|6 Months Ended|
Sep. 30, 2019
In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with and alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.
In addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its prior conclusions about lese identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise). As a result of the short-term expedient election, the Company did not have leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of topic 842.
As part of the Lineal Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles and machinery and equipment. The Company’s leases have remaining lease terms of 1 year to 4 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial Right of Use (“ROU”) asset or lease liability. The Company’s lease agreements do not contain any material restrictive covenants. The Company recognized a right of use asset and operating lease liability of $913,396 as part of the purchase price accounting, based on estimated values at the acquisition date.
The components of lease cost for operating and finance leases for the three and six months ended September 30, 2019 were as follows:
Supplemental cash flow information related to leases was as follows:
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheet at September 30, 2019:
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
The following table provides the maturities of lease liabilities at September 30, 2019:
At September 30, 2019, the Company had no additional leases which had not yet commenced.
In October 2018, the Company entered into a settlement agreement for the unexpired lease term of the Houston office and agreed to pay the landlord $100,000 plus $10,000 per month for each of the next 20 months. In the event that an aggregate of $150,000 was paid by April 15, 2019, in addition to the $100,000 payment made in October 2018, the remaining $50,000 of payments would be forgiven and waived. The Company made the payments prior to March 31, 2019, resulting in no remaining unpaid amounts at March 31, 2019. See also “NOTE 8 – Commitments and Contingencies – Legal Proceedings – MidFirst”.
Effective August 1, 2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas 77002. The entity providing use of the space without charge is affiliated with the Company’s Chief Financial Officer.
The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing.
Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef