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LEASES

9 Months Ended

Sep. 30, 2021

7.	LEASES

The Company’s leasing activities include an operating lease of its corporate office space from a related party (see note 12) and other operating and finance leases of vehicles and office space for the Company’s European operations.

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.

Leases are classified as either finance leases or operating leases based on criteria in ASC Topic 842, “Leases”. The Company’s operating leases are generally comprised of real estate and vehicles, and the Company’s finance leases are generally comprised of vehicles.

At lease commencement, the Company records a lease liability equal to the present value of the remaining lease payments, discounted using the rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. A corresponding right-of-use asset (“ROU asset”) is recorded, measured based on the initial measurement of the lease liability. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the shorter of the useful life of the asset or the lease term, and interest expense is calculated using the effective interest rate method.

The following is a summary of lease cost recognized in the Company’s consolidated statements of operations:

Schedule of components of lease costs
	Three months ended				Three months ended
	September 30, 2021				September 30, 2020
	Operating		Finance		Operating		Finance
	Leases		Leases		Leases		Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	124,885	$	-	$	104,380	$	-
Amortization of finance lease ROU assets		-		34,129		-		49,713
Total lease cost in general and administrative expenses		124,885		34,129		104,380		49,713

Lease cost in other expense:
Interest on finance lease liabilities		-		2,397		-		21,530
Total lease cost in other expense		-		2,397		-		21,530
Total lease cost	$	124,885	$	36,526	$	104,380	$	71,243

	Nine months ended				Nine months ended
	September 30, 2021				September 30, 2020
	Operating		Finance		Operating		Finance
	Leases		Leases		Leases		Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	366,863	$	-	$	297,459	$	-
Amortization of finance lease ROU assets		-		106,122		-		289,277
Total lease cost in general and administrative expenses		366,863		106,122		297,459		289,277

Lease cost in other expense:
Interest on finance lease liabilities		-		5,365		-		27,585
Total lease cost in other expense		-		5,365		-		27,585
Total lease cost	$	366,863	$	111,487	$	297,459	$	316,862

The following is a summary of the impact of the Company’s leases on the consolidated statements of cash flows:


	Nine months ended
	September 30,
	2021			2020
Leasing activity in cash flows from operating activities:
Payments under operating leases		(363,600	)		(185,388	)
Interest payments on finance lease liabilities		(5,365	)		(27,585	)
Total leasing activity in cash flows from operating activities		(368,965	)		(212,973	)

Leasing activity in cash flows from financing activities:
Principal payments on finance lease liabilities		(72,386	)		(259,231	)
Total leasing activity in cash flows from financing activities:		(72,386	)		(259,231	)

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases at September 30, 2021 and December 31, 2020 were as follows:


	September 30,			December 31,
	2021			2020
Weighted average remaining lease term (years) - operating leases		2.4			2.6
Weighted average remaining lease term (years) - finance leases		0.8			1.1
Weighted average discount rate - operating leases		6.37	%		6.52	%
Weighted average discount rate - finance leases		3.09	%		3.95	%

The future annual minimum lease payments required under the Company’s operating and finance lease liabilities as of September 30, 2021 are as follows:


	Operating			Finance
Future minimum lease payments	Leases			Leases			Total
2021	$	107,567		$	24,826		$	132,393
2022		420,694			177,626			598,320
2023		381,537			46,983			428,520
2024		84,736			-			84,736
2025		5,387			-			5,387
Total future minimum lease payments		999,921			249,435			1,249,356
Less: Amount representing interest		(72,772	)		(5,278	)		(78,050	)
Present value of lease liabilities		927,149			244,157			1,171,306
Less: current portion		(376,602	)		(155,508	)		(532,110	)
Long-term portion	$	550,547		$	88,649		$	639,196