Quarterly report pursuant to Section 13 or 15(d)

Lease

v3.20.1
Lease
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Lease

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, calls for monthly payments of $2,324 which commenced February 1, 2015 which escalated to $2,460 on February 1, 2017. This lease expired on January 31, 2019. The Company extended this lease 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, Massachusetts and North Carolina.  These leases are month to month and the monthly rent is approximately $25,000.

 

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:

 

    Three Months Ended
March 31, 2020
Finance lease:        
Amortization of assets, included in depreciation and amortization expense   $ 24,905  
Interest on lease liabilities, included in interest expense     5,713  
Operating lease:        
Amortization of assets, included in total operating expense     223,845  
Interest on lease liabilities, included in total operating expense     42,381  
Total net lease cost   $ 296,844  

 

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset   $ 304,200  
         
Current operating lease liabilities     102,251  
Noncurrent operating lease liabilities     211,373  
Total operating lease liabilities   $ 313,624  

 

    March 31, 2020
Finance leases:        
Property and equipment, at cost   $ 3,596,400  
Accumulated amortization     (1,549,457 )
Property and equipment, net     2,046,943  
         
Current obligations of finance leases   $ 1,004,149  
Finance leases, net of current obligations,     1,708,575  
Total finance lease liabilities   $ 2,712,724  

 

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

 

    Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows related to operating leases   $ 19,193  
Financing cash flows related to finance leases   $ 169,711  
         
Weighted average remaining lease term (in years):        
Operating leases     2.22  
Finance leases     2.17  
         
Weighted average discount rate:        
Operating leases     7 %
Finance leases     6 %

  

Long-term obligations under the operating and finance leases at March 31, 2020 mature as follows:

 

For the Twelve Months Ended March 31,   Operating Leases   Finance Leases
2021   $  102,251       888,652  
2022      105,319       1,066,382  
2023      108,535       674,434  
2024      37,046       355,104  
2025     -       -  
Total lease payments     353,151       2,984,572  
Less: Amounts representing interest     (39,527 )     (271,848 )
Total lease obligations     313,624       2,712,724  
Less: Current     (102,251 )     (1,004,149 )
    $ 211,373       1,708,575  

 

As of March 31, 2020, we had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the three months ended March 31, 2020 and 2019 was $24,905 and $42,337, respectively.