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Note 4 - Leases

9 Months Ended

Sep. 30, 2025

Lessee, Operating and Finance Leases [Text Block]

Note 4. Leases

The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. The Company determines if an arrangement is or contains a lease at contract inception. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the right of use ("ROU") asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

On October 7, 2024, Prime World entered into a Land and Building Lease Agreement with San Ho Enterprise Co., Ltd. ("San Ho Enterprise"), under which Prime World will lease approximately 38,072 square feet, of two adjoining parcels of land, in New Taipei City. The lease also includes a building on these parcels, totaling approximately 3,406 square meters, or approximately 36,662 square feet. The lease term is for fifteen years, commencing on December 1, 2024, and ending on November 30, 2039. A two-month renovation period from October 1 to November 30, 2024, preceded the lease term, during which no rent was charged by San Ho Enterprise. During the lease term, the monthly rent will increase by three percent (3%) every three years.

On June 7, 2025, Prime World entered into a Land and Building Lease Agreement with San Ho Electric Machinery Industry Co., Ltd. ("San Ho Electric") in Taoyuan City. On August 20, 2025, Prime World terminated the lease with San Ho Electric and agreed to pay a termination fee in full settlement of rent, fees, damages and other amounts arising from the early termination of the lease.

On September 1, 2025, Prime World entered into a Lease Agreement with International Games System Co., Ltd., under which Prime World will lease a parcel of land with a total area of approximately 65,580 square feet, in New Taipei City. The lease includes a building on the parcel, totaling approximately 346,212 square feet, excluding approximately 54,086 square feet of the leased property which has previously been leased to an existing tenant. The lease term is for fifteen years, commencing November 1, 2025 and ending October 31, 2040. A two-month renovation period from September 1 to October 1, 2025 will precede the lease term, during which no rent will be charged. During the lease term, the monthly rent will increase by three percent (3%) every five years. On October 28, 2025, we entered into a lease to include the first floor which was previously excluded in the September 1, 2025 lease.

On September 19, 2025, the Company entered into a Lease Agreement with Coleman Logistics Assets LLC (“Coleman”), pursuant to which the Company will lease approximately 209,665 square feet of space located at 1111 Gillingham Lane, Sugar Land, Texas 77478. The leased premises will be used by the Company primarily for manufacturing and related operations. The lease has a term of 126 months, commencing on the earlier of (i) the date the Company commences manufacturing operations within the leased premises, (ii) the date on which the leasehold improvements are substantially completed, or (iii) March 31, 2026, and expiring approximately 126 months thereafter, unless earlier terminated in accordance with the lease. Coleman has agreed to provide a construction allowance toward the cost of leasehold improvements in an amount equal to the lesser of (i) the actual aggregate cost of such improvements or (ii) $1,886,985. Base rent under the lease is abated for the first seven months of the term and thereafter increases on a scheduled basis through the end of the term, reflecting an average annual escalation of approximately 3.5%. Beginning in the eighth month of the term, base rent will be $7.44 per rentable square foot on an annual basis (approximately $129,992 per month), escalating periodically to $10.49 per rentable square foot on an annual basis (approximately $183,367 per month) during the final six months of the term.

Although the lease agreement was executed prior to September 30, 2025, the lease had not yet commenced as of that date, as Coleman is currently completing required improvements to the leased premises. The Company expects the lease to commence in the first quarter of 2026, at which time the Company will recognize a right-of-use (“ROU”) asset and a corresponding lease liability on its consolidated balance sheet. The total undiscounted lease payments over the initial lease term are approximately $21.9 million, which will be recognized upon lease commencement. No ROU asset or lease liability related to this agreement has been recorded as of September 30, 2025.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.

Lease expense is included under general and administrative expenses and were $1.1 million and $0.4 million for the three months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, lease expenses were $2.4 million and $1.1 million, respectively. The components of lease expense were as follows for the periods indicated (in thousands):

	*Three months ended September 30,*				*Nine months ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Operating lease expense	$	840	$	318	$	1,771	$	1,028
Short Term lease expense		257		41		614		62
Total lease expense	$	1,097	$	359	$	2,385	$	1,090

Maturities of lease liabilities are as follows for the future one-year periods ending September 30, 2025 (in thousands):

Fiscal years:	*Operating*
2025 (remaining 3 months)	$	632
2026		3,246
2027		3,206
2028		3,214
2029		3,211
2030 and thereafter		35,781
Total lease payments		49,290
Less imputed interest		(6,271	)
Present value	$	43,019

The weighted average remaining lease term and discount rate for the leases were as follows for the periods indicated:

	*Nine months ended September 30,*
	*2025*			*2024*
Weighted Average Remaining Lease Term (Years) - operating leases		13.91			4.38
Weighted Average Discount Rate - operating leases		3.11	%		3.12	%

Supplemental cash flow information related to the leases was as follows for the periods indicated (in thousands):

	*Nine months ended September 30,*
	*2025*		*2024*
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,652	$	964