5 .	Operating Leases , and Long-term Debt and Equipment Financing

ASU

No.

2016

02,

“Leases (Topic

842

)” requires leases with durations greater than

twelve

months to be recognized on the balance sheet. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year,

January 1, 2019.

Prior year financial statements were

not

recast under the new standard, and, therefore, those amounts are

not

presented below.

We lease a warehouse, heavy machinery, and office equipment under finance and operating leases. As of

December 31, 2019,

we had

three

operating and

six

equipment finances with remaining terms ranging from less than

one

year to

five

years; the majority of our equipment finances are financed through long-term debt agreements. For leases with terms greater than

months, we record the related asset and obligation at the present value of lease payments over the term.

None

of our leases include renewal options. We did

not

separate lease and non-lease components of contracts for any asset class.

None

of our leases require us to provide a residual value guarantee. When available, we use the rate implicit in the lease to discount lease payments to present value; however, some of our leases do

not

provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Lease Position as of

December

2019

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

	Classification on the Balance Sheet	December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	543,465
Equipment financing assets	Property and equipment, net		90,266
Total lease assets		$	633,731

Liabilities
Current
Operating	Current portion of operating leases	$	96,566
Equipment financing	Current portion of long-term debt and equipment financing		25,949
Noncurrent
Operating	Noncurrent operating leases		446,899
Equipment financing	Noncurrent long-term debt and equipment financing		22,096
Total lease liabilities		$	591,510

Weighted-average remaining lease term
Operating leases (in years)		4.25
Equipment financing (in years)		1.67

Weighted-average discount rate
Operating leases			2.45	%
Equipment financing			7.62	%

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases for the year ended

December 31, 2019.

	Year Ended December 31, 2019

Equipment financing and long-term debt cost :	$	50,438

Amortization of assets	$	44,843
Interest on equipment financing and long-term debt		5,595

Operating lease cost:		108,737
Short-term lease cost		-
Variable lease cost		-
Total lease cost	$	159,175

Other Information

The table below presents supplemental cash flow information related to leases for the year ended

December 31, 2019.

Cash paid for amounts included in the measurement of lease liabilities:	Year Ended December 31, 2019

Operating cash flows for operating leases	$	108,737
Operating cash flows for equipment financing and long-term debt	$	5,595

Financing cash flows for equipment financing and long-term debt	$	48,787

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the

first

five

years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

	Operating Leases

Period Ending December 31,
2020	$	109,969
2021		109,969
2022		109,221
2023		105,482
2024		104,342
Thereafter		43,000
Total minimum lease payments		581,983
Less: amount of lease payments representing interest		(38,518	)
Present value of future minimum lease payments		543,465
Less: current obligations under leases		(96,566	)
Long-term lease obligations	$	446,899

Long-term debt and equipment financing consists of the following at

December 31:

	2019			2018

Hansel Ford, payable in monthly installments of $385, including interest at 0.90%, collateralized by equipment, final payment due on March 14, 2019.	$	-		$	1,154

Hansel Ford, payable in monthly installments of $385, including interest at 0.90%, collateralized by equipment, final payment due on March 14, 2019.		-			1,154

Bank of the West, payable in monthly installments of $1,465, including interest at 9.22%, collateralized by equipment, final payment due January 1, 2020.		1,454			18,058

Hansel Ford, payable in monthly installments of $806, including interest at 1.94%, collateralized by equipment, final payment due on May 3, 2020.		3,213			12,727

Bank of the West, payable in monthly installments of $787, including interest at 9.23%, collateralized by equipment, final payment due January 1, 2021.		8,974			17,188

Savings Bank of Mendocino, payable in monthly installments of $518, interest at 4.24%, collateralized by equipment, final payment due on December 28, 2021.		11,897			17,473

Pawnee Leasing, payable in monthly installments of $528, including interest at 15.18%, collateralized by equipment, final payment due May 15, 2022.		11,131			16,810

Ally Financial, payable in monthly installments of $237, including interest at 5.89%, collateralized by equipment, final payment due July 1, 2024.		11,377			-
		48,046			84,564
Less current portion of long-term debt		(25,949	)		(48,262	)
Total long-term debt	$	22,096		$	36,302

Interest expense for the years ended

December 31, 2019

and

2018,

was

$5,595

and

$7,284

respectively.

As of

December 31, 2019,

maturities of long-term debt and equipment financing for each of the next

four

years as follows:

Years Ended December 31,
Principal due in 2020	$	26,417
Principal due in 2021		12,304
Principal due in 2022		5,042
Principal due in 2023		2,657
Principal due in 2024		1,626
Total	$	48,046