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Leases

6 Months Ended

Jun. 30, 2022

NOTE 13 LEASES

Operating Leases

The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. The carrying values of operating lease right-of-use (“ROU”) assets and operating lease liabilities as of June 30, 2022 and December 31, 2021 were as follows:

	June 30,		December 31,
(Amounts in thousands)	2022		2021
Operating lease ROU assets	$	1,305	$	3,000
Operating lease liability	$	11,618	$	3,126

On February 1, 2022, the Company entered into a lease agreement with the new owners of the Tucson Building (see Note 11 - Property and Equipment, Net), for a term of 10 years with no option to renew. Monthly rent increases annually from $98,300 per month in year one to $128,200 a month in the final year of the lease. The Company posted a $1.0 million security deposit in connection with the commencement of the lease, which is classified within other assets – long term on the balance sheet. The Company determined that the transactions represented a sale and leaseback and, accordingly, established a new operating lease ROU asset and operating lease liability of $10.1 million. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

In May 2022, the Company abandoned its lease of the Tucson Building after previously defaulting on the lease. In June 2022, ComSovereign Corp. abandoned its Dallas, TX office lease and VEO Photonics, Inc. abandoned its San Diego, CA office lease. In connection with the lease abandonments, the Company recognized an $11.3 million loss due to the write-offs of the ROU-assets and applied its security deposit assets against its operating lease liabilities.

Other information related to the Company’s operating leases are as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(Amounts in thousands)	2022		2021		2022		2021
Operating lease cost	$	535	$	343	$	1,088	$	595
Short-term lease cost	$	19	$	63	$	28	$	102

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	24	$	339	$	517	$	598

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of June 30, 2022, and December 31, 2021:

	June 30			December 31
(Amounts in thousands)	2022			2021
Weighted average remaining lease term		4.19 years			5.37 years
Weighted average discount rate		5.95	%		5.97	%

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the consolidated balance sheet as of June 30, 2022:

	Operating
(Amounts in thousands)	Leases
2022	$	1,240
2023		2,026
2024		1,768
2025		1,625
2026		1,386
Thereafter		8,285
Total minimum lease payments		16,330
Less: effect of discounting		(4,712	)
Present value of future minimum lease payments		11,618
Less: current obligations under leases		(734	)
Long-term lease obligations	$	10,884