On July 1, 2019, the Company adopted ASC 842, (“ASC 842”). ASC 842 requires lessees to recognize at the lease commencement date a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must either (i) apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements or (ii) recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected to use the cumulative-effect transition method upon adoption. ASC 842 also allows lessees and lessors to elect certain practical expedients. The Company elected the following practical expedients: Transitional practical expedients:
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The Company need not reassess whether any expired or existing contracts are or contain leases. |
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The Company need not reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with the previous guidance will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with the previous guidance will be classified as finance leases). |
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The Company need not reassess initial direct costs for any existing leases. | Hindsight practical expedient:
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The Company elected the hindsight practical expedient in determining the lease term (that is, when considering lessee options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of the Company’s assets. | The Company has entered into an operating lease for office space under an agreement that expires in 2022. The lease requires the Company to pay utilities, insurance, taxes and other operating expenses. The Company’s lease does not contain any residual value guarantees or material restrictive covenants. Upon adoption of ASC 842, the Company recognized on its consolidated balance sheet as of July 1, 2019 an initial measurement of approximately $579,000 of operating lease liabilities, and approximately $579,000 of corresponding operating right-of use assets, net of tenant improvement allowances. There was also no cumulative effect adjustment to retained earnings as a result of the transition to ASC 842. The Company recorded the initial recognition of the operating lease as a supplemental noncash financing activity on the accompanying consolidated statement of cash flows. The adoption of ASC 842 did not have a material impact on the Company’s consolidated statement of operations. The tables below show the changes during the year ended June 30, 2021 and 2020:
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Initial measurement at July 1, 2019 |
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$ |
579 |
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Amortization of right of use asset |
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(184 |
) |
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395 |
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Amortization of right of use asset |
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(193 |
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Operating lease asset at June 30, 2021 |
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$ |
202 |
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Initial measurement at July 1, 2019 |
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$ |
579 |
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Principal payments on operating lease liabilities |
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(174 |
) |
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Operating lease liabilities at June 30, 2020 |
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405 |
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Principal payments on operating lease liabilities |
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(192 |
) |
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Operating lease liabilities at June 30, 2021 |
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213 |
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Less: non-current portion |
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— |
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Current portion at June 30, 2021 |
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$ |
213 |
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| As of June 30, 2021, the Company’s operating lease has a remaining lease term of 0.96 years and a discount rate of 4.67%. The maturities of the operating lease liabilities are as follows:
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218 |
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(5 |
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Present value of operating lease liabilities |
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$ |
213 |
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| For the fiscal years ended June 30, 2021 and 2020, total lease expense under operating leases was approximately $208,000 and $208,000, respectively, and was recorded in general and administrative expenses. |