Leases |
11 — Leases We have entered into operating lease contracts for our manufacturing plant, office space, and various office equipment with one material lease contract outstanding. In January 2014, we entered into a non-cancelable operating lease, commencing July 1, 2014, for our manufacturing and headquarters facility in Winter Springs, Florida owned by Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman of the Board, Roger Susi. Pursuant to the terms of our lease for this property, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index. For the three months ended June 30, 2023 and 2022, the Company paid Susi, LLC $127,817 and $118,504 respectively. For the six months ended June 30, 2023 and 2022, the Company paid Susi, LLC $255,635 and $237,008 respectively. For the year ended December 31, 2022, the Company paid Susi, LLC $492,643 related to this lease. Under the terms of the lease, we are responsible for insurance and maintenance expenses. Prior to May 31, 2019, the expiration date of the initial lease term, and pursuant to the terms of the lease contract, we renewed the lease for an additional five years, resulting in a new lease expiration date of May 31, 2024. Unless advance written notice of termination is timely provided, the lease will automatically renew for one additional successive term of five years beginning in 2024, and thereafter, will be renewed for successive terms of one year each. At the time we adopted ASU 2016-02, Leases (Topic 842), we concluded that we would exercise the remaining five-year option, resulting in a remaining lease term of 6.8 years as of June 30, 2023. This lease agreement does not contain any residual value guarantee or material restrictive covenants. In February 2023, we entered into two, two-year, non-cancelable operating leases with non-related parties for additional office space in Winter Springs, Florida. Pursuant to the lease terms the total monthly base rent is $10,055. For the three months ended June 30, 2023 and 2022, the Company paid $30,165 and $0 respectively. For the six months ended June 30, 2023 and 2022, the Company paid $52,975 and $0 respectively. Under the terms of the lease, we are responsible for insurance and maintenance expenses. Pursuant to the contract terms, the leases will expire February 2025 and do not contain any residual value guarantee or material restrictive covenants. We will reassess the lease accounting terms and assumptions once the details regarding completion of a new manufacturing facility and planned departure of the current primary facility is finalized. Operating lease cost recognized in the unaudited Condensed Statements of Operations is as follows: | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | | 2023 | | 2022 | | 2023 | | 2022 | | | (unaudited) | | (unaudited) | Cost of revenue | $ | 58,086 | | $ | 53,854 | | $ | 116,172 | | $ | 107,708 | General and administrative | | 92,206 | | | 54,710 | | | 183,676 | | | 109,420 | Sales and marketing | | 3,251 | | | 3,014 | | | 6,501 | | | 6,028 | Research and development | | 9,006 | | | 8,350 | | | 18,013 | | | 16,700 | Total | $ | 162,549 | | $ | 119,928 | | $ | 324,362 | | $ | 239,856 |
Lease costs for short-term leases were immaterial for the three and six months ended June 30, 2023, and 2022. Maturity of our operating lease liability as of June 30, 2023, is as follows: | | | Six months ending December 31, 2023 | $ | 269,657 | 2024 | | 535,954 | 2025 | | 415,294 | 2026 | | 409,596 | 2027 | | 409,596 | Thereafter | | 594,446 | Total lease payments | | 2,634,543 | Imputed interest | | (386,876) | Present value of lease liability | $ | 2,247,667 |
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