Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

7.

Leases

Operating right of use assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating right of use  assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. As we have outstanding secured debt, we used the rate based on loan of 4%.

Our office lease contains rent escalations over the lease term. We recognize expense for this office lease on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.

The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of March 31, 2019, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the remaining term of the current lease amount to $180,826.

On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of December 31, 2018 the Company had received all of the reimbursement.

In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which commenced in December 2018 for a term of 48 months.

Supplemental balance sheet information related to leases was as follows:

		March 31,
Operating Leases	Classification	2019
Right-of-use assets	Operating right of use assets	$	846,744
Current lease liabilities	Current operating lease liabilities		174,435
Non-current lease liabilities	Long-term operating lease liabilities		743,651
Total lease liabilities		$	918,086

Lease term and discount rate were as follows:

	March 31,
	2019
Weighted average remaining lease term (years)		5.29
Weighted average discount rate		4	%

The component of lease costs were as follows:

	Three months ended March 31,
	2019
Operating lease cost	$	46,669
Variable lease cost (1)		26,915
Total lease costs	$	73,584

(1) Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.

Supplemental disclosures of cash flow information related to leases were as follows:

	March 31,
	2019
Cash paid for operating lease liabilities	$	43,616
Operating right of use assets obtained in exchange for operating lease liabilities	$	890,009

Maturities of lease liabilities were as follows as of March 31, 2019:

	Operating
	Leases
Remainder of 2019	$	135,639
2020		188,196
2021		193,627
2022		197,427
2023		197,807
2024		117,383
Total		1,030,079
Less: Imputed interest		(111,993	)
Present value of lease liabilities	$	918,086