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LEASE OBLIGATIONS (Imported)

9 Months Ended

Jun. 30, 2023

14. LEASE OBLIGATIONS

The Company leases office space for SQP for $1,500 per month. The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term. Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any.

The Company has two lease agreements for construction equipment with a combined amount of $160,000. The leases have a term of twenty-two months with a stated interest rate of 0%, combined monthly installment payments of $6,645 and are cancellable at any time without penalty. The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid. The related assets and finance lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt.

The Company has two right-of-use operating leases acquired on April 29, 2022, as part of the Tri-State Paving, LLC transaction. The first operating lease, for the Hurricane, West Virginia facility, had a net present value of $236,000 at inception, and a carrying value of $148,000 at June 30, 2023. The second operating lease, for the Chattanooga, Tennessee facility, had a net present value of $144,000 at inception, and a carrying value of $72,000 at June 30, 2023. The 4.5% interest rate on the operating leases is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease with Enterprise Fleet Management, Inc. acquired on August 11, 2022, as part of the Ryan Environmental acquisition. This lease agreement was initially for thirty-one vehicles with a net present value of $1.2 million. The Company has subsequently added twenty-six leased vehicles with a net present value of $2.4 million. The right-of-use operating lease has a carrying value of $3.2 million at June 30, 2023. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease with RICA Developers, LLC acquired on August 12, 2022, as part of the Ryan Environmental acquisition. This lease, for the Bridgeport, West Virginia facility, had a net present value of $140,000 at inception and a carrying value of $21,000 at June 30, 2023. The 4.5% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

The Company has a right-of-use operating lease acquired on March 28, 2023. This lease, for the Winchester, Kentucky facility, had a net present value of $290,000 at inception and a carrying value of $247,000 at June 30, 2023. The 7.75% interest rate on the operating lease is based on the Company’s incremental borrowing rate at inception.

Schedules related to the Company’s operating leases at June 30, 2023 can be found below:


		Remaining liability
	Years left	June 30, 2023		September 30, 2022		Lease end	Fiscal year end
Operating lease 1	1.8	$	148,107	$	205,267	4/30/2025	2025
Operating lease 2	0.9		72,334		119,032	5/31/2024	2024
Operating lease 3	3.5		3,156,145		1,166,498	8/10/2026	2027
Operating lease 4	0.3		21,214		113,480	8/11/2023	2023
Operating lease 5	2.6		247,476		—	3/31/2026	2026
		$	3,645,276	$	1,604,277

Weighted average remaining term			3.3 years


Operating Lease Maturity Schedule
July 2023 to June 2024	$	1,234,784
July 2024 to June 2025		1,140,516
July 2025 to June 2026		1,016,679
July 2026 to June 2027		545,026
		3,937,005
Less amounts representing interest		(291,729)
Present value of operating lease liabilities	$	3,645,276


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Operating Lease Expense	June 30, 2023		June 30, 2023		June 30, 2022		June 30, 2022
Amortization
Operating lease 1	$	19,267	$	57,160	$	12,305	$	12,305
Operating lease 2		15,741		46,698		5,072		5,072
Operating lease 3		160,836		338,521		—		—
Operating lease 4		30,947		92,266		—		—
Operating lease 5		35,880		42,886		—		—
Total amortization		262,671		577,531		17,377		17,377
Interest
Operating lease 1		1,733		5,840		1,695		1,695
Operating lease 2		870		3,135		465		465
Operating lease 3		27,240		59,452		—		—
Operating lease 4		703		2,684		—		—
Operating lease 5		5,016		6,776		—		—
Total interest		35,562		77,887		2,160		2,160
Total amortization and interest	$	298,233	$	655,418	$	19,537	$	19,537


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Cash Paid for Operating Leases	June 30, 2023		June 30, 2023		June 30, 2022		June 30, 2022
Operating lease 1	$	21,000	$	63,000	$	14,000	$	14,000
Operating lease 2		16,611		49,833		5,537		5,537
Operating lease 3		185,942		397,973		—		—
Operating lease 4		42,180		94,950		—		—
Operating lease 5		32,500		49,662		—		—
	$	298,233	$	655,418	$	19,537	$	19,537

The Company rents equipment for use on construction projects with rental agreements being week to week or month to month. Rental expense can vary by reporting period due to equipment requirements on construction projects and the availability of Company owned equipment. Rental expense, which is included in cost of goods sold on the consolidated statements of income was $2.5 million and $1.7 million, respectively, for the three months ended June 30, 2023 and 2022 and $6.8 million and $5.3 million, respectively, for the nine months ended June 30, 2023 and 2022.