Leases

3 Months Ended

Sep. 30, 2022

Leases

Leases

3. Leases. As of September 30, 2022 the Company leases space under two non-cancelable operating leases for its corporate headquarters and for warehouse space. Both leases have escalating lease payment terms but neither contains a contingent rent provision. The Company also had a lease for additional office space under an operating lease that expired August 31, 2021. The leases for both the Company’s corporate headquarters and its warehouse include both lease and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The headquarters lease required the Company to provide a letter of credit, which is supported by $85,000 reflected as restricted cash on the balance sheet.

The Company’s leases include options to renew. The exercise of lease renewal options is at the Company’s sole discretion.  Therefore, the renewals to extend the lease terms are not included in the Company’s right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

The Company used its incremental borrowing rate of approximately 4.8% in determining the present value of the lease payments based on the information available at the lease commencement date.

The cost components of the Company’s operating leases were as follows:

	Three months ended September 30, 2022						Nine months ended September 30, 2022
	Corporate				Operating		Corporate				Operating
	Headquarters		Warehouse		Leases		Headquarters		Warehouse		Leases
Operating lease cost	$	17,000	$	4,000	$	21,000	$	50,000	$	13,000	$	63,000
Variable lease cost		10,000		3,000	$	13,000		30,000		9,000		39,000
Total	$	27,000	$	7,000	$	34,000	$	80,000	$	22,000	$	102,000

	Three months ended September 30, 2021
	Corporate		Additional				Operating
	Headquarters		Office Space		Warehouse		Leases
Operating lease cost	$	11,000	$	-	$	4,000	$	15,000
Variable lease cost		7,000		-		4,000		11,000
Short-term lease cost		-		7,000		-		7,000
Total	$	18,000	$	7,000	$	8,000	$	33,000

	Nine months ended September 30, 2021
	Prior Corporate		Corporate		Additional				Operating
	Headquarters		Headquarters		Office Space		Warehouse		Leases
Operating lease cost	$	38,000	$	11,000	$	-	$	9,000	$	58,000
Variable lease cost		24,000		7,000		-		9,000		40,000
Short-term lease cost		-		-		28,000		-		28,000
Total	$	62,000	$	18,000	$	28,000	$	18,000	$	126,000

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor.

Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of September 30, 2022:

Maturity of Lease Liabilities	Leases
2022	$	21,000
2023		72,000
2024		40,000
Total lease payments		133,000
Less:  Interest		(6,000	)
Present value of lease liabilities	$	127,000

The remaining lease terms as of September 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 1.8 years and 0.5 years, respectively. The discount rate for both leases is 4.8%. The cash outflow for operating leases for the three and nine months ended September 30, 2022 was $21,000 and $62,000, respectively. The cash outflow for operating leases for the three and nine months ended September 30, 2021 was $15,000 and $76,000, respectively.