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Leases

12 Months Ended

Jun. 30, 2024

13. Leases

The Company has operating leases for its manufacturing and office space. Through February 2023, the Company had two lease agreements for its corporate headquarters and manufacturing facilities in Orlando, Florida. The first lease (the “Orlando Lease”) was amended effective April 30, 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. Minimum rental rates for the extension term were established based on annual increases of approximately three percent (3%). Additionally, there is one five-year extension option exercisable by the Company. The minimum rental rates for such additional extension option will be determined at the time an option is exercised and will be based on a “fair market rental rate,” as determined in accordance with the Orlando Lease, as amended. The second lease was entered into in April 2018 for 12,378 square feet in Orlando, Florida (the “Orlando Lease II”), which provided additional manufacturing and office space near the Company’s corporate headquarters. The commencement date of the Orlando Lease II was December 1, 2018, and it had a four-year original term with one renewal option for an additional five-year term. In October 2021, the Company assigned such lease to a third-party and agreed that the premises would be vacated, subject to the assigned lease, on November 30, 2022. In December 2022, the Company entered into an agreement with the assignee of such lease that extended its 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 the Company has no further obligations related to this lease.

As of June 30, 2024, the Company, through its wholly-owned subsidiary, LPOIZ, has a lease agreement for a manufacturing and office facility in Zhenjiang, China for an aggregate of 55,000 square feet (the “Zhenjiang Lease”), which expires December 31, 2024. Effective June 1, 2024, LPOIZ reduced its facility to 39,500 square feet. It is management’s intention to renew the lease on the reduced space for at least a one-year term.

At June 30, 2024, the Company, through ISP’s wholly-owned subsidiary ISP Latvia, had two lease agreements for a manufacturing and office facility in Riga, Latvia for an aggregate of 29,000 square feet, which leases expire December 31, 2030.

The Company’s facility leases are classified as operating leases, and the Company also has finance leases related to certain equipment located in Orlando, Florida and Riga, Latvia. The operating leases for facilities are non-cancelable, expiring in 2024 to 2034. The Company includes options to renew (or terminate) in the lease term, and as part of the ROU assets and lease liabilities, when it is reasonably certain that the Company will exercise that option. At June 30, 2024, the Company also has obligations under twelve finance lease agreements, entered into during fiscal years 2019 thru 2024, with terms ranging from three to five years. The leases are for computer and manufacturing equipment. The finance leases for equipment on Riga, Latvia include financial covenants specific to ISP Latvia.

The Company’s 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. As most of the Company’s leases do not provide an implicit rate, the Company used its collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of the Company’s leases include variable lease payments that are dependent on an index or rate. The Company is responsible for payment of certain real estate taxes, insurance and other expenses on certain of its leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. The Company generally accounts for non-lease components, such as maintenance, separately from lease components. The Company’s 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 Consolidated Balance Sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company received tenant improvement allowances for each of the two leases with respect to its Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities and is being amortized over the corresponding lease term. 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 provided $2.4 million in tenant improvement allowances. We funded the balance of the tenant improvement costs of approximately $3.7 million.

The components of lease expense were as follows:

	Year Ended June 30,
	2024		2023
Operating lease cost	$	947,154	$	875,454
Finance lease cost:
Depreciation of lease assets		95,546		71,326
Interest on lease liabilities		39,972		7,590
Total finance lease cost		135,518		78,916
Total lease cost	$	1,082,672	$	954,370

Supplemental balance sheet information related to leases was as follows:

Classification	June 30, 2024		June 30, 2023

Operating lease assets	$	6,741,549	$	9,571,604
Property and equipment, net⁽¹⁾		1,063,768		542,105
	$	7,805,317	$	10,113,709


Operating lease liabilities, current	$	1,059,998	$	969,890
Finance lease liabilities, current		177,148		103,646

Operating lease liabilities, less current portion		8,058,502		8,393,248
Finance lease liabilities, less current portion		528,753		341,201
	$	9,824,401	$	9,807,985

⁽¹⁾

Finance lease assets are recorded net of accumulated depreciation of approximately $109,000 and $72,000 as of June 30, 2024 and 2023, respectively.

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

Lease Term and Discount Rate		June 30, 2024
Weighted Average Remaining Lease Term (in years)
Operating leases		9.4
Finance leases		4.0

Weighted Average Discount Rate
Operating leases		2.9%
Finance leases		8.1%

Supplemental cash flow information:

	Year Ended June 30,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases	$	932,122	$	1,020,992
Operating cash used for finance leases	$	39,972	$	7,590
Financing cash used for finance leases	$	131,901	$	73,003

Future maturities of lease liabilities were as follows as of June 30, 2024:

Fiscal year ending:	Finance Leases			Operating Leases
June 30, 2025	$	228,515		$	1,158,942
June 30, 2026		206,200			1,130,756
June 30, 2027		179,552			1,137,989
June 30, 2028		161,011			1,156,405
June 30, 2029		57,642			1,186,646
Thereafter		-			5,569,120
Total future minimum payments		832,920			11,339,858
Less imputed interest		(127,019	)		(2,221,358	)
Present value of lease liabilities	$	705,901		$	9,118,500