NOTE 9— COMMITMENTS AND CONTINGENCIES

Operating Leases: The Company occupies an executive office and warehouse space in Fountain Valley and Whittier, CA, pursuant to separate lease agreements. Under ASC 842, at contract inception the Company determined whether the contract is or contains a lease and whether the lease should be classified as an operating or a financing lease. Operating leases are included in right-of-use (ROU) assets and operating lease liabilities in our consolidated balance sheet.

The Company’s executive office and warehouse lease agreements are classified as operating leases. The office lease agreement, as amended, expires on January 31, 2030, and does not include any renewal options. The Whittier, CA warehouse lease agreement commenced on February 1, 2025 expires on January 31, 2028, and does not include any renewal options. The agreements provide for initial monthly base amounts plus annual escalations through the term of the leases.

In addition to the monthly base amounts in the lease agreements, the Company is required to pay a portion of real estate taxes and common operating expenses during the lease terms. The aggregate rent expense was $318,000 and $361,000 for the year ended June 30, 2026 and 2025, respectively.

On June 4, 2024, the Company notified its Grace facility location landlord of its intent to vacate at the end of the current January 31, 2025 lease term.

On February 1, 2025, the Company entered into a warehouse lease in Whittier, CA.

The weighted average interest rate is 8.42% and the weighted average remaining term is 3.3 years. Because the rate implicit in the leases is not readily determinable, the Company uses the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

Future minimum lease payments at June 30, 2026 under these arrangements are as follows:

The following table sets forth the ROU assets and operating lease liabilities as of June 30, 2026:

SNDBX Agreement. On April 25, 2023, the Company agreed to provide The Five Agency/SNDBX up to $300,000 in two $150,000 advances, with the initial loan bearing 10% interest, maturing May 1, 2026, and secured by jointly owned equipment patents; in return, the Company received a 5% SNDBX equity interest, rights to participate in future financings, and an exclusive supply arrangement requiring purchases of more than $3 million of equipment by April 30, 2026. On June 6, 2023, the Company also purchased a $100,000 unsecured SNDBX convertible note bearing 5% interest, maturing June 5, 2024, and convertible into 20 founder shares, 10 of which SNDBX may repurchase for $500,000. Due to SNDBX delays and execution risk, the Company fully reserved the total $400,000 notes receivable balance as of June 30, 2024, recorded the amount as impairment expense, and maintained the full reserve at June 30, 2025 and 2026.

Legal Matters: From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.