The Company leases office and warehouse space in four locations: Del Mar, California, Hayward, California, San Diego, California and Edwardsville, Illinois. The Company determined that all of its lease arrangements are classified as operating leases.

On August 12, 2022, the Company entered into an agreement with Liberty Industrial Park, LLC pursuant to which the Company leases 6,627 square feet of industrial space in San Diego, California. The commencement date of the lease was September 1, 2022 and the lease term expires on August 30, 2027. It provides for an initial monthly base rent of $11,266, which increases on an annual basis to $13,180 per month in the final year. In addition, the Company is obligated to pay its share of maintenance costs of common areas.

On June 1, 2023, the Company amended its Edwardsville office building lease with David Ludwig, extending the term of the agreement to May 31, 2027 and setting rent amounts for the new term. It provides for an initial monthly base rent of $9,412, which increases on an annual basis to $9,914 per month in the final year.

On September 23, 2024, the Company amended its Del Mar office lease with OF 09 Hacienda, LLC, extending the term of the agreement by 24 months to February 28, 2027 and setting rent amounts for the new term. The amended Del Mar office lease provides for an initial monthly base rent of $14,660 beginning March 1, 2025 and increases on an annual basis to $15,099 per month in the final year.

On March 1, 2026, the Company vacated its Del Mar leased office space and determined that it would no longer use the facility in its operations. The Company is marketing the space for sublease and remains obligated for payments under the original lease through February 28, 2027. As a result of the change in use, management evaluated the related operating lease right-of-use asset for impairment under ASC 360, Property, Plant, and Equipment.

The Company determined that the carrying amount of the related operating lease right-of-use asset was not recoverable and recorded a noncash impairment loss of approximately $73,000, reducing the carrying amount of the operating lease right-of-use asset from approximately $113,000 to approximately $39,000. The impairment loss is included in selling, general and administrative expense in the accompanying consolidated statement of income.

The fair value of the impaired right-of-use asset was determined using expected sublease cash flows based on broker-supported estimated market rent and expected sublease term. Significant assumptions included the expected timing of sublease commencement, expected market rental rate, expected sublease term, and expected costs, if any, to obtain a subtenant. The impairment did not affect the related operating lease liability, as there was no modification to the underlying lease agreement or change in the Company’s contractual lease payments.

The right-of-use assets and lease liabilities for each lease location are as follows (in thousands):


	June 30,		December 31,
	2026		2025
Right-of-use assets:
Del Mar, CA	$	39	$	197
Hayward, CA		775		933
San Diego, CA		165		231
Edwardsville, IL		105		157
Total right-of-use assets	$	1,084	$	1,518

Lease liabilities
Del Mar, CA	$	121	$	205
Hayward, CA		840		1,003
San Diego, CA		180		250
Edwardsville, IL		107		161
Total lease liabilities	$	1,248	$	1,619

The Company’s leases generally do not provide an implicit rate, and, therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within the same particular economic environment. The Company used its incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. As of January 1, 2019, the Company’s incremental borrowing rate was 5.25%. For leases commencing after January 1, 2019 the Company uses its incremental borrowing rate at time of commencement. On September 1, 2022, June 1, 2023, and September 23, 2024, the Company’s incremental borrowing rate was 5.50%, 7.25%, and 6.25%, respectively. The weighted average remaining lease term for operating leases is 1.8 years and the weighted average discount rate is 5.3% as of June 30, 2026.

Lease expense is recognized on a straight-line basis over the lease term. For the six month periods ended June 30, 2026 and 2025, lease expense was approximately $0.5 million and $0.4 million, respectively. As of June 30, 2026, undiscounted future minimum lease payments related to leases that have initial or remaining lease terms in excess of one year are as follows (in thousands):


2026 (remainder of year from July 1, 2026 to December 31, 2026)	$	418
2027		573
2028		299
Total undiscounted future minimum lease payments		1,290
Less: imputed interest		(42	)
Present value of lease liabilities	$	1,248