LEASES

9 Months Ended

Jun. 30, 2022

LEASES

LEASES

14.  LEASES

The Company leases office space for SQP Construction Group for $1,500 per month. The lease, signed on March 25, 2021, is for a period of two years with five one-year renewals available immediately following the end of the base term. Rental terms for the option periods shall be negotiated and agreed mutually between the parties and shall not exceed five percent increases to rent, if any. The lease is expensed monthly and not treated as a right-to-use asset as it does not have a material impact on the Company’s consolidated financial statements.

During the nine months ended June 30, 2022, the Company entered into two lease agreements of construction equipment for a combined $160,000. The leases have a term of twenty-two months with a stated interest rate of 0%, combined monthly installment payments of $6,645 and are cancellable at any time without penalty. The Company has the right to purchase the equipment at the expiration of the leases by applying the two-month deposit paid. The right-of-use assets and operating lease obligations associated with these lease agreements are included in the consolidated balance sheets within property, plant and equipment and long-term debt, respectively, and do not have a material impact on the Company’s financial statements.

The Company entered into two operating leases for office facilities subsequent to the Tri-State Paving acquisition on April 29, 2022. Information on the operating leases can be found below:

Operating Lease-Weighted Average Remaining Term

	Years left		Remaining liability		Lease end	Fiscal year end
Operating lease 1		2.8	$	231,000	4/30/2025	2025
Operating lease 2		1.9		129,343	5/31/2024	2024
			$	360,343
Weighted average remaining term				2.5

Operating Lease Maturity Schedule

July 2022-June 2023	$	150,609
July 2023-June 2024		146,734
July 2024-June 2025		63,000
	$	360,343
Less amounts representing interest		(17,555)
Present value of operating lease liabilities	$	342,788

Operating Lease Expense

	Three and nine		Three and nine
	months ended		months ended
	June 30, 2022		June 30, 2021
Amortization
Operating lease 1	$	12,305	$	—
Operating lease 2		5,072		—
Total amortization	$	17,377	$	—
Interest
Operating lease 1	$	1,695	$	—
Operating lease 2		465		—
Total interest	$	2,160	$	—
Total amortization and interest	$	19,537	$	—

Cash Paid for Operating Leases

	Three and nine		Three and nine
	months ended		months ended
	June 30, 2022		June 30, 2021
Operating lease 1	$	14,000	$	—
Operating lease 2		5,537		—
	$	19,537	$	—

The leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The Company’s leases include options to renew. The exercise of lease renewal options is at the Company’s sole discretion. Therefore, the renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

The Company used its incremental borrowing rate of approximately 4.5% in determining the present value of the lease payments based on the information available at the lease commencement date.

The Company rents equipment for use on construction projects with rental agreements being week to week or month to month.  Rental expense can vary by fiscal year due to equipment requirements on construction projects and the availability of Company owned equipment. Rental expense, which is included in cost of goods sold on the consolidated statements of income, was $1.7 million and $646,000, respectively, for the three months ended June 30, 2022, and 2021 and $5.3 million and $2.5 million, respectively, for the nine months ended June 30, 2022 and 2021.