Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.23.3
Leases
9 Months Ended
Sep. 30, 2023
Leases [Abstract]  
Leases

8. Leases

 

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria are satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. For leases in which the Company is the lessee do not have a readily determinable implicit rate, an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.

 

In April of 2023, the Company entered into an operating lease for office space. The lease has a 10-year lease term with an additional abatement period of 23 months. The Company’s secured borrowing rate of 15% was used to determine the present value of lease payments and establish the right-of-use asset and lease liability at lease inception for this lease.

 

In July of 2023, the Company entered into an operating lease for office space in Scotland. The lease has a term of 5 years with two options to extend. Management is reasonably certain to exercise the first option to extend the lease. The Company’s secured borrowing rate of 15% was used to determine the present value of the lease payments and establish the right-of-use asset and lease liability at lease inception for this lease.

 

In August of 2023, the Company entered into an operating lease for office space in Norway. The lease has a term of 5 years. The Company’s secured borrowing rate of 15% was used to determine the present value of the lease payments and establish the right-of-use asset and lease liability at lease inception for this lease.

 

The Company’s other operating leases include its current office and manufacturing facility and leases for certain office equipment.

 

The following table presents the Company’s lease costs which are included in general and administrative expenses in the unaudited condensed consolidated statements of operations:

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2023     2022     2023     2022  
Fixed lease expense   $ 129,822     $ 139,315     $ 382,662     $ 69,191  
Variable lease expense     136,785       89,016       192,547       44,508  
Total operating lease expense   $ 266,607     $ 228,331     $ 575,209     $ 113,699  

 

Cash paid for operating leases was $357,985 and $241,819 for the nine months ended September 30, 2023, and September 30, 2022, respectively.

 

The following table presents the balance and classifications of the Company’s right-of-use assets and lease liabilities included in the unaudited condensed balance sheets:

 

    Balance Sheet Location   September 30,
2023
    December 31,
2022
 
Assets                
Noncurrent                
Operating lease assets   Operating lease right-of-use asset   $ 2,090,859     $ 317,208  
                     
Liabilities                    
Current                    
Operating lease liabilities   Operating lease liabilities - current     616,308       410,158  
Noncurrent                    
Operating lease liabitlies   Operating lease liabilities - long-term     1,629,516       87,214  
Total lease liabilities       $ 2,245,824     $ 497,372  

 

For operating lease assets and liabilities, the weighted average remaining lease term was 10.5years and 2.2 years as of September 30, 2023, and December 31, 2022, respectively. The weighted average discount rate used in the valuation over the remaining lease terms was 14.2% as of September 30, 2023, and 7.9% as of December 31, 2022.

 

The following table presents the Company’s maturities of lease liabilities as of September 30, 2023:

 

2023   $ 199,850  
2024     194,982  
2025     394,811  
2026     455,125  
2027     477,610  
2028 onward     2,940,247  
Total lease payments     4,662,625  
Total present value discount     (2,416,801 )
Operating lease liabilities   $ 2,245,824