LEASES

The Company determines if an arrangement is a lease at inception. The guidance in Topic

842

defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do

not

provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company entered into operating leases for office and production facilities and equipment under agreements that expire at various dates through

2028.

The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is

not

required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of Topic

842.

The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than

one

year in duration. Leases with an initial term of

twelve

months or less are

not

recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For leases beginning on or after

October 1, 2019,

lease components are accounted for separately from non-lease components for all asset classes. Certain of the Company’s leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were

not

included in the determination of the operating lease liabilities and the ROU assets. Variable payments such as excess usage fees on existing equipment leases were

not

included in the determination of the lease liabilities and the ROU assets as the achievement of the specified target that triggers the variable lease payment is

not

considered probable. In addition, the Company’s facility lease in Spain has an escalating lease clause based on a consumer price index which is considered a variable lease payment and is

not

included in the determination of the lease liability and ROU asset. A

10%

increase in the index would increase the total lease liability approximately

$19,000.

The Company’s leases do

not

contain any residual value guarantees or material restrictive covenants.

Upon adoption of Topic

842

as of

October 1, 2019,

the Company recognized on its consolidated balance sheet an initial measurement of approximately

$7,814,701

of operating lease liabilities, and approximately

$5,823,972

of corresponding operating ROU assets, net of tenant improvement allowances. There was

cumulative effect adjustment to retained earnings as a result of the transition to Topic

842.

The adoption of Topic

842

did

not

have a material impact on the Company’s consolidated statement of operations.

The tables below show the initial measurement of the operating lease ROU assets and liabilities as of

October 1, 2019

and the balances as of

December 31, 2019,

including the changes during the periods.

	Operating ROU asset
Initial measurement at October 1, 2019	$	7,814,701
Less lease incentives and tenant improvement allowance		(1,990,729	)
Net operating lease ROU assets at October 1, 2019		5,823,972
Less amortization of operating lease ROU assets		(145,382	)
Effect of exchange rate on operating lease ROU assets		7,395
Operating lease ROU assets at December 31, 2019	$	5,685,985

	Operating lease liabilities
Initial measurement at October 1, 2019	$	7,814,701
Less lease principal payments on operating lease liabilities		(172,158	)
Effect of exchange rate on operating lease liabilities		7,395
Operating lease liabilities at December 31, 2019		7,649,938
Less non-current portion		(6,934,074	)
Current portion as December 31, 2019	$	715,864

As of

December 31, 2019,

the Company’s operating leases have a weighted-average remaining lease term of

8.43

years and a weighted-average discount rate of

4.13%.

The maturities of the operating lease liabilities are as follows:

	As of
	December 31, 2019
Fiscal year ending September 30:
2020 (remaining nine months)	$	755,464
2021		1,033,413
2022		1,060,395
2023		1,012,109
2024		1,008,177
Thereafter		4,247,217
Total undiscounted operating lease payments		9,116,775
Less imputed interest		(1,466,837	)
Present value of operating lease liabilities		7,649,938
Less lease liability, noncurrent		(6,934,074	)
Lease liability, current portion	$	715,864

For the

three

months ended

December 31, 2019

and

2018,

total lease expense under operating leases was approximately

$224,031

and

$224,690

respectively. The Company did

not

have any short-term lease expense during the

three

months ended

December 31, 2019.