Leases

9 Months Ended

Sep. 30, 2024

Leases

Leases

9. Leases

For operating leases, the Company records right-of-use assets and corresponding lease liabilities in the consolidated balance sheets for all leases with terms longer than twelve months. The Company has two operating leases, with no variable lease costs, and no finance leases as of September 30, 2024.

On April 3, 2023, the Company executed a lease for new office space next to the existing space at Invizyne in the Los Angeles, California metropolitan area. The lease with a term of 60 months which began on July 1, 2023 and ended on June 30, 2028, without an option to extend. The initial base rent was $13,277 per month. The lease provides for annual increases. The base rent for the lease in the final year is $14,943 per month.

In April 2023, Invizyne made changes to an existing lease agreement, which resulted in an extension of the lease term by an additional 21 months. The revised lease maintained the same escalation rate for lease payments as the previous arrangement. To account for this modification, the Company reevaluated the remaining lease term at the time of execution. As the Company was actively utilizing the premises, adjustments were made to reflect the revaluation of both the right-to-use asset and the corresponding lease liability in line with the updated lease term. This was originally entered into in August 2021, with a term of 60 months beginning on May 1, 2023 and ending on April 30, 2028, with an option to extend for 60 additional months. At the time the lease commenced, it was not probable the Company would exercise the one five-year option to extend the facility lease; therefore, this extension option is not included in the lease analysis. The initial base rent is $14,371 per month. The lease provides for annual increases. The base rent for the lease in the final year is $16,259 per month. Additionally, Invizyne is responsible for annual operating cost increases of 2.5%, which are included in the rent.

ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate in its lease calculations when it is readily determinable. Since the Company’s leases do not provide implicit rates, to determine the present value of lease payments, management uses the Company’s estimated incremental borrowing rate for a fully collateralized loan with a similar term of the lease that is based on the information available at the inception of the lease.

	September 30, 2024			December 31, 2023
Operating leases:
Right-of-use assets	$	1,398,168		$	1,591,519
Operating lease liabilities	$	1,446,109		$	1,611,819
Weighted average remaining lease term in years		5.20			5.50
Weighted average discount rate		7.88	%		7.30	%
Cash paid for amounts included in the measurement of lease liabilities	$	253,257		$	253,191
Right-of-use assets obtained in exchange for lease liabilities	$	-		$	1,018,002

The operating lease costs were $280,898 and $182,065, respectively for the nine months ended September 30, 2024 and September 30, 2023.

Future payments due under operating leases as of September 30, 2024 are as follows:

Year	Amount
Remainder of 2024	$	86,319
2025		348,873
2026		358,428
2027		368,250
2028		378,576
Thereafter		192,828
Total	$	1,733,274
Less effects of discounting		(287,165	)
Total operating lease liabilities	$	1,446,109