Leases

9 Months Ended

Sep. 30, 2021

Leases

Leases

4. Leases

The Company’s leases are primarily comprised of real estate leases for the use of office space, with certain lease arrangements that contain equipment. The Company determines whether an arrangement that provides control over the use of an asset is a lease at inception. Lease assets and liabilities are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. Substantially, all of the leases are long-term operating leases for facilities with fixed payment terms between 1.5 and 7.9 years.

The table below presents supplemental information related to operating leases:

Nine Months Ended September 30, 2021
Operating cash flows for operating leases	$	2,901,529
Noncash lease liabilities arising from obtaining operating leased assets during the period	$	-
Weighted-average remaining lease term		6.00
Weighted-average discount rate		9.90	%

The Company generally utilizes its incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments since the implicit rate for most of the Company’s leases is not readily determinable.

Variable lease expense includes rental increases that are not fixed, such as those based on amounts paid to the lessor based on cost or consumption, such as maintenance and utilities.

Operating lease costs recognized for the three months ended September 30, 2021 and 2020 were $642,926 and $982,414, respectively. Operating lease costs recognized for the nine months ended September 30, 2021 and 2020 were $2,458,229 and $3,082,499, respectively.

Maturities of operating lease liabilities as of September 30, 2021 are summarized as follows:

Years Ending December 31,
2021 (remaining three months of the year)	$	140,134
2022		472,084
2023		486,247
2024		500,834
2025		512,019
Thereafter		896,034
Minimum lease payments		3,007,352
Less imputed interest		(753,176	)
Present value of operating lease liabilities	$	2,254,176
Current portion of operating lease liabilities	$	282,011
Long-term portion of operating lease liabilities		1,972,165
Total operating lease liabilities	$	2,254,176

Effective September 30, 2021, the Company terminated a certain lease arrangement for office space and as a result, relinquished the space and derecognized a right-of-use asset of $15,673,474, a lease liability of $17,934,940 and recorded a penalty upon termination of $9,606,121 (as discounted since the amount of the liability and timing of the Cash Payments, as defined below, are fixed), resulting in a net loss upon termination of $7,344,655, which has been reflected in general and administrative expenses on the condensed consolidated statements of operations. In connection with the termination, the Company agreed to pay the landlord cash of $10,000,000 (the “Cash Payments”) and $1,475,000 in market rate advertising. The Cash Payments are due as follows: $1,000,000 on December 1, 2021; $1,000,000 on October 1, 2022; $4,000,000 on October 1, 2023; and $4,000,000 on October 1, 2024.