Leases

9 Months Ended

Sep. 30, 2020

Leases

Leases

6. Leases

The Company leases property and equipment under operating leases, primarily office and warehouse locations. For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of lease payments over the term. Many of these leases contain rental escalation clauses which are factored into the determination of lease payments when appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the Company’s current leases do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at lease commencement.

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component. The Company elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase obligations, of twelve months or less in its consolidated balance sheets for all classes of underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.

The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas are owned by the Company or leased to the Company for immaterial annual amounts and are not included in the lease amounts presented on the consolidated balance sheets.

AdR entered into a lease for land to be used in the Project with an initial effective term of 20-years from the date of full operation of its proposed seawater desalination plant. The lease is cancellable by AdR should it ultimately not proceed with the Project. On June 29, 2020, AdR was notified that the APP Contract was terminated. As a result, the Company, AdR and NSC expect to terminate the various agreements ancillary to the Project or to transfer them to the State, including this land lease for the Project. As such, the lease amounts as of September 30, 2020 do not include this lease.

All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of the lease. All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of the consolidated balance sheet date.

Effective May 1, 2019, the Company executed a new lease for its office located in the Cayman Islands under terms comparable to the prior lease. This new lease expires April 30, 2024.

Lease assets and liabilities

The following table presents the lease-related assets and liabilities and their respective classification on the condensed consolidated balance sheets:

	September 30, 2020		December 31, 2019
ASSETS
Current
Prepaid expenses and other current assets	$	202,459	$	33,567
Current assets of discontinued operations		—		2,530
Noncurrent
Operating lease right-of-use assets		1,414,736		1,811,516
Long-term assets of discontinued operations		41,554		2,627,696
Total lease right-of-use assets	$	1,658,749	$	4,475,309
LIABILITIES
Current
Current maturities of operating leases	$	545,364	$	688,540
Current liabilities of discontinued operations		25,918		67,211
Noncurrent
Noncurrent operating leases		1,071,831		1,156,543
Noncurrent liabilities of discontinued operations		8,842		2,679,932
Total lease liabilities	$	1,651,955	$	4,592,226
Weighted average remaining lease term:
Operating leases		3.5 years		3.5 years
Operating leases - discontinued operations		1.4 years		24.0 years
Weighted average discount rate:
Operating leases		4.17%		4.37%
Operating leases - discontinued operations		3.48%		4.68%

The components of lease costs were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating lease costs	$	191,507	$	164,040	$	576,971	$	404,268
Short-term lease costs		—		4,119		5,518		12,154
Lease costs - discontinued operations		20,048		54,547		120,753		163,546
Total lease costs	$	211,555	$	222,706	$	703,242	$	579,968

Supplemental cash flow information related to leases is as follows:

	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in measurement of liabilities:
Operating cash outflows for operating leases	$	605,306	$	538,566
Operating cash outflows for operating leases - discontinued operations		119,480		169,928

Future lease payments relating to the Company’s operating lease liabilities as of September 30, 2020 were as follows:

Years ending December 31,	Total
Remainder of 2020	$	195,544
2021		505,206
2022		402,563
2023		405,113
2024		187,510
Thereafter		42,389
Total future lease payments		1,738,325
Less: imputed interest		(121,130)
Total lease obligations		1,617,195
Less: current obligations		(545,364)
Noncurrent lease obligations	$	1,071,831