NOTE 15 – COMMITMENTS

Asset Retirement Obligations

FASB ASC Topic 410, “Asset Retirement and Environmental Obligations,” requires the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred if a reasonable estimate of fair value can be made and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. The retirement obligation relates to estimated costs for the removal and shipment of a solar power system under an equipment lease. Accrued asset retirement obligations are recorded at net present value and discounted over the life of the lease. The Company had an asset retirement obligation of $19,222 as of December 31, 2016 and $18,759 as of June 30, 2016. The asset retirement obligation is classified as “Other long-term liabilities” in the condensed consolidated balance sheets. The table below summarizes the asset retirement obligation balances and activity:

	December 31, 2016		June 30, 2016
Balance at beginning of period	$	18,759	$	-
Liabilities incurred		-		18,527
Accretion expense		463		232
Balance at end of period	$	19,222	$	18,759

Leasing Activities

Sale-leaseback Transactions

During the year ended June 30, 2016, the Company entered into a sale-leaseback transaction with a non-related party. The Company evaluated the transaction under FASB ASC Subtopic 842-40, “Sale and Leaseback Transactions” and concluded that the transfer of the asset did not qualify as a sale and is accounted for in accordance with other Topics. The liability is presented in the debt table in Note 10 as an equipment financing obligation.

Operating Leases

The Company leases office space in Petaluma, California from a non-related company under the terms of a lease that expires July 15, 2019. Monthly rent for the first twelve months of the lease is $3,000 and increases by 2.5% for each succeeding 12 month period.

The Company leases office space in Madison, Wisconsin from a non-related company under the terms of a lease that expires October 31, 2017. Monthly rent for the first twelve months of the lease is $1,580 and increases by 3% for each succeeding 12 month period.

The Company leased an Australian research and development facility from a non-related Australian company under the terms of a lease that was due to expire on October 31, 2016. Subsequently, the Company entered into a lease termination agreement that was effective January 1, 2016. The Company was required to pay a rent shortfall of $36,521 and a leasing fee of $7,313.

Operating lease expense recognized during the three and six months ended December 31, 2016 was $14,539 and $29,077, respectively. Operating lease expense recognized during the three and six months ended December 31, 2015 was $34,378 and $57,912, respectively. Operating lease expense is included in operating expenses in the condensed consolidated statements of operations. As of December 31, 2016 and June 30, 2016, the carrying value of the right of use asset was $103,833 and $27,264, respectively, and is separately stated on the condensed consolidated balance sheets. The related short-term and long-term liabilities as of December 31, 2016 were $50,704 and $53,129 and as of June 30, 2016 were $20,234 and $7,030, respectively. The short-term and long-term liabilities are included in “Accrued expenses” and “Other long-term liabilities,” respectively, in the condensed consolidated balance sheets.

Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of December 31, 2016 and June 30, 2016 are summarized below:

	December 31, 2016		June 30, 2016
Weighted-average remaining lease term (in years)
Operating leases		2.22		1.33
Weighted-average discount rate
Operating leases		5.0%		5.0%

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the condensed consolidated balance sheets as of December 31, 2016:

	Operating Leases
2017	$	28,790
2018		44,080
2019		37,800
2020		-
2021		-
Thereafter		-
Total undiscounted lease payments		110,670
Present value adjustment		(6,837)
Net operating lease liabilities	$	103,833

Short-term Leases

The Company leases facilities in Honolulu, Hawaii, Milwaukee, Wisconsin, and Shanghai, China from non-related parties under lease terms that expire between May 31, 2017 and July 31, 2017. Monthly rent for the twelve-month rental periods is between $400 and $4,250 per month. Rent expense of $22,529 and $46,290 was recognized during the three and six months ended December 31, 2016. Rent expense of $34,378 and $57,912 was recognized during the three and six months ended December 31, 2015. Short-term rent expense is included in operating expenses in the condensed consolidated statement of operations.

Employment Contracts

The Company has entered into employment contracts with executives and management personnel. The contracts provide for salaries, bonuses and stock option grants, along with other employee benefits. The employment contracts generally have no set term and can be terminated by either party. There is a provision for payments of up to six months of annual salary as severance if the Company terminates a contract without cause, along with the acceleration of certain unvested stock option grants. During the year ended June 30, 2016, the Company recorded $125,000 of severance for our former CEO.