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Leases

9 Months Ended

Sep. 30, 2019

Note 11 – Leases

We adopted ASU 2016-02: Leases (Topic 842) as of January 1, 2019. We determine if an arrangement is a lease at inception. Operating leases are included in the right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet.

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. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

We have operating and finance leases for corporate offices, other regional offices, and certain equipment. Our leases have remaining lease terms of 1 year to 15 years, some of which include multiple options to extend the leases for up to 5 years each.

The components of lease expense were as follows:

	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	115,674	$	353,267
Finance lease cost
Amortization of assets		2,025		6,558
Interest on finance lease obligations		1,763		5,723
Total net lease cost	$	119,462	$	365,548

Included in the table above, is $92,200 and $276,600 for the three and nine months ended September 30, 2019, respectively, of operating lease cost for our corporate headquarters. This space is being leased from The Move, LLC. Our CEO and President, each a related party to WFCF, have a 24.3% jointly-held ownership interest in The Move, LLC.

Rent expense for the three and nine months ended September 30, 2018 was $154,200 and $435,300, respectively.

Supplemental balance sheet information related to leases was as follows:

	September 30, 2019
Operating leases:	Related Party		Other		Total
Right of use asset	$	2,975,520	$	332,869	$	3,308,389

Current operating lease liabilities		153,456		79,447		232,903
Noncurrent operating lease liabilities		3,301,204		286,836		3,588,040
Total operating lease liabilities	$	3,454,660	$	366,283	$	3,820,943

Finance leases:	September 30, 2019
Right of use asset, at cost	$	43,041
Accumulated amortization		(20,086	)
Right of use asset, net	$	22,955

Current obligations of finance leases	$	8,054
Finance leases, net of current obligations		23,798
Total finance lease liabilities	$	31,852

Weighted average remaining lease term (in years):
Operating leases		11.2
Finance leases		3.2

Weighted average discount rate:
Operating leases		5.8	%
Finance leases		20.8	%

Supplemental cash flow and other information related to leases was as follows:

	Nine months ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	319,586
Operating cash flows from finance leases	$	5,723
Financing cash flows from finance leases	$	4,504

Maturities of lease liabilities were as follows:

Years Ending December 31st,	Operating Leases			Finance Leases
2019 (remaining three months)	$	110,773		$	3,705
2020		448,992			13,597
2021		461,657			12,355
2022		465,758			10,050
2023		461,310			4,514
Thereafter		3,308,155			—
Total lease payments		5,256,645			44,221
Less amount representing interest		(1,435,702	)		(12,369	)
Total lease obligations		3,820,943			31,852
Less current portion		(232,903	)		(8,054	)
Long-term lease obligations	$	3,588,040		$	23,798

As previously reported in the 2018 Form 10-K under ASC Topic 840, future minimum lease payments under the Company’s operating lease agreements that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:

Years ended December 31st:	Total
2019	$	420,370
2020		421,590
2021		432,079
2022		447,264
2023		460,682
Thereafter		3,327,705
Total lease commitments	$	5,509,690