Quarterly report pursuant to Section 13 or 15(d)

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

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

NOTE 14- OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

 

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 7.5%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2019, the Company recorded $98,133 and $194,062, respectively, and $36,000 and $72,000 for the three and six months ended June 30, 2018, respectively, as operating lease expense which is included in rent expense on the statements of operations and includes $36,000 and $72,000 of rent to a related party during the three and six months ended June 30, 2019, and 2018, respectively.

 

On June 14, 2017, the company entered into a five-year lease with LLC1 (see Note 10) for approximately 6,944 square feet and a monthly rent of $12,000.

 

On September 10, 2018, pursuant to the Amos Audiology acquisition, the Company assumed a lease dated December 1, 2017 and expiring April 30, 2023, in Walnut Creek, California. Lease payments in the first year of the lease are $3, 988 per month and increase by 3% on December 1 each new lease year. As of December 31, 2018, the Company was in arrears of $25,182 (including late fees) in lease payments and has agreed with the landlord to pay the arrears in seven monthly payments of $3,597 in addition to the monthly lease payments for January 2019 through July 2019.

 

On October 15, 2018, the Company entered into lease to operate a retail hearing aid clinic in Roseville, California expiring December 31, 2023. Initial lease payments of $3,102 begin on January 1, 2019, and increase by 3% on January 1 each new lease year.

 

On December 1, 2018, the Company entered into lease to operate a retail hearing aid clinic in Sacramento, California expiring March 31, 2024. Initial lease payments of $3,002 begin on April 1, 2019, and increase by 3.33% on April 1, 2020 and 2021, and by 3% on April 1, 2022.

 

On February 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Elk Grove, California expiring January 31, 2024. Initial lease payments of $2,307 begin on February 1, 2019, and increase by an average of 2.6% on February 1, each new lease year.

 

On February 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Fremont, California expiring February 28, 2021. Initial lease payments of $2,019 begin on March 1, 2019, and increases by 3% on March 1, 2020.

 

On April 15, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Pleasanton, California expiring April 30, 2024. Initial lease payments of $3,550 begin on May 1, 2019, and increases by 3% on each new lease year throughout the term.

 

On June 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Hayward, California expiring December 31, 2020. Initial lease payments of $1,816 begin on June 1, 2019, and increases to $1,871 on January 1, 2020.

 

On June 1, 2019, the Company entered into a lease to operate a retail hearing aid clinic in Santa Rosa, California expiring June 30, 2023. Initial lease payments of $2,327 begin on June 1, 2019, and increases by approximately 2.5% annually beginning on July 1, 2020.

 

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. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. During the six months ended June 30, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $1,428,534.

 

Right-of- use assets are summarized below:

 

    June 30, 2019
Office and retail leases   $ 1,428,534  
Less accumulated amortization     (126,350 )
Right-of-us assets, net   $ 1,302,184  

 

Operating lease liabilities are summarized as follows:

 

    June 30, 2019
Lease liability   $ 1,317,947  
Less current portion     (323,309 )
Long term portion   $ 994,739  

 

Maturity of lease liabilities are as follows:

 

    Amount
For the six months ending December 31, 2019   $ 205,506  
For the year ending December 31, 2020     415,006  
For the year ending December 31, 2021     378,257  
For the year ending December 31, 2022     308,645  
For the year ending December 31, 2023     192,785  
Thereafter     28,407  
Total   $ 1,528,606  
Less: present value discount     (210,659 )
Lease liability   $ 1,317,947