LEASES

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former Chairman. On January 5, 2017, the lease was renewed for a period of five years, ending June 30, 2023, and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $380,000 per year and included an option to renew at the same rate for an additional five years ending June 30, 2028. The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership.

The Company used its incremental borrowing rate as of July 1, 2017, the retrospective date of adoption of ASU 2016-02 (Topic 842) Leases, to calculate the net present value of the operating lease ROU asset and liability. The five year renewal option was included in the calculation of the ROU asset and liability as the Company believes it is more likely than not to exercise its right to renew. The non-lease components of the agreement related to common area maintenance charges are accounted for separately.

Supplemental information related to lease expense and valuation of the ROU asset and liability was as follows:



	Three and Six Months Ended
	December 31
	2018			2017
Operating lease cost	$	190,000		$	190,000
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	190,000		$	190,000
Weighted-average remaining lease term (in years)	9.5			10.5
Weighted-average discount rate	4.25		%	4.25		%

The maturity schedule of future minimum lease payments and reconciliation to the operating lease liabilities reported on the consolidated balance sheets is as follows:



Year ending June 30,
Operating lease payments, 2019 (excluding the six months ended December 31, 2018)	$	190,000
Operating lease payments, 2020	380,000
Operating lease payments, 2021	380,000
Operating lease payments, 2022	380,000
Operating lease payments, 2023	380,000
Operating lease payments, Thereafter	1,900,000
Total operating lease payments	3,610,000
Present value adjustment	(633,596		)
Total operating lease liabilities	$	2,976,404