Lease Obligations

3 Months Ended

May 31, 2020

(20)	Lease Obligations

We account for leases in accordance with ASC 842 “Leases” (“ASC 842”). We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration.

We have operating leases for office equipment, as well as offices, warehouses, and other facilities used for our operations. We also have finance leases comprised primarily of computer hardware and machinery and equipment. Our leases have remaining lease terms of less than 1 year to 7 years, some of which include renewal options. We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal option will be exercised. The Company had no short term leases during the three months ended May 31, 2020.

The components of lease cost for the three months ended May 31, 2020 and 2019 were as follows:

	Three months ended		Three months ended
	May 31, 2020		February 29, 2020
Operating lease cost (a) (c)	$	243	$	226
Finance lease cost:
Amortization of right of use assets (a)		165		232
Interest on lease liabilities (b)		9		12
Total finance lease cost	$	174	$	244

(a)

Recorded within Selling, General and administrative, Engineering and technical support, and Cost of sales on the Consolidated Statement of Operations and Comprehensive (Loss) Income.

(b)

Recorded within Interest and bank charges on the Consolidated Statement of Operations and Comprehensive Income (Loss).

(c)

Includes immaterial amounts related to variable rent expense.

Supplemental cash flow information related to leases is as follows:

	Three months ended		Three months ended
	May 31, 2020		May 31, 2019
Non-cash investing and financing activities:
Right of use assets obtained in exchange for operating lease obligations	$	276	$	187
Right of use assets obtained in exchange for finance lease obligations		-		-
Upon the adoption of ASC 842:
Right of use assets recorded in exchange for operating lease obligations	$	—	$	2,227
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	243	$	225
Operating cash flows from finance leases	9		12
Finance cash flows from finance leases	169		108

Supplemental balance sheet information related to leases is as follows:

	May 31, 2020			February 29, 2020
Operating Leases
Operating lease, right of use assets	$	3,175		$	3,143
Total operating lease right of use assets	$	3,175		$	3,143
Accrued expenses and other current liabilities	$	870		$	784
Operating lease liabilities, less current portion		2,340			2,391
Total operating lease liabilities	$	3,210		$	3,175
Finance Leases
Property, plant and equipment, gross	$	2,503		$	2,503
Accumulated depreciation		(1,374	)		(1,209	)
Total finance lease right of use assets	$	1,129		$	1,294
Accrued expenses and other current liabilities	$	569		$	613
Finance lease liabilities, less current portion		594			720
Total finance lease liabilities	$	1,163		$	1,333
Weighted Average Remaining Lease Term
Operating leases	4.1 years			4.4 years
Finance leases	3.9 years			3.9 years
Weighted Average Discount Rate
Operating leases		5.84	%		5.98	%
Finance leases		3.87	%		3.87	%

At May 31, 2020, maturities of lease liabilities for each of the succeeding years were as follows:

	Operating Leases		Finance Leases
2021	$	1,029		592
2022		949		374
2023		652		192
2024		465		39
2025		317		—
Thereafter		201		—
Total lease payments		3,613		1,197
Less imputed interest		403		34
Total	$	3,210		1,163

As of May 31, 2020, the Company has not entered into any lease agreements that have not yet commenced.

The Company owns and occupies buildings as part of its operations. Certain space within these buildings may, from time to time, be leased to third parties from which the Company earns rental income as lessor. This leased space is recorded within property, plant and equipment and was not material to the Company's Consolidated Balance Sheet at May 31, 2020. Rental income earned by the Company for the three months ended May 31, 2020 and 2019 was $186 and $142, respectively, which is recorded within Other income (expense).