Leases

3 Months Ended

Sep. 30, 2020

9. Leases

Effective July 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842 - Leases using the modified retrospective transition approach and electing the package of practical expedients. This resulted in the recognition of right-of-use assets of $441 and total operating lease liabilities of $463. There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

The Company leases its Texas manufacturing facility under an operating lease agreement. During the three months ended September 30, 2020, the Company exercised its option to extend the term of this lease agreement by five years, so that it now expires in April 2026. The Company is currently in an arbitration process with the landlord in accordance with the provisions of the lease to establish the rate of rent over the five-year extension term. Because the arbitration process is not finalized and the rent is not yet established, the Company has provided an estimate of the present value of lease payments, and the right-of-use asset value associated with this five-year extended term within its consolidated financial statements. The Company expects the arbitration process to be finalized and the rent established in the second quarter of fiscal 2021, at which point the effects of this five-year extension may be remeasured in the Company's consolidated financial statements. The Company also leases office equipment under lease agreements that expire at various dates through April 2024.

As discussed in Note 6, the Company also leases its Minnesota headquarters facility which is accounted for as a financing obligation.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement dates. The Company considers fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company uses its incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments unless the lease provides an implicit interest rate.

Operating lease cost is classified within the consolidated statement of operations based on the nature of the leased asset. The Company's operating lease cost was $126 and $121 for the three months ended September 30, 2020 and 2019, respectively. Cash paid for operating lease liabilities approximated operating lease cost for the three months ended September 30, 2020. There were $2,238 and $437 of operating lease right-of-use assets obtained in exchange for new lease liabilities during the three months September 30, 2020 and 2019, respectively.


	September 30,		June 30,
	2020		2020
Right-of-use assets
Other assets	$	2,543	$	427
Operating lease liabilities
Accrued expenses	$	495	412
Other liabilities	$	2,048	15
Total operating lease liabilities	$	2,543	$	427

Future minimum lease payments under the agreements as of September 30, 2020 are as follows:


Remainder of fiscal 2021	$	377
Fiscal 2022	494
Fiscal 2023	486
Fiscal 2024	485
Fiscal 2025	483
Thereafter	403
Total lease payments	2,728
Less imputed interest	(185)
Total operating lease liabilities	$	2,543

As of September 30, 2020, the weighted average remaining lease term for operating leases was 5.5 years and the weighted average discount rate used to determine operating lease liabilities was 2.55%.