Property and Equipment

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Property and Equipment

Note 3. Property and Equipment

Property and equipment consisted of the following as of:

	September 30, 2021			December 31, 2020
Land	$	1,778,987		$	-
Building & Building Improvements		8,606,224			-
Computer equipment		1,162,369			1,115,326
Furniture and office equipment		256,425			223,925
Machinery and equipment		1,743,487			1,096,898
STEP equipment		1,502,694			1,206,757
Leasehold improvements		334,933			334,934
Total property and equipment		15,385,119			3,977,840
Less: Accumulated depreciation and amortization		(2,947,058	)		(2,596,096	)
Property and equipment, net	$	12,438,061		$	1,381,744

Depreciation expense, including STEP depreciation, was $350,963 and $268,200 for the nine months ended September 30, 2021, and 2020, respectively. Depreciation expense, including STEP depreciation, was $154,252 and $93,037 for the three months ended September 30, 2021, and 2020, respectively.

On August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $10,800,000, paid with cash and proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $8,600,000 (Note 7). The Property consists of approximately 4.3 acres and an industrial building of approximately 76,650 square feet. The Company intends to move all of its’ operations and headquarters to the Property during 2022. Approximately 15,000 square feet of the building is dedicated to two pre-existing tenants with multi-year rent agreements.

Under the provision of ASC 805, the Company determined this acquisition was an asset acquisition. This determination was based on substantially all of the fair value of the gross assets acquired was concentrated in the similarly identifiable assets of the Property. The fair value was allocated to the land, building, and acquired leases based upon their relative fair values at the date of acquisition in accordance with ASC 805-50-30-3.

The fair value of the in-place leases is the estimated cost to replace the leases (including loss of rent, estimated commissions and legal fees paid in similar leases). The capitalized in-place leases are amortized over the remaining term of the leases as amortization expense. The fair value of the above or below market lease is the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and the estimated current market lease rate expected over the remaining non-cancelable life of the lease. The capitalized above or below market lease values are amortized as a decrease or increase to the rental income over the remaining term of the lease.

Upon closing, the Company assumed interest in two in-place leases. The first tenant took occupancy in November 2006 and is paying the annual Triple Net rate of $11.34 per square foot. The rate increased to $11.68 per square foot on November 1, 2021, increasing to $12.03 on November 1, 2022, and expiring on October 31, 2023. The second tenant took occupancy in November 2016 and is paying the annual rate of $9.00 per square foot. The lease expires October 31, 2024. This tenant has the option to extend the lease for 5 years thru October 31, 2029 with 5% increases to the rental rate for the first 3 years.

The following table presents purchase price allocation for the assets acquired:

	September 30, 2021
Land	$	1,778,987
Building and building improvements	$	8,566,492
Acquired Lease Intangible Assets	$	454,521
Total Purchase Price	$	10,800,000