LEASES

In February 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02, to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted ASU 2016-02 on January 1, 2019, or the effective date, and used the effective date as its date of initial application.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining fixed lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. In calculating the present value of future lease payments, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company has elected to utilize a single blended interest rate based on geographies and lease terms that comprise the lease portfolio.

Although separation of lease and non-lease components is required, certain practical expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components. The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense.

Many of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. The Company does not recognize the right-of-use asset or lease liability for renewal or termination periods unless the Company is reasonably certain to exercise the option at lease inception.

The Company has operating leases for real estate and non-real estate in Minnesota, Wisconsin and Maine. The Company has finance leases for some equipment that is immaterial.

The Company has lease arrangements with lease and non-lease components and has elected to account for the lease and non-lease component as a single lease component. and has allocated all of the contract consideration to the lease component only. The Company has existing net leases in which the non-lease components (e.g. common area maintenance, maintenance, consumables, etc.) are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred.

As of March 31, 2019, a right-of-use asset of $0.6 million and lease liability of $0.6 million are reflected on the balance sheet.

The elements of lease expense were as follows (dollars in thousands)(unaudited):



	Three Months Ended March 31, 2019
Lease Cost
Operating lease cost	$	68
Variable lease cost	34
Total lease cost	$	102

Other Information
Operating cash flows used for operating leases	$	67

Operating Leases
Weighted average discount rate	10.0		%
Weighted average remaining lease term (years)	2.75

Future lease payments under non-cancelable leases as of March 31, 2019 were as detailed below(in thousands)(unaudited):



2019 (nine months)	$	201
2020	273
2021	207
2022	—
2023	—
Total lease payments	681
Less: imputed interest	76
Total operating liabilities	$	605