Note

–

Leases

Effective

October 1, 2019,

the Company adopted ASU

2016

02,

Leases (Topic

842

), utilizing the modified-retrospective transition approach. which is intended to improve financial reporting about leasing transactions. The standard requires the recognition of right-of-use assets and lease liabilities on the consolidated balance sheet and disclosure of key information about leasing arrangements. The Company elected to use the transition option that allows the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the year of adoption. The adoption of ASC

842

did

not

result in any adjustments to retained earnings.

In accordance with ASC

842,

the Company has made accounting policy elections (

) to

not

apply the new standard to lessee arrangements with a term of

twelve

months or less and (

) to combine lease and non-lease components. The non-lease components are

not

material and do

not

result in significant timing differences in the recognition of lease expense. As a result of adopting ASC

842,

the Company recognized net operating lease right-of-use assets of

$4.7

million and operating lease liabilities of

$4.7

million on the effective date. In addition, as a result of adopting ASC

842,

the Company recognized net financing lease assets of

$0.6

million and financing lease liabilities of

$0.6

million on the effective date that were previously accounted for as operating leases.

The Company categorizes leases at their inception as either operating or finance leases. The Company has operating and financing leases in place for various office and warehouse properties, vehicles and certain wireless services equipment. The leases have remaining lease terms of

one

year to [

ten

] years, some of which include the option to extend the lease terms. Operating leases are included in right-of-use operating lease assets, operating lease liabilities - current, and operating lease liabilities in the consolidated condensed balance sheets. Finance leases are included in net property and equipment, financing lease liabilities – current, and financing lease liabilities in the consolidated condensed balance sheets.

Leased assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses a discount rate that approximates the rate of interest for a collateralized loan over a similar term as the discount rate for present value of lease payments when the rate implicit in the contract is

not

readily determinable. Leases that have a term of

twelve

months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are

not

included in the consolidated condensed balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date the Company has the right to control the property.

The Company has an operating lease for a building in Jessup, Maryland for Nave Communications. As a result of moving Nave's operations to Palco Telecom, a

third

-party logistics provider in Huntsville, Alabama, in fiscal year

2019,

Nave completely vacated the building in

May 2020

and was subleasing part of the building during fiscal year

2020.

As of

June 30, 2020,

the Company determined that the right of use asset associated with this lease

may

exceed its fair value. The Company performed an assessment of this right of use asset in accordance with ASC

360

and determined that the carrying value was impaired based on a valuation appraisal performed by the Company using a forecasted debt free cash flow model. Therefore, Company recorded a

$0.7

million impairment charge in the Telco segment as of

June 30, 2020.

The components of lease expense were as follows:

	Three Months ended June 30, 2020		Nine Months ended June 30, 2020

Operating lease cost:
Operating lease cost	$	296,677	$	943,834
Impairment of right of use asset		660,242		660,242
Operating lease cost	$	956,919	$	1,604,076

Finance lease cost:
Amortization of right-of-use assets	$	71,925	$	198,289
Interest on lease liabilities		18,220		43,182
Total finance lease cost	$	90,145	$	241,471

Supplemental cash flow information related to leases are as follows for the

nine

months ended:

	June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	768,784
Operating cash flows from finance leases	$	43,182
Financing cash flows from finance leases	$	277,061

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,076,700
Finance leases	$	718,058

Supplemental balance sheet information related to leases are as follows:

	June 30, 2020
Operating l eases
Operating lease right-of-use assets	$	4,158,786

Operating lease obligations - current	$	1,224,630
Operating lease obligations		3,809,803
Total operating lease liabilities	$	5,034,433

Finance leases
Property and equipment, gross	$	1,462,865
Accumulated depreciation		(210,253	)
Property and equipment, net	$	1,252,612

Financing lease obligations - current	$	328,151
Financing lease obligations		855,052
Total finance lease liabilities	$	1,183,203

Weighted Average Remaining Lease Term
Operating leases (in years)	3.94
Finance leases (in years)	3.98
Weighted Average Discount Rate
Operating leases		5.00	%
Finance leases		4.96	%

Maturities of lease liabilities are as follows for the years ending

September 30:

	Operating Leases		Finance Leases
2020	$	355,239	$	140,761
2021		1,440,544		314,093
2022		1,468,081		295,617
2023		1,369,882		281,636
2024		802,026		227,541
Thereafter		150,478		44,334
Total lease payments		5,586,250		1,303,982
Less imputed interest		555,817		120,779
Total	$	5,034,433	$	1,183,203