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Note 8 - Leases

3 Months Ended

Mar. 31, 2024

Note 8 – Leases:

We have various noncancelable operating lease agreements for office and warehouse space with original remaining lease terms of two years to nine years, some of which include an option to extend the lease term for up to four years. Because the Company is not reasonably certain to exercise the renewal options on these lease arrangements, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments. The Company’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants.

During the third quarter of 2023, we also entered into a finance lease agreement for manufacturing equipment with an initial term of ten years, which includes an option to extend the lease term for up to ten years, which the Company is not reasonably certain to exercise. The agreement did not include termination options for either party to the lease or restrictive financial or other covenants. In connection with the manufacturing equipment lease, which is a new asset class, we elected the practical expedient to combine lease and non-lease components to determine the right of use asset and lease liability.

Weighted-average remaining lease term (in years) and discount rate related to operating and finance leases were as follows:

	*Operating Leases*			*Finance Lease*
Weighted-average remaining lease term		2.81			9.25
Weighted-average discount rate		6.2	%		8.6	%

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments.

Maturities of lease liabilities under noncancelable operating leases and finance lease as of March 31, 2024 were as follows:

	*As of March 31, 2024*
	*Operating Leases*			*Finance Lease*
2024 (a)	$	1,057		$	3,166
2025		1,210			4,221
2026		1,239			4,221
2027		337			4,221
2028 and beyond		-			23,217
Total lease payments	$	3,843		$	39,046
Less: Imputed interest		(336	)		(12,179	)
Present value of lease liabilities	$	3,507		$	26,867

(a)

Excluding the three months ended March 31, 2024.

A summary of lease costs for the three months ended March 31, 2024 and 2023 was as follows:

		*Three Months Ended*
		*March 31,*
		*2024*		*2023*
Operating Lease:
Lease cost	Cost of goods sold and selling, general and administrative	$	438	$	438

Finance Lease:
Amortization of right of use asset	Cost of goods sold	$	676	$	-
Interest on lease liabilities	Interest Expense	$	553	$	-
Variable lease cost (a)	Inventory/Cost of goods sold (a)	$	3,361	$	-

(a)

Variable lease cost primarily consists of the procurement and manufacturing costs capitalized to inventory. During the period, $3,361 of variable lease costs were capitalized to inventory and will be captured as part of cost of goods sold as the inventory turns.

Supplemental balance sheet information as of March 31, 2024 and December 31, 2023 related to leases are as follows:

		*As of March 31, 2024*		*As of December 31, 2023*
Assets:
Operating leases	Operating lease right of use assets	$	3,237	$	3,616
Finance lease, net	Property, plant and equipment, net		26,342		27,728
Total lease assets		$	29,579	$	31,344


Liabilities:
Current:
Operating lease liabilities	Current operating lease liabilities	$	1,174	$	1,312
Finance lease liabilities	Current finance lease liabilities		1,988		1,998
Long-term:
Operating lease liabilities	Long term operating lease liabilities		2,333		2,591
Finance lease liabilities	Long term finance lease liabilities		24,879		26,080
Total lease liabilities		$	30,374	$	31,981

Supplemental cash flow information and non-cash activity relating to operating and finance leases are as follows:

	*Three Months Ended*
	*March 31,*
Operating cash flow information:	*2024*		*2023*
Cash paid for amounts included in the measurement of operating lease liabilities	$	454	$	445
Cash paid for amounts included in the measurement of finance lease liabilities (i.e. interest)	$	553	$	-
Finance cash flow information:
Cash paid for amounts included in the measurement of finance lease liabilities (i.e. principal payment)	$	502	$	-