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COMMITMENTS AND CONTINGENCIES | 3 Months Ended
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Mar. 31, 2025
Commitments and Contingencies (Note 8) |
COMMITMENTS AND CONTINGENCIES | NOTE 8 – COMMITMENTS AND CONTINGENCIES Operating Lease Obligations On July 26, 2021, the Company entered a new operating lease agreement for office and warehouse combination space of 40,000 square feet, with the lease commencing on November 1, 2021, and ending April 30, 2032. This new space combines the Company’s two separate work locations into one facility, which allows for greater collaboration and also accommodates a larger anticipated workforce and manufacturing facility. On November 24, 2021, the lease was amended to commence on December 1, 2021, and end on May 31, 2032. The Company recognized a ROU asset and operating lease liability in the amount of $4,980,104 at lease commencement. Rent for the first eleven months of the term was calculated based on 30,000 rentable square feet. The rent is subject to an annual escalation of 2.5%, beginning November 1, 2023. The Company made a security deposit payment in the amount of $600,000 on July 26, 2021. Per the contract, in the 18th month and every 12th month thereafter, the security deposit is reduced by $50,000 and now stands at $500,000. The right of use asset balance at March 31, 2025, net of accumulated amortization, was $3,937,256. As of March 31, 2025, the office and warehouse lease is the Company’s only lease with a term greater than twelve months. The office and warehouse lease has a remaining term of approximately 7.25 years and includes an option to extend for two renewal terms of five years each. The renewal options are not reasonably certain to be exercised, and therefore, they are not included when determining the lease term used to establish the right-of-use asset and lease liability. The Company also has several short-term leases, primarily related to equipment. The Company made an accounting policy election to not recognize short-term leases with terms of twelve months or less on the consolidated balance sheet and instead recognize the lease payments in expense as incurred. The Company has also elected to account for real estate leases that contain both lease and non-lease components (such as common area maintenance) as a single lease component. The following table shows supplemental information related to leases:
Schedule of supplemental information related to leases |  |  |  |  |  |
|  | Three Months Ended March 31, |
|  | 2025 |  |  | 2024 |
Lease cost: |  |  |  |  |  |  |  |
Operating lease cost |  | $ | 195,409 |  |  | $ | 195,410 |
Short-term lease cost |  | $ | 5,303 |  |  | $ | 4,296 |
Other information: |  |  |  |  |  |  |  |
Operating cash outflow used for operating leases |  | $ | 199,224 |  |  | $ | 194,367 |
Weighted average discount rate |  |  | 9.0 | % |  |  | 9.0 | %
Weighted average remaining lease term |  |  | 7.25 years |  |  |  | 8.3 years |
As of March 31, 2025, future minimum lease payments due under our operating leases are as follows:
Schedule of future minimum lease payments due under the operating lease |  |  |
|  | Amount |
Calendar year: |  |  |  |
2025 |  | $ | 599,332 |
2026 |  |  | 818,518 |
2027 |  |  | 838,984 |
2028 |  |  | 859,856 |
Thereafter |  |  | 3,183,571 |
Total undiscounted future minimum lease payments |  |  | 6,300,261 |
Less: Impact of discounting |  |  | (1,729,619 | )
Total present value of operating lease obligations |  |  | 4,570,642 |
Current portion |  |  | (803,536 | )
Operating lease obligations, less current portion |  | $ | 3,767,106 |
Master Lease Agreement On November 1, 2024, the Company entered into a Master Lease Agreement (“MLA”) for a total lease obligation of $2,662,282. The lease is structured with a repayment term of 66 months, with fixed monthly payments commencing on December 10, 2024. At the end of the lease term, the Company has the option to purchase the leased asset for $1. In accordance with ASC 842, the lease is classified as a finance lease, as the $1 buyout option indicates a transfer of ownership. As a result, the Company has recorded a right-of-use asset and a corresponding lease liability on its balance sheet. Interest expense and amortization of the right-of-use asset will be recognized over the lease term. Management believes this lease structure supports the Company’s operational and financial objectives. The following table shows supplemental information related to the MLA:
Schedule of supplemental information related to leases |  |  |  |  |  |
|  | Three Months Ended March 31, |
|  | 2025 |  |  | 2024 |
Lease cost: |  |  |  |  |  |  |  |
Master Lease Agreement cost |  | $ | 121,013 |  |  | $ | — |
Short-term lease liability |  | $ | 487,695 |  |  | $ | — |
Other information: |  |  |  |  |  |  |  |
Operating cash outflow used for operating leases |  | $ | 11,700 |  |  | $ | — |
Weighted average discount rate |  |  | 8.63 | % |  |  | — |
Weighted average remaining lease term |  |  | 5.17 years |  |  |  | — |
At March 31, 2025, future minimum lease payments due under the MLA are as follows:
Schedule of future minimum lease payments due under the operating lease |  |  |
|  | Amount |
Calendar year: |  |  |  |
2025 |  | $ | 355,751 |
2026 |  |  | 527,777 |
2027 |  |  | 527,777 |
2028 |  |  | 527,777 |
Thereafter |  |  | 703,702 |
Total undiscounted future minimum lease payments |  |  | 2,642,784 |
Less: Impact of discounting |  |  | (517,049 | )
Total present value of MLA obligation |  |  | 2,125,735 |
Current portion |  |  | (487,695 | )
MLA, less current portion |  | $ | 1,638,040 |

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