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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

11. Commitments and Contingencies

 

From time to time we are involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. Although we cannot predict the outcome of such matters, currently we have no reason to believe the disposition of any current matter could reasonably be expected to have a material adverse impact on our financial position, results of operations or the ability to carry on any of our business activities.

 

Employment Agreements

 

We have entered into employment agreements with three of our key executives, including one of our founders. Under their respective employment agreements, the executives are employed on an “at-will” basis and are bound by typical confidentiality, non-solicitation and non-competition provisions.

 

Leases

 

On January 1, 2010, we entered into an agreement to lease 6,000 rentable square feet of office space in Columbus, Ohio, used for our corporate headquarters, Document Conversion operations, and a small portion of our Document Management operations. The lease commenced on January 1, 2010 and, pursuant to a lease extension dated September 18, 2021, the lease expires on December 31, 2028. The monthly rental payment is $4,950, with gradually higher annual increases each January up to $5,850 for the final year.

 

We lease 36,000 square feet of space in Madison Heights, Michigan as the main facility for our Document Conversion operations. 20,000 square feet is used for records storage services, with the remainder of the space used for production, sales, and administration. The monthly rental payment is $43,185, with gradually higher annual increases each September up to $45,828 for the final year, and with a lease term continuing until August 31, 2026.

 

We also lease a separate 37,000 square foot building in Sterling Heights, Michigan for our Document Conversion operations, with most of the space used for document storage, except approximately 5,000 square feet, which is used for production. The monthly rental payment is $21,072, with gradually higher annual increases each May up to $24,171 for the final year, and with a lease term continuing to April 30, 2028.

 

We lease office space in Traverse City, Michigan for Document Conversion production. The monthly rental payment is $4,500, with a lease term continuing until January 31, 2024.

 

We also lease and use vehicles for logistics pertaining to our Document Conversion segment, primarily pickup and delivery of client materials, including storage and retrieval operations. The monthly rental payments for these vehicles total $4,789, with lease terms continuing until September 30, 2028.

 

We also lease and use an additional temporary office space in Madison Heights for our Document Conversion operations, with a monthly rental payment of $1,605 and a lease term on a month-to-month basis. We have made an accounting policy election to not record a right-of-use asset and lease liability for short-term leases, which are defined as leases with a lease term of 12 months or less. Instead, the lease payments are recognized as rent expense in the general and administrative expenses on the statement of operations.

 

For each of the above listed leases, management has determined it will utilize the base rental period and have not considered any renewal periods.

 

The following table sets forth the future minimum lease payments under our leases:

 

 

For the Year Ending December 31,  Finance Lease    Operating Leases  
2023  $

33,195

    $ 940,923  
2024   

33,195

      879,142  
2025   

33,195

      880,254  
2026   

33,195

      713,362  
2027   

33,195

      355,972  
Thereafter   24,896      166,833  
  $

190,871

    $ 3,936,536  

 

 

The following table summarizes the components of lease expense:

 

For the Year Ending December 31,  2022   2021 
Finance lease expense:          
Amortization of ROU assets  $6,708  $- 
Interest on lease liabilities   2,933   - 
Operating lease expense   952,270   1,043,980 
Short-term lease expense   19,254    97,024 

 

The following tables set forth additional information pertaining to our leases:

 

For the Year Ending December 31,  2022   2021 
Cash paid for amounts included in the measurement of lease liabilities:          
Financing cash flows from finance lease (interest)  $2,933   $- 
Financing cash flows from finance lease (principal)   5,366    - 
Operating cash flows from operating leases  635,324   729,549 
ROU assets obtained in exchange for new finance lease liability   

160,990

    - 
Weighted average remaining lease term – finance lease   

5.8 years

    - 
Weighted average remaining lease term – operating leases   4.5 years    5.4 years 
Discount rate – finance lease   

7.50

%   - 
Weighted average discount rate – operating leases   6.97%   7.02%

 

 

   December 31, 2022   December 31, 2021 
Operating leases:          
Right-of-use assets, operating  $3,200,191   $3,841,612 
Lease liabilities, operating – current   692,074    616,070 
Lease liabilities, operating – net of current   2,624,608    3,316,682 
Total operating lease liabilities  $3,316,682   $3,932,752 
           
Finance leases:          
Right-of-use asset, finance  $160,990   $- 
Accumulated amortization   6,708    - 
Right-of-use asset, finance, net   154,282    - 
           
Lease liability, finance – current   22,493    - 
Lease liability, finance – net of current   133,131    - 
Total finance lease liability  $155,624   $-