COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2024

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 12. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its facilities under a non-cancelable operating lease which now expires February 28, 2027. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and liabilities for the lease renewal were recognized at the inception date which is November 2, 2020 based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate based on the information available. At September 30, 2024, the weighted average remaining lease term for the lease renewal is 2.4 years and the weighted average discount rate is 14.49%. In addition to the rent payment, The Company pays a proportionate share of operating costs, taxes, and insurance costs. The cost for these additional rent expenses for the three months ending September 30 2024 and 2023 were $52,992 and $54,484 respectively. Supplemental balance sheet information related to leases at September 30, 2024 is as follows:

Operating leases	Balance Sheet Classification	(in thousands)
Right-of-use assets	Operating lease right-of-use assets, net	$	1,410
Current lease liabilities	Operating lease liabilities	$	555
Non-current lease liabilities	Long-term operating lease liabilities		984
Total lease liabilities		$	1,539

Maturities of lease liabilities at September 30, 2024 are as follows:

Payments	(in thousands)
2025	$	545
2026		772
2027		333
Total undiscounted lease payment	$	1,836
Less: Present value discount		(297	)
Total lease liability balance	$	1,539

Equipment Notes Payable

The Company has acquired equipment under the provisions of long-term equipment notes. For financial reporting purposes, minimum note payments relating to the equipment have been capitalized. The equipment acquired with these equipment notes has a total cost of $2,451,838. These assets are included in the fixed assets listed in Note 5 - Equipment and Leasehold Improvements and include production equipment. The equipment notes have stated or imputed interest rates ranging from 7.1% to 13.5%.

The following is an analysis of the minimum future equipment note payable payments subsequent to September 30, 2024:  

Years ending September 30,	(in thousands)
2025	$	380
2026		236
2027		93
2028		19
Future Minimum Note Payable Payments	$	728
Less Current Portion		(380	)
Long-Term Obligations under Equipment Notes Payable	$	348

Finance Leases Payable

The Company has lease obligations for equipment under the provisions of long-term finance leases. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The equipment acquired with these leases has a total cost of approximately $161,920. These assets are included in the finance lease and include production equipment.

On July 1, 2020 the Company entered into finance lease agreement in the amount of $35,000 with monthly payment of $850 with 48-month term at an imputed interest rate of 8.09%.

On January 5, 2022 the Company entered into finance lease agreement in the amount of $23,000 with monthly payment of $514 with 48-month term at an imputed interest rate of 3.75%.

On March 15, 2024, the Company entered into a finance lease agreement in the amount of $63,948 with monthly payments of $1,325 with 60-month term at an imputed rate of 8.90%.

On June 3, 2024, the Company entered into a finance lease agreement in the amount of $39,972 with monthly payments of $807 with 60-month term at an imputed rate of 7.80%.

At September 30, 2024, the weighted average remaining lease term is 4.5 years, and the weighted average discount rate is 8.1%

The following is an analysis of the minimum finance lease payable payments subsequent to September 30, 2024:  

Year ending September 30,	(in thousands)
2025	$	24
2026		29
2027		26
2028		25
2029 and thereafter		22
Future Minimum Finance Lease Payable Payments	$	126
Less Amount Representing Interest		(20	)
Present Value of Minimum Finance Lease Payable Payments		106
Less Current Portion		(21	)
Long-Term Obligations under Finance Lease Payable	$	85

Employment Agreements

The Company has entered into an employment agreement with Louis Friedman, President and CEO of the Company. The agreement provides for an annual base salary of $155,000 and eligibility to receive a bonus. In certain termination situations, the Company is liable to pay severance compensation to Mr. Friedman for up to nine months at his current salary.

On January 15, 2024, the Company, through OneUp, engaged Chris Knauf to serve as Chief Financial Officer and Controller of the Company. The Company shall pay Mr. Knauf an annual salary of $160,000 and Mr. Knauf received options to purchase 200,000 shares of the Company’s common stock, exercisable at $0.08 per share on the date of the agreement and subsequently on July 1, 2024, an additional option to purchase an additional 200,000 shares of common stock exercisable at $0.08 per share.

Legal Proceedings

As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to the Company or properties to which the Company is a party, and to the Company’s knowledge there are no material proceedings to which any of the Company’s directors, executive officers or affiliates are a party adverse to the Company or which have a material interest adverse to the Company.