Quarterly report pursuant to Section 13 or 15(d)

LEASES

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LEASES
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
LEASES
6 LEASES

 

Adoption of ASC Topic 842, "Leases"

 

On January 1, 2019, the Company adopted Topic 842 using the prospective transition method applied to leases that were in place as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 840.

 

The Company entered into a real property lease for office and warehouse space located at 19355 Business Center Drive in Northridge California, Los Angeles County. The lease commenced on February 15, 2020 and expires on February 28, 2022, monthly rental expense is $3,945 per month with no escalations during the term of the lease.

 

The initial value of the right-of-use asset was $86,741 and the operating lease liability was $86,741. The Company monitors for events or changes in circumstances that require a reassessment of our lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset unless doing so would reduce the carrying amount of the right-of-use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right-of-use asset balance is recorded as a loss in the statement of operations.

 

Discount Rate

 

To determine the present value of minimum future lease payments for operating leases at February 15, 2020, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the "incremental borrowing rate" or "IBR").

 

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the 5 year ARM interest rate at the time of entering into the agreement and compared that rate to the Company's weighted average cost of funding at the time of entering into the operating lease. The Company determined that 10.00% was an appropriate incremental borrowing rate to apply to its real-estate operating lease.

 

Right of use assets

 

Right of use assets are included in the unaudited condensed consolidated Balance Sheet are as follows:

 

    June 30,
2020
 
       
Non-current assets        
Right of use assets, operating leases, net of amortization   $ 72,399  

 

Total Lease Cost

 

Individual components of the total lease cost incurred by the Company is as follows:

 

    Six months
ended
June 30,
2020
 
         
Operating lease expense   $ 17,753  

 

Maturity of Operating Leases

 

The amount of future minimum lease payments under operating leases are as follows:

 

    Amount  
Undiscounted minimum future lease payments      
Total instalments due:      
2020   $ 23,670  
2021     47,340  
2022     7,890  
      78,900  
Imputed interest     (6,501 )
Total operating lease liability   $ 72,399  
         
Disclosed as:        
Current portion   $ 41,990  
Non-current portion     30,409  
    $ 72,399  

 

Other lease information:

 

   

Six months ended

June 30,
2020

 
       
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases   $ (17,753 )
         
Remaining lease term – operating lease     20 months  
         
Discount rate – operating lease     10.0 %