Note 7 - Commitments

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Text Block]

Note

- Commitments

Leases

The Company adopted the ASU Topic

842

- Leases beginning

January 1, 2019

and adopted the practical expedients consistently for all of its leases. Accordingly, the Company:

●

Did

not

reassess whether any expired or existing contracts are or contain leases.

●

Did

not

reassess the lease classification for any expired or existing leases.

●

Did

not

reassess initial direct costs for any existing leases.

In addition, the Company elected to retrospectively determine the lease term and assess impairment of right of use asset.

At the date of transition, the Company recognized an operating lease liability and right of use asset. The amount of lease liability is equal to the present value of the remaining lease payments as of

January 1, 2019

discounted using the incremental borrowing rate of

4.89%.

A right-of-use asset is measured at the amount of the lease liability adjusted for the amount of deferred straight-line rent, prepaid rent and lease incentive allowances previously recognized.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if

one

of the following applies:

there is a change in contractual terms, other than a renewal or extension of the arrangement;

a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;

there is a change in the determination of whether fulfillment is dependent on a specified asset; or

there is a substantial change to the asset.

Whenever a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. Operating lease payments are recognized as an operating expense on a straight-line basis over the lease term.

The Company has operating lease agreements for each of its offices. The Company has determined that the risks and benefits related to the leased properties are retained by the lessors. Accordingly, these are accounted for as operating leases. These lease agreements are for terms ranging from

5.25

5.33

years and provide for rental escalations of approximately

2.1%.

Additional information regarding the Company’s office operating leases is as follows:

	Year ended December 31, 2019

Rent expense for long-term operating leases	$	116,963
Rent expense for short-term leases		99,240
Total rent expense	$	216,203

The following table presents the maturity profile of the Company’s operating lease liabilities based on the contractual undiscounted payments with a reconciliation of these amounts to the remaining net present value of the operating lease liability reported in the balance sheet as of

December 31, 2019.

Year	Amount
2020	$	141,976
2021		144,976
2022		110,967
Total lease payments		397,919
Less: Interest		(26,631	)
Net present value of lease liabilities	$	371,288

The weighted average remaining lease terms and discount rates for all of the Company’s operating leases as of

December 31, 2019

were as follows:

Weighted average lease term (in months)			33
Weighted average discount rate			4.89	%

Line of credit

January 31, 2018,

we entered into a

$550,000

credit facility with PNC Bank. The facility initially matured on

January 31, 2020

and has been extended to

January 31, 2021

and accrues interest at a variable rate equal to the Daily LIBOR Rate plus

250

basis points. Interest is paid monthly. Principal borrowings

may

be prepaid at any time without penalty and the facility is secured by substantially all of our assets. The facility contains customary affirmative and negative nonfinancial covenants. As of the date of this report,

amounts were outstanding under the facility.

MIKROS SYSTEMS CORP 10-K