Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Leases

Note 5 –Leases

  

Operating Leases

 

The Company currently has three leases for office space, with two offices located in Melville, NY, and one office in Warwick, RI.

 

A lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018. The term of this lease is five years and three months at $86,268 per year with an escalation of 3% per year with an ending date of July 31, 2023.

 

The Company entered into a lease agreement for a technology lab in Melville, NY, that commenced on September 1, 2019. The term of this lease is for three years and 11 months and runs co-terminus with our existing lease in the same building. The base annual rent is $10,764 payable in equal monthly installments of $897.

   

The lease for office space in Warwick, RI, was extended until January 31, 2021. The annual base rent shall be $31,176 payable in equal monthly installments of $2,598.

 

The Company leases rack space in New York, New Jersey, Massachusetts, Texas and North Carolina.  These leases are month to month and the monthly rent is approximately $25,000.

 

 Finance Lease Obligations

 

On June 1, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $5,008. The lease carries an interest rate of 7% and is a three-year lease. The term of the lease ends June 1, 2023. 

 

On June 29, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $5,050. The lease carries an interest rate of 7% and is a three-year lease. The term of the lease ends June 29, 2023. 

 

On July 31, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment under a finance lease. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $4,524. The lease carries an interest rate of 7% and is a three-year lease.

 

Finance Lease Obligations – Related Party

  

On April 1, 2018, the Company entered into a lease agreement with Systems Trading Inc. (“Systems Trading”) to refinance all leases into one lease. This lease obligation is payable to Systems Trading with bi-monthly installments of $23,475. The lease carries an interest rate of 5% and is a four -year lease. The term of the lease ends April 16, 2022. Systems Trading is owned and operated by the Company’s President, Hal Schwartz.

 

On January 1, 2019, the Company entered into a lease agreement with Systems Trading. This lease obligation is payable to Systems Trading with monthly installments of $29,592. The lease carries an interest rate of 6.75% and is a five-year lease. The term of the lease ends December 31, 2023.

 

On April 1, 2019, the Company entered into two lease agreements with Systems Trading to add new data center equipment. The first lease calls for monthly payments of $1,328 and expires on March 1, 2022. It carries an interest rate of 7%. The second lease calls for monthly payments of $461 and expires on March 1, 2022. It carries an interest rate of 6.7%.

    

On January 1, 2020, the Company entered into a new lease agreement with Systems Trading Inc. to lease equipment. The lease obligation is payable to Systems Trading with monthly installments of $10,534. The lease carries an interest rate of 6% and is a three-year lease. The term of the lease ends January 1, 2023. 

 

We determine if an arrangement contains a lease at inception. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We recognize lease expense for these leases on a straight-line basis over the lease term. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred. A discount rate of 7% was used in preparation of the ROU asset and operating liabilities.

 

The components of lease expense were as follows:

 

    Nine Months Ended
September 30,
2020
 
Finance lease:        
Amortization of assets, included in depreciation and amortization expense   $ 608,743  
Interest on lease liabilities, included in interest expense     124,300  
Operating lease:        
Amortization of assets, included in total operating expense     57,709  
Interest on lease liabilities, included in total operating expense     16,106  
Total net lease cost   $ 806,858  

 

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset   $ 263,034  
         
Current operating lease liabilities     103,780  
Noncurrent operating lease liabilities     168,390  
Total operating lease liabilities   $ 272,170  

 

    September 30,
2020
 
Finance leases:        
Property and equipment, at cost   $ 4,366,665  
Accumulated amortization     (3,172,342 )
Property and equipment, net     1,194,323  
         
Current obligations of finance leases   $ 1,139,828  
Finance leases, net of current obligations,     1,509,614  
Total finance lease liabilities   $ 2,649,441  

 

Supplemental cash flow and other information related to leases was as follows:

 

    Nine Months Ended
September 30,
2020
 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows related to operating leases   $ 75,852  
Financing cash flows related to finance leases   $ 829,391  
         
Weighted average remaining lease term (in years):        
Operating leases     1.72  
Finance leases     2.33  
         
Weighted average discount rate:        
Operating leases     7 %
Finance leases     6 %

  

Long-term obligations under the operating and finance leases at September 30, 2020 mature as follows:

 

For the Twelve Months Ended September 30,   Operating Leases     Finance Leases  
2021   $ 103,780       348,440  
2022     106,901       1,241,361  
2023     90,696       849,426  
2024     -       441,725  
Total lease payments     301,377       2,880,952  
Less: Amounts representing interest     (29,207 )     (231,509 )
Total lease obligations     272,170       2,649,443  
Less: Current     (103,780 )     (1,139,828 )
    $ 168,390       1,509,615  

 

As of September 30, 2020, we had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the nine months ended September 30, 2020 and 2019 was $127,268 and $191,377, respectively.