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Lease

6 Months Ended

Jun. 30, 2024

9. Leases

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.

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.

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.

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. 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 summary of long leases in the condensed consolidated balance sheet as of June 30, 2024 is as follows:

	ROU Asset		Operating Lease Liability - Current		Operating Lease Liability – Non-Current		Total Operating Lease Liability
Lease:
Office and laboratory, Pretoria, South Africa	$	595,655	$	59,746	$	611,220	$	670,966
Additional production, Pretoria, South Africa		306,197		177,221		128,976		306,197
Laboratory, Pretoria, South Africa		58,177		22,059		37,424		59,483
Office and production, Pretoria, South Africa		457,373		282,770		237,154		519,924
Total	$	1,417,402	$	541,796	$	1,014,774	$	1,556,570

A summary of long-term leases in the condensed consolidated balance sheet as of December 31, 2023 is as follows:

	ROU Asset		Operating Lease Liability - Current		Operating Lease Liability – Non-Current		Total Operating Lease Liability
Lease:
Office and laboratory, Pretoria, South Africa	$	626,548	$	53,504	$	637,348	$	690,852
Laboratory, Pretoria, South Africa		68,089		19,608		48,805		68,413
Office and production, Pretoria, South Africa		564,064		263,452		380,494		643,946
Total	$	1,258,701	$	336,564	$	1,066,647	$	1,403,211

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 and six months ended June 30, 2024 and the two months ended December 31, 2023.

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

	Three Months Ended June 30, 2024			Three Months Ended June 30, 2023			Six Months Ended June 30, 2024			Six Months Ended June 30, 2023
Operating Lease Cost
Operating lease cost	$	167,692		$	28,069		$	316,592		$	59,229
Other Information
Operating cash flows paid for amounts included in the measurement of lease liabilities	$	162,037		$	21,572		$	305,375		$	45,520
Operating lease liabilities arising from obtaining right-of-use assets	$	-		$	-		$	364,458		$	-
Weighted average remaining lease term (years)		3.80			7.50			3.80			7.50
Weighted average discount rate		10.12	%		7.50	%		10.12	%		7.50	%

Future lease payments under noncancelable operating lease liabilities as of June 30, 2024 are as follows:

	Operating Leases
Future Lease Payments
2024 (remaining six months)	$	335,331
2025		676,330
2026		263,476
2027		129,538
2028		139,254
Thereafter		310,624
Total lease payments	$	1,854,553
Less: imputed interest		(297,983	)
Total lease liabilities	$	1,556,570
Less current portion		(541,796	)
Lease liability – noncurrent	$	1,014,774

The Company records the expense from short term leases as incurred. For the three and six months ended June 30, 2024, the Company recorded $43,205 and $15,762 in rent expense from its short term leases in Pretoria, South Africa. As of June 30, 2024, there are no short term leases in effect. Lease expense from short term leases for the three and six months ended June 30, 2023 was $36,530.

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 ongoing finance leases in South Africa for certain fixed assets. In addition, In June 2024, the Company entered into a new finance lease for additional equipment.

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

	Three Months Ended June 30, 2024			Three Months ended June 30, 2023			Six Months Ended June 30, 2024			Six Months Ended June 30, 2023
Finance Lease Cost
Interest on lease liabilities	$	16,893		$	—		$	23,933		$	—
Other Information
Operating cash flows paid for amounts included in the measurement of finance lease liabilities	$	24,468		$	—		$	38,846		$	—
Amortization of right-of-use assets	$	9,871		$	—		$	19,312		$	—
Weighted average remaining lease term (years)		4.4			—			4.4			—
Weighted average discount rate		12.9	%		—	%		12.9	%		—	%

Future lease payments under noncancelable finance lease liabilities are as follows as of June 30, 2024:

	Finance Leases
Future Lease Payments
2024 (remaining six months)	$	101,183
2025		203,143
2026		202,645
2027		195,913
2028		157,005
Thereafter		47,463
Total lease payments	$	907,352
Less: imputed interest		(224,191	)
Total lease liabilities	$	683,161
Less current portion		(120,595	)
Lease liability – noncurrent	$	562,566