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:

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

	Payments Due by Period
	2024⁽¹⁾		2025		2026		2027		2028		Thereafter		Total
Operating leases	$	695,723	$	1,233,668	$	1,056,589	$	1,076,140	$	1,096,206	$	4,890,149	$	10,048,475
Less present value adjustment		348,831		635,214		580,820		524,555		460,933		974,721		3,525,074
Operating lease liabilities	$	346,892	$	598,454	$	475,769	$	551,585	$	635,273	$	3,915,428	$	6,523,401

Finance leases	$	567,958	$	815,150	$	722,306	$	156,861	$	49,664	$	10,702	$	2,322,641
Less interest		71,443		97,612		46,269		11,256		3,787		143		230,510
Finance lease liabilities	$	496,515	$	717,538	$	676,037	$	145,605	$	45,877	$	10,559	$	2,092,131

⁽¹⁾ Amounts are for the remaining six months ending December 31, 2024.

The Company leased its former headquarters, located in Greensboro, North Carolina under a lease agreement that expired in June 2024. In July 2021, the Company entered into a lease agreement for its new headquarters and design center (also in Greensboro, North Carolina), with a lease term of ten years and two months from the date the Company commenced occupancy, in the first quarter of 2023. Under the lease agreement, 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. The rent expense for the lease is calculated on a straight-line basis according to the lease's rental terms. The Company commenced remitting scheduled lease payments in the second quarter of 2023. The Company anticipates an annual lease expense of approximately $1.5 million over the term of the lease. Lease expense recognition commenced in the first quarter of 2023. The initial lease payment was made in the second quarter of 2023. As disclosed in Note 5, the total cost of the new building asset additions were $7.7 million, with the Company being responsible for the balance in excess of the landlord's $3.5 million allowance (the "excess construction costs") plus deferral fees and interest.

In conjunction with the Company's move into the new headquarters and design center in early 2023, the Company entered into a financing lease arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financed was$1.1 million, which included tax, freight, interim storage, and installation labor. The Company was responsible for paying interest-only payments to the financing company related to the furniture procurement order (interest on principal of $496 thousand) placed in April 2022 prior to the first scheduled principal financing payment, which occurred in August 2022 ($246 thousand). The Company made interest-only payments to the financing company related to the furniture procurement order through August 2022 in the amount of $17 thousand. The total scheduled principal and interest payments to be made after June 30, 2024 related to the furniture financing are $194 thousand.

The Company recorded advanced rent amounts paid and payable to the landlord as long-term prepaid expenses and other on the consolidated balance sheet as of December 31, 2022. These amounts were reclassified to the operating lease right-of-use asset upon lease commencement in the first quarter of 2023.

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 June 30, 2024, or December 31, 2023.

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, lenders, 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 June 30, 2024, or December 31, 2023.

The Company has entered into an employment agreement with one executive. This employment agreement was entered into effective as of January 1, 2020 and automatically renews annually. 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 the executive's monthly base salary.

In 2023, the Company introduced a voluntary salary deferral program in order to facilitate increased employee ownership in the Company, whereby all employees were offered the opportunity to defer a portion of their salaries, in anticipation of some or all of the deferred payments being invested in a future capital raise. Beginning June 28, 2023, Ryan Pratt, Mark Mason, John Berg, and Kellie Chong elected to defer approximately 68%, 68%, 52%, and 25%, respectively, of their salaries as participants in the program along with a number of other employees. The Company subsequently terminated this program and effective September 4, 2023, the Company’s entire executive management team, including Ryan Pratt, CEO and Chairman of the Company, John Berg, the Company’s Chief Financial Officer, Mark Mason, the Company’s Chief Operating Officer, and Kellie Chong, the Company’s Chief Business Officer, voluntarily reduced their salaries by 20% as part of a plan by the Company to reduce expenses. Following the closing of the 2024 Private Placement, the Board of Directors reinstated the salaries of the management team, effective January 1, 2024. The voluntary salary deferred payments were repaid to employees in March 2024 in accordance with the term of the deferral program.