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Commitments and Contingencies | 9 Months Ended
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Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | 9. Commitments and Contingencies From time to time, we are involved in various legal proceedings and claims arising in the ordinary course of our business. Although the results of legal proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management time and resources, and other factors. Lease Agreements California Corporate Headquarters Lease In November 2021, we entered into a building lease agreement (the “Lease”) pursuant to which we will lease approximately 13,767 square feet of office space for our corporate headquarters in Irvine, California. The Lease is to commence on the date which is the earlier to occur of: (a) the date we take possession of the premises following the completion of certain tenant improvements to the premises, but not earlier than February 1, 2022, or (b) the date we commence our regular business activities on the premises. We currently expect to take possession of the premises, and commence the lease, during our fourth fiscal quarter ending June 30, 2022. The term of the lease will be 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 under the Lease will be $28,900 per month. The basic rent is subject to customary annual rent increases. The aggregate basic rent payable under the Lease during the 84-month term is $2,700,000. We are also obligated to pay as additional rent our proportionate share of operating expenses, including property taxes. 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 will be $46,738 per month (with the first three months of rent abated), subject to annualized rent increases of three percent (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 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.

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