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Leases

3 Months Ended

Sep. 30, 2021

7. Leases

The Company has entered into various operating lease agreements for certain of its offices, manufacturing facilities and equipment, and finance lease agreements for certain equipment. These leases have original lease periods expiring between 2022 and 2024. Most leases include one or more options to renew and the exercise of a lease renewal option typically occurs at the discretion of both parties. Certain leases also include options to purchase the leased property. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease termination until it is reasonably certain that the Company will exercise that option. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Upon the closing of the Neos Merger on March 19, 2021, pursuant to the guidance under ASC 805, Neos recognized operating lease ROU asset and lease liability of $3.5 million, which represented the present value of the remaining lease payments as of the acquisition date, for its office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, Neos used its borrowing rate of 6.7% to determine the present value of future lease payments. Furthermore, as of the acquisition date, no assets or liabilities of the operating leases that have a remaining lease term of less than twelve months were recognized. The finance leases are related to Neos equipment finance leases with fixed contract terms and an implicit interest rate of approximately 5.9%.

In May 2021, the Company entered into a commercial lease agreement for 6,352 square feet of office in Berwyn, Pennsylvania that commences on December 1, 2021 and ends on January 31, 2025. On July 19, 2021, the Company and the lessor entered into an amendment, pursuant to which the parties agreed to amend the commencement date from December 1, 2021 to September 1, 2021. The Company recorded an operating lease ROU asset and lease liabilities of $0.5 million in the consolidated balance sheet representing the present value of minimum lease payments using Neos’ borrowing rate of 6.25%.

The components of lease expenses are as follows:


	Three Months Ended
	September 30,
	2021		2020		Statement of Operations Classification

	(In thousands)
Lease cost:
Operating lease cost	$	296	$	95	Operating expenses
Short-term lease cost		39		3	Operating expenses
Finance lease cost:
Amortization of leased assets		18		—	Cost of sales
Interest on lease liabilities		4		—	Other (expense), net
Total net lease cost	$	357	$	98

Supplemental balance sheet information related to leases is as follows:


	September 30,		June 30,		Balance Sheet Classification
	2021		2021

	(In thousands)
Assets:
Operating lease assets	$	3,826	$	3,563	Operating lease right-of-use asset
Finance lease assets		311		329	Fixed assets, net
Total leased assets	$	4,137	$	3,892
Liabilities:
Current:
Operating leases	$	1,084	$	940	Current operating lease liabilities
Finance leases		104		102	Current portion of debt
Long-term
Operating leases		2,758		2,624	Long-term operating lease liabilities
Finance leases		154		180	Long-term debt
Total lease liabilities	$	4,100	$	3,846

Remaining lease term and discount rate used are as follows:


	September 30,			June 30,
	2021			2021
Weighted-Average Remaining Lease Term (years)
Operating lease assets		3.19			3.42
Finance lease assets		2.48			2.72
Weighted-Average Discount Rate
Operating lease assets		6.57	%		6.62	%
Finance lease assets		6.43	%		6.41	%

Supplemental cash flow information related to lease is as follows:


	Three Months Ended
	September 30,
	2021		2020

	(In thousands)
Cash flow classification of lease payments:
Operating cash flows from operating leases	$	282	$	95
Operating cash flows from finance leases	$	4	$	—
Financing cash flows from finance leases	$	25	$	—

As of September 30, 2021, the maturities of the Company’s future minimum lease payments were as follows:


	Operating		Finance

	(In thousands)
2022 (remaining 9 months)	$	972	$	88
2023		1,356		104
2024		1,296		88
2025		663		—
Total lease payments		4,287		280
Less: Imputed interest		(445)		(22)
Lease liabilities	$	3,842	$	258