Note 8 - Leases

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Leases, Lessee [Text Block]

NOTE 8: LEASES

Operating Leases

The Company has active operating lease arrangements for office space and production facilities. The Company is typically required to make fixed minimum rent payments relating to its right to use the underlying leased asset. In accordance with the adoption of ASC 842, the Company recorded right-of-use assets and related lease liabilities for these leases as of January 1, 2022.

The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component when the payments are fixed. As such, variable lease payments not dependent on an index or rate, such as real estate taxes, common area maintenance, and other costs that are subject to fluctuation from period to period are not included in lease measurement. The Company includes extensions in the determination of the lease term when it is reasonably certain that such options will be exercised.  

The Company’s lease agreements do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate incremental borrowing rate. The Company benchmarked itself against other companies of similar credit ratings and comparable credit quality and derived an incremental borrowing rate to discount each of its lease liabilities based on the remaining lease term. 

The components of operating lease expense recorded in the statement of operations were as follows:

	Three Months Ended March 31, 2022
Operating lease cost	$	172,465
Short-term lease cost		17,731
Total lease cost	$	190,196

Variable lease cost for the three months ended March 31, 2022 was not material. The Company previously recorded rent expense on a straight-line basis and recognized rent expense of $140,413 for the three months ended March 31, 2021. 

Right of use assets and lease liabilities for operating leases were recorded in the condensed balance sheets as follows: 

	March 31, 2022
Operating lease right-of-use assets	$	1,674,614
Operating lease liabilities, current	$	578,055
Operating lease liabilities, long-term		1,177,931
Total operating lease liabilities	$	1,755,986

The weighted-average remaining lease term for operating leases was 3.1 years and the weighted-average incremental borrowing rate was 8.7% as of March 31, 2022. 

Supplemental cash flow information related to the Company’s operating leases was as follows: 

	Three Months Ended March 31, 2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	173,509

As of March 31, 2022, future minimum lease payments required under operating leases are as follows: 

2022 (remainder)	$	525,507
2023		683,041
2024		500,457
2025		230,858
2026		58,433
Thereafter		-
Total minimum lease payments		1,998,296
Less: imputed interest		(242,310	)
Total	$	1,755,986

Finance leases

As of March 31, 2022, the Company has financed through lease agreements a total of approximately $1,956,000 of its capital equipment purchases with monthly payments ranging from approximately $600 to $9,000, repayment terms ranging from 48 to 60 months, and effective interest rates ranging from 3.87% to 9.52%. Total monthly finance lease payments as of March 31, 2022 are approximately $39,000. These lease obligations mature ranging from June 2022 through September 2026 and are secured by approximately $2,326,000 in underlying assets which have approximately $847,000 in accumulated depreciation as of March 31, 2022. The balance of finance lease obligations was approximately $966,616 and $1,065,000 as of March 31, 2022 and  December 31, 2021, respectively.

Right of use assets and lease liabilities for finance leases were recorded in the condensed balance sheets as follows: 

	March 31, 2022
Property and equipment, net	$	1,760,984
Finance lease liabilities, current	$	386,127
Finance lease liabilities, long-term		580,489
Total finance lease liabilities	$	966,616

The weighted-average remaining lease term for finance leases was 3.21 years and the weighted-average incremental borrowing rate was 5.96% as of March 31, 2022. 

Supplemental cash flow information related to the Company’s finance leases was as follows: 

	Three Months Ended March 31, 2022
Operating cash flows from finance leases	$	15,275
Financing cash flows from finance leases	$	(98,189	)

As of March 31, 2022, future minimum lease payments required under finance leases are as follows: 

2022 (remainder)	$	323,977
2023		312,058
2024		165,241
2025		165,241
2026		93,185
Thereafter		-
Total minimum lease payments	$	1,059,702
Less: imputed interest		(93,086	)
Total	$	966,616