COMMITMENT, CONCENTRATIONS, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

9 Months Ended

Mar. 31, 2025

COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

NOTE 7 COMMITMENT, CONCENTRATIONS, 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 original lease term was from February 1, 2005, through March 31, 2025, with an option to extend for an additional term of five years. The required lease payments through this period were $6,500 per month. During the year ended June 30, 2023, the Company determined the exercise of the renewal option to be reasonably assured and remeasured the right-of-use asset and lease liability to include the additional five years at what was the current rate, so that the new term expires on March 31, 2030. During the quarter ended March 31, 2025, the Company exercised the renewal option and remeasured the right-of-use asset and lease liability to reflect an increase in the required lease payments to $8,500 per month at the new current rate.

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

An operating lease right-of-use asset and lease liability was recognized based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 5 years and the present value of the lease payments is calculated using the Company’s estimated incremental borrowing rate of 7.25% as of the remeasurement date. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease agreement does not contain any residual value guarantees. The Company has made a policy election to combine lease and non-lease components, and a policy election to not recognize right-of-use assets or lease liabilities for leases that are less than twelve months. Cash paid for operating lease liabilities and operating lease expense was $58,500 for the nine months ended March 31, 2025, of which, $53,673 is included in cost of sales and $4,827 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 March 31, 2025, are as follows:


Twelve Months Ending March 31,	Amount
2026	$	102,000
2027		102,000
2028		102,000
2029		102,000
2030		102,000
Total Lease Payments		510,000
Less: Imputed Interest		80,701
Total Lease Liabilities	$	429,299

On September 28, 2023, the Chief Executive Officer of the Company advanced the Company $100,000 under a standard promissory note agreement with interest at a rate of 8.5% per annum, due December 30, 2023. On November 30, 2023, the Company paid the note in full including interest of $1,446.

One of the Company’s major customers has discontinued the Mini Mash L212 segment, effective in August 2025. Based on historical sales to this customer, management expects a total loss of sales of approximately $200,000 or 15%.

As of March 31, 2025, the Company entered into a contract for the purchase of production equipment totaling $155,000. As a part of this agreement, a 50% downpayment of $77,500 was made, which has been recorded as machinery and equipment and has not yet been placed into service. The remaining $77,500 remains as a commitment of capital resources.

CHASE GENERAL CORP 10-Q