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Leases

9 Months Ended

Sep. 30, 2020

11. LEASES

Operating Leases

The Company determines, at contract inception, whether or not an arrangement contains a lease.

The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. Amounts recognized as of September 30, 2020 and December 31, 2019 for operating leases were as follows:

(Amounts in US$'s)	September 30, 2020		December 31, 2019
Operating lease ROU assets	$	2,891,113	$	2,199,682
Operating lease liability	$	3,020,364	$	2,212,548

During the nine months ended September 30, 2020, the Company recognized three months of rent abatement and also applied a portion of a security deposit balance towards two months of future rent for its executive office located at 5000 Quorum Drive, Dallas, TX 75254, resulting in a reduction of the right-of-use asset and lease liability by $151,565. Recognition of the security deposit balance towards two months of future rent also resulted in an increase of the right-of-use asset by $54,148.

As part of the acquisition of the business of Sovereign Plastics transaction on March 6, 2020, the Company assumed a lease for 23,300 square feet of flexible office space with a remaining term of approximately 62 months that will expire on May 30, 2025. A right-of-use asset and lease liability for $1,048,058 was recorded on March 6, 2020. Monthly payments range from $17,600 to $20,903 during the life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms. The lease agreement has no renewal option.

On August 14, 2020, the Company amended its lease for 5,533 square feet of office space in Jacksonville, Florida, that originally expired on July 31, 2020, to extend the term for an additional 36-months through July 31, 2023. A right-of-use asset and lease liability for $161,328 was recorded on the commencement date of August 1, 2020. Monthly payments range from $4,786 to $5,078 over the extended lease term. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate. The lease agreement has no renewal option.

On September 17, 2020, the Company entered into a 63-month lease of office equipment. The lease commenced on September 29, 2020 and will expire on December 29, 2025. A right-of-use asset and lease liability for $23,898 was recorded on the commencement date of September 29, 2020. Monthly payments are $529 during the life of the lease, excluding a lease incentive of $1,750 payable at lease commencement. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate. The renewal periods were not included in the analysis of the right-to-use asset and lease liability as the Company does not consider them to be reasonably certain of being exercised, as comparable equipment could generally be identified for comparable lease rates, without the Company incurring significant costs.

Other information related to the Company's operating leases are as follows:

(Amounts in US$'s)	For the nine months ended September 30, 2020
Operating lease ROU Asset – December 31, 2019	$	2,199,682
Increase		1,287,432
Decrease		(151,565	)
Amortization		(444,436	)
Operating lease ROU Asset – September 30, 2020	$	2,891,113

Operating lease liability – December 31, 2019	$	2,212,548
Increase		1,233,284
Decrease		(151,565	)
Amortization		(273,903	)
Operating lease liability – September 30, 2020	$	3,020,364

Operating lease liability – short term	$	659,789
Operating lease liability – long term		2,360,575
Operating lease liability – total	$	3,020,364

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company's operating leases as of September 30, 2020 and December 31, 2019, respectively:

(Amounts in US$'s)	September 30, 2020			December 31, 2019
Weighted average remaining lease term		4.44 years			4.56 years
Weighted average discount rate		5.99	%		6.50	%

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2020:

(Amounts in US$'s)	Operating Leases

Remainder of 2020	$	188,633
2021		805,765
2022		699,255
2023		713,647
2024		641,648
Thereafter		377,459
Total minimum lease payments		3,426,407
Less: effect of discounting		(406,043	)
Present value of future minimum lease payments		3,020,364
Less: current obligations under leases		(659,789	)
Long-term lease obligations	$	2,360,575

Finance Leases

As part of the acquisition of the business of Sovereign Plastics transaction on March 6, 2020, the Company assumed a finance lease for certain equipment with a remaining term of approximately 20 months. The finance lease includes a bargain purchase option of $1 for the equipment at the end of the term on October 1, 2021. A right-of-use asset and lease liability for $18,009 was recorded on March 6, 2020. Monthly payments are $964.76 during the life of the lease, excluding the bargain purchase option. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate.

On June 11, 2020, the Company entered into a 24-month finance lease for certain equipment. The finance lease includes a bargain purchase option of $1 for the equipment at the end of the term on June 11, 2022. A right-of-use asset and lease liability for $35,562 was recorded on June 11, 2020. Monthly payments are $1,481.69 during the life of the lease, excluding the bargain purchase option. The lease included an implicit rate of return.

On July 19, 2020, the Company entered into a 12-month finance lease for certain equipment, with a commencement date of August 6, 2020. The finance lease transfers ownership of the equipment to the Company at the end of the term on August 6, 2021. A right-of-use asset and lease liability for $28,405 was recorded on August 6, 2020. Monthly payments range from $2,473 to $2,498.66 during the life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate.

Other information related to the Company's finance leases are as follows:

(Amounts in US$'s)	For the nine months ended September 30, 2020
Finance lease ROU Asset – December 31, 2019	$	—
Increase		81,976
Amortization		(8,400	)
Finance lease ROU Asset – September 30, 2020	$	73,576

Finance lease liability – December 31, 2019	$	—
Increase		81,976
Interest accretion		1,063
Payment		(13,697	)
Finance lease liability – September 30, 2020	$	69,342

Finance lease liability – short term	$	55,046
Finance lease liability – long term		14,296
Finance lease liability – total	$	69,342

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company's finance leases as of September 30, 2020 and December 31, 2019, respectively:

(Amounts in US$'s)	September 30, 2020			December 31, 2019
Weighted average remaining lease term		1.32 years			—
Weighted average discount rate		4.18	%		—	%