LEASES - Note 8

3 Months Ended

Mar. 31, 2019

Notes To Financial Statements Abstract

LEASES - Note 8

8. LEASES

In February 2016, the FASB issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use (ROU) asset and lease liability in the balance sheet for all leases, including operating leases, with terms of more than twelve months. Recognition, measurement and presentation of expenses and cash flows from a lease by a lessee have not significantly changed from previous guidance. The amendments also require qualitative disclosures along with specific quantitative disclosures. We adopted this guidance using the cumulative-effect adjustment method on January 1, 2019, meaning we did not restate prior periods. Current year financial information is presented under the guidance in Topic 842, while prior year information will continue to be presented under Topic 840. Adoption of the standard resulted in the recognition of an operating ROU asset of approximately $1.6 million, a lease liability of approximately $2.5 million, and a reduction in other short-term and long-term liabilities of $873,000. Adoption of the standard did not have a material impact on our Statement of Operations or Statement of Cash flows. Accounting for our capital leases remains substantially unchanged.

We determine if an arrangement is a lease at inception. On our balance sheet, our office lease is included in Operating lease right-of-use asset, Current portion of operating lease liability and Operating lease liability, net of current portion. On our balance sheet, finance leases are included in Property and equipment, Current portion of finance lease obligations and Finance lease obligations, net of current portion.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Significant judgment may be required when determining whether a contract contains a lease, the length of the lease term, the allocation of the consideration in a contract between lease and non-lease components, and the determination of the discount rate included in our office lease. We review the underlying objective of each contract, the terms of the contract, and consider our current and future business conditions when making these judgments.

Our leases have remaining lease terms of two to four years. Our office space lease contains an option to extend the lease for one period of five years. This extension period is not included in our ROU asset or lease liability amounts. Our office lease agreement includes both lease and non-lease components, which are accounted for separately. Our finance leases contain options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless we are reasonably certain to exercise the purchase option.

The components of lease expense were as follows:

		Three Months Ended
(in thousands)		March 31, 2019
Operating lease expense	$	116
Finance lease expense:
Amortization of leased assets		4
Interest on lease liabilities		1
Total finance lease expense		5
Total lease expense	$	121

Supplemental cash flow information related to leases was as follows:

		Three Months Ended
(in thousands)		March 31, 2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	160
Operating cash flows from finance leases		1
Financing cash flows from finance leases		4
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases		1,638
Finance leases	$	-

Supplemental balance sheet information related to leases was as follows:

(in thousands)		March 31, 2019
Operating leases
Operating lease right-of-use assets	$	1,559
Current portion of operating lease liability		642
Operating lease liability, net of current portion		1,746
Total operating lease liabilities	$	2,388
Finance leases
Property and equipment, at cost	$	66
Accumulated depreciation		(13)
Property and equipment, net	$	53
Current portion of finance lease obligations	$	22
Finance lease obligations, net of current portion		28
Total finance lease liabilities	$	50
Weighted Average Remaining Lease Term
Operating leases		4 years
Finance leases		2 years
Weighted Average Discount Rate
Operating leases		6.0%
Finance leases		13.8%

As of March 31, 2019, maturities of lease liabilities were as follows:

		Operating		Finance
Years Ended December 31,		leases		leases
2019	$	481	$	21
2020		656		27
2021		676		9
2022		696		-
2023		175		-
Thereafter		-		-
Total minimum lease payments		2,684		57
Less: amount representing interest		(296)		(7)
Present value of capital lease liabilities	$	2,388	$	50