Quarterly report pursuant to Section 13 or 15(d)


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

Note 9. LEASES


The Company has one operating lease for its real estate and office space and multiple finance leases for lab equipment in Texas that was acquired through the September 18, 2023, acquisition. The operating lease has a remaining lease term of 3.83 years as of September 30, 2023. The Company has finance leases consisting of office and lab equipment with remaining lease terms ranging from approximately 2.5 to 4.25 years as of September 30, 2023, for which the Company has determined that it will use the equipment for a major part of its remaining economic life.


The lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach as of September 18, 2023, to derive an appropriate incremental borrowing rate to discount remaining lease payments. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived imputed interest rates ranging from 8.01% to 8.07% for the lease term lengths.


Leases with an initial term of 12 months or less are not recorded on the balance sheet. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space. The Company has not entered into any lease arrangements with related parties, and the Company is not the sublessor in any arrangement.


The Company’s existing leases contain escalation clauses and renewal options. The Company has evaluated several factors in assessing whether there is reasonable certainty that the Company will exercise a contractual renewal option. For leases with renewal options that are reasonably certain to be exercised, the Company included the renewal term in the total lease term used in calculating the right-of-use asset and lease liability. Prior to adoption of ASU 2016-02 effective January 1, 2022, the Company accounted for operating lease transactions by recording lease expense on a straight-line basis over the expected term of the lease.



The components of lease expense, which are included in selling, general and administrative expense and depreciation and amortization for the nine months ended September 30, 2023, and 2022 are as follows:


Components of lease expense:  



Amortization of right-of-use  assets - finance lease   $ 32,081     $  
Interest on lease liabilities - finance lease     8,634        
Operating lease cost     9,972        
Total lease cost   $ 50,687     $  


Supplemental balance sheet information relating to leases was as follows as of September 30, 2023 and December 31,2022:


Operating leases:  


Operating lease right-of-use assets   $ 392,347     $  
Operating lease liability, current   $ 90,863     $  
Operating lease liability, long-term   $ 307,397     $  


Finance leases:  


Finance lease right-of-use asset, gross   $ 1,294,168     $  
Accumulated amortization     (32,081 )      
Finance lease right-of-use asset, net     1,262,087        
Finance lease liability, current portion     358,282        
Finance lease liability, long-term     929,570        
Total finance lease liabilities   $ 1,287,852     $  


Weighted-average remaining lease term:  


Operating leases (in years)     3.83        
Finance leases (in years)     3.50        


Weighted-average discount rate:  


Operating leases     8.07 %      
Finance leases     8.01 %      



Future minimum lease payment under non-cancellable lease as of September 30, 2023, are as follows:


  Operating Leases     Finance Leases  
Remaining 2023   $ 28,431     $ 112,126  
2024     121,726       448,505  
2025     121,726       448,505  
2026     121,726       270,395  
2027 and thereafter     71,007       202,970  
Total undiscounted cash flows     464,616       1,482,501  
Less discounting     (66,356 )     (194,649 )
Present value of lease liabilities   $ 398,260     $ 1,287,852