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NOTE 7 – OPERATING & FINANCING LEASES

12 Months Ended

Jun. 30, 2021

During February 2016, FAS issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based upon the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Lease with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The standard was effective for us beginning July 1, 2019. We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in the consolidated financial statements. We have also elected the transition package of thee practical expedients permitted within the standard which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and indirect costs. The adoption of this guidance had a material impact on the Company’s balance sheet by virtue of including the present value of its future operating lease payments as a liability of $33.3 million and related right-to-use lease assets as of July 1, 2019. At the time of adoption of this guidance we had no significant financing leases.

The Company accounts for its various operating leases in accordance with Accounting Standards Codification (‘ASC’) 842 – Lease, as updated by ASU 2016-02. At the inception of a lease, the Company recognizes right-of-use lease assets and related lease liabilities measured at present value of future lease payments on its balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. Our most common initial term varies in length from 2 to 10 years. Including renewal options negotiated with the landlord, we have a total span of 2 to 16 years at the facilities we lease. The Company reviewed its contracts with vendors and customers, determining that its right-to-use lease assets consisted of only office space operating leases. In determining the right-to-use lease assets and liabilities, the Company did recognize lease extension options which the Company feels would be reasonably exercised. Our incremental borrowing rate (“IBR”) used to discount the stream of operating lease payments is closely related to the interest rates available to the Company. A reconciliation of operating and financing lease payments undiscounted cash flows to lease liabilities recognized as of June 30, 2021 is as follows:

Reconciliation of operating and financing lease payments
Year Ending June 30,	Operating Lease Payments			Financing Lease Payments
2022	$	5,077,656		$	244,343
2023		5,172,157			244,343
2024		4,837,900			244,343
2025		4,725,550			244,343
2026		4,285,124			244,343
Thereafter		16,950,126			162,898
Present value discount		(8,539,725	)		(133,441	)
Total lease liability	$	32,508,788		$	1,251,172

Weighted Average Remaining Lease Term

Operating leases - years	9.4
Finance lease - years	5.6
Weighted Average Discount Rate
Operating leases	5.5	%
Finance lease	3.6	%

The components of lease expense were as follows:

Components of lease expense
	For Year Ended
	June 30, 2021		June 30, 2020
Operating lease cost	$	6,145,701	$	5,135,604
Finance lease cost:
Depreciation of leased equipment	$	198,881	$	—
Interest on lease liabilities		47,472		—
Total finance lease cost	$	246,353	$	—

Supplemental cash flow information related to leases was as follows:

Supplemental cash flow information related to leases
	For year ended
Cash paid for amounts included in the measurement of lease liabilities:	June 30, 2021		June 30, 2020
Operating cash flows from operating leases	$	4,970,934	$	4,170,977
Financing cash flows from financing leases	$	130,038	$
Right-of-use & equipment assets obtained in exchange for lease obligations:
Operating leases(1)	$	1,531,889	$	34,786,611
Financing leases	$	—	$	1,325,871

(1)	Amounts for the year ended June 30, 2020 include the transition adjustment for the adoption of topic 842 of $31,651,110.