13. Leases

The Company leases approximately 4,160 rentable square feet of office space from an unaffiliated third party for the corporate office located in Midland, Texas. This includes 702 square feet of office space shared with and paid by our principal shareholder. In June 2024, the Company agreed to extend its current lease at a flat (unescalated) rate for 36 months. The amended lease now expires on July 31, 2027.

The Company determines an arrangement is a lease at inception. Operating leases are recorded in operating lease right-of-use asset, operating lease liability, current, and operating lease liability, long-term on the consolidated balance sheet.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 9%. Significant judgement is required when determining the incremental borrowing rate. Rent expense for lease payments is recognized on a straight-line basis over the lease term.

The balance sheet classification of lease assets and liabilities was as follows:

Schedule of Operating Lease Assets and Liabilities 

Future minimum lease payments as of March 31, 2025 under non-cancellable operating leases are as follows:

 Schedule of Future Minimum Lease Payments

Net cash paid for our operating lease for the year ended March 31, 2025 and 2024 was $47,653 and $42,668, respectively. Rent expense, less sublease income of $11,974 is included in general and administrative expenses.