COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

3 Months Ended

Sep. 30, 2024

COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

NOTE 7       COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

The Company leases its office and manufacturing facility located in St. Joseph, Missouri under an operating lease from an entity that is owned by the son of the Chief Executive Officer of the Company. The lease term is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years. During the year ended June 30, 2023, the Company determined the exercise of the renewal option is reasonably assured and therefore remeasured the right-of-use asset and lease liability to include the additional five years at the current rate at time of remeasurment so that the new term expires on March 31, 2030.  The lease currently requires payments of $6,500 per month, as noted the Company does not believe the payments in the renewal period will vary significantly from the current amount.

An operating lease right-of-use asset and lease liability was recognized based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 5.5 years and the present value of the lease payments is calculated using the Company’s estimated incremental borrowing rate of 7.6% as of the remeasurement date. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease agreement does not contain any residual value guarantees. The Company has made a policy election to combine lease and non-lease components, and a policy election to not recognize right-of-use assets or lease liabilities for leases that are less than twelve months.  Cash paid for operating lease liabilities was $19,500 and operating lease expense was $19,500 for the three months ended September 30, 2024, of which, $17,891 is included in cost of sales and $1,609 is included in general and administrative expenses.

NOTE 7       COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS (cont.)

Minimum annual payments required under the existing operating lease liability that has initial or remaining noncancelable terms in excess of one year as of September 30, 2024 is as follows:

Twelve Months Ending September 30,	Amount
2025	$	78,000
2026		78,000
2027		78,000
2028		78,000
2029		78,000
Thereafter		45,500
Total Lease Payments		435,500
Less: Imputed Interest		(82,766)
Total Lease Liabilities	$	352,734

On September 28, 2023, the Chief Executive Officer of the Company advanced the Company $100,000 under a standard  promissory note agreement with interest at a rate of 8.5% per annum, due December 30, 2023.  On November 30, 2023, the Company paid the note in full including interest of $1,446.