Leases

The Company maintains a production facility located at Applied Process Engineering Laboratory (APEL) in Richland, Washington. The APEL facility became operational in

September 2007.

The production facility has over

15,000

square feet and includes space for isotope separation, seed production, order dispensing, a clean room for assembly of our product offerings, and a dedicated shipping area. In

2015,

the Company entered into a modification to the production facility lease that modified the requirement to return the facility to ground at the time of exit at Company discretion, exercised an extension in

2017

to increase the lease term to

April 30, 2021,

and reduced the required notice to terminate the lease early from

twelve

months to

six

months. In

July 2019,

the Company entered into another modification of the production facility lease that extends the term to

April 20, 2026,

maintains the current rental rate through

April 2020,

and provides for an

eighteen

month termination notice with an early termination penalty of up to

$40,000

which decreases in the future beginning

May 1, 2022.

Upon the adoption of Topic

842

July 1, 2019,

the Company recognized a right-of-use asset and lease liability of approximately

1.2

million. In determining the amount of the right-of-use asset and lease liability, we assumed the termination of the lease in

April 2024

and incurring a termination penalty of

$20,000.

As of the date of adoption, the operating lease is included on the balance sheet at the present value of the future base payments discounted at a

discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment as the lease does

not

provide an implicit discount rate. The weighted average remaining term and discount rate as of

December 31, 2019

was

4.3

years and

6%,

respectively.

For the

three

and

six

months ended

December 31, 2019,

our operating lease expense was approximately

$73,000

and

$147,000,

respectively. Operating right-of-use asset amortization was approximately

$56,000

and

$111,000

during the

three

and

six

months ended

December 31, 2019,

respectively. Due to lease expense in excess of payments made, the lease liability decreased approximately

$55,000

and

$109,000

for the

three

and

six

months ended

December 31, 2019.

The following table presents the future operating lease payments and lease liability included on the condensed balance sheet related to the Company’s operating lease as of

December 31, 2019 (

in thousands):

Year Ending June 30,
2020 (remaining nine months of the year)	$	145
2021		290
2022		290
2023		290
2024		237
Total		1,252
Less: Imputed Interest		(134	)
Total Lease Liability		1,118
Less current portion		(229	)
Non-current Lease Liability	$	889

Asset Retirement Obligation

The Company has an asset retirement obligation (ARO) associated with the facility it currently leases. In connection with the lease modification executed in

July 2019,

the ARO changed as follows (in thousands):

	Six months ended December 31,
	2019			2018
Beginning balance	$	621		$	590
Accretion of discount		15			16
Gain on change in ARO estimate due to lease modification		(73	)		-
Ending Balance	$	563		$	606

The original facility lease was scheduled to expire in the

fourth

quarter of fiscal year

2016.

Upon the end of the original lease term, the initial asset retirement estimate was fully accreted and the related ARO asset was fully amortized. During the

six

months ended

December 31, 2019,

the Company extended the lease term an additional

five

years thus extending the time before asset retirement costs would be incurred. This resulted in a decrease in the ARO balance to a fair value of

$555,000

and the Company recognized a gain on change in the estimate of

$73,000

during the

six

months ended

December 31, 2019.

At the time of the lease extension, the undiscounted estimated asset retirement obligation was

$704,000

discounted to fair value utilizing an interest rate of

5.1%.