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Leases

12 Months Ended

Dec. 31, 2019

Notes To Financial Statements [Abstract]

3. LEASES

Lease Commitments

In August 2017, FlexShopper entered into a 12-month lease with two additional three-year options for retail store space in West Palm Beach, Florida. In April 2018, FlexShopper exercised its option to extend the term of the lease to September 30, 2021.

In January 2019, FlexShopper entered into a 108-month lease with an option for one additional five-year term for 21,622 square feet of office space in Boca Raton, FL to accommodate FlexShopper's business and its employees (the "January 2019 Lease"). The monthly rent for this space is approximately $31,500 with annual three percent increases throughout the initial 108-month lease term beginning on the anniversary of the commencement date.

The rental expense for the years ended December 31, 2019 and 2018 was approximately $520,700 and $389,900, respectively. At December 31, 2019, the future minimum annual lease payments are approximately as follows:

2020	$	313,000
2021		427,000
2022		417,000
2023		429,000
2024		437,000
Thereafter		1,616,000
	$	3,639,000

Lessor Information - Refer to Note 2 to these consolidated financial statements for further information about the Company's revenue generating activities as a lessor. All of the Company's customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.

Lessee Information - As a lessee, the Company leases retail, call center and corporate space under operating leases expiring at various times through 2028. At January 1, 2019, the Company recognized $191,001 of operating lease assets and $191,001 of operating lease liabilities as a result of adopting Topic 842.

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included in the Company's consolidated balance sheet beginning January 1, 2019. The breakout of operating lease assets, and current and non-current operating lease liabilities at December 31, 2019, is shown in the table below.

Supplemental balance sheet information related to leases is as follows:

	Balance Sheet Classification	December 31, 2019
Assets
Operating Lease Asset	Property and Equipment, net	$	1,847,932
Finance Lease Asset	Property and Equipment, net		31,299
Total Lease Assets		$	1,879,231

Liabilities
Operating Lease Liability - current portion	Current Lease Liabilities	$	22,088
Finance Lease Liability - current portion	Current Lease Liabilities		5,638
Operating Lease Liability- net of current portion	Long Term Lease Liabilities		2,040,576
Finance Lease Liability - net of current portion	Long Term Lease Liabilities		26,608
Total Lease Liabilities		$	2,094,910

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company generally uses the base, non-cancelable, lease term when determining the lease assets and liabilities. Under the short-term lease exception provided within Topic 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement.

Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company's operating leases:

	Weighted Average Discount Rate			Weighted Average Remaining Lease Term (in years)
Operating Leases		13.50	%		8
Finance Leases		13.40	%		5

Upon adoption of Topic 842, discount rates for existing operating leases were established as of January 1, 2019. The discount rate for the new operating lease related to 901 Yamato Road, Boca Raton, FL was established as of June 1, 2019.

Operating lease expense is recognized on a straight-line basis over the lease term within operating expenses in the Company's consolidated statements of operations. Finance lease expense is recognized over the lease term within interest expense in the Company's consolidated statements of operations. The Company's total operating and finance lease expense all relate to lease costs and amounted to $395,455 for the period ended December 31, 2019, respectively.

Supplemental cash flow information related to operating leases is as follows:

	December 31, 2019
Cash payments for operating leases	$	164,664
Cash payments for finance leases		4,782
New operating lease asset obtained in exchange for lease liabilities		2,060,288
New finance lease asset obtained in exchange for lease liabilities		34,772

The new operating lease asset obtained in exchange for operating lease liabilities, as shown above, does not include the $14,900 of direct costs associated with the new operating lease capitalized as part of the right-of-use asset.

Below is a summary of undiscounted operating lease liabilities as of December 31, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the operating lease liabilities included in the consolidated balance sheet.

	Operating Leases
2020	$	303,681
2021		416,998
2022		407,450
2023		419,674
2024 and thereafter		2,048,091
Total undiscounted cash flows		3,595,894
Less: interest		(1,533,230	)
Present value of lease liabilities	$	2,062,664

The Company entered into an office lease in January 2019. The lease commenced in June 2019, at which time the Company recognized the operating lease asset and liability. The Company pays a base monthly rent of $31,532 with payments increasing by 3% on each yearly anniversary of the commencement date. The initial lease term is for nine years with the Company having a one-time option to extend for five years.

Below is a summary of undiscounted finance lease liabilities as of December 31, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance lease liabilities included in the consolidated balance sheet.

	Finance Leases
2020	$	9,564
2021		9,564
2022		9,564
2023		9,564
2024 and thereafter		4,832
Total undiscounted cash flows		43,088
Less: interest		(10,842	)
Present value of lease liabilities	$	32,246