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Note 8 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Text Block]

8. COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of January 1, 2022 the Company adopted ASC Topic 842 and selected the transition alternative method with no comparative period adjustment. The practical expedients elected were no reassessment of lease classification, no re-evaluation of embedded leases, no reassessment of initial direct costs, and short-term lease exemption. On January 1, 2022 the Company recorded a finance lease asset and liability of $2,607,618 and an operating right-of-use asset and liability of $304,079.

The Company determines whether an arrangement is an operating lease or financing lease at inception. Lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. The Company generally uses its incremental borrowing rate, which is based on information available at the lease commencement date, to determine the present value of lease payments.

The Company has entered into leases primarily for real estate and equipment used in research and development. Operating lease expense is recognized in continuing operations by amortizing the amount recorded as an asset on a straight-line basis over the lease term. Financing lease expense is comprised of both interest expense, which will be recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with other interest expense and amortization or depreciation of similar assets. In determining lease asset values, the Company considers fixed and variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.

Balance sheet information related to right-of-use assets and liabilities is as follows:

	*Balance Sheet Location*	*March 31, 2022*
Operating Leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	275,984

Current portion of operating lease liabilities	Operating lease, current portion		116,128
Noncurrent portion of operating lease liabilities	Operating lease		160,640
Total operating lease liabilities		$	276,768

Finance Leases:
Finance lease right-of-use assets	Property, plant, and equipment	$	2,964,182

Current portion of finance lease liabilities	Finance lease, current portion		669,309
Noncurrent portion of finance lease liabilities	Finance lease		2,694,369
Total finance lease liabilities		$	3,363,678

Lease cost recognized in the unaudited interim condensed consolidated financial statements is summarized as follows:

	March 31, 2022	March 31, 2021⁽¹⁾
Operating lease cost	$ 33,257	$ 31,836

Finance lease cost:
Amortization of lease assets	163,758	16,446
Interest on lease liabilities	54,905	3,789
Total finance lease costs	$ 218,663	$ 20,235

(1) Represent amounts under ASC 840.

Other supplemental information related to leases is summarized as follows:

	*March 31, 2022*
Weighted average remaining lease term (in years):
Operating leases		2.25
Finance leases		4.63

Weighted average discount rate:
Operating leases		7.00	%
Finance leases		6.93	%

Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2022:
Operating cash flows from operating leases	$	32,473
Operating cash flows from finance leases	$	54,070
Financing cash flows from finance leases	$	146,246

The following table summarizes our future minimum payments under contractual obligations for operating and financing liabilities as of March 31, 2022:

	Payments Due by Period
	2022⁽¹⁾	2023	2024	2025	2026	Thereafter	Total
Finance leases	$ 659,740	$ 851,233	$ 830,311	$ 817,920	$ 753,840	$ 20,585	$ 3,933,629
Less interest	162,340	171,400	127,959	79,063	29,009	180	569,951
Finance lease liabilities	$ 497,400	$ 679,833	$ 702,352	$ 738,857	$ 724,831	$ 20,405	$ 3,363,678

Operating leases	$ 98,718	$ 133,814	$ 67,569	$ -	$ -	$ -	$ 300,101
Less present value adjustment	12,550	9,425	1,358	-	-	-	23,333
Operating lease liabilities	$ 86,168	$ 124,389	$ 66,211	$ -	$ -	$ -	$ 276,768

( 1) Amounts are for the remaining nine months ending December 31, 2022.

The Company leases its office facilities in Greensboro, North Carolina under a lease agreement, which expires in June 2024. The lease agreement allows for early cancellation, subject to payment of an early cancellation penalty. Under the lease agreement, the Company is responsible for certain insurance and maintenance expenses. In addition, the lease agreement contains scheduled rent increases. The related rent expense for the lease is calculated on a straight-line basis according to the rental terms of the lease.

In July 2021, the Company entered into a lease agreement for additional office facilities in Greensboro, North Carolina, with an expiration date ten (10) years from the date the Company commences occupancy, which it estimates will be in early 2023. Under the lease agreement terms, the Company is responsible for certain insurance and maintenance expenses, which are not part of the minimum lease payments. In addition, the lease agreement contains scheduled rent increases. Upon taking control of the building, the related rent expense for the lease will be calculated on a straight-line basis according to the lease's rental terms. The Company will not remit any scheduled lease payments until it occupies the building. The Company anticipates approximately $4.0 million of new headquarter building asset additions, and an annual lease expense to be approximately $1.1 million upon occupancy.

Legal

In the ordinary course of business, the Company may become involved in legal disputes. In the opinion of management, any potential liabilities resulting from any disputes would not have a material adverse effect on the Company’s unaudited interim condensed consolidated financial statements. As a result, no liability related to any such disputes has been recorded at March 31, 2022, or December 31, 2021.

Indemnification Agreements

From time to time, in the ordinary course of business, the Company may indemnify other parties when it enters into contractual relationships, including members of the Board of Directors, employees, customers, lessors, and parties to other transactions with the Company. In addition, the Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant, or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification agreements due to the unique facts and circumstances likely to be involved in each particular claim and indemnification provision. Management believes any liability arising from these agreements will not be material to the unaudited interim condensed consolidated financial statements. As a result, no liability for these agreements has been recorded at March 31, 2022, or December 31, 2021.

Employment Agreement

The Company has entered into an employment agreement with one executive. This employment agreement was entered into effective as of January 1, 2020. The Company desired the assurance of the executive's continued association and services to retain the executive's experience, skills, abilities, background, and knowledge. The employment is at-will, and the Company may terminate the employment relationship at any time, with or without cause, and with or without notice. The terms of the agreement stipulate compensation, benefits, specific restrictive covenants, and Company obligations upon termination of the employment agreement, including severance pay calculated as twelve monthly payments of 100% of the executive's monthly base salary.