our lease on the main flagship store located at 13022 Preston Road, Dallas, Texas will be expiring October 31, 2021 with no current lease options. The Grand Prairie, Texas lease expires June 30, 2022, and has no current lease options. On April 19, 2018, we entered into an agreement with the landlord in Charleston, South Carolina, to increase the rental space by 2,104 square feet by taking over the vacant suite next door. The lease was amended to include the new space and extended to April 30, 2025. Our two new additional leases were the product of the Echo Tranaction. Both leases are located in Carrollton, Texas. The Belt Line Echo lease expires on December 31, 2020 with an initial option period of 24 months and a second option period of an additional 60 months. A portion of the building is sublet and the rent received is applied against the rental expense for the building. The McKenzie ITAD lease expires July 31, 2021 with no current lease options. All seven leases are triple net leases that we pay our proportionate amount of common area maintenance, property taxes and property insurance. Leasing costs for the three months ending June 30, 2019 and 2018 was $319,975 and $157,969, respectively. These lease costs consist of a combination of minimum lease payments and variable lease costs.

As of June 30, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.4 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. For the three months ending June 30, 2019 and 2018, the Company’s cash paid for operating lease liabilities was $331,923 and $124,221, respectively.

Future annual minimum lease payments as of June 30, 2019:

	Operating
	Leases
DGSE
2019 (excluding the six months ending June 30, 2019)	$	274,367
2020		550,623
2021		491,540
2022		247,040
2023		223,045
2024 and thereafter		289,327
Total minimum lease payments		2,075,942
Less imputed interest		(239,599	)
Subtotal		1,836,343

Echo Entities
2019 (excluding the six months ending June 30, 2019)		330,430
2020		803,661
2021		785,240
2022		582,195
Total minimum lease payments		2,501,526
Less imputed interest		(215,362	)
Subtotal		2,286,164
	$	4,122,507