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Leases

9 Months Ended

Mar. 31, 2023

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, with terms at various times through 2032. We typically 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 such options. 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 on the 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, we 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. In February 2023, we vacated this space and have no further obligations related to this lease. We amended the second lease on 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. In April 2023, we entered into a sublease for 11,156 square feet of this space, as we do not have a current need for the full 58,500 square feet. The sublease is for an initial term of five years, ending in April 2029. 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 within 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 March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Operating lease cost	$	230,349	$	129,934	$	646,274	$	474,075
Finance lease cost:
Depreciation of lease assets		7,299		36,767		75,521		127,946
Interest on lease liabilities		1,956		4,323		5,826		16,070
Total finance lease cost		9,255		41,090		81,347		144,016
Total lease cost	$	239,604	$	171,024	$	727,621	$	618,091

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

	Classification	March 31, 2023		June 30, 2022
Assets:
Operating lease assets	Operating lease assets	$	9,698,797	$	10,420,604
Finance lease assets	Property and equipment, net⁽¹⁾		84,134		61,566
Total lease assets		$	9,782,931	$	10,482,170

Liabilities:
Current:
Operating leases	Operating lease liabilities, current	$	971,069	$	965,622
Finance leases	Finance lease liabilities, current		40,187		55,348

Noncurrent:
Operating leases	Operating lease liabilities, less current portion		8,661,517		9,478,077
Finance leases	Finance lease liabilities, less current portion		47,191		11,454
Total lease liabilities		$	9,719,964	$	10,510,501

⁽¹⁾Finance lease assets were recorded net of accumulated depreciation of approximately $62,000 and $418,000 as of March 31, 2023 and June 30, 2022, respectively.

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

Lease Term and Discount Rate	March 31, 2023
Weighted Average Remaining Lease Term (in years)
Operating leases		9.5
Finance leases		2.4

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

Supplemental cash flow information:

	Nine Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases	$	772,659	$	638,943
Operating cash used for finance leases	$	4,242	$	16,070
Financing cash used for finance leases	$	63,345	$	172,344

Future maturities of lease liabilities were as follows as of March 31, 2023:

Fiscal year ending:	Finance Leases			Operating Leases
June 30, 2023 (remaining three months)	$	11,511		$	60,206
June 30, 2024		43,683			992,992
June 30, 2025		31,872			1,227,351
June 30, 2026		9,557			1,197,686
June 30, 2027		—			1,168,706
Thereafter		—			6,938,968
Total future minimum payments		96,623			11,585,909
Less imputed interest		(9,245	)		(1,953,323	)
Present value of lease liabilities	$	87,378		$	9,632,586