XML 27 R16.htm IDEA: XBRL DOCUMENT

Leases

6 Months Ended

Dec. 31, 2022

10. Leases

Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida. The operating leases for facilities are non-cancelable operating leases, expiring through 2032. We include options to renew (or terminate) in our lease term, and as part of our right-of-use (“ROU”) assets and lease liabilities, when it is reasonably certain that we will exercise that option. We currently have obligations under three finance lease agreements, entered into during fiscal 2019 and fiscal 2023, with terms ranging from three to five years. The leases are for computer and manufacturing equipment.

Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. We previously had two leases for premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”). We assigned one of such leases to a third-party and agreed that we would vacate the premises subject to the assigned lease on November 30, 2022. In December 2022, entered into an agreement with the assignee of such lease that extended our right to occupy the subject premises until February 28, 2023, in consideration of payments of rent through February 28, 2023, and other amounts to the assignee. We amended the second lease for the premises comprising our Orlando Facility in April 2021, and again in September 2021, to extend the term of such lease to a date we anticipate to be in or around December 2032 and to increase the leased space from 26,000 square feet to approximately 58,500 square feet. Effective in January 2022, the terms of our leases in Zhenjiang, China and Riga, Latvia were extended to December 31, 2024 and 2030, respectively.

As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of our leases include variable lease payments that are dependent on an index or rate. We are responsible for payment of certain real estate taxes, insurance and other expenses on certain of our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU assets and the related lease liabilities. We generally account for non-lease components, such as maintenance, separately from lease components. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

We received tenant improvement allowances for each of our two leases with respect to our Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms. We are constructing additional tenant improvements in the premises subject to our continuing lease for our Orlando Facility, of which the landlord has agreed to provide $2.4 million in tenant improvement allowances. We will fund the balance of the tenant improvement costs, which we estimate will be approximately $2.5 million.

The components of lease expense were as follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Operating lease cost	$	184,424	$	171,911	$	415,925	$	344,141
Finance lease cost:
Depreciation of lease assets		34,111		43,825		68,222		91,179
Interest on lease liabilities		1,187		5,315		3,870		11,747
Total finance lease cost		35,298		49,140		72,092		102,926
Total lease cost	$	219,722	$	221,051	$	488,017	$	447,067

Supplemental balance sheet information related to the leases was as follows:

	Classification	December 31, 2022		June 30, 2022
Assets:
Operating lease assets	Operating lease assets	$	9,894,925	$	10,420,604
Finance lease assets	Property and equipment, net⁽¹⁾		91,430		61,566
Total lease assets		$	9,986,355	$	10,482,170

Liabilities:
Current:
Operating leases	Operating lease liabilities, current	$	926,132	$	965,622
Finance leases	Finance lease liabilities, current		43,123		55,348

Noncurrent:
Operating leases	Operating lease liabilities, less current portion		8,921,735		9,478,077
Finance leases	Finance lease liabilities, less current portion		50,460		11,454
Total lease liabilities		$	9,941,450	$	10,510,501

⁽¹⁾	Finance lease assets were recorded net of accumulated depreciation of approximately $55,000 and $418,000 as of December 31, 2022 and June 30, 2022, respectively.

Lease term and discount rate information related to leases was as follows:

Lease Term and Discount Rate	December 31, 2022
Weighted Average Remaining Lease Term (in years)
Operating leases		9.7
Finance leases		2.5

Weighted Average Discount Rate
Operating leases		2.9%
Finance leases		8.4%

Supplemental cash flow information:

	Six Months Ended December 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases	$	523,157	$	448,485
Operating cash used for finance leases	$	2,286	$	11,747
Financing cash used for finance leases	$	57,140	$	113,298

Future maturities of lease liabilities were as follows as of December 31, 2022:

Fiscal year ending:	Finance Leases			Operating Leases
June 30, 2023 (remaining six months)	$	23,023		$	240,823
June 30, 2024		43,683			1,046,659
June 30, 2025		31,872			1,222,871
June 30, 2026		9,557			1,193,987
June 30, 2027		-			1,165,786
Thereafter		-			6,938,805
Total future minimum payments		108,135			11,808,931
Less imputed interest		(14,552	)		(1,961,064	)
Present value of lease liabilities	$	93,583		$	9,847,867