Leases

6 Months Ended

Jun. 30, 2021

Note 14 - Leases

According to ASC 842 Leases (Topic 842), for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. Leases generally have remaining terms of one to six, whereas leases with an initial term of twelve months or less are not recognized on our consolidated balance sheet. We recognize lease expense for minimum lease payments on a straight-line basis over the term of the lease. We maintain leases of office facilities and equipment, and certain leases include options to renew or terminate. Renewal options are exercisable based upon our discretion and vary based on the nature of each lease, with renewal periods generally ranging from one to five. The term of the lease includes renewal periods, only if we are reasonably certain that we will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, we consider several factors, including but not limited to, the cost of moving to another location, the cost of disruption to our operations, the purpose or location of the leased asset and the terms associated with extending the lease.

Operating lease Right-of-Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. Our real estate leases, which are comprised primarily of office spaces, represent most of our remaining lease liability. Most of our lease payments are fixed, although an immaterial portion of payments are variable in nature. These lease payments vary based on changes in facts and circumstances related to the use of the ROU asset and are recorded as incurred. We use an incremental borrowing rate based on rates available at commencement in determining the present value of future payments.

We have lease agreements with lease and non-lease components, which are accounted for as a single lease. We apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Lease contracts are evaluated at inception to determine whether they contain a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):

		As of
Operating Leases	Classification	June 30, 2021		December 31, 2020

Leased Assets
Operating lease - right of use assets	Long term assets	$	1,279	$	1,562

Lease Liabilities
Operating lease liabilities - Current	Other current liabilities		1,099		1,138
Operating lease liabilities	Long term liabilities		1,315		1,831
		$	2,414	$	2,969

We executed a sublease agreement with a tenant to sublease 3,650 square feet from the office space in Sykesville on May 1, 2019. This agreement is in addition to the 3,822 of square feet previously subleased, which was entered into on April 1, 2017. The sublease does not relieve us of our primary lease obligation. The lessor agreements are both considered operating leases, maintaining the historical classification of the underlying lease. We do not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recorded within selling, general and administrative expenses.

The table below summarizes lease income and expense recorded in the consolidated statements of operations incurred during the three and six months ended June 30, 2021 and 2020, (in thousands):

		Three months ended						Six months ended
Lease Cost	Classification	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020

Operating lease cost ⁽¹⁾	Selling, general and administrative expenses	$	177		$	321		$	369		$	418
Short-term leases costs ⁽²⁾	Selling, general and administrative expenses		14			1			30			1
Sublease income⁽³⁾	Selling, general and administrative expenses		(32	)		(32	)		(64	)		(64	)
Net lease cost		$	159		$	290		$	335		$	355

(1) Includes variable lease costs which are immaterial.

(2) Includes leases maturing less than twelve months from the report date.

(3) ^{Sublease portfolio consists of two tenants, which sublease parts of our principal executive office located at 1332
Londontown Blvd, Suite 200, Sykesville, MD.}

The Company is obligated under certain noncancelable operating leases for office facilities and equipment. Future minimum lease payments under noncancelable operating leases as of June 30, 2021 are as follows (in thousands):

(in thousands)	Gross Future Minimum Lease Payments
2021 remainder	$	613
2022		1,171
2023		638
2024		122
2025		10
Thereafter		3
Total lease payments	$	2,557
Less: Interest		143
Present value of lease payments	$	2,414

We calculated the weighted-average remaining lease term, presented in years below and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, we use the incremental borrowing rate as the lease discount rate.

Lease Term and Discount Rate	June 30, 2021			December 31, 2020
Weighted-average remaining lease term (years) Operating leases		2.24			2.64

Weighted-average discount rate Operating leases		5.00	%		5.00	%

The table below sets out the classification of lease payments in the consolidated statement of cash flows.

(in thousands)	Six months ended
Cash paid for amounts included in measurement of liabilities	June 30, 2021		June 30, 2020
Operating cash flows used in operating leases	$	639	$	675