Quarterly report pursuant to Section 13 or 15(d)

OPERATING LEASE

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OPERATING LEASE
9 Months Ended
Sep. 30, 2019
Lessee Disclosure [Abstract]  
OPERATING LEASE

NOTE 4 – OPERATING LEASE


On January 31, 2019, the Company entered into an agreement to lease approximately 25,470 square feet of office and manufacturing space in Pompano Beach, Florida. The term is approximately five years and two months. On March 25, 2019, the Company entered into an amendment to the agreement to increase the square footage of leased premises to 36,900 square feet, increasing the Company’s base rent obligation to be approximately $33,825 per month for one year and nine months, and increasing annually at a rate of three percent for the remainder of the lease term. The aggregate base rent payments for the term of the lease is $2,073,344. Additionally, as a result of the lease amendment, the lease deposit required was increased to $74,000.  


The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019 and will account for the new lease in terms of the right-of-use assets and offsetting lease liability obligations for this new lease under this pronouncement. In accordance with ASC 842 - Leases, effective January 1, 2019, the Company recorded a lease right-of-use asset and a lease liability at a present value of $1,405,804. The Company recorded this amount at present value, in accordance with the standard, using a discount rate of 15%, which is representative of the last borrowing rate for notes issued to a non-related party. The right of use asset will be composed of the sum of all lease payments plus any initial direct cost and will be amortized over the life of the expected lease term. For the expected term of the lease, the Company will use the initial term of the five-year lease. If the Company does elect to exercise its option to extend the lease for another five years, that election will be treated as a lease modification and the lease will be reviewed for remeasurement. This lease will be treated as an operating lease under the new standard.


The future minimum lease payments to be made under the operating lease as of September 30, 2019:



2019

 

 

 

101,475

 

2020

 

 

 

405,900

 

2021

 

 

 

415,033

 

2022

 

 

 

427,484

 

2023

 

 

 

440,308

 

2024

 

 

 

110,884

 

    Total minimum lease payments

 

 

 

1,901,084

 

Discount

 

 

 

(533,301

)

    Operating lease liability

 

 

$

1,367,783

 


Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used the incremental borrowing rate based on the information available at the lease commencement date. As of September 30, 2019, the weighted-average remaining lease term is 4.50 years and the weighted-average discount rate used to determine the operating lease liability was 15.0%. For the three months ended September 30, 2019 and 2018, the Company expensed $105,730 and $37,634, respectively, for rent. For the nine months ended September 30, 2019 and 2018, the Company expensed $317,426 and $113,223, respectively, for rent.