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Leases

3 Months Ended

Mar. 31, 2020

When ASC 842 lease 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 our consolidated balance sheet. Operating lease liabilities were determined based on the present value of remaining minimum rental payments, and operating lease right-of-use assets were determined based on the value of lease liabilities, adjusted for deferred rent balances of $61,500, which were previously included in other liabilities.

Due to the Echo Transaction referenced in Note (7), 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 our consolidated balance sheet. Operating lease liabilities were determined based on the present value of remaining minimum rental payments, and operating lease right-of-use assets were determined based on the value of 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 interest rate 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 lease agreements, 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. Two leases expire this year. Our DGSE Southlake, Texas lease expires July 31, 2020, with no renewal options, therefore we will evaluate whether to continue leasing in this location. DGSE’s flagship-store lease at 13022 Preston Road, Dallas, Texas will expire October 31, 2021, with no current renewal options. DGSE’s Grand Prairie, Texas lease expires June 30, 2022, and has no current renewal options. DGSE’s Charleston, South Carolina lease expires April 30, 2025, with no additional renewal options. We just extended our DGSE Euless, Texas lease through June 30, 2025 with an option for an additional five years. ECHG’s lease on Belt Line Road in Addison, Texas expires on December 31, 2020, with an initial 24-month renewal option, and a second renewal option for an additional 60 months. A portion of this building is sublet, and the rent received is applied against the rental expense for the building. ECHG’s lease for ITAD on McKenzie Drive in Carrollton, Texas expires July 31, 2021 and has no renewal option. All of the Company’s seven leases are triple net, for which it pays its proportionate share of common area maintenance, property taxes and property insurance. Leasing costs for the three months ending March 31, 2020 and 2019 were $306,537 and $174,347, respectively, comprised of a combination of minimum lease payments and variable lease costs.

As of March 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 2.4 years and 5.5%, respectively. The Company’s future operating lease obligations that have not yet commenced are immaterial. For the three months ending March 31, 2020 and 2019, the Company’s cash paid for operating lease liabilities was $335,227 and $133,791, respectively.

Future annual minimum lease payments as of March 31, 2020:

	Operating
	Leases
DGSE
2020 (excluding the three months ending March 31, 2020)	$	382,608
2021		479,162
2022		235,674
2023		212,854
2024		213,884
2025 and thereafter		64,087

Total minimum lease payments		1,588,269
Less imputed interest		(163,368	)

Subtotal		1,424,901

ECHG
2020 (excluding the three months ending March 31, 2020)		596,190
2021		736,320
2022		644,702

Total minimum lease payments		1,977,212
Less imputed interest		(137,845	)

Subtotal		1,839,367

	$	3,264,268