Annual report pursuant to Section 13 and 15(d)

Leases

v3.21.2
Leases
12 Months Ended
Aug. 31, 2021
Leases Abstract  
LEASES
11. LEASES

 

Adoption of ASC Topic 842, “Leases”

 

On September 1, 2019, the Company adopted Topic 842 using the prospective transition method applied to leases that were in place as of September 1, 2019. Results for reporting periods beginning after September 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840.

 

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:

 

    August 31,
2021
    August 31,
2020
 
Non-current assets            
Right of use assets – operating leases, net of amortization   $ 167,048     $ 209,101  
Right of use assets – finance leases, net of depreciation – included in property, plant and equipment     677,853       718,193  

 

Lease costs consist of the following:

 

   

Year ended

August 31,
2021

   

Year ended

August 31,
2020

 
             
Finance lease cost:   $ 63,165     $ 82,878  
Depreciation of right of use assets     40,341       40,341  
Interest expense on lease liabilities     22,824       42,537  
                 
Operating lease expense     61,071       59,292  
                 
Total lease cost   $ 124,236     $ 142,170  

 

Other lease information:

   

Year ended August 31,

2021

   

Year ended August 31,

2020

 
Cash paid for amounts included in the measurement of lease liabilities            
Operating cash flows from finance leases   $ (22,824 )   $ (42,537 )
Operating cash flows from operating leases     (61,071 )     (59,292  
Financing cash flows from finance leases   $ (172,375 )   $ (157,388 )
                 
Right-of -use assets obtained in exchange for new operating leases   $
-
      245,482  
Weighted average remaining lease term – finance leases     5 months       1.25 years  
Weighted average remaining lease term – operating leases     3 years       4 years  
Weighted average discount rate – finance leases     12.36 %     12.36 %
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:

 

    August 31,
2021
    August 31,
2020
 
Undiscounted minimum future lease payments            
Total instalments due:            
Within 1 year   $ 80,700     $ 193,680  
1 to 2 years     -       80,700  
2 to 3 years    
-
     
-
 
      80,700       274,380  
Imputed interest     (5,642 )     (26,948 )
Total finance lease liability   $ 75,058     $ 247,432  
                 
Disclosed as:                
Current portion   $ 75,058     $ 172,374  
Non-current portion    
-
      75,058  
    $ 75,058     $ 247,432  

 

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

 

    August 31,
2021
    August 31,
2020
 
Undiscounted minimum future lease payments            
Total instalments due:            
Within 1 year   $ 62,903     $ 61,070  
1 to 2 years     64,790       62,903  
2 to 3 years     66,734       64,790  
3 to 4 years     -       66,734  
      194,427       255,497  
Imputed interest     (27,379 )     (46,396  
Total operating lease liability   $ 167,048     $ 209,101  
                 
Disclosed as:                
Current portion   $ 48,376     $ 42,053  
Non-current portion     118,672       167,048  
    $ 167,048     $ 209,101