Note 6 - Leases and Other Commitments and Contingencies

9 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 6. Leases and other Commitments and Contingencies

(a) Leases. The Company has operating and finance leases for its corporate and sales offices, warehousing and packaging facilities and certain machinery and equipment, including office equipment. The Company’s leases have remaining terms of approximately 2 to 5 years.

The components of lease expense for the three months ended March 31, 2023 and 2022, were as follows:

	Three months ended March 31,
	2023						2022
	Related Party - Vitamin Realty		Other Leases		Totals		Related Party - Vitamin Realty		Other Leases		Totals
Operating lease costs	$	211	$	53	$	264	$	141	$	20	$	161
Finance Lease Costs:
Amortization of right-of use assets	$	-	$	3	$	3	$	-	$	-	$	-
Total finance lease cost	$	-	$	3	$	3	$	-	$	-	$	-

The components of lease expense for the nine months ended March 31, 2023 and 2022, were as follows:

	Nine months ended March 31,
	2023						2022
	Related Party - Vitamin Realty		Other Leases		Totals		Related Party - Vitamin Realty		Other Leases		Totals
Operating lease costs	$	632	$	99	$	731	$	424	$	67	$	491
Finance Operating Lease Costs:
Amortization of right-of use assets	$	-	$	9	$	9	$	-	$	-	$	-
Total finance lease cost	$	-	$	9	$	9	$	-	$	-	$	-

Rent and lease amortization costs are included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

Operating Lease Liabilities

Related Party Operating Lease Liabilities.  Warehouse and office facilities are leased from Vitamin Realty Associates, LLC (“Vitamin Realty”), which is 100% owned by the estate of the Company’s former chairman, and a major stockholder and certain of his family members, who are the Co-Chief Executive Officers and directors of the Company. On January 5, 2012, MDC entered into a second amendment of lease (the “Second Lease Amendment”) with Vitamin Realty for its office and warehouse space in New Jersey increasing its rentable square footage from an aggregate of 74,898 square feet to 76,161 square feet and extending the expiration date to January 31, 2026. This Second Lease Amendment provided for minimum annual rental payments of $533, plus increases in real estate taxes and building operating expenses.  On July 15, 2022, MDC entered into a third amendment of the lease (the “Third Lease Amendment”) with Vitamin Realty, increasing its rentable square footage to 116,175.  This Third Lease Amendment provided for minimum annual rental payments of $842, plus increases in real estate taxes and the building operating expenses allocation percentage and is effective as of July 1, 2022.

On May 19, 2014, AgroLabs entered into an amendment to the lease agreement entered into on January 5, 2012, with Vitamin Realty for an additional 2,700 square feet of warehouse space in New Jersey, the term of which was to expire on January 31, 2020 to extend the expiration date to June 1, 2024. This additional lease provided for minimum lease payments of $27 with annual increases plus the proportionate share of operating expenses.  The AgroLabs Lease was mutually terminated on July 15, 2022 with an effective date of July 1, 2022.

Rent expense and lease amortization costs for the three months ended March 31, 2023 and 2022 on these leases were $321 and $223 respectively, and for the nine months ended March 31, 2023 and 2022 were $958 and $667, respectively, and are included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of March 31, 2023 and June 30, 2022, the Company had outstanding current obligations to Vitamin Realty of $33 and $72, respectively, included in accounts payable in the accompanying Condensed Consolidated Balance Sheet. Additionally, the Company has operating lease obligations of $2,249 and $1,839 with Vitamin Realty as noted in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2023 and June 30, 2022, respectively.

Other Operating Lease Liabilities. The Company has entered into certain non-cancelable operating lease agreements expiring up through May 31, 2023, related to machinery and equipment and office equipment.

In the nine months ended March 31, 2023, in addition to the Third Amendment with Vitamin Realty,  the Company renewed, for one year, an operating lease for office space with an annual commitment of $10 and entered into a five year lease for additional warehouse space of 12,500 square feet with an annual commitment of $119 in the first year increasing to $134 in the fifth year of the lease (the “Warehouse Lease”).  The Warehouse Lease includes additional rent of not less than $1 per month for the Company’s pro rata portion of the lessor’s operating expenses and commenced on December 1, 2022.

As of March 31, 2023, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases were as follows:

	Right-of-use Assets		Current Portion of Operating Lease Obligations		Operating Lease Obligations		Remaining Cash Commitment
Vitamin Realty Leases	$	2,249	$	764	$	1,485	$	2,386
Warehouse Lease		567		107		461		665
Office Equipment Leases		23		7		15		25
	$	2,839	$	878	$	1,961	$	3,076

As of June 30, 2022, the Company’s ROU assets, lease obligations and remaining cash commitment on these leases were as follows:

	Right-of-use Assets		Current Portion Operating Lease Obligations		Operating Lease Obligations		Remaining Cash Commitment
Vitamin Realty Leases	$	1,839	$	503	$	1,338	$	1,972
Office equipment leases		28		7		21		32
	$	1,867	$	510	$	1,359	$	2,004

As of March 31, 2023 and June 30, 2022, the Company’s weighted average discount rate and remaining term on operating lease liabilities were approximately 4.33% and 3.75% and 3.1 years and 4.4 years, respectively. 

As of each  March 31, 2023 and  June 30, 2022, the Company’s weighted average discount rate for the outstanding finance lease obligation is 0% and the remaining term on finance lease obligation is approximately 1.4 years and 2.2 years, respectively.  The ROU asset related to the finance lease obligation and lease obligation are included in Property and equipment, net and Long term debt, respectively in the accompanying Condensed Consolidated Balance Sheet.

Supplemental cash flows information related to leases for the nine months ended March 31, 2023, is as follows:

	Related Party - Vitamin Realty		Other Leases		Totals
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	632	$	99	$	731
Operating cash flows from finance leases		-		-		-
Financing cash flows from finance lease obligations		-		25		25

Supplemental cash flows information related to leases for the nine months ended March 31, 2022, is as follows:

	Related Party - Vitamin Realty		Other Leases		Totals
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	424	$	67	$	491
Operating cash flows from finance leases		-		-		-
Financing cash flows from finance lease obligations		-		-		-

Maturities of operating lease liabilities as of March 31, 2023 were as follows:

	Operating			Related Party			Finance
Year ending	Lease			Operating Lease			Lease
June 30,	Commitments			Commitment			Obligation		Total
2023, remaining	$	36		$	210		$	11	$	257
2024		146			842			42		1,030
2025		149			842			7		998
2026		149			492			-		641
2027		148			-			-		148
2028		62			-			-		62
Total minimum lease payments		690			2,386			60		3,136
Imputed interest		(100	)		(137	)		-		(237	)
Total	$	590		$	2,249		$	60	$	2,899

(b) Legal Proceedings.

The Company is subject, from time to time, to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.