Quarterly report pursuant to Section 13 or 15(d)

OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

v3.19.2
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 100 acres. The lease requires the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. Accordingly, the Company recognized $0 Right-of-use asset (“ROU”) and lease liabilities on this farm lease as the Company has not determined when it will generate net income from this lease. The lease shall continue in effect from year to year except for at least a 30 day written notice of termination. The Company has not paid any lease under this agreement for the six months ended June 30, 2019.

 

On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Glendale, Oregon and consists of approximately 100 acres. The lease requires the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 shall be payable prior to planting for agricultural use or related purposes. The lease shall continue in effect from year to year except for at least a 30 day written notice of termination. The Company has paid the initial payment of $50,000 under this agreement and recognized lease expense of $30,000 and $40,000 for the three and six months ended June 30, 2019, respectively, and recorded $10,000 as prepaid expense to be amortized over the term of this lease.   

 

On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 shall be payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the leased farm. The lease shall continue in effect from year to year for five years except for at least a 30 day written notice of termination. The Company has paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. EOW is in the process of arranging a sub-lease agreement with the affiliated company. The Company recognized lease expense of $12,667 for the six months ended June 30, 2019 and recorded $13,333 as prepaid expense to be amortized over the term of this lease. 

 

In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. However, the Company is reasonably certain that it will exercise its option to extend the lease for a period of three years. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $462,260 based on an incremental borrowing rate of 10%.

 

ROU is summarized below:

 

    June 30, 2019
Farm lease ROU   $ 506,506  
Less accumulated reduction     (39,470 )
Balance of ROU asset as of June 30, 2019   $ 467,036  

 

Operating lease liability related to the ROU asset is summarized below:

 

    June 30, 2019
Farm lease   $ 506,506  
Total lease liability     506,506  
Reduction of lease liability     (39,470 )
Total     467,036  
Less: current portion     (161,617 )
Long term portion of lease liability as of June 30, 2019   $ 305,419  

 

Minimum lease payments under non-cancelable operating lease at June 30, 2019 are as follows:

 

Year ended December 31, 2019   $ 176,000  
Year ended December 31, 2020     196,000  
Year ended December 31, 2021     196,000  
Year ended December 31, 2022     20,000  
Total     588,000  
Less: undiscounted payments during the six months ended June 30, 2019     (52,667 )
Total undiscounted future minimum lease payments due as of June 30, 2019     535,333  
Imputed interest     (68,297 )
Total operating lease liability   $ 467,036