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Leases

12 Months Ended

Jun. 30, 2022

12. Leases

The Company has operating leases for its manufacturing and office space. As of June 30, 2021, the Company had two lease agreements for its corporate headquarters and manufacturing facilities in Orlando, Florida. The first lease (the “Orlando Lease”) was amended effective April 30, 2021 to expand the space from approximately 26,000 square feet to approximately 58,500 square feet. The lease term was extended from April 30, 2022, to that certain date that is one hundred twenty-seven (127) months after the date the landlord completes certain work to be done at the leased premises. The commencement date is expected to be November 1, 2022, subject to completion of the build-out. Minimum rental rates for the extension term were established based on annual increases of approximately three percent (3%). Additionally, there is one five-year extension option exercisable by the Company. The minimum rental rates for such additional extension option will be determined at the time an option is exercised and will be based on a “fair market rental rate,” as determined in accordance with the Orlando Lease, as amended. The second lease was entered into in April 2018 for 12,378 square feet in Orlando, Florida (the “Orlando Lease II”), which provides additional manufacturing and office space near the Company’s corporate headquarters. The commencement date of the Orlando Lease II was December 1, 2018, and it has a four-year original term with one renewal option for an additional five-year term. In October 2021, this lease was amended to reduce the square footage to approximately 3,700. This lease will expire in November 2022 and will not be renewed, as this manufacturing and office space will be relocated to the expanded space included in the Orlando Lease, as amended.

As of June 30, 2021, the Company, through its wholly-owned subsidiary, LPOI, had a lease agreement for an office facility in Shanghai, China (the “Shanghai Lease”) for 1,900 square feet. The Shanghai Lease commenced in October 2015. During fiscal 2020, the Shanghai Lease was renewed for an additional three-year term, and now expires in October 2022. We do not expect to renew this lease.

As of June 30, 2021, the Company, through its wholly-owned subsidiary, LPOIZ, had three lease agreements for manufacturing and office facilities in Zhenjiang, China for an aggregate of 55,000 square feet. The initial lease (the “Zhenjiang Lease I”) is for approximately 26,000 square feet, and had a five-year original term with renewal options. In fiscal year 2019, the Company renewed the Zhenjiang Lease I and was set to expire in June 2022. During fiscal year 2018, another lease was executed for 13,000 additional square feet in this same facility (the “Zhenjiang Lease II”). In January 2022, these leases were combined and extended to December 31, 2024.

At June 30, 2021, the Company, through ISP’s wholly-owned subsidiary ISP Latvia, had two lease agreements for a manufacturing and office facility in Riga, Latvia for an aggregate of 29,000 square feet. The first lease (“Riga Lease I”) was amended in August 2020, to expand the space to approximately 24,000 square feet. The lease term was extended from December 31, 2022 to December 31, 2025. The second lease (“Riga Lease II”), for approximately 5,000 square feet, had a five-year original term with renewal options, and was set to expire in December 2019. In January 2022, these leases were extended to December 31, 2030.

The Company’s facility leases are classified as operating leases, and the Company also has finance leases related to certain equipment located in Orlando, Florida. The operating leases for facilities are non-cancelable, expiring through 2024 to 2032. The Company includes options to renew (or terminate) in the lease term, and as part of the ROU assets and lease liabilities, when it is reasonably certain that the Company will exercise that option. The Company currently has obligations under two finance lease agreements, entered into during fiscal year 2019, with terms ranging from three to five years. The leases are for computer and manufacturing equipment.

The Company’s operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. As most of the Company’s leases do not provide an implicit rate, the Company used its collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of the Company’s leases include variable lease payments that are dependent on an index or rate. The Company is responsible for payment of certain real estate taxes, insurance and other expenses on certain of its leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. The Company generally accounts for non-lease components, such as maintenance, separately from lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the Consolidated Balance Sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company received tenant improvement allowances for the Orlando Lease and for Orlando Lease II. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms.

The components of lease expense were as follows:

	Year Ended June 30,
	2022		2021
Operating lease cost	$	668,054	$	682,980
Finance lease cost:
Depreciation of lease assets		162,057		207,931
Interest on lease liabilities		19,571		44,248
Total finance lease cost		181,628		252,179
Total lease cost	$	849,682	$	935,159

Supplemental balance sheet information related to leases was as follows:

	Classification	June 30, 2022		June 30, 2021
Assets:
Operating lease assets	Operating lease assets	$	10,420,604	$	9,015,498
Finance lease assets	Property and equipment, net⁽¹⁾		61,566		477,102
Total lease assets		$	10,482,170	$	9,492,600

Liabilities:
Current:
Operating leases	Operating lease liabilities, current	$	965,622	$	799,507
Finance leases	Finance lease liabilities, current		55,348		212,212

Noncurrent:
Operating leases	Operating lease liabilities, less current portion		9,478,077		8,461,133
Finance leases	Finance lease liabilities, less current portion		11,454		66,801
Total lease liabilities		$	10,510,501	$	9,539,653

⁽¹⁾	Finance lease assets are recorded net of accumulated depreciation of approximately $418,000 and $477,000 as of June 30, 2022 and 2021, respectively.

Lease term and discount rate information related to leases was as follows:

Lease Term and Discount Rate	June 30, 2022
Weighted Average Remaining Lease Term (in years)
Operating leases		10.1
Finance leases		0.9

Weighted Average Discount Rate
Operating leases		3.0	%
Finance leases		7.6	%

Supplemental cash flow information:

	Year Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases	$	870,911	$	869,668
Operating cash used for finance leases	$	19,571	$	44,247
Financing cash used for finance leases	$	212,211	$	278,462

Future maturities of lease liabilities were as follows as of June 30, 2022:

Fiscal year ending:	Finance Leases			Operating Leases
June 30, 2023		59,647		$	721,901
June 30, 2024		11,811			1,204,323
June 30, 2025		—			1,225,047
June 30, 2026		—			1,193,987
June 30, 2027		—			1,163,610
Thereafter		—			6,928,833
Total future minimum payments		71,458			12,437,701
Less imputed interest		(4,656	)		(1,994,002	)
Present value of lease liabilities	$	66,802		$	10,443,699