NOTE E — LEASES

February 2016,

the FASB issued ASU

2016

02,

Leases (“ASC

842”

), to require lessees to recognize most leases on the balance sheet, while recognition on the statement of operations would be substantially unchanged. The new standard requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use (“ROU”) asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing and potential uncertainty of cash flows related to leases. Leases with a term of

months or less will be accounted for similar to prior guidance for operating leases. In

July 2018,

the FASB issued Accounting Standards Update

No.

2018

10,

Codification Improvements to Topic

842,

Leases, to clarify how to apply certain aspects of the new standard. In

July 2018,

the FASB also issued Accounting Standards Update

No.

2018

11,

Leases (Topic

842

): Targeted Improvements, to give entities another option for transition and to provide practical expedients to reduce the cost and complexity of implementing the new standard. ASU

2016

and all subsequently issued amendments, collectively "ASC

842,"

is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years.

The Company adopted ASC

842

April 1, 2019

using the optional transition method under which the new standard is applied only to the most current period presented and the cumulative effect of applying the new standard to existing lease agreements is recognized at the date of initial application. Under this adoption method, reporting periods beginning after

April 1, 2019

are presented under the new standard, while prior period amounts are

not

adjusted and continue to be reported under the accounting standards in effect for the prior period. The adoption of ASC

842

resulted in the recording of initial ROU asset and lease liabilities of approximately

$63,000

April 1, 2019.

The Company also elected the package of transition practical expedients related to lease identification, lease classification, and initial direct costs. In addition, the Company made the following accounting policy elections: (

) the Company will

not

separate lease and non-lease components by class of underlying asset and (

) the Company will apply the short-term lease exemption by class of underlying asset. The adoption of this standard did

not

have an impact on the Company’s consolidated statement of operations or cash flows and did

not

result in a cumulative adjustment to retained earnings.

The Company’s lease of its office space in Longview, Texas is the only operating lease included in the ROU asset and lease liability. The lease calls for monthly rent payments of

$2,728

and expires on

April 30, 2021.

The Company’s other operating leases for items such as IT equipment and storage space are either short-term in nature or immaterial.

October 2019,

the Company received a new heavy-duty forklift under a

-year finance lease arrangement with a financed amount of

$518,616

and a monthly payment of

$9,074.

The components of lease expense were as follows for the

three

months and

nine

months ended

December 31, 2019:

	Three Months Ended December 31, 2019		Nine Months Ended December 31, 2019
Finance lease – amortization of ROU asset	$	8,644	$	8,644
Finance lease – interest on lease liability		2,463		2,463
Operating lease expense		8,184		24,552
	$	19,291	$	35,659

Rental expense for operating leases classified under the previous accounting standard, Accounting Standards Codification Topic

840,

for the

three

and

nine

months ended

December 31, 2018

was

$8,184

and

$24,552,

respectively.

The following table illustrates the balance sheet classification for ROU assets and lease liabilities as of

December 31, 2019:

	December 31, 201 9		Balance Sheet Classification
Assets
Operating lease right-of-use asset	$	41,557	Other assets
Finance lease right-of-use asset	$	509,972	Property, plant & equipment, net
Total right-of-use assets	$	551,529

Liabilities
Operating lease liability, current	$	30,802	Accrued expenses
Finance lease liability, current		100,244	Current portion of finance lease
Operating lease liability, non-current		10,755	Other non-current liabilities
Finance lease liability, non-current		393,612	Other non-current liabilities
Total lease liabilities	$	535,413

As of

December 31, 2019,

the weighted-average remaining lease term was

1.3

years for operating leases and

4.8

years for finance leases. The weighted average discount rate was

for operating leases and

1.9%

for finance leases.

Maturities of lease liabilities as of

December 31, 2019

were as follows:

	Operating Lea s es			Finance Leases
Fiscal 2020 (remainder of fiscal year)	$	8,184		$	27,222
Fiscal 2021		32,736			108,888
Fiscal 2022		2,728			108,888
Fiscal 2023		—			108,888
Fiscal 2024		—			108,888
Fiscal 2025		—			54,444
Total undiscounted lease payments	$	43,648		$	517,218
Less: imputed interest		(2,091	)		(23,362	)
Present value of lease liabilities	$	41,557		$	493,856