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Leases

12 Months Ended

Jun. 30, 2023

6. Leases

The Company’s operating leases are for its offices, manufacturing facilities and equipment, and its finance leases are for equipment. These leases have original lease periods expiring between 2022 and 2027. Most leases include

option provisions under which the parties may extend the lease term. Certain non-real estate leases also include options to purchase the leased property. 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% was used 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 April 2023, the Company entered into an agreement with a manufacturing company to sublease 22,909 square feet of the Company’s manufacturing facility in Grand Prairie, Texas (the “Sublease Agreement”). The sublease commenced in May 2023 and will terminate on December 31, 2024. The Sublease Agreement provides the sublessee an option to expand the subleased property to include the remaining 54,203 square feet of the Company’s manufacturing facility. The expansion date may commence as early as April 1, 2024 but no later than December 31, 2024 (the “Expansion Date”). Under the terms of the Sublease Agreement, the sublessee will pay base rent of approximately $20,500 per month through the Expansion Date. Beginning on the Expansion Date, base rent will be $70,686 per month through the expiration of the sublease. In addition to the base rent, the sublessee will pay the Company certain operating expenses incurred by the Company.

During the fiscal year ended June 30, 2023, in addition to the sublease mentioned above, the Company entered into an operating lease agreement to relocate its principal office (See Note 18 – Commitments and Contingencies). During the fiscal year ended June 30, 2022, the Company commenced a five-year operating lease and recorded an ROU of $0.3 million.

The components of lease expenses are as follows;


	Year Ended
	June 30,
	2023		2022		Statement of Operations Classification

	(In thousands)
Lease cost:
Operating lease cost	$	1,402	$	1,299	Operating expenses
Short-term lease cost		97		152	Operating expenses
Finance lease cost:
Amortization of leased assets		66		73	Cost of sales
Interest on lease liabilities		9		14	Other (expense), net
Total net lease cost	$	1,574	$	1,538

Supplemental balance sheet information related to leases is as follows:


	June 30,		June 30,		Balance Sheet Classification
	2023		2022

	(In thousands)
Assets:
Operating lease assets	$	2,054	$	3,271	Operating lease right-of-use asset
Finance lease assets		159		256	Property and equipment, net
Total leased assets	$	2,213	$	3,527
Liabilities:
Current:
Operating leases	$	1,258	$	1,227	Other current liabilities
Finance leases		85		96	Current portion of debt
Non-current
Operating leases		832		2,090	Other liabilities
Finance leases		—		84	Debt, net of current portion
Total lease liabilities	$	2,175	$	3,497

Remaining lease terms and discount rates used are as follows;


	June 30,			June 30,
	2023			2022
Weighted-Average Remaining Lease Term (years)
Operating lease assets		1.72			2.63
Finance lease assets		0.87			1.73
Weighted-Average Discount Rate
Operating lease assets		7.78	%		7.48	%
Finance lease assets		6.54	%		6.43	%

Supplemental cash flow information related to leases is as follows:


	Year Ended
	June 30,
	2023		2022

	(In thousands)
Cash flow classification of lease payments:
Operating cash flows - operating leases	$	1,436	$	1,016
Operating cash flows - finance leases	$	9	$	15
Financing cash flows - finance leases	$	96	$	102

As of June 30, 2023, the maturities of the Company’s future minimum lease payments were as follows:


	Operating		Finance

	(In thousands)
2024	$	1,378	$	88
2025		749		—
2026		90		—
2027		46		—
Total lease payments		2,263		88
Less: Imputed interest		(173)		(3)
Lease liabilities	$	2,090	$	85