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Operating Leases

9 Months Ended

Sep. 30, 2020

NOTE 8. OPERATING LEASES

On May 13, 2020, the Company entered into an operating lease for new warehouse and office space which will serve as its new principal executive office and primary business location. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2020 was seventy-four months. The Company’s previous office and warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $1,598 with a maturity date of October 2023. The Company has the option to purchase the equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company’s copier operating lease as of September 30, 2020 was 37 months.

Lease expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense was $302,836 for the nine months ended September 30, 2020.

The discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.

The following sets forth the operating lease right of use assets and liabilities as of September 30, 2020:

Assets:
Operating lease right of use assets	$	792,121

Liabilities:
Operating lease obligations-Long-term portion	$	754,031
Operating lease obligations-Current portion		83,094
Total operating lease obligations	$	837,125

The components of lease expense were as follows for the nine months ended September 30, 2020:

Selling, general and administrative expenses

302,836

Following are the minimum lease payments for each year and in total.

Year ending December 31:
2020 (October 1, to December 31, 2020)	$	17,192
2021		176,465
2022		184,412
2023		184,523
2024		171,924
Thereafter		334,001
Total undiscounted minimum future lease payments		1,068,517
Imputed interest		(231,392	)
Total operating lease liability	$	837,125