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Lease

3 Months Ended

Mar. 31, 2024

9. Lease

The Company accounts for facility leases in accordance with ASC 842 (Note 2). The Company is party to five facility leases in South Africa for office, manufacturing and laboratory space.

A lease for office and laboratory space in Pretoria, South Africa commenced in October 2021 with the initial term set to expire in December 2030. The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 7.5% based on the remaining lease term of the applicable lease. Consequently, a ROU lease asset of $952,521 with a corresponding lease liability of $952,521 based on the present value of the minimum rental payments of such lease was recorded at the inception of the lease. In the consolidated balance sheet as of March 31, 2024, the Company has a ROU asset balance of $590,277 and a current and non-current lease liability of $54,644 and $603,026, respectively, relating to this ROU lease asset. In the consolidated balance sheet as of December 31, 2023, the Company has a ROU asset balance of $626,548 and a current and non-current lease liability of $53,504 and $637,348, respectively, relating to this ROU lease asset.

A lease for additional production space in Pretoria, South Africa commenced in April 2023 with the initial term set to expire in March 2024. Effective February 1, 2024, this lease was amended such that the new term begins on February 1, 2024 and expires in February 2026. Prior to the amendment, the Company had applied the guidance in ASC 842 and determined that this lease was a short term lease and expensed the monthly payments as incurred. The Company has applied the guidance in ASC 842 to the amended lease and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 10.6% based on the lease term of the applicable lease. Consequently, a ROU lease asset of $364,458 with a corresponding lease liability of $364,458 based on the present value of the minimum rental payments of such lease was recorded at the inception of the lease. In the consolidated balance sheet as of March 31, 2024, the Company has a ROU asset balance of $334,590 and a current and non-current lease liability of $166,119 and $168,470, respectively, relating to this ROU lease asset.

A lease for laboratory space in Pretoria, South Africa commenced in November 2023 with the initial term set to expire in October 2026. The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 13.16% based on the remaining lease term of the applicable lease. Consequently, a ROU lease asset of $70,607 with a corresponding lease liability of $70,607 based on the present value of the minimum rental payments of such lease was recorded at the inception of the lease. In the consolidated balance sheet as of March 31, 2024, the Company has a ROU asset balance of $61,055 and a current and non-current lease liability of $20,096 and $41,745, respectively, relating to this ROU lease asset. In the consolidated balance sheet as of December 31, 2023, the Company has a ROU asset balance of $68,089 and a current and non-current lease liability of $19,608 and $48,805, respectively, relating to this ROU lease asset.

A lease for office and production space in Pretoria, South Africa commenced prior to October 31, 2023 with the initial term set to expire in March 2026. The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease effective on the date of ASP Isotopes acquisition of 51% of PET Labs Pharmaceuticals. The Company’s incremental borrowing rate is approximately 12.875% based on the expected remaining lease term of the applicable lease. Consequently, a ROU lease asset of $592,304 which reflects an $84,858 unfavorable adjustment based on the fair value of the lease terms and a corresponding lease liability of $677,163 based on the present value of the minimum rental payments of such lease was recorded at the date of ASP Isotopes acquisition of 51% of PET Labs Pharmaceuticals. In the consolidated balance sheet as of March 31, 2024, the Company has a ROU asset balance of $494,344 and a current and non-current lease liability of $263,566 and $299,576, respectively, relating to this ROU lease asset. In the consolidated balance sheet as of December 31, 2023, the Company has a ROU asset balance of $564,064 and a current and non-current lease liability of $263,452 and $380,494, respectively, relating to this ROU lease asset. Dr. Gerdus Kemp, an officer of PET Labs Pharmaceuticals and an employee of ASP Isotopes UK Ltd is the sole owner of the facility under this lease agreement.

A lease for additional production space in Pretoria, South Africa commenced prior to October 31, 2023 with the initial term expiring in March 2024 and the Company is maintaining the lease under the agreed upon monthly extensions. The Company has applied the guidance in ASC 842 and has determined that this lease is a short term lease effective on the date of ASP Isotopes acquisition of 51% of PET Labs Pharmaceuticals and expensed the monthly payments for the three months ended March 31, 2024 and the two months ended December 31, 2023.

Quantitative information regarding the Company’s operating lease liabilities is as follows:

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
Operating Lease Cost
Operating lease cost	$	148,900		$	31,160
Other Information
Operating cash flows paid for amounts included in the measurement of lease liabilities	$	143,338		$	23,948
Operating lease liabilities arising from obtaining right-of-use assets	$	364,458		$	—
Weighted average remaining lease term (years)		3.94			7.75
Weighted average discount rate		10.23	%		7.5	%

Future lease payments under noncancelable operating lease liabilities are as follows as of March 31, 2024:

	Operating Leases
Future Lease Payments
2024 (remaining nine months)	$	482,123
2025		650,909
2026		253,573
2027		124,669
2028		134,019
Thereafter		298,947
Total lease payments	$	1,944,240
Less: imputed interest		(326,998	)
Total lease liabilities	$	1,617,242
Less current portion		(504,425	)
Lease liability – noncurrent	$	1,112,817

The Company records the expense from short term leases as incurred. For the three months ended March 31, 2024, the Company recorded $27,443 in rent expense from its short term leases in Pretoria, South Africa. As of March 31, 2024, there are no short term leases in effect.

The Company accounts for finance leases in accordance with ASC 842 (Note 2). Subsequent to the acquisition of 51% of PET Labs Pharmaceuticals on October 31, 2023, the Company is party to nine finance leases in South Africa for certain fixed assets.

Quantitative information regarding the Company’s finance lease liabilities is as follows:

	Three Months Ended March 31, 2024			Three Months Ended March 31, 2023
Finance Lease Cost
Interest on lease liabilities	$	7,040		$	—
Other Information
Operating cash flows paid for amounts included in the measurement of finance lease liabilities	$	14,378		$	—
Amortization of right-of-use assets	$	9,441		$	—
Weighted average remaining lease term (years)		3.7			—
Weighted average discount rate		11.3	%	—		%

Future lease payments under noncancelable finance lease liabilities are as follows as of March 31, 2024:

	Finance Leases
Future Lease Payments
2024 (remaining nine months)	$	64,747
2025		82,621
2026		75,369
2027		61,710
2028		16,653
Total lease payments	$	301,100
Less: imputed interest		(54,858	)
Total lease liabilities	$	246,242
Less current portion		(60,835	)
Lease liability – noncurrent	$	185,407