COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

6 Months Ended

Dec. 31, 2022

COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

COMMITMENTS, 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 partially 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. The Company does not believe that exercise of the renewal option is reasonably assured, and has not included the additional five years in the lease term. The lease currently requires payments of $6,500 per month.

Operating lease right-of-use assets and lease liabilities were recognized upon adoption of the lease standard based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 2.25 years and the present value of the lease payments is calculated using the lessor’s implicit rate of 6.43%. Operating lease expense is recognized on a straight-line basis over the lease term.

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

The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. Operating lease expenses and cash paid for operating lease liabilities were $39,000 for the six months ended December 31, 2022, of which, $35,782 is included in cost of sales and $3,218 is included in general and administrative expenses.

Minimum annual payments required under existing operating lease liabilities that have initial or remaining noncancelable terms in excess of one year as of December 31, 2022 are as follows:

Twelve Months Ending December 31,	Amount
2023	$	78,000
2024		78,000
2025		19,500
Total Lease Payments		175,500
Less: Imputed Interest		12,510
Total Lease Liabilities	$	162,990