LEASES

9 Months Ended

Sep. 30, 2023

Leases

LEASES

NOTE 2: LEASES

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases (“ASC Topic 842”). Under this guidance, lessees are required to recognize on the balance sheet a lease liability and a right-of-use (“ROU”) asset for all leases, except for short-term leases with terms of twelve months or less. The lease liability represents the lessee’s obligation to make lease payments arising from a lease and will initially be measured as the present value of the lease payments. The ROU asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs.

The Company elects to apply the short-term lease exception; therefore, the Company will not record an ROU asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes.

The Company elects to not capitalize any lease in which the estimated value of the underlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and a portion is recorded in cost of sales, and the remainder is recorded in selling, general and administrative expenses. The accounting for some leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rate to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options and impairment.

For the year ended December 31, 2022, the Company recorded impairment charges of $820 for the impairment of its ROU operating lease asset related to the remaining lease of its former operating facility. The impairment was the result of abandoning the former operating facility to move to the Company’s current operating facility in October 2022.

As of September 30, 2023, the Company does not have any subleases.

Operating Leases

	September 30, 2023		December 31, 2022
Assets:
Right-of-use operating lease assets	$	5,865	$	6,184
Liabilities:
Current operating lease liabilities		448		863
Non-current operating lease liabilities		6,177		6,518
Total operating lease liabilities	$	6,625	$	7,381

The components of our operating lease expense were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Operating lease expense included in cost of sales	$	183	$	431	$	548	$	1,055
Operating lease expense included in selling, general and administrative		62		90		173		148
Short term lease expense		63		84		208		304
Total lease expense	$	308	$	605	$	929	$	1,507

Remaining operating lease term and discount rate:

	September 30, 2023	December 31, 2022
Weighted-average remaining lease terms on operating leases (years)	9.068	8.713
Weighted-average discount rates on operating leases	7.995%	7.694%

Finance Lease

	September 30, 2023		December 31, 2022
Assets:
Right-of-use finance lease assets	$	71	$	275
Liabilities:
Current finance lease liabilities		39		277
Non-current finance lease liabilities		23		–
Total finance lease liabilities	$	62	$	277

The component of our finance lease expense was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Finance lease expense included in selling, general and administrative		87		–		259		–

Remaining finance lease term and discount rate:

	September 30, 2023	December 31, 2022
Weighted-average remaining lease terms on finance lease (years)	2.036	0.833
Weighted-average discount rates on finance leases	7.015%	8.230%

During the three and nine months ended September 30, 2023, the Company did not have any sale/leaseback transactions.

Present value of lease liabilities:

	Operating Leases			Finance Leases
October 1, 2023 - September 30, 2024	$	962		$	41
October 1, 2024 - September 30, 2025		980			13
October 1, 2025 - September 30, 2026		993			12
October 1, 2026 - September 30, 2027		1,013			–
Thereafter		5,469			–
Total lease payments	$	9,417		$	66
Less: Interest		(2,792	)		(4	)
Present value of lease liabilities	$	6,625		$	62