Annual report pursuant to Section 13 and 15(d)

RIGHT TO USE ASSETS AND LEASE LIABILITY

v3.20.1
RIGHT TO USE ASSETS AND LEASE LIABILITY
12 Months Ended
Dec. 31, 2019
Disclosure Text Block [Abstract]  
Lessee, Operating Leases [Text Block]

NOTE 5 – RIGHT TO USE ASSETS AND LEASE LIABILITY


On October 1, 2019, the Company entered into a lease agreement whereby the Company leased approximately 1,400 square feet of office space in Rochester Minnesota commencing November 1, 2019 and expiring on October 31, 2021 at an initial rate of $3,411 per month with escalating payments. The lease agreement includes an option to extend the lease for two additional periods of two years each past its initial term.


In determining the length of the lease term to its Rochester, Minnesota lease primarily due to i) the renewal rate is at future market rate to be determined and ii) Company does not have significant leasehold improvements that would restrict its ability to consider relocation. At the lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined their initial present values, at inception, of $77,012.


On August 14, 2019, the Company entered into a lease agreement whereby the Company leased storage space in the same building as our Los Angeles, California facilities, commencing September 1, 2019, and expiring on June 30, 2021, at an initial rate of $235 per month with escalating payments.  In connection with the lease, the Company paid a security deposit of $250. There is no option to extend the lease past its initial term. At the lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined their initial present values, at inception, of $4,960.


On April 12, 2019, the Company entered into a sublease agreement whereby the Company leased approximately 4,343 square feet of office space in Westport, Connecticut commencing May 1, 2019 and expiring on October 31, 2021 at an initial rate of $18,277 per month, inclusive of a fixed utility charge, with escalating payments.  In connection with the lease the Company paid a security deposit of $68,764, of which $34,382 represents the last two months of the term. There is no option to extend the lease past its initial term. At the lease commencement date, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined their initial present values, at inception, of $506,276.


On October 1, 2018, the Company entered into a lease agreement whereby the Company leased office space in Norwalk, Connecticut commencing on October 1, 2018, for $2,000 per month, which expired on September 30, 2019.


On May 22, 2018, the Company entered into a fifth lease amendment agreement, whereby the Company agreed to extend the lease for the original office space and expand with additional space in Los Angeles, California, commencing June 14, 2018 and expiring on June 30, 2021 at an initial rate of $14,731 per month with escalating payments.  In connection with the lease, the Company is obligated to lease parking spaces at an aggregate approximate cost of $1,070 per month. The Company has an option to extend the lease for an additional 3-year (option) term.


On April 11, 2018, the Company extended a short-term lease agreement whereby the Company leased office space in Austin, Texas commencing on August 1, 2018, for $979 per month, which expired on July 31, 2019.


In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. In determining the length of the lease term to its long-term lease, the Company determined not to consider an embedded 3-year option in the Los Angeles lease primarily due to i) the renewal rate is at future market rate to be determined and ii) Company does not have significant leasehold improvements that would restrict its ability to consider relocation.


At lease commencement dates, the Company estimated the lease liability and the right of use assets at present value using the Company’s estimated incremental borrowing rate of 8% and determined their initial present values, at inception, of $1,007,703.


On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right to use assets of $418,838, lease liability of $422,215 and eliminated deferred rent of $3,377.


Right to use assets is summarized below:


   

December 31,

2019

 

Los Angeles, CA, Suite 740

  $ 218,875  

Los Angeles, CA, Suite 745

    277,592  

Los Angeles, CA, Storage

    4,960  

Westport, CT, 54 Wilton Rd

    506,276  

Rochester, MN, 14 4th Street

    77,012  

Subtotal

    1,084,715  

Less accumulated depreciation

    (370,373

)

Right to use assets, net

  $ 714,342  

During the year ended December 31, 2019, the Company recorded $413,763 as lease expense to current period operations.


Lease liability is summarized below:


   

December 31,

2019

 

Los Angeles, CA, Suite 740

  $ 118,009  

Los Angeles, CA, Suite 745

    149,910  

Los Angeles, CA, Storage

    4,111  

Westport, CT, 54 Wilton Rd

    380,708  

Rochester, MN, 14 4th Street

    70,681  

Total lease liability

    723,419  

Less: short term portion

    (412,288

)

Long term portion

  $ 311,131  

Maturity analysis under these lease agreements are as follows:


Year ended December 31, 2020

  $ 455,124  

Year ended December 31, 2021

    321,386  

 Total

    776,510  

Less: Present value discount

    (53,091

)

Lease liability

  $ 723,419  

Lease expense for the year ended December 31, 2019 was comprised of the following:


Operating lease expense

  $ 345,667  

Short-term lease expense

    66,422  

Variable lease expense

    1,674  
    $ 413,763