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Leases

12 Months Ended

Dec. 31, 2020

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 dual 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 current operating lease liabilities and long-term operating lease liabilities.

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 six operating leases, five in the Dallas/Fort Worth Metroplex and one in Charleston South Carolina. We have two leases expiring during Fiscal year 2021. Our Southlake, Texas location expired July 31, 2020 with no current options. We evaluated the lease in the present location and decided to vacate the property as of July 31, 2020. 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. The Charleston, South Carolina lease expires April 30, 2025, and has no current lease options. The Euless, Texas lease expires June 30, 2025 with an option for an additional five (5) year term. On September 9, 2020, we entered into a new lease agreement with the landlord of the Echo Belt Line building starting January 1, 2021, expiring January 31, 2026, with one option period of an additional 60 months. A portion of the Echo Belt Line building was sublet and the rent received was applied against the rental expense for the building. The new Echo Belt Line lease, starting January 1, 2021, will not contain a subletter. The McKenzie ITAD lease expires July 31, 2021 with no current lease options. All six leases are triple net leases that we pay our proportionate amount of common area maintenance, property taxes and property insurance. Leasing costs for Fiscal 2020 and Fiscal 2019 was $1,452,689 and $1,151,619, respectively. These lease costs consist of a combination of minimum lease payments and variable lease costs.

As of December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.81 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. The cash paid for operating lease liabilities for Fiscal 2020 and Fiscal 2019 was $1,314,285 and $1,809,514, respectively.

Future annual minimum lease payments as of December 31, 2020:

	Operating
	Leases
DGSE
2021	$	479,161
2022		235,674
2023		212,855
2024		213,885
2025 and thereafter		64,087

Total minimum lease payments		1,205,662
Less imputed interest		(110,429	)

DGSE Sub-Total		1,095,233

ECHG
2021		869,209
2022		786,396
2023		808,022
2034		830,244
2025 and thereafter		853,076

Total minimum lease payments		4,146,947
Less imputed interest		(439,452	)

Envela Sub-Total		3,707,495

Total		4,802,728

Current portion		1,148,309

	$	3,654,419