10. Leases

The Company accounts for leases under ASC 842, Leases. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Because the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at commencement. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected the short-term lease recognition exemption for leases with terms of twelve months or less. In addition, the Company elected the practical expedient to combine lease and non-lease components.

The Company’s lease balances relate to the office building lease located at Waldmeisterstraße 93, 80935 Munich, Germany, originally associated with Sono Motors GmbH and the legacy solar business. The lease commenced March 1, 2021 with a 122-month term ending April 30, 2031. Through May 4, 2026, the related right-of-use asset and lease obligations were included in assets and liabilities of discontinued operations classified as held for sale because the lease was associated with the discontinued component; lease cost and cash paid for lease liabilities for periods through May 31, 2026, including the May 2026 rent settled through Sono Motors GmbH, related to the discontinued component and are included in the discontinued operations amounts disclosed in Note 4 (Discontinued Operations and Assets and Liabilities Held for Sale). Following the May 4, 2026 sale of Sono Motors GmbH, the Company remained the lessee under the lease, and the related right-of-use asset and lease liability were re-established within continuing operations effective May 1, 2026.

The lease is denominated in euros and provides for fixed monthly payments of EUR 13,954.25. The right-of-use asset and lease liability were re-established at EUR 549,522.12, translated at the April 30, 2026 spot rate of 1.1736, or $645 thousand, and the lease is measured in U.S. dollars from that date at a fixed monthly amount of $16,377 over the 60 months remaining in the lease term at that date, using a weighted-average discount rate of 18.0%. Occupancy charges for parking and waste disposal are not included in the measurement of the lease liability and are recognized as variable lease cost as incurred, together with differences between the fixed U.S. dollar amount and the U.S. dollar cost of the euro payment settled on the payment date. The lease has no renewal options that the Company is reasonably certain to exercise and no residual value guarantees. As of June 30, 2026, the operating lease right-of-use asset and operating lease liability were $631 thousand each.

In connection with the Share Purchase and Transfer Agreement described in Note 4 (Discontinued Operations and Assets and Liabilities Held for Sale), the Company and the buyer agreed to use their best efforts to transfer the Munich lease to Sono Motors GmbH as lessee by no later than June 30, 2026, with a full release of the Company from further liability under the lease. The transfer was not completed as of June 30, 2026. See Note 4 (Discontinued Operations and Assets and Liabilities Held for Sale) for the related disclosures.

Following the May 4, 2026 sale of Sono Motors GmbH, the Company no longer occupies the Munich premises. Management identified the vacancy as a triggering event and evaluated the operating lease right-of-use asset for impairment under ASC 360-10-35. Because the Company retains both the intent and the ability to obtain economic benefit from the leased premises, through a transfer of the lease, a successor lessee or a negotiated termination with the landlord, the right-of-use asset has not been abandoned, and the asset was evaluated under the held and used model. For purposes of the assessment, the right-of-use asset was evaluated as its own asset group because the cash flows expected from the premises are largely independent of the cash flows of the Company’s other assets. Management concluded that the carrying amount of the right-of-use asset was recoverable at June 30, 2026, and no impairment was recognized. The assessment requires significant judgment, including estimates of the amount and timing of the cash flows expected from a transfer, a successor lessee or a negotiated termination, and a change in those estimates could result in an impairment charge in a future period.

Components of lease cost

The components of lease cost recognized in continuing operations were as follows (USD in thousands):

Operating lease cost of $16 thousand represents the June 2026 fixed monthly lease cost under the U.S. dollar lease schedule, the single month of lease cost recognized in continuing operations for both periods presented; the May 2026 lease cost was settled through Sono Motors GmbH and is included in loss from discontinued operations, net of tax (Note 4). Variable lease cost represents the parking and waste-disposal occupancy charges and the settlement difference on the June payment. Total lease cost equals the June 2026 building lease cost recorded in general and administrative expenses.

Supplemental cash flow and non-cash information

Supplemental cash flow and non-cash information related to the operating lease were as follows (USD in thousands):

Balance sheet classification

The following table presents the classification of the operating lease right-of-use asset and operating lease liability on the condensed consolidated balance sheet (USD in thousands):

The current portion of the operating lease liability represents the present value of the 12 monthly payments due within the twelve months following June 30, 2026.

Maturity analysis of operating lease liability

The following table presents the maturity analysis of the Company’s operating lease liability at June 30, 2026, and a reconciliation of the undiscounted lease payments to the present value of the lease payments recognized on the condensed consolidated balance sheet (USD in thousands):

The present value of lease payments of $631 thousand equals the operating lease liability recognized on the condensed consolidated balance sheet at June 30, 2026. Undiscounted lease payments comprise the 58 monthly payments of $16,377 remaining at June 30, 2026, payable through April 30, 2031.

Weighted-average lease term and discount rate

The weighted-average discount rate of 18.0% reflects the Company's incremental borrowing rate at the May 2026 commencement date of the Munich lease, determined by reference to the Company's current cost of secured borrowing as evidenced by the terms of the convertible debentures issued during 2026, adjusted for the collateralized nature, EUR denomination, and term of the lease obligation, and taking into account the going concern conditions existing at the commencement date.