Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.4
Leases
3 Months Ended
Nov. 30, 2021
Leases [Abstract]  
LEASES
8. 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 (adjustable-rate mortgage) 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,
2021
    August 31,
2021
 
Non-current assets                
Right of use assets – operating leases, net of amortization   $ 155,402     $ 167,048  
Right of use assets – finance leases, net of depreciation – included in property, plant and equipment     667,768       677,853  

 

Lease costs consist of the following:

 

    Three months
ended
November 30,
2021
    Three months
ended
November 30,
2020
 
             
Finance lease cost:   $ 11,657     $ 17,483  
Depreciation of right of use assets     10,085       10,085  
Interest expense on lease liabilities     1,572       7,398  
                 
Operating lease expense     15,268       15,268  
                 
Total lease cost   $ 26,925     $ 32,751  

 

Other lease information:

 

    Three months
ended
November 30,
2021
    Three months
ended
November 30,
2020
 
Cash paid for amounts included in the measurement of lease liabilities            
Operating cash flows from finance leases   $ (1,572 )   $ (7,398 )
Operating cash flows from operating leases     (15,268 )     (15,268 )
Financing cash flows from finance leases   $ (46,848 )   $ (41,022 )
                 
Weighted average remaining lease term – finance leases     2 months       1.11 years  
Weighted average remaining lease term – operating leases     2.75 years       3.75 years  
Weighted average discount rate – finance leases     13.52 %     13.52 %
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,
2021
    August 31,
2021
 
Undiscounted minimum future lease payments            
Total instalments due:            
Within 1 year   $ 32,280     $ 80,700  
      32,280       80,700  
Imputed interest     (4,070 )     (5,642 )
Total finance lease liability   $ 28,210     $ 75,058  
                 
Disclosed as:                
Current portion   $ 28,210     $ 75,058  

 

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

 

    November 30,
2021
    August 31,
2021
 
Undiscounted minimum future lease payments            
Total instalments due:            
Within 1 year   $ 63,375     $ 62,903  
1 to 2 years     65,276       64,790  
2 to 3 years     50,050       66,734  
      178,701       194,427  
Imputed interest     (23,299 )     (27,379 )
Total operating lease liability   $ 155,402     $ 167,048  
                 
Disclosed as:                
Current portion   $ 50,071     $ 48,376  
Non-current portion     105,331       118,672  
    $ 155,402     $ 167,048