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Leases

12 Months Ended

Dec. 31, 2019

NOTE 15 — 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 dual 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.

When the provision was first adopted by the Company on January 1, 2019, we 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 balance sheet. 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.

Due to the acquisition, referred in note (5), we recognized an additional $2,350,781 of operating lease right-of-use assets, $703,523 in short-term operating lease liabilities and $1,647,258 in long-term operating lease liabilities on the consolidated balance sheet. 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.

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 seven operating leases, six in the Dallas/Fort Worth Metroplex and one in Charleston South Carolina. We have four leases expiring next year. 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. The Euless, Texas location executed a Second Amendment to the original lease extending the lease through June 30, 2025 with an option for an additional 5 year term. Our two new additional leases were the product of the Echo Transaction. Both leases are located in Carrollton, Texas. The Belt Line Echo lease expires on December 31, 2020 with an initial option period of 24 months and a second option period of an additional 60 months. A portion of the building is sublet and the rent received is applied against the rental expense for the building. The McKenzie ITAD lease expires July 31, 2021 with no current lease options. All seven leases are triple net leases that we pay our proportionate amount of common area maintenance, property taxes and property insurance. Leasing costs for Fiscal 2019 and Fiscal 2018 was $1,151,619 and $650,609, respectively. These lease costs consist of a combination of minimum lease payments and variable lease costs.

As of December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.33 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. The cash paid for operating lease liabilities for Fiscal 2019 and Fiscal 2018 was $1,089,514 and $509,534, respectively.

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

	Operating
	Leases
DGSE
2020	$	550,623
2021		491,540
2022		247,040
2023		223,045
2024 and thereafter		289,327

Total minimum lease payments		1,801,575
Less imputed interest		(185,326	)

Subtotal		1,616,249

Echo Entities
2020		803,661
2021		785,240
2022		582,195

Total minimum lease payments		2,171,096
Less imputed interest		(166,935	)

Subtotal		2,004,161

	$	3,620,410