Volcon ePowersports, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

9 Months Ended

Sep. 30, 2022

NOTE 12 – LEASES

The components of lease cost for operating leases for the three and nine months ended September 30, 2022 and 2021 were as follows:


	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Lease Cost
Operating lease cost	$	107,534	$	121,932	$	406,786	$	252,951
Short-term lease cost		75,015		61,226		208,009		132,697
Variable lease cost		–		–		–		–
Sublease income		–		–		–		–
Total lease cost	$	182,549	$	183,158	$	614,795	$	385,648

Supplemental cash flow information related to leases for the nine months ended September 30, 2022 and 2021, was as follows:


	September 30, 2022		September 30, 2021
Other Lease Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	269,836	$	194,175
Amortization of right of use assets	$	342,112	$	252,951

The following table summarizes the lease-related assets and liabilities recorded on the balance sheet at September 30, 2022 and December 31, 2021:


	September 30, 2022		December 31, 2021
Lease Position
Operating Leases
Operating lease right-of-use assets	$	1,594,519	$	2,182,612
Right of use liabilities operating leases short-term		380,871		456,207
Right of use liabilities operating leases long-term		1,237,761		1,767,506
Total operating lease liabilities	$	1,618,632	$	2,223,713

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company recognized an initial right of use asset and lease liability of $1,128,609 for leases entered into during the nine months ended September 30, 2022.


Lease Term and Discount Rate	September 30, 2022
Weighted-average remaining lease term (years)
Operating leases		3.9
Weighted-average discount rate
Operating leases		6.67%

The following table provides the maturities of lease liabilities at September 30, 2022:


	Operating
	Leases
Remainder of 2022	$	113,224
2023		458,572
2024		471,638
2025		485,702
2026		340,591
Total future undiscounted lease payments		1,869,727
Less: Interest		(251,094	)
Present value of lease liabilities	$	1,618,632

The Company closed its Denver, Colorado, store location (the Company’s only store) in June 2022 and entered into a lease termination agreement in July 2022 to relieve the Company of its future obligations under the lease. The Company has recorded a loss of $148,322 in the nine months ended September 30, 2022 related to this facility which includes the write off of prepaid rent, security deposit, right of use asset and liability and a loss on the write-off of leasehold improvements and fixtures and furniture of $46,289.

In July 2022, the Company entered into a new lease agreement for office space in Round Rock, Texas with the landlord of its current Round Rock facilities. The lease begins in August 2022 and terminates in August 2026. In connection with signing this lease, the landlord has agreed to terminate the lease on one of the current facilities that would have expired in December 2023. The additional monthly rent after consideration of the rent on the facility being canceled is not significant. As discussed in Note 7 above, the Company terminated the lease, and related amendment, as of September 30, 2022 for a leased warehouse facility in conjunction with entering into the lease agreement for office space and the above does not include any amounts related to that lease. There was an insignificant impact to the Company’s operations for the three and nine months ended September 30, 2022 due to the termination of this lease.

The total loss on lease terminations for the nine months ended September 30, 2022 was 395,138.