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Commitments and Contingencies
9 Months Ended
Sep. 30, 2024
Commitments and Contingencies  
Commitments and Contingencies

Note 9 – Commitments and Contingencies

 

Operating Leases

 

We have entered into various operating lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842: Leases, which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

 

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.

We have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.

 

We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

 

Our leases, where we are the lessee, do not include an option to extend the lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

 

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.

 

Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.

 

At September 30, 2024 and December 31, 2023, respectively, the Company had no financing leases as defined in ASC 842, "Leases."

 

The Company leases its headquarters office. During the year ended December 31, 2020, the Company entered into an office lease for its administrative operations, (the “Saratoga lease”). The Saratoga lease is for a 48.5-month term, with an original expiration date of July 31, 2024, with an initial monthly payment of $8,819. Straight-line rent per month was calculated at $9,522.

As of March 31, 2023, the Company was in default for the Saratoga Lease due to non-payment. Subsequent to March 31, 2023, the Company terminated the Saratoga Lease and entered into a settlement agreement with the landlord.

 

On January 30, 2023, the Company entered a new lease for its headquarters office, (the “Suite 200 Lease”) for a 60 month lease with an expiration date of January 31, 2028 with an initial monthly payment of $7,943.

 

The tables below present information regarding the Company's operating lease assets and liabilities at September 30, 2024 and December 31, 2023, respectively:

 

 

 

 

September 30,

2024

 

 

December 31,

2023

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease - right-of-use asset - non-current

 

$280,720

 

 

$168,339

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liability

 

$309,642

 

 

$183,353

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (years)

 

 

3.34

 

 

 

1.58

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 

8.00%

 

 

8.00%

 

 

 

 

 

 

 

 

 

The components of lease expense were as follows:

 

 

 

 

 

 

 

 

 

 

 

September 30,

2024

 

 

June 30,

2023

 

 

 

 

 

 

 

 

Operating lease costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use operating lease asset

 

$63,162

 

 

$42,108

 

Lease liability expense in connection with obligation repayment

 

 

20,368

 

 

$14,833

 

Total operating lease costs

 

$83,530

 

 

$56,941

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information related to operating leases was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash outflows from operating lease (obligation payment)

 

$73,391

 

 

$47,896

 

Right-of-use asset obtained in exchange for new operating lease liability

 

$-

 

 

$421,080

 

 

Future minimum lease payments under non-cancellable leases for the years ended December 31, were as follows:

 

2024 (3 Months)

 

$24,543

 

2025

 

 

103,661

 

2026

 

 

107,020

 

2027

 

 

110,228

 

2028

 

 

9,208

 

Total undiscounted cash flows

 

 

354,660

 

Less: amount representing interest

 

 

(45,018)

Present value of operating lease liability

 

 

309,642

 

Less: current portion of operating lease liability

 

 

77,178

 

Long-term operating lease liability

 

$232,464

 

    

Contingencies – Legal Matters

 

The Company is subject to litigation claims arising in the ordinary course of business. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.

 

As of September 30, 2024 and December 31, 2023, respectively, the Company is not aware of any litigation, pending litigation, or other transactions that would require accrual or disclosure.