Note 10. Leases

Operating lease

We have a noncancelable operating lease entered in November 2016 for our office facility that expires in July 2021. and has renewal options to May 2023. The monthly “Base Rent” is $10,392 and the Base Rent is increased by 2.5% each year. During the year ended December 31, 2021, the company exercised its option and extended the lease to May 31, 2023. As of December 31, 2022 and 2021, the remaining right of use asset and lease liability was $53,697 and $56,103, and $178,408 and $185,210, respectively.

In May 2021, we entered into a new lease agreement for our office and warehouse space that expires in May 2024. The Company shall have the option to terminate the lease after 12 months and 24 months from the commencement date. The monthly “Base Rent” is $11,855.42 and the Base Rent may be increased by 2.5% each year. During the years ended December 31, 2022 and 2021, the Company, on assumption of the lease, recognized a right of use asset and lease liability of $196,240 and $206,365, and $399,372 and $399,372, respectively.

As of December 31, 2022 and 2021, the remaining right of use asset and lease liability was $249,937 and $504,811 and $262,468 and $524,142, respectively.

We recognized total lease expense of approximately $338,389 and $253,311 for the years ended December 31, 2022 and 2021, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. As of December 31, 2022 and 2021, the Company recorded security deposit of $10,000.

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at December 31, 2022 were as follows:

Summary of Future Minimum Lease Payments Under Operating Leases

The following summarizes other supplemental information about the Company’s operating lease as of December 31, 2022:

Summary of Other Supplemental Information

Finance lease

The Company leases machinery and office equipment under non-cancellable finance lease arrangements. The term of those capital leases is at the range from 59 months to 83 months and annual interest rate is at the range from 4% to 6%.

During the year ended December 31, 2022, the Company fully paid off the two outstanding finance leases totaling $148,019, prior to maturity dates. As of December 31, 2022, the Company does not have any additional financing lease commitments.

As of December 31, 2021, finance lease assets are included in property and equipment as follows:

Schedule of Finance Lease Assets in Property and Equipment

During the years ended December 31, 2022 and 2021, the Company recorded depreciation of finance lease assets of $49,076 and $147,435 and interest expense of finance lease of $1,891 and $8,393, respectively.