Commitments and Contingencies

9 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

11. Commitments and Contingencies

Leases

The Company has entered into operating leases primarily for real estate and to a lesser extent for office copiers. The Company has entered into one finance lease for manufacturing equipment. The Company does not expect finance leases to become material. All leases generally have terms that range from 1 year to 6 years. Operating leases are included in “Lease right-of-use assets” and Finance leases are included in “Other assets” on the Company’s Condensed Consolidated Balance Sheets and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments on operating leases are included in “Current portion of lease liabilities” and “Lease liabilities”. The Company’s obligation to make lease payments on finance leases are included in “Accrued expenses and other current liabilities” and “Other non-current liabilities” on the Company’s Condensed Consolidated Balance sheets. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized right-of-use assets of approximately $0.4 million and lease liabilities for operating leases of approximately $0.4 million on July 1, 2019. Lease right-of-use assets and liabilities commencing after July 1, 2019 are recognized at their commencement date based on the present value of lease payments over the lease term. The Company has entered into various short-term operating leases with an initial term of 12 months or less. These leases are not recorded on the Company’s Condensed Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term, within “Operating expenses” in the Company’s Condensed Consolidated Statements of Operations. Lease expense for finance leases is recorded as Depreciation expense within “Operating expenses”, and in “Interest expense”.

During the nine months ended March 31, 2021 and 2020, the Company recognized approximately $0.5 million and $0.4 million, respectively, in total operating lease costs for right-of-use assets.

Because the rate implicit in each operating lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate used for operating leases entered into during the nine months ended March 31, 2021 was 10.9%. The finance lease contains a stated rate of 3.0%, and therefore the rate explicit in the lease was used for the finance lease. There were no new leases entered into in the prior period. The incremental borrowing rate used upon transition to ASC 842 was 10.5%.

Information related to the Company’s right-of-use assets and related lease liabilities were as follows:

Classification		2021		2020
		March 31,
	Balance Sheet Classification	2021		2020

Right-of-use assets
Operating leases	Lease right-of-use assets	$	1,108,454	$	1,266,237
Finance leases	Other assets		80,779		-

Total		$	1,189,233	$	1,266,237

Short-term Lease Liabilities

Operating leases	Current portion of lease liabilities	$	508,924	$	342,658
Finance leases	Accrued expenses and other current liabilities		16,064		-

Total		$	524,988	$	342,658

Long-term Lease Liabilities

Operating leases	Lease liabilities	$	645,804	$	765,627
Finance leases	Other non-current liabilities		61,666		-

Total		$	707,470	$	765,627

	March 31,
	2021			2020
Cash paid for lease liabilities
Operating leases	$	446,212		$	355,381
Finance leases	$	8,065		$	-

Right-of-use assets obtained in exchange for new lease obligations
Operating leases	$	361,999		$	1,378,409
Finance leases	$	85,185		$	-

Weighted-average remaining lease term (in years)
Operating leases		2.98			4.00
Finance leases		4.58			-

Weighted-average discount rate
Operating leases		10.6	%		10.5	%
Finance leases		3.0	%		-

Maturities of lease liabilities as of March 31, 2021 were as follows:

	Operating Leases			Finance Leases
2021		151,869			4,542
2022		522,469			18,169
2023		273,917			18,169
2024		274,512			18,169
2025		129,211			18,169
Thereafter		1,644			6,056
Total payments		1,353,622			83,274
Less imputed interest		(198,894	)		(5,544	)

Total lease liabilities	$	1,154,728		$	77,730

Former Chinese Distributor – Litigation

On March 23, 2017, the Company’s former distributor in China, Cicel (Beijing) Science & Technology Co., Ltd., filed a lawsuit against the Company and certain of its officers and directors in the United States District Court for the Eastern District of New York, alleging that the Company improperly terminated its contract with the former distributor. The complaint sought various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, and asserted various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion. On October 7, 2017, the court granted the Company’s motion to dismiss each of the tort claims asserted against the Company, and also granted the individual defendants’ motion to dismiss all claims asserted against them. On January 23, 2020, the Court granted Cicel’s motion to amend its complaint, to include claims for alleged defamation and theft of trade secrets in addition to the breach of contract claim. The Company believes that it has various legal and factual defenses to the allegations in the complaint and intends to defend the action vigorously. Fact discovery in the case is ongoing, and there is no trial date currently set.

MISONIX INC 10-Q