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Leases

12 Months Ended

Jun. 30, 2022

Leases

In general, our leases include office buildings for various facilities worldwide which are all classified as operating leases. We also have financing leases related to some office equipment in the United States.

Components of lease expense and supplemental cash flow information:

Components of lease expense
	Year Ended June 30,
	2022
Components of lease expense	(In thousands)
Operating lease cost	$	2,313
Financing lease cost	$	9

Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,202
Cash paid for amounts included in the measurement of financing lease liabilities	$	9

Right-of-use assets obtained in exchange for lease obligation	$	7,170

The weighted-average remaining lease term is 4.76 years. The weighted-average discount rate is 4.2 percent.

Maturities of lease liabilities as of June 30, 2022 were as follows:

Maturities of lease liabilities
Years ending June 30,	Operating			Financing
	(In thousands)
2023	$	1,309		$	9
2024		1,171			3
2025		982			–
2026		919			–
2027		849			–
Thereafter		4,728			–
Total remaining lease payments		9,958			12
less: imputed interest		(1,682	)		–
Lease liability	$	8,276		$	12
Reported as:
Current liabilities	$	969		$	9
Non-current liabilities	$	7,307		$	3

California Corporate Headquarters Lease

In November 2021, we entered into a building lease agreement pursuant to which we will lease approximately 13,767 square feet of office space for our corporate headquarters in Irvine, California. This lease commenced in July 2022 when we took possession of the premises. During the fiscal quarter ending September 30, 2022, we will account for this lease as an operating lease in accordance with ASC 842.

The term of the lease is 84 months from the commencement date, with an option to extend the lease for one 60-month extension period at a basic rent to be agreed upon by the parties or determined pursuant to the lease. The initial basic rent payable is $28,900 per month and is subject to customary annual rent increases. The aggregate basic rent payable under the lease during the 84-month term is approximately $2,700,000. We are also obligated to pay as additional rent our proportionate share of operating expenses, including property taxes. Additionally, the lease required us to deliver to the landlord an irrevocable stand-by letter of credit in the amount of $50,000 as security in the case of default.

Minnesota Facility Lease

On January 20, 2022, we entered into a lease agreement (the “Lease”) to lease approximately 66,000 square feet in a building in Plymouth, Minnesota (the “Premises”) to house the operations of the TN Companies purchased from CSI in August 2021 and to serve as a central warehouse and shipping hub for all USA-based business of Lantronix.

We took possession of the Premises commencing on the date of the Lease. Beginning on May 1, 2022 (the “Rent Commencement Date”), the initial basic rent payable under the Lease is $46,738 per month (with the first three months of rent abated), subject to annualized rent increases of 3% over the period of the Lease. The initial term of the Lease (the “Initial Term”) commences on the date of the Lease and ends on July 31, 2032. The aggregate basic rent payable under the Lease during the Initial Term is approximately $6,500,000. We are also obligated to pay as additional rent for our proportionate share of operating expenses, including property taxes.

The Lease contains an option to extend the lease for one 60-month extension period at the net rent rate for the last year of the Initial Term or the then-market net rent, as determined pursuant to the Lease, as well as a right of first offer for Lantronix on any space adjacent to the Premises during the Initial Term. We also have the right to terminate the Lease at the end of the 87th full calendar month after the Rent Commencement Date (the “Early Termination Date”) by delivery of a written notice at least six months prior to the Early Termination Date and payment of a termination fee. In addition, the landlord will reimburse Lantronix for its actual out-of-pocket costs for certain tenant improvements to the Premises, with an allowance of up to $1,500,000 to be paid in three installments in accordance with the Lease.

We have accounted for this lease as an operating lease in accordance with ASC 842. We recorded a right-of-use asset of $6,954,000 and lease liability of $6,954,000 at the inception of the lease based upon a discount rate of 3.9% over a term of 10.5 years.