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COMMITMENTS AND CONTINGENCIES
 3 Months Ended
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:

           
   

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:

    
   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:

        
  

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:

    
   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