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Leases

3 Months Ended

Mar. 31, 2019

(9)

Leases

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 duel 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 the current operating lease liabilities and long-term operating lease liabilities.

The Company 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 sheet upon adoption of the new standard. 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.

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 five operating leases, four in the Dallas/Fort Worth Metroplex and one in Charleston South Carolina. We have two leases expiring next year. Our Euless, Texas lease expires March 31, 2020, with an option for an additional five years which we are reasonably certain to exercise. Our Southlake, Texas location expires July 31, 2020, and with no current options. We will evaluate whether to continue to lease in the present location. 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. On April 19, 2018, we entered into an agreement with the landlord in Charleston, South Carolina, to increase the rental space by 2,104 square feet by taking over the vacant suite next door. The lease was amended to include the new space and extended to April 30, 2025. All five leases are triple net leases that we pay our proportionate amount of common area maintenance, property taxes and property insurance. Our total leasing costs for the three months ending March 31, 2019 was $174,347, which consists of $134,595 of rental lease expense and $39,752 of variable lease costs.

As of March 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 3.1 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. For the period ending March 31, 2019, the Company’s cash paid for operating lease liabilities was $136,260.

Future annual minimum lease payments as of March 31, 2019:

	Operating
	Leases
2019 (excluding the three months ending March 31, 2019)	$	411,392
2020		550,624
2021		491,541
2022		247,040
2023		223,045
2024 and thereafter		289,327

Total minimum lease payments	$	2,212,969
Less imputed interest		(265,865	)

Operating lease liability	$	1,947,104