v3.25.2
Commitments and Contingencies
 6 Months Ended
Jun. 30, 2025
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 7 – Commitments and Contingencies

 

Operating Leases

 

The Company accounts for leases in accordance with ASC 842: Leases, which requires lessees to apply the ROU model by recognizing a right-of-use asset and a lease liability for all leases with terms exceeding 12 months. Lease classification determines the pattern of expense recognition in the consolidated statement of operations:

 

  ● Operating leases: Recognized on a straight-line basis as lease expense over the lease term.
     
  ● Finance leases: Recognized with amortization of the ROU asset and interest expense on the lease liability.

 

Lessors classify leases as sales-type, direct financing, or operating leases based on whether they transfer risks, rewards, and control of the asset (ASC 842-10-25-2):

 

  ● If all risks, rewards, and control transfer, the lease is treated as a sale (sales-type lease).
     
  ● If risks and rewards transfer but control does not, the lease is classified as financing.
     
  ● If neither risks, rewards, nor control transfer, it is classified as an operating lease.

 

 

Lease Recognition and Measurement

 

The Company evaluates whether an arrangement contains a lease at inception and recognizes the lease in the financial statements upon lease commencement (the date the underlying asset is available for use). ROU assets represent the Company’s right to use an asset over the lease term, while lease liabilities reflect the present value of future lease payments.

 

At lease commencement:

 

  ● ROU assets and lease liabilities are initially measured at the present value of lease payments.
     
  ● The Company primarily uses its incremental borrowing rate (“IBR”) to determine the present value of lease payments, except when an implicit rate is readily determinable (ASC 842-20-30-3).
     
  ● The IBR is based on market data, adjusted for credit risk and lease term.

 

Practical Expedients and Lease Components

 

The Company applies certain practical expedients to simplify lease accounting:

 

  ● Lease and non-lease components are combined for classification and measurement, except for direct sales-type leases and production equipment embedded in supply agreements (ASC 842-10-15-37).
     
  ● Short-term leases (12 months or less, without purchase or renewal options) are not recorded on the balance sheet (ASC 842-20-25-2).

 

Lease Term and Expense Recognition

 

  ● Lease liabilities include options to extend or terminate when reasonably certain of exercise (ASC 842-10-55-26).
     
  ● Operating lease expense is recognized on a straight-line basis over the lease term and reported under general and administrative expenses.
     
  ● Variable lease payments based on an index/rate are initially measured using the rate at lease commencement, with differences expensed as incurred (ASC 842-10-30-5).

 

Company Lease Commitments

 

As of June 30, 2025 and December 31, 2024, the Company had no finance leases under ASC 842.

 

On December 3, 2021, the Company entered into a lease agreement for 5,778 square feet of office space, commencing January 1, 2022.

 

  ● Lease term: 39 months
     
  ● Total monthly payment: $21,773 (including base rent, estimated operating expenses, and sales tax)
     
  ● Base rent: $14,743 (subject to a 3% annual increase); abated in months 1, 13, and 25
     
  ● Initial ROU asset recognized: $735,197 (non-cash asset addition)

 

 

In connection with the Shell asset purchase of trucks, and the commencement of related operations in January 2025, the Company executed an additional four operating leases greater than one year for office space and parking lots. These leases were as follows:

 

         ROU Asset/Liability 
Lease Location  Start Date  End Date  Recognized Day 1  Monthly Payments (1)
Houston  February 1, 2025  November 30, 2028  $175,928   $4,321 
San Antonio  January 17, 2025  August 31, 2027   173,647   $5,500 
Dallas  January 9, 2025  October 14, 2028   176,100   $4,372 
Austin  January 17, 2025  January 3, 2029   168,975   $3,975 
         $694,650      

 

(1) These monthly payments are subject to annual increases of approximately 2% - 3%.

 

On May 29, 2025, the Company entered into a lease agreement for 34 vehicles commencing on May 29, 2025.

 

  ● Lease term: 36 months
     
  ● Total monthly payment: $27,790
     
  ● Initial ROU asset recognized: $875,486 (non-cash asset addition)

 

The tables below present information regarding the Company’s operating lease assets and liabilities at June 30, 2025 and December 31, 2024, respectively:

 

   June 30, 2025  December 31, 2024
Assets          
           
Operating lease - ROU asset - non-current  $1,569,992   $61,151 
           
Liabilities          
           
Operating lease liability  $1,564,387   $69,128 
           
Weighted-average remaining lease term (years)   3.03    0.25 
           
Weighted-average discount rate   8%   5%

 

The components of lease expense were as follows:

 

   June 30, 2025   June 30, 2024 
         
Operating lease costs          
           
Amortization of ROU operating lease asset  $63,402   $116,508 
Lease liability expense in connection with obligation repayment   30,573    6,380 
Total operating lease costs  $93,975   $122,888 
           
Supplemental cash flow information related to operating leases was as follows:          
           
Operating cash outflows from operating lease (obligation payment)  $91,294   $120,387 
ROU asset obtained in exchange for new operating lease liability  $794,132   $- 

 

 

Future minimum lease payments under non-cancellable leases for the years ending December 31, were as follows:

 

      
2025 (6 Months)  $268,050 
2026   598,733 
2027   580,961 
2028   318,557 
Total undiscounted cash flows   1,766,301 
Less: amount representing interest   (201,913)
Present value of operating lease liability   1,564,388 
Less: current portion of operating lease liability   518,796 
Long-term operating lease liability  $1,045,592 

 

Operating Leases – Related Party

 

On August 1, 2023, the Company entered into a 48-month lease agreement for 1,200 square feet of office space owned by the Company’s Chief Technology Officer.

 

  ● Total Monthly Payment: $6,955 (inclusive of base rent, estimated operating expenses, and sales tax).

 

  ● Annual Increase: The lease is subject to a 3% annual escalation.

 

  ● Initial ROU Asset: The Company recognized a non-cash ROU asset addition of $316,557 in accordance with ASC 842: Leases.

 

ROU Asset - Lease Termination – Related Party

 

On October 1, 2024, the existing lease was terminated with no additional consideration paid for early termination. Additionally, no penalties were incurred. For financial accounting purposes, the transaction was insignificant.

 

New ROU Asset – Related Party

 

On October 1, 2024, the Company signed a lease for 3,500 square feet of office space owned by the Company’s Chief Technology Officer. The lease term is 36 months, and the total monthly payment is $10,300, including base rent, estimated operating expenses and sales tax.

 

The lease is subject to a 3% annual increase. An initial ROU asset of $340,368 will be recognized as a non-cash asset addition.

 

The tables below present information regarding the Company’s operating lease assets and liabilities at June 30, 2025 and December 31, 2024, respectively:

 

   June 30, 2025  December 31, 2024
Assets          
           
Operating lease - ROU asset - non-current  $262,474   $314,957 
           
Liabilities          
           
Operating lease liability  $265,400   $315,893 
           
Weighted-average remaining lease term (years)   2.25    2.75 
           
Weighted-average discount rate   5%   5%

 

 

The components of lease expense were as follows:

 

   June 30, 2025   June 30, 2024 
         
Operating lease costs          
           
Amortization of ROU operating lease asset  $26,401   $36,995 
Lease liability expense in connection with obligation repayment   5,435    6,651 
Total operating lease costs  $31,836   $43,646 
           
Supplemental cash flow information related to operating leases was as follows:          
           
Operating cash outflows from operating lease (obligation payment)  $30,900   $41,730 
ROU asset obtained in exchange for new operating lease liability  $-   $- 

 

Future minimum lease payments under non-cancellable leases for the years ending December 31, were as follows:

 

     
2025 (6 months)  $62,727 
2026   128,263 
2027   98,345 
Total undiscounted cash flows   289,335 
Less: amount representing interest   (24,053)
Present value of operating lease liability   265,282 
Less: current portion of operating lease liability   109,883 
Long-term operating lease liability  $155,399 

 

Contingencies – Legal Matters

 

The Company is subject to litigation claims arising in the ordinary course of business. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.

 

As of June 30, 2025 and December 31, 2024, the Company is not aware of any litigation, pending litigation, or other transactions that require accrual or disclosure.