Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.2
Leases
3 Months Ended
Nov. 30, 2020
ASU 2016-02 Transition [Abstract]  
LEASES
7. LEASES

The Company entered into a real property lease for office space located at 15315 Magnolia Blvd., Sherman Oaks, California. The lease commenced on September 1, 2019 and expires on August 31, 2024, monthly rental expense is $4,941 per month with annual 3% escalations during the term of the lease.


The initial value of the right-of-use asset was $245,482 and the operating lease liability was $245,482. The Company monitors for events or changes in circumstances that require a reassessment of our lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset unless doing so would reduce the carrying amount of the right-of-use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right-of-use asset balance is recorded as a loss in the statement of operations and comprehensive loss.


During April 2015, the Company entered into two equipment loan agreements in the aggregate amount of $282,384, with financial institutions to acquire equipment for the oil extraction facility. The loans had a term of 60 months and bore interest at rates between 4.3% and 4.9% per annum. Principal and interest were paid in monthly installments. These loans were secured by the acquired assets.


On May 7, 2018, the Company entered into a negotiable promissory note and security agreement with Commercial Credit Group to acquire a crusher from Power Equipment Company for $660,959. An implied interest rate was calculated as 12.36% based on the timing of the initial repayment of $132,200 and subsequent 42 monthly instalments of $15,571. The terms of the note were renegotiated during June 2020, and the instalments were amended to $16,140 per month due to payments not being made during the pandemic. The promissory note is secured by the crusher.


Discount Rate


To determine the present value of minimum future lease payments for operating leases at September 1, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).


The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the 5 year ARM interest rate at the time of entering into the agreement and compared that rate to the Company’s weighted average cost of funding at the time of entering into the operating lease. The Company determined that 10.00% was an appropriate incremental borrowing rate to apply to its real-estate operating lease.


Right of use assets


Right of use assets included in the consolidated Balance Sheet are as follows:


    November 30,
2020
    August 31,
2020
 
Non-current assets                
Right of use assets – operating leases, net of amortization   $ 198,977     $ 209,101  
Right of use assets – finance leases, net of depreciation – included in property, plant and equipment     708,109       718,193  

Lease costs consist of the following:


    Three months
ended

November 30,
2020
    Three months
ended
November 30,
2019
 
             
Finance lease cost:   $ 17,483     $ 21,650  
Depreciation of right of use assets     10,085       10,085  
Interest expense on lease liabilities     7,398       11,565  
                 
Operating lease expense     15,268       14,823  
                 
Total lease cost   $ 32,751     $ 36,473  

Other lease information:


    Three months
ended
November 30,
2020
    Three months
ended
November 30,
2019
 
Cash paid for amounts included in the measurement of lease liabilities                
Operating cash flows from finance leases   $ (7,398 )   $ (11,565 )
Operating cash flows from operating leases     (15,268 )     (14,823 )
Financing cash flows from finance leases   $ (41,022 )   $ (51,018 )
                 
Right-of -use assets obtained in exchange for new operating leases   $ -       245,482  
Weighted average remaining lease term – finance leases     1.11 years       2.50 years  
Weighted average remaining lease term – operating leases     2.75 years       3.75 years  
Weighted average discount rate – finance leases     13.52 %     12.86 %
Weighted average discount rate – operating leases     10.00 %     10.00 %

Maturity of Leases


The amount of future minimum lease payments under finance leases is as follows:


    November 30,
2020
    August 31,
2020
 
Undiscounted minimum future lease payments                
Total instalments due:                
Within 1 year   $ 193,680     $ 193,680  
1 to 2 years     32,280       80,700  
2 to 3 years     -       -  
      225,960       274,380  
Imputed interest     (19,550 )     (26,948 )
Total finance lease liability   $ 206,410     $ 247,432  
                 
Disclosed as:                
Current portion   $ 178,200     $ 172,374  
Non-current portion     28,210       75,058  
    $ 206,410     $ 247,432  

The amount of future minimum lease payments under operating leases is as follows:


    November 30,
2020
    August 31,
2019
 
Undiscounted minimum future lease payments                
Total instalments due:                
Within 1 year   $ 61,528     $ 61,070  
1 to 2 years     63,375       62,903  
2 to 3 years     65,276       64,790  
3 to 4 years     50,050       66,734  
      240,229       255,497  
Imputed interest     (41,252 )     (46,396 )
Total operating lease liability   $ 198,977     $ 209,101  
                 
Disclosed as:                
Current portion   $ 43,575     $ 42,053  
Non-current portion     155,402       167,048  
    $ 198,977     $ 209,101