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Operating Leases

6 Months Ended

Jun. 30, 2024

12. OPERATING LEASE

On September 12, 2019, we entered into a lease covering approximately 14,300 square feet of office and warehouse space with a possession date of November 15, 2019 and a commencement date of February 13, 2020. The property is located at 175 Industrial Way in Portland (Building 175A), which is a short distance from our headquarters and manufacturing facility at 56 Evergreen Drive. We renovated this space to meet our needs in expanding our production capacity for the First Defense^® product line. The original lease term was ten years with a right to renew for a second 10-year term and a right of first offer to purchase. At the time we entered into this lease, we were not reasonably assured that we would exercise this renewal option in place of other real estate options. For that reason, a 10-year period was reflected in the right-of-use (ROU) asset and lease liability on our balance sheet. During the third quarter of 2022, we committed to lease an additional 15,400 square feet of space at 175 Industrial Way (Building 175B), which is connected to the original space, over a 20-year term. The ROU asset and lease liability for the committed space at Building 175B was recorded as of April 1, 2023 after construction of the building shell was completed in accordance with the lease agreement. Monthly lease payments commenced as of August 1, 2023. In connection with the lease commitment for space at Building 175B, the term of the original lease for Building 175A was extended by approximately 13 years. On November 14, 2023 and on June 11, 2024, we amended this lease further to provide for certain tenant improvements on the leased premises to be paid for by our landlord. These improvements will provide heat to an unfinished space, provide additional warehouse space, and create a new primary shipping and receiving facility. In consideration for the landlord agreeing to pay for the cost of those certain tenant improvements, we are obligated to make additional rent payments of $20,000 per month from November of 2023 through December of 2024 and a one-time additional rent payment of $368,743 in January of 2025. Because of these modifications to the lease payments, the ROU asset and lease liability associated with the space at Building 175B were remeasured as of the modification dates. Our leases include variable non-lease components. Such payments primarily include common area maintenance charges. As of June 30, 2024, the balance of the operating lease ROU asset was $4,502,595 and the operating lease liability was $4,577,961. As of December 31, 2023, the balance of the operating lease ROU asset was $4,571,149 and the operating lease liability was $4,721,385. The calculated amount of the ROU asset and lease liability is impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. We elected not to separate lease and non-lease components for all classes of underlying assets, and instead to account for them as a single lease component. Variable lease cost primarily represents variable payments such as real estate taxes and common area maintenance. The following tables describe our lease costs and other lease information:

	During the Three-Month Periods Ended June 30,						During the Six-Month Periods Ended June 30,
	2024			2023			2024			2023
Lease Cost
Operating lease cost	$	106,880		$	98,714		$	213,759		$	146,240
Variable lease cost		19,431			9,720			29,151			17,334
Total lease cost	$	126,311		$	108,434		$	242,910		$	163,574

Operating Lease
Cash paid for operating lease liabilities	$	144,315		$	30,993		$	288,630		$	61,734
Weighted average remaining lease term (in years)		18.6			19.6			18.6			19.6
Weighted average discount rate		7.1	%		6.3	%		7.1	%		6.3	%

Future lease payments required under non-cancelable operating leases in effect as of June 30, 2024 were as follows:

	Amount
During the six-month period ending December 31, 2024	$	288,630
During the years ending December 31,
2025		711,623
2026		349,744
2027		356,732
2028		363,870
Thereafter		5,949,488
Total lease payments (undiscounted cash flows)		8,020,087
Less: imputed interest (discount effect of cash flows)		(3,442,126	)
Total operating liabilities	$	4,577,961