Note 15. Leases

The Company leases an approximately 85,000 square foot facility at 7050 Winnetka Avenue North, Brooklyn Park, Minnesota consisting of corporate offices, manufacturing, and warehouse space. The original lease term was ten years and two months, ending on February 28, 2025, with a renewal option. In April 2024, the Company exercised the renewal option, which extended the lease term three additional years to end on February 29, 2028. The exercise of the renewal option added a right of use asset and corresponding lease liability of $1,337,000 upon lease commencement.

The Company indirectly leases an approximately 318,000 square foot manufacturing facility in Tijuana, Mexico that operates as a Maquiladora. The lease commenced in April 2024, and has a term of seven years, of which five years are mandatory. The lease contains two options to extend the term of the lease for additional periods of five years each. The lease calls for monthly base rental payments of approximately $169,000, increasing 2% annually. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option.

The Company additionally leases an approximately 105,000 square foot warehouse and manufacturing facility in Brooklyn Park, Minnesota. The original lease term was five years ending on February 28, 2027, with rent payments increasing annually. The lease includes an option to extend the lease for an additional five years. In March 2026, the Company notified the landlord that the Company is exercising its right to extend the term of the lease. As a result of this notification, management determined that exercise of the right to extend the lease became reasonably certain, and the Company remeasured the associated right-of-use asset and lease liability accordingly. The remeasurement resulted in an increase to the right-of-use asset and corresponding liability of $3,553,000. In April 2026, the Company signed a lease amendment that extends the term of the lease for an additional period of 61 months to end on April 30, 2032.

Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which include renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants.

Operating lease expense included within cost of sales and selling, general and administrative expense was as follows for the three and six months ended:

Future maturities of lease liabilities were as follows as of March 31, 2026:

The weighted average term and weighted average discount rate for the Company’s leases as of March 31, 2026, were 4.10 years and 7.15%, respectively, compared 3.56 years and 7.34%, respectively, as of March 31, 2025. For the three and six months ended March 31, 2026, the operating cash outflows from the Company’s leases were $838,000 and $1,673,000, respectively, compared to $819,000 and $1,635,000 for the three and six months ended March 31, 2025, respectively.