In February 2016, the FASB issued new accounting guidance on leases. Effective January 1, 2022, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the unaudited consolidated balance sheet without adjusting comparative periods.

In accordance with Topic 842, Leases, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise.

In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and liability. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

The Company currently leases its warehouse space under a commercial lease with RII Lundgren Mill, LLC, dated March 1, 2018. The lease commenced March 1, 2018 with monthly payments of $6,475, to escalate after 24 months by the lesser of 3% or the Consumer Price Index (“CPI”) adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On November 20, 2018, the Company completed the reimbursement of $797,471. The Company also issued the landlord 2,000 stock options on April 15, 2018 with a strike price of $7.50 per share in conjunction with this lease agreement.

The Company executed a second lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated December 17, 2018. The lease commenced on July 1, 2019 with monthly payments of $12,784, to escalate after 24 months by the lesser of 3% or the CPI adjustment. However, for accounting purposes the lease commencement date was June 6, 2019. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On December 20, 2018, the Company completed the initial reimbursement of $1,202,529. The Company made the final reimbursement in the amount of $1,399,001 on December 31, 2019.

The Company executed a third lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated October 1, 2021. The lease commenced on October 1, 2021 with monthly payments of $38,869, to escalate after 24 months by the lesser of 3% or the CPI adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods.

The Company assumed an operating lease in the acquisition of Picky Bars, LLC on May 3, 2021. The Company pays monthly rent of $4,609, which escalates by 3% in months 15, 27, 39, and 51. The initial lease term is 62 months, and the Company has the option to renew the lease for two additional three-year periods.

The components of lease expense were as follows:


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Operating leases
Operating lease cost	$	267,106	$	534,213
Variable lease cost		27,635		80,638
Operating lease expense		294,741		614,851
Short-term lease rent expense		68,957		103,498
Total rent expense	$	363,698	$	718,349


	Six Months Ended June 30, 2022
Operating cash flows - operating leases	$	370,214
Right-of-use assets obtained in exchange for operating lease liabilities	$	5,285,330


	June 30, 2022
Weighted-average remaining lease term – operating leases (in years)		8.3
Weighted-average discount rate – operating leases		3.75	%

As of June 30, 2022, future minimum payments during the next five years and thereafter are as follows:


2022 (excluding the six months ended June 30, 2022)	$	373,554
2023		748,282
2024		750,077
2025		709,185
2026		688,437
Thereafter		2,605,668
Total		5,875,203
Less imputed interest		(863,111	)
Operating lease liabilities	$	5,012,092

Lessor

The Company executed a sublease agreement of the Picky Bars, LLC operating lease on March 1, 2022. The lease commenced on April 1, 2022. The sublessee pays monthly rent of $4,889 beginning August 1, 2022, to escalate after 12 months by 3%. The initial lease term expires on April 30, 2025. The lease meets all of the criteria of an operating lease and is accordingly recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs. The Company had $16,852 and $0 of sublease rental assets as of June 30, 2022 and December 31, 2021, respectively, included in prepaid and other current assets on the unaudited consolidated balance sheets.

The components of rental income were as follows:


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Operating leases
Operating lease income	$	14,055	$	14,055
Variable lease income		2,710		2,710
Total rental income	$	16,765	$	16,765

As of June 30, 2022, future minimum payments to be received during the next five years and thereafter are as follows:


2022 (excluding the six months ended June 30, 2022)	$	24,447
2023		59,845
2024		61,640
2025		20,748
2026		—
Thereafter		—
Total	$	166,680