NOTE 8 - COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any material legal proceedings currently pending or expected against the Company.

Operating Leases

On April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately 45,600 square feet of industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and four months and commenced on or about June 28, 2019. The lease contains an option to extend the term for two periods of 24 months each, and the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate was $42,400 for the first 12 months, escalating at 3% each year.

On February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25, 2019 (the “Amendment”) with Accutek to rent an additional 16,309 rentable square feet of space plus a residential unit of approximately 1,230 rentable square feet (for a total of approximately 17,539 rentable square feet). The lease for the additional space commenced 30 days following the occupancy date of the additional space and will terminate concurrently with the term of the original lease, which expires on November 20, 2026. The base rent for the additional space is the same rate as the space rented under the terms of the original lease, $0.93 per rentable square (subject to 3% annual increase). In connection with the Amendment, the Company purchased certain existing office furniture for a total purchase price of $8,300.

Total rent expense was approximately $217,000 and $215,000 for the three months ended December 31, 2022 and 2021, respectively. Total rent expense was approximately $439,000 and $429,000 for the six months ended December 31, 2022 and 2021, respectively.

Capital Leases

On September 2, 2022 the Company leased a vehicle to be used for corporate transportation activities. The Lease has a term of sixty (60) months and commenced on September 10, 2022. The monthly lease payment is approximately $1,100 excluding sales tax and other fees.

On October 17, 2022 the Company leased certain equipment to be used for manufacturing and testing our products. The Lease has a term of thirty-six (36) months and commenced on October 17, 2022. The monthly lease payment is approximately $5,500.

Lease costs are amortized on a straight-line basis over their respective lease terms. Depreciation expense related to leased assets was approximately $18,000 for the three and six months ended December 31, 2022. Interest expense on leased liabilities was approximately $5,000 for the three and six months ended December 31, 2022. The Company did not have any financed leases during the six months ended December 31, 2021.

The Future Minimum Lease Payments as of December 31, 2022 are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS