Leases |
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| Leases |
Note 12 – Leases
The Company has operating leases for its office, manufacturing and warehouse space, and office equipment. The Company has a finance lease for office equipment, furniture, and fixtures.
Corporate Headquarters
In June 2021, the Company executed a lease for its new corporate headquarters in Miami, Florida. The Company is leasing approximately 12,000 square feet of office space for an eight year term, which commenced on March 1, 2022. The space replaced the Company’s previous corporate headquarters in Miami, Florida when the lease terminated at the end of February 2022. Annual base rent payments are $58.00 per square foot and are subject to a 3% annual escalation. Based on the terms of the lease agreement, the Company paid a security deposit of approximately $117,000, which is included in other assets on the accompanying consolidated balance sheet as of September 30, 2023 and 2022.
Chicago Lease
The Company leases approximately 6,600 square feet of office space located in Chicago, Illinois. The Company executed the lease for this office in May 2016, for a -year period commencing on November 1, 2016 and ending on October 31, 2023. The lease granted the Company a -month lease holiday beginning November 1, 2016, a lease abatement beginning June 1, 2017, and provided a tenant improvement allowance. Annual base rent payments were $14.00 per square foot in year one and increase on an annual basis to $17 per square foot in the final year of the lease. The lease also requires payment of related expenses, including real estate taxes, common area maintenance, utilities and insurance expenses from June 1, 2017 to October 31, 2023. Based on the terms of the lease agreement, the Company paid a security deposit of $55,000. Effective September 1, 2017, the Company entered into a sublease for this office space through October 31, 2023. Monthly sublease payments of approximately $15,200 commenced in January 2018 and ended August 2023. The monthly sublease payment was subject to annual increases in September of each year and increased to approximately $17,300 per month in the final year of the sublease. Sublease income was recognized as a reduction to operating lease costs as the sublease was outside of the Company’s normal business operations. This is consistent with the Company’s recognition of sublease income prior to the adoption of FASB ASC Topic 842. The tenant under the sublease provided a security deposit of $30,000 to the Company. The Company continued to be responsible for performance under the lease until it expired on October 31, 2023.
International Leases
The Company leases approximately 6,400 square feet of office space located in London, England. The lease was effective in August 2020 with a five year term and a tenant’s option to cancel after three years with no penalty to the Company. At the time the lease was commenced, it was reasonably certain that the Company will exercise that option. The option to exercise required 6 months notice on February 28, 2023. At that time, the Company determined that it would not exercise the option to cancel and recorded an adjustment of $265,000 to its lease liabilities and right-of-use asset to reflect the additional lease term. The Company maintains a security deposit of approximately $58,000. The lease requires quarterly payments of approximately $41,100.
The Company leases 45,800 square feet of manufacturing and warehouse space in Selangor D.E., Malaysia. The Company executed the lease for this space in August 2019, for a -year term commencing September 1, 2019 and ending August 31, 2022. The Company had an option to extend the term of the lease for a period of three years, which was executed so that the lease is effective through August 31, 2025. The lease requires monthly payments of approximately $15,400. Based on the terms of the lease agreement, the Company maintains a security deposit of approximately $46,000.
Certain of our lease agreements include variable lease payments for common area maintenance, real estate taxes, and insurance or based on usage for the office equipment leases. The components of the Company’s lease cost were as follows for the years ended September 30, 2023 and 2022:
The Company paid cash of $860,000 and $680,000 for amounts included in the measurement of operating lease liabilities during the year ended September 30, 2023 and 2022, respectively. The Company’s operating lease ROU assets and related lease liabilities are presented as separate line items on the accompanying consolidated balance sheet as of September 30, 2023 and 2022.
Other information related to the Company’s leases as of September 30, 2023 and 2022 was as follows:
The Company’s lease agreements do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.
As of September 30, 2023, maturities of lease liabilities were as follows:
The Company does not have any leases that have not yet commenced as of September 30, 2023.
The lease liabilities presented above do not include variable lease payments for common area maintenance, real estate taxes, and insurance or based on usage for the office equipment leases. These amounts are not fixed and can fluctuate from year to year. |
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