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Leases

9 Months Ended

Mar. 31, 2022

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 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.

In connection with the Neos Acquisition, Aytu assumed an 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 the office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, a borrowing rate of 6.7% to determine the present value of future lease payments. The finance leases are related to 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 was to commence on December 1, 2021 and end on January 31, 2025. On July 19, 2021, the Company and the lessor amended the agreement to move 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 an estimated borrowing rate of 6.25%.

In October 2021, the Company’s Innovus subsidiary entered into a commercial lease agreement for 6,580 square feet of warehouse in Oceanside, California that commenced on December 1, 2021 and ends on December 31, 2026. The Company recorded an operating lease ROU asset and lease liabilities of $0.3 million in the consolidated balance sheet representing the present value of minimum lease payments using Innovus’ estimated borrowing rate of 18.0%.

The components of lease expenses are as follows:


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021		Statement of Operations Classification

					(In thousands)
Lease cost:
Operating lease cost	$	316	$	70	$	942	$	195	Operating expenses
Short-term lease cost		65		9		130		14	Operating expenses
Finance lease cost:
Amortization of leased assets		18		19		55		19	Cost of sales
Interest on lease liabilities		3		1		11		1	Other (expense), net
Total net lease cost	$	402	$	99	$	1,138	$	229

Supplemental balance sheet information related to leases is as follows:


	March 31,		June 30,		Balance Sheet Classification
	2022		2021

	(In thousands)
Assets:
Operating lease assets	$	3,561	$	3,563	Operating lease right-of-use asset
Finance lease assets		274		329	Property and equipment, net, net
Total leased assets	$	3,835	$	3,892
Liabilities:
Current:
Operating leases	$	1,203	$	940	Current portion of operating lease liabilities
Finance leases		100		102	Current portion of debt
Non-current
Operating leases		2,406		2,624	Operating lease liabilities, net of current portion
Finance leases		106		180	Debt, net of current portion
Total lease liabilities	$	3,815	$	3,846

Remaining lease term and discount rate used are as follows:


	March 31,			June 30,
	2022			2021
Weighted-Average Remaining Lease Term (years)
Operating lease assets		2.86			3.42
Finance lease assets		1.98			2.72
Weighted-Average Discount Rate
Operating lease assets		7.44	%		6.62	%
Finance lease assets		6.43	%		6.41	%

Supplemental cash flow information related to lease is as follows:


	Nine Months Ended
	March 31,
	2022		2021

	(In thousands)
Cash flow classification of lease payments:
Operating cash flows from operating leases	$	942	$	195
Operating cash flows from finance leases	$	12	$	1
Financing cash flows from finance leases	$	76	$	3

As of March 31, 2022, the maturities of the Company’s future minimum lease payments were as follows:


	Operating		Finance

	(In thousands)
2022 (remaining 3 months)	$	357	$	29
2023		1,436		104
2024		1,379		87
2025		749		—
2026		90		—
2027		46		—
Total lease payments		4,057		220
Less: Imputed interest		(448)		(14)
Lease liabilities	$	3,609	$	206