Quarterly report pursuant to Section 13 or 15(d)

Finance Lease Obligation

v3.21.1
Finance Lease Obligation
9 Months Ended
Mar. 31, 2021
Finance Lease Obligation [Member]  
Finance Lease Obligation

11.   Finance Lease Obligation

As discussed above, iBio CDMO is leasing its facility in Bryan, Texas as well as certain equipment from the Second Eastern Affiliate under the 34-year Sublease. iBio CDMO began operations at the facility on December 22, 2015 pursuant to agreements between iBio CDMO and the Second Eastern Affiliate granting iBio CDMO temporary rights to access the facility. These temporary agreements were superseded by the Sublease Agreement, dated January 13, 2016, between iBio CDMO and the Second Eastern Affiliate. The 34‑year term of the Sublease expires in 2050 but may be extended by iBio CDMO for a ten-year period, so long as iBio CDMO is not in default under the Sublease. Under the Sublease, iBio CDMO is required to pay base rent at an annual rate of $2,100,000, paid in equal quarterly installments on the first day of each February, May, August and November. The base rent is subject to increase annually in accordance with increases in the Consumer Price Index (“CPI”). The base rent under the Second Eastern Affiliate’s ground lease for the property is subject to adjustment, based on an appraisal of the property, in 2030 and upon any extension of the ground lease. The base rent under the Sublease will be increased by any increase in the base rent under the ground lease as a result of such adjustments. iBio CDMO is also responsible for all costs and expenses in connection with the ownership, management, operation, replacement, maintenance and repair of the property under the Sublease. The Company incurred rent expense of $50,000 and $42,000 for the three months ended March 31, 2021 and 2020, respectively, and $135,000 and $109,000 for the nine months ended March 31, 2021 and 2020, respectively, related to the increases in the CPI.

In addition to the base rent, iBio CDMO is required to pay, for each calendar year during the term, a portion of the total gross sales for products manufactured or processed at the facility, equal to 7% of the first $5,000,000 of gross sales, 6% of gross sales between $5,000,001 and $25,000,000,  5% of gross sales between $25,000,001 and $50,000,000,  4% of gross sales between $50,000,001 and $100,000,000, and 3% of gross sales between $100,000,001 and $500,000,000. However, if for any calendar year period from January 1, 2018 through December 31, 2019, iBio CDMO’s applicable gross sales are less than $5,000,000, or for any calendar year period from and after January 1, 2020, its applicable gross sales are less than $10,000,000, then iBio CDMO is required to pay the amount that would have been payable if it had achieved such minimum gross sales and shall pay no less than the applicable percentage for the minimum gross sales for each subsequent calendar year. As the Company accounts for leases under ASC 842, the minimum percentage rent is included in the finance lease obligation.

Accrued expenses at March 31, 2021 and June 30, 2020 due to the Second Eastern Affiliate amounted to $842,000 and $705,000, respectively. General and administrative expenses related to Second Eastern Affiliate, including rent related to the increases in CPI and real estate taxes, were approximately $189,000 and $180,000 for the three months ended March 31, 2021 and 2020, respectively, and approximately $551,000 and $516,000 for the nine months ended March 31, 2021 and 2020, respectively. Interest expense related to the Second Eastern Affiliate was approximately $611,000 and $616,000 for the three months ended March 31, 2021 and 2020, respectively, and approximately $1,836,000 and $1,851,000 for the nine months ended March 31, 2021 and 2020, respectively. 

The following tables present the components of lease expense and supplemental balance sheet information related to the finance lease obligation (in thousands).

 

 

 

 

 

 

    

Nine Months Ended

 

    

March 31, 

 

 

2021

Finance lease cost:

 

 

  

Amortization of right-of-use assets

 

$

1,236

Interest on lease liabilities

 

 

1,836

Operating lease cost

 

 

135

Total lease cost

 

$

3,207

 

 

 

  

Other Information

 

 

  

Cash paid for amounts included in the measurement lease liabilities:

 

 

  

Operating cash flows from operating lease

 

$

135

Financing cash flows from finance lease obligation

 

$

223

 

 

 

 

 

 

 

    

March 31, 

 

 

 

2021

 

Finance lease right-of-use assets

 

$

26,380

 

Finance lease obligation - current portion

 

$

318

 

Finance lease obligation - non-current portion

 

$

31,766

 

Weighted average remaining lease term - finance lease

 

 

28.93

years

Weighted average discount rate - finance lease obligation

 

 

7.608

%

 

Future minimum payments under the finance lease obligation are due as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Fiscal period ending on March 31:

    

Principal

    

Interest

    

Total

2022

 

$

318

 

$

2,432

 

$

2,750

2023

 

 

343

 

 

2,407

 

 

2,750

2024

 

 

370

 

 

2,380

 

 

2,750

2025

 

 

398

 

 

2,352

 

 

2,750

2026

 

 

430

 

 

2,320

 

 

2,750

Thereafter

 

 

30,225

 

 

35,775

 

 

66,000

 

 

 

  

 

 

  

 

 

  

Total minimum lease payments

 

 

32,084

 

$

47,666

 

$

79,750

Less: current portion

 

 

(318)

 

 

  

 

 

  

Long-term portion of minimum lease obligations

 

$

31,766