| LEASES |
| 10. |
LEASES |
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In February 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (“ASU 2016-02”), to enhance the transparency and comparability of financial reporting related to
leasing arrangements. The Company adopted ASU 2016-02 on December 1, 2019, or the effective date, and used the effective date
as its date of initial application. |
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|
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At the inception
of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances
present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease
liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating
lease liabilities and corresponding right-of-use assets are recorded based on the present value of lease payments over the
expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid
rent. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes
its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount
equal to the lease payments in a similar economic environment. |
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In accordance with
the guidance in ASU 2016-02, components of a lease should be separated into three categories: lease components (e.g., building),
non-lease components (e.g., common area maintenance), and non-components (e.g., property taxes and insurance). Then the fixed
and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values
to the lease components and non-lease components. |
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|
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Although separation
of lease and non-lease components is required, certain practical expedients are available. Entities may elect the practical
expedient to not separate lease and non-lease components. Rather, they would account for each lease component and the related
non-lease component together as a single component. The Company has elected to account for the lease and non-lease components
of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component
only. The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on
a straight-line basis as lease expense. |
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The Company has
operating leases for real estate in the US and South Africa, and does not have any finance leases. |
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In 2019, the Company
had entered into a real estate lease for office space in Wilmington/Andover, Massachusetts. The Company is involved in the
construction and design of the space and anticipates that it will incur construction costs, subject to an allowance for tenant
improvements of up to $210,490. The lease expiration date is August 31, 2026. The base rent is $114,180 per year, subject
to an annual upward adjustment. The lease commencement date, for accounting purposes, was reached in April 2020 when the Company
was granted access to the premises and therefore the lease is included in the Company’s operating lease right-of-use
asset and operating lease liabilities as of May 31, 2020. |
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Certain
of the Company’s leases contain options to renew and extend lease terms and options
to terminate leases early. Reflected in the right-of-use asset and lease liability on the
Company’s balance sheet are the periods provided by renewal and extension options that
the Company is reasonably certain to exercise, as well as the periods provided by termination
options that the Company is reasonably certain to not exercise.
As
of May 31, 2020, right-of-use assets of $821,856, current lease liabilities of $161,838, and
non-current lease liabilities of $559,183 are reflected on the balance sheet. The elements
of lease expense were as follows:
|
| |
|
| |
|
| |
|
Three
Months Ended |
|
|
Six Months
Ended |
|
| |
|
May
31, 2020 |
|
|
May
31, 2020 |
|
| Lease
Cost: |
|
|
|
|
|
|
|
|
| Operating
lease cost |
|
$ |
34,356 |
|
|
$ |
46,642 |
|
| Short-term
lease cost |
|
|
4,887 |
|
|
|
9,824 |
|
| Variable
lease cost |
|
|
3,406 |
|
|
|
8,696 |
|
| Total
lease cost |
|
$ |
42,649 |
|
|
$ |
65,162 |
|
| |
|
|
|
|
|
|
|
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| Other
Information: |
|
|
|
|
|
|
|
|
| Cash
paid for amounts included in the measurement of operating lease liabilities |
|
|
|
|
|
$ |
144,259 |
|
| Operating
lease liabilities arising from obtaining right-of-use assets |
|
|
|
|
|
$ |
848,312 |
|
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|
|
|
|
|
|
|
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| Operating
Leases: |
|
|
|
|
|
|
|
|
| Weighted-average
remaining lease term (in years) |
|
|
|
|
|
|
5.8
years |
|
| Weighted-average
discount rate |
|
|
|
|
|
|
8.9 |
% |
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Future lease payments under
non-cancelable operating leases as of May 31, 2020 were as follows: |
| Fiscal
Year Ended November 30, |
|
| 2020 (six
months) |
|
|
$ |
122,051 |
|
| 2021 |
|
|
|
186,473 |
|
| 2022 |
|
|
|
125,618 |
|
| 2023 |
|
|
|
120,979 |
|
| 2024 |
|
|
|
123,986 |
|
| Thereafter |
|
|
|
224,242 |
|
| Total lease payments |
|
|
|
903,349 |
|
| Less: imputed interest |
|
|
|
(182,328 |
) |
| Total lease liabilities |
|
|
$ |
721,021 |
|
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ASC 840 Comparative Disclosures |
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|
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The Company had the following lease commitments
by fiscal year at November 30, 2019: |
| Location |
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025
and beyond |
|
| Wilmington/Andover,
MA |
|
$ |
24,987 |
|
|
$ |
115,371 |
|
|
$ |
117,972 |
|
|
$ |
120,979 |
|
|
$ |
123,986 |
|
|
$ |
300,660 |
|
| Fort
Wayne, IN |
|
|
30,357 |
|
|
|
30,585 |
|
|
|
7,646 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| South
Africa* |
|
|
13,098 |
|
|
|
2,217 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total |
|
$ |
68,442 |
|
|
$ |
148,173 |
|
|
$ |
125,618 |
|
|
$ |
120,979 |
|
|
$ |
123,986 |
|
|
$ |
300,660 |
|
| (*USD
based on November 30, 2019 exchange rate) |
|
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The above lease commitments
reflect annual escalation. |
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