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Leases

6 Months Ended

Jun. 30, 2020

NOTE 13 – LEASES

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2020, the Company adopted ASC 842 and it primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

All of the Company’s leases are classified as operating leases, and as such, were previously not recognized on the Company’s unaudited condensed consolidated balance sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the Condensed Consolidated Balance Sheet as right-of-use (ROU) assets and corresponding lease liabilities.

On May 25, 2020, the Company recognized ROU assets of $19,393 and lease liabilities of approximately $19,393. The Company elected to not recognize ROU assets and lease liabilities arising from short-term office leases, leases with initial terms of twelve months or less (deemed immaterial) on the unaudited condensed consolidated balance sheets.

ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated incremental borrowing rate at May 25, 2020. The weighted average incremental borrowing rate applied was 5.77%. As of June 30, 2020, the Company’s leases had a remaining weighted average term of 2 years.

Rent expense amounted to approximately $5,420 and $13,252 for the three and six months ended June 30, 2020, respectively, and $6,417 and $6,417 for the three and six months ended June 30, 2019, respectively.

The following table presents net lease cost and other supplemental lease information:

	Six Months Ended June 30, 2020
Lease cost
Operating lease cost (cost resulting from lease payments)	$	1,591
Short term lease cost		14,857
Sublease income		-
Net lease cost	$	16,448

Operating lease – operating cash flows (fixed payments)	$	1,591
Operating lease – operating cash flows (liability reduction)	$	1,407
Non-current leases – right of use assets	$	17,901
Current liabilities – operating lease liabilities	$	4,304
Non-current liabilities – operating lease liabilities	$	13,682

Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the six months ended June 30, 2020, are as follows:

Fiscal Year	Operating Leases
2020 (excluding the six months ended June 30, 2020)	$	4,772
2021		9,543
2022		4,772
Total future minimum lease payments		19,087
Amount representing interest		(1,101	)
Present value of net future minimum lease payments	$	17,986