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Leases

3 Months Ended

Sep. 30, 2023

11. 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 and Riga, Latvia. The operating leases for facilities are non-cancelable operating leases, with terms at various times through 2034. 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 seven finance lease agreements, entered into during fiscal years 2019, 2023 and 2024, 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”). The first lease on the premises comprising our Orlando Facility was amended in April 2021, and again in September 2021, to expand the space from approximately 26,000 square feet to approximately 58,500 square feet. The lease term was extended from April 30, 2022, to that certain date that is one hundred twenty-seven (127) months after the date the landlord completes certain work to be done at the leased premises. The landlord’s work was completed in August 2023, and accordingly the lease expires on March 31, 2034. 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 of space. The sublease is for an initial term of five years, ending in April 2029. The second lease on the premises comprising our Orlando Facility was assigned to a third-party and it was 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, the space was vacated and we have no further obligations related to this lease. 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. In August 2023, we completed the construction of 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 are funding the balance of the tenant improvement costs, which we estimate will be approximately $3.8 million, pending final construction invoices.

The components of lease expense were as follows:

	Three Months Ended September 30,
	2023		2022
Operating lease cost	$	205,023	$	231,501
Finance lease cost:
Depreciation of lease assets		19,915		34,111
Interest on lease liabilities		7,536		2,683
Total finance lease cost		27,451		36,794
Total lease cost	$	232,474	$	268,295

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

	Classification	September 30, 2023		June 30, 2023
Assets:
Operating lease assets	Operating lease assets	$	7,571,878	$	9,571,604
Finance lease assets	Property and equipment, net⁽¹⁾		637,581		542,105
Total lease assets		$	8,209,459	$	10,113,709

Liabilities:
Current:
Operating leases	Operating lease liabilities, current	$	1,016,940	$	969,890
Finance leases	Finance lease liabilities, current		112,352		103,646

Noncurrent:
Operating leases	Operating lease liabilities, less current portion		8,773,442		8,393,248
Finance leases	Finance lease liabilities, less current portion		340,716		341,201
Total lease liabilities		$	10,243,450	$	9,807,985

⁽¹⁾	Finance lease assets were recorded net of accumulated depreciation of approximately $92,000 and $72,000 as of September 30, 2023 and June 30, 2023, respectively.

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

Lease Term and Discount Rate	September 30, 2023
Weighted Average Remaining Lease Term (in years)
Operating leases		10.1
Finance leases		4.2

Weighted Average Discount Rate
Operating leases		2.9	%
Finance leases		5.7	%

Supplemental cash flow information:

	Three Months Ended September 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases	$	180,077	$	268,580
Operating cash used for finance leases	$	7,536	$	2,683
Financing cash used for finance leases	$	27,062	$	37,079

Future maturities of lease liabilities were as follows as of September 30, 2023:

Fiscal year ending:	Finance Leases			Operating Leases
June 30, 2024 (remaining nine months)	$	106,949		$	794,979
June 30, 2025		130,447			1,125,653
June 30, 2026		108,132			1,097,131
June 30, 2027		89,371			1,125,616
June 30, 2028		82,466			1,154,784
Thereafter		—			6,751,714
Total future minimum payments		517,365			12,049,877
Less imputed interest		(64,297	)		(2,259,495	)
Present value of lease liabilities	$	453,068		$	9,790,382