Finance and Operating Lease Obligations |
Note 10 – Finance and Operating Lease
Obligations
We adopted ASU No. 2016-02, Leases
(Topic 842), which requires leases with durations greater than 12 months to be recognized on the balance sheet, effective January
1, 2019, using the modified retrospective approach. We elected the package of transition provisions available, which allowed us
to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial
direct costs. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months,
we record the related right-of-use assets and right-of-use obligations at the present value of lease payments over the term. We
do not separate lease and non-lease components of contracts.
Generally, we use our estimated weighted average
cost of capital at lease commencement as our interest rate, as most of our operating leases do not provide a readily determinable
implicit interest rate.
The following table presents our lease-related
assets and liabilities at September 30, 2020 (unaudited) and December 31, 2019:
|
|
Balance Sheet Classification |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
Right-of-use operating lease assets |
|
$ |
1,030,021 |
|
|
$ |
88,905 |
|
Finance leases |
|
Property and equipment, net |
|
|
249,985 |
|
|
|
1,119,418 |
|
|
|
|
|
|
|
|
|
|
|
|
Total lease assets |
|
|
|
$ |
1,280,006 |
|
|
$ |
1,208,323 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
Right-of-use operating lease obligations |
|
$ |
152,609 |
|
|
$ |
30,311 |
|
Finance leases |
|
Current liabilities |
|
|
249,985 |
|
|
|
1,119,418 |
|
Noncurrent: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
Right-of-use operating lease obligations |
|
|
877,412 |
|
|
|
58,594 |
|
|
|
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
|
$ |
1,280,006 |
|
|
$ |
1,208,323 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining term: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
4.39 years |
|
|
|
2.96 years |
|
Finance leases |
|
|
|
|
0 years |
|
|
|
0.08 years |
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
13.0 |
% |
|
|
13.0 |
% |
Finance leases |
|
|
|
|
4.9 |
% |
|
|
5.1 |
% |
The following table presents certain information
related to lease expense for finance and operating leases for the three and nine months ended September 30, 2020 and 2019:
|
|
Three Months Ended September 30, 2020 |
|
|
Three Months Ended September 30, 2019 |
|
|
Nine Months Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2019 |
|
Finance lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/amortization of leased assets (1) |
|
$ |
- |
|
|
$ |
15,004 |
|
|
$ |
26,349 |
|
|
$ |
(30,055 |
) |
Interest on lease liabilities |
|
|
- |
|
|
|
704 |
|
|
|
9,455 |
|
|
|
5,804 |
|
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term lease expense (2) |
|
|
49,196 |
|
|
|
42,221 |
|
|
|
219,138 |
|
|
|
178,795 |
|
Total lease expense |
|
$ |
49,196 |
|
|
$ |
57,929 |
|
|
$ |
254,942 |
|
|
$ |
154,544 |
|
(1) |
Adjusts depreciation recorded in the nine months ended September 30, 2019. |
(2) |
Expenses are included in general and administrative expenses in our unaudited condensed consolidated statements of operations. |
Other Information
The following table presents supplemental cash
flow information for the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2019 |
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows for operating leases |
|
$ |
- |
|
|
$ |
118,512 |
|
Financing cash flows for operating leases |
|
$ |
98,374 |
|
|
$ |
41,953 |
|
Operating cash flows for finance leases |
|
$ |
9,455 |
|
|
$ |
5,800 |
|
Financing cash flows for finance leases payments |
|
$ |
200,709 |
|
|
$ |
143,930 |
|
Aggregate future minimum lease payments under
right-of-use operating and finance leases are as follows:
|
|
Right-of-Use Operating Leases |
|
|
Finance Leases |
|
October 1, 2020 to September 30, 2021 |
|
$ |
277,940 |
|
|
$ |
253,776 |
|
October 1, 2021 to September 30, 2022 |
|
|
337,357 |
|
|
|
- |
|
October 1, 2022 to September 30, 2023 |
|
|
307,082 |
|
|
|
- |
|
October 1, 2023 to September 30, 2024 |
|
|
217,839 |
|
|
|
- |
|
October 1, 2024 to September 30, 2025 |
|
|
223,795 |
|
|
|
- |
|
Thereafter |
|
|
18,650 |
|
|
|
|
|
Total |
|
|
1,382,663 |
|
|
|
253,776 |
|
|
|
|
|
|
|
|
|
|
Less interest |
|
|
(352,642 |
) |
|
|
(3,791 |
) |
Present value of minimum lease payments |
|
$ |
1,030,021 |
|
|
$ |
249,985 |
|
|
|
|
|
|
|
|
|
|
Less current portion of lease obligations |
|
|
(152,609 |
) |
|
|
(249,985 |
) |
Lease obligations, net of current portion |
|
$ |
877,412 |
|
|
$ |
- |
|
As of September 30, 2020, the Company was in
default under its finance lease obligations, therefore, the aggregate future minimum lease payments and accrued interest under
this finance lease in the amount of $0.2 million are deemed to be immediately due. In July 2020, the Company entered into a settlement
with the holder of one of the finance leases and paid $0.1 million as full and final settlement of the obligation as more fully
discussed in Note 15.
|