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Leases

3 Months Ended

Mar. 31, 2021

11. LEASES

Operating Leases

The Company determines, at contract inception, whether or not an arrangement contains a lease and evaluates the contract for classification as an operating or finance lease. For all leases, ROU assets and lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. If the Company’s lease does not provide an implicit rate in the contract, the Company uses its incremental, secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. Any renewal periods are considered in the analysis of each lease to the extent that the Company considers them to be reasonably certain of being exercised.

Costs associated with operating leases are recorded as a single lease cost on a straight-line basis over the life of the lease. The single lease cost includes the cost of amortizing the operating lease ROU asset and accretion expense related to the operating lease liability and is included in general and administrative expenses on the Condensed Consolidated Statement of Operations. Costs associated with finance leases are recorded by amortizing the finance lease ROU asset, which is recorded as amortization on the Condensed Consolidated Statement of Operations, and the accretion of the finance lease liability, recognized as interest expense on the Condensed Consolidated Statement of Operations.

For all leases with a term of 12 months or less, the Company has elected the practical expedient to not recognize ROU assets and lease liabilities.

The Company has operating leases for office, manufacturing and warehouse space, office equipment, and vehicles. Amounts recognized as of March 31, 2021 and December 31, 2020 for operating leases were as follows:

(Amounts in US$’s)	March 31, 2021		December 31, 2020
Operating lease ROU assets	$	2,974,443	$	2,725,462
Operating lease liability	$	3,153,740	$	2,884,997

As part of the SKS business acquisition on February 25, 2021, the Company assumed a lease of flexible office space with a remaining term of approximately 28 months that will expire on July 1, 2023. A right-of-use asset and lease liability for $429,033 was recorded on February 25, 2021. Monthly payments are Israeli New Shekel (ILS) 53,735 during the remaining 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 renewal periods, if any, 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 locations could generally be identified for comparable lease rates, without the Company incurring significant costs.

As part of the SKS business acquisition on February 25, 2021, the Company assumed vehicle leases with a remaining weighted average term of approximately 11 months. A total right-of-use asset and lease liability for $28,419 was recorded on February 25, 2021, excluding a deposit of $10,683 to be applied to future lease payments. Monthly average payments are ILS 5,970 during the remaining life of the leases. The leases included an implicit rate of return and no renewal options.

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

(Amounts in US$’s)	For the three months ended March 31, 2021
Operating lease ROU Asset – December 31, 2020	$	2,725,462
Increase		457,452
Decrease		-
Amortization		(208,471	)
Operating lease ROU Asset – March 31, 2021	$	2,974,443

Operating lease liability – December 31, 2020	$	2,884,997
Increase		457,452
Decrease		(10,683	)
Amortization		(178,026	)
Operating lease liability – March 31, 2021	$	3,153,740

Operating lease liability – short term	$	865,763
Operating lease liability – long term		2,287,977
Operating lease liability – total	$	3,153,740

Operating lease cost	$	252,334
Variable lease cost	$	-
Short-term lease cost	$	39,258

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	259,191

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of March 31, 2021 and December 31, 2020, respectively:

(Amounts in US$’s)	March 31, 2021			December 31, 2020
Weighted average remaining lease term		3.77 years			4.19 years
Weighted average discount rate		5.89	%		5.95	%

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 March 31, 2021:

(Amounts in US$’s)	Operating Leases
Remainder of 2021	$	786,886
2022		894,857
2023		810,887
2024		641,648
2025		377,459
Thereafter		529
Total minimum lease payments		3,152,266
Less: effect of discounting		(358,526	)
Present value of future minimum lease payments		3,153,740
Less: current obligations under leases		(865,763	)
Long-term lease obligations	$	2,287,977

Finance Leases

Information related to the Company’s finance leases are as follows:

(Amounts in US$’s)	For the three months ended March 31, 2021
Finance lease ROU Asset – December 31, 2020	$	67,692
Increase		-
Amortization		(5,885	)
Finance lease ROU Asset – March 31, 2021	$	61,807

Finance lease liability – December 31, 2020	$	55,236
Increase		-
Interest accretion		472
Payment		(14,758	)
Finance lease liability – March 31, 2021	$	40,950

Finance lease liability – short term	$	36,504
Finance lease liability – long term		4,446
Finance lease liability – total	$	40,950

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s finance leases as of March 31, 2021 and December 31, 2020, respectively:

(Amounts in US$’s)	March 31, 2021			December 31, 2020
Weighted average remaining lease term		0.90 years			1.10 years
Weighted average discount rate		3.46	%		3.91	%

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 finance lease liabilities recorded on the Condensed Consolidated Balance Sheet as of March 31, 2021:

(Amounts in US$’s)	Finance Leases
Remainder of 2021	$	32,455
2022		8,891
Total minimum lease payments		41,436
Less: effect of discounting		(396	)
Present value of future minimum lease payments		40,950
Less: current obligations under leases		(36,504	)
Long-term lease obligations	$	4,446