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Leases | 6 Months Ended
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Jun. 30, 2021
Leases |
Leases | Note 2 – Leases In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842)(“ASC 842” or the “new lease standard”). The Company adopted ASC 842 as of January 1, 2019, using the effective date method. The new standard provides a number of optional practical expedients in transition. The Company has elected to apply the “package of practical expedients” which allow the Company to not reassess: (i) whether existing or expired arrangements contain a lease, (ii) the lease classification of existing or expired leases, or (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new lease standard. Upon adoption, the Company recognized its lease for manufacturing and office space (the “Facility Lease”) on the balance sheet as an operating lease right-of-use asset in the amount of $714,416 and as a lease liability of $822,374. The Facility Lease commenced September 29, 2017 and continues through August 31, 2022. The Company has the option to renew the Facility Lease for an additional five years. However, the renewal option to extend the Facility Lease is not included in the right-of-use asset or lease liability as the option is not reasonably certain of exercise. The Company regularly evaluates the renewal option and when it is reasonably certain of exercise, the Company will include the renewal period in its lease term. Beginning September 1, 2018, and each subsequent September 1 during the term, the monthly rent under the Facility Lease will increase by 3%. Total rent under the current building lease is charged to expense over the term of the lease on a straight-line basis, resulting in the same monthly rent expense throughout the lease. The difference between the rent expense amount and the actual rent paid is recorded to operating lease liability on the Company’s condensed consolidated balance sheets. Under the Facility Lease, the landlord agreed to pay the Company or the Company’s contractors for tenant improvements made by the Company not to exceed $100,000, which were used for normal tenant improvements. The Company determined that these improvements were not specialized and could be utilized by a subsequent tenant and, as such, the improvements were considered assets of the lessor. As of January 1, 2019, the unamortized amount of tenant improvement allowance of $81,481 was treated as a reduction in measuring the right-of-use asset. Under the Facility Lease, the Company pays the actual amounts for property taxes and insurance, excludes such payments from lease contract consideration, and records such payments as incurred. The Company also pays the landlord for common area maintenance, which is considered a nonlease component. For the Facility Lease, the Company has not elected the accounting policy to include both the lease and nonlease components as a single component and account for it as the lease. In determining the right-of-use asset and lease liability, the Company applied a discount rate to the minimum lease payments under the Facility Lease. ASC 842 requires the Company to use the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Since the discount rate is not implicit in the lease agreement, we utilized an estimated incremental borrowing rate provided by the Company’s depository bank. Surna Inc. Notes to Condensed Consolidated Financial Statements (in US Dollars except share numbers) (Unaudited) The lease cost, cash flows and other information related to the Facility Lease were as follows: Schedule of Lease Cost
|  | For the Six Months Ended |
|  | June 30, 2021 |
Operating lease cost |  | $ | 108,444 |
Operating cash outflow from operating lease |  | $ | 139,688 |
|  |  | As of June 30, 2021 |
Operating lease right-of-use assset |  | $ | 245,037 |
Operating lease liability, current |  | $ | 261,187 |
Operating lease liability, long-term |  | $ | 43,881 |
Remaining lease term |  |  | 1.2 years |
Discount rate |  |  | 5.00 | %
Future annual minimum lease payments on the Facility Lease as of June 30, 2021 were as follows: Schedule of Future Annual Minimum Lease Payments
Years ended December 31, |  |  |
2021 (excluding the six months ended June 30, 2021) |  |  | 142,177 |
2022 |  |  | 170,891 |
Total minimum lease payments |  |  | 313,068 |
Less imputed interest |  |  | (8,000 | )
Present value of minimum lease payments |  | $ | 305,068 |
On April 30, 2021, the Company entered into an agreement to sublease approximately 6,900 square feet of its office and manufacturing space. The sublease commenced on April 30, 2021 and will continue on a month-to-month basis until either party gives 30-days’ notice. Unless 30-days’ notice is provided sooner, this sublease will end upon termination of the Company’s Lease Agreement with its current landlord. Rent will initially be charged at $5,989 per month, increasing to $11,978 per month effective July 1, 2021. The Sublessor will also be responsible for its prorated share of utilities and other related costs. This new sublease does not change the Company’s legal relationship or financial obligations with its landlord. The Company continues to be responsible for all the remaining financial obligations under its existing lease with the landlord. Accordingly, entering into the new sublease did not impact the carrying value of the Company’s operating lease right of use asset or operating lease liability. Moreover, after an initial two-month transitional period, the rental rate per square foot under the new sublease is identical to the rental rate per square foot for the Company’s existing lease with its landlord which indicates that there is no impairment to the carrying value of the Company’s operating lease right of use asset. As referenced in Note 12 - Subsequent Events, on July 27, 2021 the Company entered into a Lease Termination Agreement with its current landlord. As referenced in Note 12 - Subsequent Events, on July 28, 2021, the Company entered into an agreement to lease office and manufacturing space. Surna Inc. Notes to Condensed Consolidated Financial Statements (in US Dollars except share numbers) (Unaudited)

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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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