Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

NOTE 5 – Leases

The Company’s lease agreements consist of building leases for its operating locations and office equipment leases for printers and copiers with lease terms that range from less than 12 months to 8 years. At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. The Company’s leases for office equipment such as printers and copiers contain lease and non-lease components (i.e. maintenance). The Company accounts for lease and non-lease components of office equipment as a single lease component.

All of the Company’s leases are operating leases and are presented as right of use lease asset, short term lease liability and long term lease liability on the consolidated balance sheets as of June 30, 2022 and December 31, 2021. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

Lease expense is recognized on a straight-line basis over the lease term and is included in cost of revenues and general and administrative expenses on the Consolidated Statement of Operations and Comprehensive Income/(Loss).

An initial right-of-use asset of $1.9 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on January 1, 2019. With our acquisition of Holzworth on February 7, 2020, we acquired a right-of-use asset of $789,000. There have been no other right-of-use assets recognized since the date of adoption of the new lease standard. Cash paid for amounts included in the present value of operating lease liabilities was $160,000 and $476,000 for the three and nine months ended September 30, 2022, respectively, and was included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities for the three and nine months ended September 30, 2021, was $155,000 and $463,000, respectively.

Operating lease costs for the three and nine months ended September 30, 2022, were $299,000 and $787,000, respectively. Operating lease costs for the three and nine months ended September 30, 2021, were $250,000 and $801,000, respectively.

The following table presents information about the amount and timing of cash flows arising from the Company’s leases as of September 30, 2022:

(in thousands)	September 30, 2022
Maturity of Lease Liabilities
Remainder of 2022	$	161
2023		276
2024		158
2025		163
2026		69
Total undiscounted operating lease payments		827
Less: imputed interest		(61	)
Present value of operating lease liabilities	$	766
Balance sheet classification
Current lease liabilities	$	369
Long-term lease liabilities		397
Total operating lease liabilities	$	766
Other information
Weighted-average remaining term (months) for operating leases		33
Weighted-average discount rate for operating leases		5.88	%

On March 1, 2022, the Company entered into a sublease for approximately one-half of the corporate headquarters in Parsippany N.J. with RF Industries, Ltd. The sublease co-terminates with the master lease on March 31, 2023. The Company evaluated the sublease in accordance with ASC 842 Leases and determined that the sublease is an operating lease. Accordingly, sublease income is recognized on the Consolidated Statement of Operations as other income.