Quarterly report pursuant to Section 13 or 15(d)

16. Commitment and Contingencies

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16. Commitment and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitment and Contingencies

Note 16: Commitment and Contingencies

 

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases.” The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. For practically all leases, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018.

 

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which allows for an additional optional transition method where comparative periods presented in the financial statements in the period of adoption will not be restated and instead those periods will be presented under existing guidance in accordance with ASC 840, Leases. Management will use this optional transition method. As of January 1, 2019, management recorded lease liability of $2,071,903, right-of-use asset of $2,153,747, accumulated amortization of $124,070, a reversal of previously recorded deferred rent of $37,920 and the increase in accumulated deficit of $4,306.

 

As of September 30, 2019, weighted-average lease term for operating leases equals to 86 months. Weighted-average discount rate equals to 10.30%.

 

On February 6, 2018, the Company entered into an operating lease for 6,969 square feet of general office space at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA 90212 pursuant to a 91-month lease that commenced on May 25, 2018. We pay rent of $364,130 annually, subject to annual escalations of 3.5%.

 

On December 28, 2018, the Company entered into a lease for 5,765 square feet of general office space at 8383 Wilshire Blvd., Suite 412, Beverly Hills, CA 90211 pursuant to a 6-month lease that commenced January 28, 2019. We paid rent of $24,501 monthly through August 31, 2019.

 

Effective January 21, 2019, the Company entered into a sublease for the 6,969 square feet of general office space located at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA 90212 pursuant to an 83-month sublease that commenced on February 4, 2019. The subtenant will pay us rent of $422,321 annually, subject to annual escalations of 3.5%.

 

On January 30, 2019, the Company entered into an operating lease for 5,838 square feet of general office space at 190 N. Canon Drive, 4th FL, Beverly Hills, CA 90210 pursuant to a 96-month lease that commenced on September 1, 2019. We pay rent of $392,316 annually, subject to annual escalations of 3.5%.

 

In addition, the Company has contractual commitments for employment agreements of certain employees.

 

Rental expenses incurred for operating leases during the three months ended September 30, 2019 and September 30, 2018 were $210,062 and $130,173, respectively. Rental expenses incurred for operating leases during the nine months ended September 30, 2019 and September 30, 2018 were $531,519 and $241,578, respectively. During the three months ended September 30, 2019, we received sub-lease income of $117,416. During the nine months ended September 30, 2019, we received sub-lease income of $314,869.

 

The following is a schedule of future minimum contractual obligations as of September 30, 2019, under the Company’s operating leases and employment agreements:

 

    2019     2020     2021     2022     2023     2024     Thereafter     Total  
Operating Leases     136,257       652,764       744,056       840,125       871,679       904,423       1,871,252       6,020,556  
Employment Contracts     56,250       393,595       322,950       322,950       282,581                   1,378,326  
Total     192,507       1,046,359       1,067,006       1,163,075       1,154,260       904,423       1,871,252       7,398,882