NOTE

–

MMITMENTS

Lease Agreements

The Company has entered into a new lease in Camarillo, California for its headquarters beginning

June 1, 2019.

The facility is

9,910

square feet and is a

year and

two

-month lease, expiring

July 31, 2024.

The rent on this facility is

$9,910

per month with a

step-up annually. Qualstar subleases a portion of the warehouse space to Interlink Electronics, Inc. (“Interlink”) and BKF Capital Group, Inc. (“BKF”) and is reimbursed for the space and other related expenses on a monthly basis. As described in Note

12,

Interlink and BKF are related parties.

Qualstar leases a

15,160

square foot facility located in Simi Valley, California. The

three

-year lease began

December 15, 2014

and has been renewed for an additional

three

years, expiring

February 28, 2021.

Rent on this facility is

$11,000

per month with a step-up of

annually. On

May 22, 2019,

Qualstar entered into a Standard Sublease Multi-Tenant (the “Sublease”), with Stillwater Agency, Inc., a California corporation (“Stillwater”), for the Simi Valley location, which previously served as Qualstar’s head office location and principal executive office. The term of the Sublease commenced on

July 15, 2019

and ends on

February 28, 2021 (

the “Term”). The base rent under the Sublease is approximately

$12,886.00

per month. Stillwater is also responsible for approximately

nine

percent (

) of certain operating expenses and taxes associated with the office building in which the leased premises are located. Prior to entering the Sublease, Qualstar subleased a portion of the warehouse space to Interlink and was reimbursed for the space and other related expenses on a monthly basis.

Qualstar also leases approximately

5,400

square feet of office space in Westlake Village, California, that expires

January 31, 2020.

Rent on this facility is

$11,000

per month, with a step-up of

annually. Effective

March 21, 2016,

Qualstar entered into a sublease agreement for the Westlake Village facility. The term of the sublease expires at the same time as the term of the master lease and the tenant pays Qualstar

$12,000

per month with a step-up of

annually.

Effective

April 1, 2016,

two

-year lease was signed for

1,359

square feet for

$2,500

per month in Singapore, which has been renewed until

March 31, 2020.

Such leases do

not

require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does

not

have any leases classified as financing leases.

The rate implicit in each lease is

not

readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities during the

three

months ended

September 30, 2019

was

6.75%,

derived from borrowing rate quotes as obtained from the Company’s business bank. We have certain contracts for real estate which

may

contain lease and non-lease components which we have elected to treat as a single lease component.

Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic

360

10,

Property, Plant, and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of

September 30, 2019,

we have

not

recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of

one

of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

September 30, 2019,

the Company had current and long-term operating lease liabilities of

$272,000

and

$495,000,

respectively, and right of use assets of

$734,000.

Future minimum lease payments under these leases are as follows, in thousands, (unaudited):

							Net
	Minimum						Minimum
	Lease			Sublease			Lease
Years Ending December 31,	Payment			Revenue			Payment
Remainder of 2019	$	105		$	(81	)	$	24
2020		277			(167	)		110
2021		148			(26	)		122
2022		129			-			129
2023		133			-			133
After		79			-			79
Total undiscounted future non-cancelable minimum lease payments		871			(274	)		597
Less: Imputed interest		(104	)		-			(104	)
Present value of lease liabilities	$	767		$	(274	)	$	493

In the Company's financial statements for periods prior to

January 1, 2019,

the Company accounts for leases under ASC

840,

and provides for rent expense on a straight-line basis over the lease terms. Net rent expense for the

three

and

nine

months ended

September 30, 2019

was

$45,000

and

$129,000,

respectively.

Other information related to our operating leases is as follows:

	Nine Months Ended September 30, 2019
Weighted average remaining lease term in years		1.77
Weighted average discount rate		6.75	%

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	243
Operating cash flows from finance leases		-
Financing cash flows from finance leases		-