18. Leases

The Company maintains leases of office facilities and equipment. Leases generally have remaining terms of one year to five years, whereas leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets. The Company recognizes lease expense for minimum lease payments on a straight-line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable per the discretion of the Company and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods only if the Company is reasonably certain that it will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the contractual terms associated with extending the lease.

Upon the adoption of the new lease standard ASU 2016-02, on January 1, 2019, the Company elected the package of practical expedients permitted under the transition guidance within the amended guidance, which among other things, allowed registrants to carry forward historical lease classification. Accordingly, all existing leases that were classified as operating leases by the Company historically, were classified as operating leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The Company’s real estate leases, which are comprised primarily of office spaces, represent a majority of the lease liability. The majority of our lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU assets and are recorded as incurred. The Company uses an incremental borrowing rate based on rates available at commencement in determining the present value of future payments.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Lease abandonment

As discussed in Note 6, as of December 31, 2019, management decided to abandon, a portion of several operating lease right of use lease assets in long idled space in our Sykesville office and in DP Engineering’s Fort Worth office. This was decided as part of the on-going restructuring plans to right size the organization. Management took steps to insure the abandoned space was separated from the remaining in use space, end access of all employees to the abandoned sections, and remove any remaining office furniture assets. We applied the abandonment guidance in ASC 360-10-35. We believe “abandonment” means ceasing to use the underlying asset and lacking either the intent or the ability to sublease the underlying asset. Accordingly, lease abandonment restructuring charges incurred relating to the ROU assets for the year ended December 31, 2019 totaled $1.5 million.

Lease contracts are evaluated at inception to determine whether they contain a lease, where the Company obtains the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):

Operating Leases	Classification	December 31, 2019
Leased Assets
Operating lease - right of use assets	Long term assets	$	2,215

Lease Liabilities
Operating lease liabilities - Current	Other current liabilities		1,153
Operating lease liabilities	Long term liabilities		3,000
		$	4,153

The Company executed a sublease agreement with a tenant to rent out 3,650 square feet from the lease at its Sykesville office on May 1, 2019. This agreement is in addition to the 3,822 of square feet previously subleased, which was entered into on April 1, 2017. The sublease does not relieve the Company of its primary lease obligation. The sublease agreements are both considered operating leases, maintaining the historical classification of the underlying lease. The Company does not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recorded within selling, general and administrative expenses.

The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred year to date ended December 31, 2019 , (in thousands):

Lease Cost	Classification	Twelve months ended December 31, 2019
Operating lease cost ⁽¹⁾	Selling, general and administrative expenses	$	1,112
Short-term leases costs ⁽²⁾	Selling, general and administrative expenses		121
Sublease income⁽³⁾	Selling, general and administrative expenses		(107	)
Net lease cost		$	1,126

⁽¹⁾ Includes variable lease costs which are immaterial.

⁽²⁾ Include leases maturing less than twelve months from the report date.

⁽³⁾Sublease portfolio consists of 2 tenants, which sublease parts of our office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.

The Company is obligated under certain noncancelable operating leases for office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of December 31, 2019 are as follows:

(in thousands)	Gross Future
	Minimum Lease
	Payments

2020	$	1,335
2021		1,293
2022		1,184
2023		622
2024		106
Thereafter		-
Total	$	4,540
Less: Interest		387
Present value of lease payments	$	4,153

The Company has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, the Company uses the incremental borrowing rate as the lease discount rate:

Lease Term and Discount Rate		Twelve months ended December 31, 2019
Weighted-average remaining lease term (years)
Operating leases		3.51
Weighted-average discount rate
Operating leases		5.00%

The table below sets out the classification of lease payments in the consolidated statement of cash flows. The ROU assets obtained in exchange for operating lease liabilities represent new operating leases obtained through our business combination during the year to date ended December 31, 2019:

(in thousands)

Other Information	Twelve months ended December 31, 2019
- Operating cash flows used in operating leases	$	1,275
Cash paid for amounts included in measurement of liabilities		1,275

ROU assets obtained in exchange for new operating liabilities	$	1,777