NOTE 3 — LEASES

We lease warehouse space, equipment used in the transportation of goods in our warehouses, a limited number of automobiles and semi-trailers and a small office space. Our leases generally do not contain any explicit guarantees of residual value. Additionally, our leases generally do not contain non-lease components, with the exception of the Huntley facility. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order.

Through a review of our contracts, we determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. For our Huntley warehouse leases, we have extension options that were not considered reasonably certain of exercise at lease commencement. Accordingly, these optional renewal periods were excluded from the determination of the lease term and were not included in the measurement of the related operating lease liabilities and right-of-use assets. None of our other leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of up to 6.4 years.

It is our accounting policy not to apply lease recognition requirements to short-term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets. We have also made the policy election to not separate lease and non-lease components for all leases.

On January 15, 2026, the Company executed a 10 year lease for the remaining 285,000 square feet in the current warehouse we rent in Huntley, Illinois. The original warehouse space of approximately two thirds of the building was leased starting in fiscal 2024 near our largest facility in Elgin, Illinois (the “Elgin Site”), and upon the commencement of this lease, we will occupy the entire building. The warehouse will be primarily utilized to store finished goods and non-food inventory, to operate as a distribution center and perform light manufacturing activities. Since the lease for the remaining space has not yet commenced, approximately $17,943 of additional operating leases are not reflected in the Consolidated Balance Sheet and tables above. The lease for the remaining space in the Huntley facility is scheduled to commence in the first quarter of fiscal 2027 with an initial term of 10 years.

Lessor Accounting

We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842: Leases we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a straight-line basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of non-lease components such as recurring utility and storage fees. Leases between related parties are immaterial.