Quarterly report pursuant to Section 13 or 15(d)

SIGNIFICANT ACCOUNTING POLICIES UPDATE

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SIGNIFICANT ACCOUNTING POLICIES UPDATE
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES UPDATE
SIGNIFICANT ACCOUNTING POLICIES UPDATE
The Company’s significant accounting policies are detailed in “Note 2:  Significant Accounting Policies” of its Form 10-K for the year ended December 31, 2018.  Significant changes to the Company’s accounting policies as a result of adopting Accounting Standards Codification (“ASC”) 842 are discussed below:
Leases:
The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in the Condensed Consolidated Balance Sheets and the Company recognizes lease expense for these leases on a straight line basis over the lease term. Operating leases are included in operating lease ROU asset, current portion of lease obligations and long term portion of lease obligations on its Condensed Consolidated Balance Sheet. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on its Condensed Consolidated Balance Sheet. As of September 30, 2019, the Company does not have any non-cancelable operating lease commitments that have not yet commenced.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. If a lease does not implicitly state a rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made in advance, any initial direct costs incurred and excludes any lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably assured that the Company will exercise that option. Lease expense for minimum lease payments are recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.
The Company has operating leases for its production and office facilities and certain office equipment. These leases have remaining lease terms of 2 years to 15 years, some of which include options to extend for up to 5 years. These options have been included in the Company’s calculation of the ROU asset and lease liability based upon the Company’s assessment of whether the option will be exercised.
The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants.
The Company rents or subleases certain real estate to third parties. The Company’s sublease portfolio consists of an operating lease within one of its facilities, resulting in approximately $26,000 and $78,000 of sublease income for the three and nine months ended September 30, 2019.
The components of lease expense were as follows:
 
 
Nine months ended September 30,
 
Three months ended September 30,
 
 
2019
 
2019
Operating lease cost
 
$
840,672

 
$
280,180

 
 
 
 
 
Finance lease cost:
 
 
 
 
Amortization of right-of-use assets
 
$
9,498

 
$
3,166

Interest on lease liabilities
 
2,432

 
828

Total finance lease costs
 
$
11,930

 
$
3,994

 
 
 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
 
Operating leases
 
$
2,951,253

 
$
165,809

Finance leases
 
31,386

 


Supplemental balance sheet information related to leases was as follows:
 
 
September 30, 2019
Operating Leases:
 
 
Right of use asset
 
$
5,887,243

 
 
 
Current portion of lease obligations
 
628,294

Long term portion of lease obligations
 
5,569,696

Total operating lease obligations
 
6,197,990

 
 
 
Financing Leases:
 
 
Property and Equipment, at cost
 
56,933

Accumulated depreciation
 
(11,627
)
Property and Equipment, net
 
45,306

 
 
 
Other accounts payable and accrued expenses
 
11,834

Other long term liabilities
 
34,513

Total financing lease liabilities
 
$
46,347

 
 
 
Weighted Average Remaining Lease Term
 
 
Operating leases
 
10 years

Finance leases
 
4 years

 
 
 
Weighted Average Discount Rate
 
 
Operating leases
 
7.47
%
Finance leases
 
6.86
%
Supplemental Cash Flows information related to leases was as follows:
 
 
Nine months ended September 30,
 
 
2019
Supplemental Cash Flows Information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
653,181

Operating cash flows from finance leases
 
2,432

Financing cash flows from finance leases
 
8,565


The undiscounted annual future minimum lease payments are summarized by year in the table below:
Year Ending December 31,
 
Operating Leases
 
Finance Leases
2019 (excluding the nine months ended September 30, 2019)
 
$
270,232

 
$
3,666

2020
 
1,106,585

 
14,664

2021
 
901,267

 
14,664

2022
 
875,177

 
12,276

2023
 
769,041

 
7,500

Thereafter
 
5,622,703

 

Total future minimum lease payments
 
9,545,005

 
52,770

Less imputed interest
 
(3,347,015
)
 
(6,423
)
Total:
 
$
6,197,990

 
$
46,347