Leases

In February 2016, the FASB issued new accounting guidance included in Accounting Standard Codification ("ASC") 842 related to leases. This new accounting guidance is intended to improve financial reporting about leasing transactions. This accounting standard will require organizations that lease assets, referred to as “Lessees”, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with terms of more than twelve months. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. We adopted ASC 842 on October 1, 2019 and did not recast comparative prior year information per ASU 2018-11. We elected the following practical expedients permitted: not to reassess existing leases to determine if they contain embedded leases; not to reassess lease classification on existing leases under ASC 840; not to reassess initial direct costs from existing leases; not to capitalize leases with a term of 12 months or less; and not to separate lease and non-lease components for all leases.

We have leases for facilities and office equipment. Our lease liabilities are recognized as the present value of the future minimum lease payments over the lease term. Our right-of-use assets are recognized as the present value of the future minimum lease payments over the lease term less unamortized lease incentives and the balance remaining in deferred rent liability under ASC 840 at September 30, 2019. Our lease payments consist of fixed and in substance fixed amounts attributable to the use of the underlying asset over the lease term. Variable lease payments that do not depend on an index rate or are not in substance fixed payments are excluded in the measurement of right-of-use assets and lease liabilities and are expensed in the period incurred. The incremental borrowing rate on our credit facility was used in determining the present value of future minimum lease payments. The Company does not have any finance leases.

Upon the adoption of ASC 842, we recorded operating lease right-of-use assets of $17.4 million, current and long-term operating lease liabilities of $3.6 million and $14.4 million, and a $2 thousand cumulative adjustment to accumulated deficit.

The impact of adopting the standard on our consolidated balance sheet at October 1, 2019 is as follows:



(in thousands)	Ref	September 30, 2019			ASC 842 Adjustments			October 1, 2019
Long-term assets:
Operating leases right-of-use assets		$	—		$	17,398		$	17,398

Current liabilities:
Deferred rent liability - short-term	(a)	44			(44		)	—
Operating leases liabilities - current		—			3,645			3,645

Long-term liabilities:
Deferred rent liability - long-term	(b)	276			(276		)	—
Unamortized tenant improvement allowance	(c)	297			(297		)	—
Operating leases liabilities - long-term		—			14,372			14,372

Shareholders' equity:
Accumulated deficit		(39,555		)	(2		)	(39,557		)

Ref (a): The balance of short-term deferred rent liability was presented in our most recent annual 10K report within accounts payable, accrued expenses, and other accrued liabilities on our consolidated balance sheet at September 30, 2019.

Ref (b): The balance of long-term deferred rent liability was presented in our most recent annual 10K report within total long-term liabilities on our consolidated balance sheet at September 30, 2019.

Ref (c): The balance of unamortized tenant improvement allowance was presented in our most recent annual 10K report within total long-term liabilities on our consolidated balance sheet at September 30, 2019.

The Company executed a modification of a lease during this fiscal quarter and recognized adjustments to the right-of-use asset and lease liabilities in accordance with ASC 842. As a result of the modification, a gain of $0.1 million was recognized. The gain represents the difference between the change in values of the right-of-use-asset and lease liabilities, which were $7.3 million and $7.2 million, respectively. For more information, refer to Note 6, Supporting Financial Information.

As of December 31, 2019, operating leases for facilities and equipment have remaining lease terms of 0.3 to 11.3 years.

The following table summarizes lease balances in our consolidated balance sheet at December 31, 2019:



	(in thousands)
	December 31, 2019
Operating lease right-of-use assets	$	23,716

Operating lease liabilities, current	$	1,723
Operating lease liabilities - long-term	22,553
Total operating lease liabilities	$	24,276

The Company's lease costs are included within general and administrative costs and for the three months ending December 31, 2019, total lease costs for our operating leases are as follows:



	(in thousands)
	Three Months Ended
	December 31, 2019
Lease Costs:
Operating	$	1,263
Short-term	56
Variable	20
Total lease costs	$	1,339

The Company's future minimum lease payments as of December 31, 2019 are as follows:



For the Fiscal Year Ending September 30,	(in thousands)
2020 (Remaining)	$	2,291
2021	3,156
2022	3,244
2023	3,264
2024	3,215
Thereafter	17,776
Total future lease payments	32,946
Less: imputed interest	(8,670		)
Present value of future minimum lease payments	24,276
Less: current portion of operating lease liabilities	(1,723		)
Long-term operating lease liabilities	$	22,553

Other information related to our leases are as follows:



	December 31, 2019
Weighted-average remaining lease term	9.7 years
Weighted-average discount rate	6.03	%



	(in thousands)
	Three Months Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	1,270
Lease liabilities arising from obtaining right-of-use-assets	245