NOTE 11 - Commitments and Contingencies

Leases

Effective July 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately $7.7 million. Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. Financial positions for reporting periods beginning on or after July 1, 2019 are presented under new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

Our lease obligation consists of a 99 year lease which commenced on April 26, 1993 with one of the Company’s foreign subsidiaries, expiring in 2092, for approximately four acres of land in the Dominican Republic at an annual cost of $288,000, on which the Company’s principal production facility is located.

Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets

For the three and nine months ended March 31, 2020 cash payments against operating lease liabilities totaled $72,000 and $240,000, respectively.

Supplemental balance sheet information related to operating leases was as follows:


Weighted-average remaining lease term	72	years
Weighted-average discount rate	3.55	%

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2020 (in thousands):


Year Ending June 30,	Amount
2020	$	72
2021		280
2022		270
2023		261
2024		251
Thereafter		6,267
Total	$	7,401

As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting standard, undiscounted future minimum lease payments for operating leases having initial or remaining non-cancellable lease terms in excess of one year are as follows (in thousands):


Year Ending June 30,	Amount
2020	$	315
2021		314
2022		311
2023		297
2024		288
Thereafter		19,536
Total	$	21,061

Operating lease expense totaled approximately $79,000 and $84,000, for the three months ended March 31, 2020 and 2019, respectively. Operating lease expense totaled approximately $237,000 and $250,000, for the nine months ended March 31, 2020 and 2019, respectively.

Litigation

In the normal course of business, the Company is a party to claims and/or litigation. Management believes that the settlement of such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company’s financial position and results of operations.

Employment and Severance Agreements

As of March 31, 2020, the Company was obligated under three employment agreements and one severance agreement. The employment agreements are with the Company’s CEO, Senior Vice President of Sales and Marketing (“the SVP of Sales”) and the Senior Vice President of Engineering (“the SVP of Engineering”). The employment agreement with the CEO provides for an annual salary of $806,000, as adjusted for inflation; incentive compensation as may be approved by the Board of Directors from time to time and a termination payment in an amount up to 299% of the average of the prior five calendar year's compensation, subject to certain limitations, as defined in the agreement. The employment agreement renews annually in August unless either party gives the other notice of non-renewal at least six months prior to the end of the applicable term. The employment agreement with the SVP of Sales was terminated by mutual agreement and replaced with a Consulting Agreement that does not provide for severance. The employment agreement with the SVP of Engineering expires in August 2022 and provides for an annual salary of $334,000 and provides for payment equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause or for any reason within three months of a change in control of the Company. The severance agreement with the Senior Vice President of Operations and Finance and provides for severance of nine month’s salary, continued company-sponsored health insurance for six months from the date of termination and certain non-compete and other restrictive provisions if termination occurs by the Company without cause or for any reason within three months of a change in corporate control of the Registrant.