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Leases

12 Months Ended

Dec. 31, 2022

NOTE 13 LEASES

Operating Leases

The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. Balances as of December 31, 2022 and 2021 for operating leases were as follows:

	December 31,
(Amounts in thousands)	2022		2021
Operating lease ROU assets	$	97	$	3,000
Operating lease liability	$	11,137	$	3,126

As part of the SKS business acquisition on February 25, 2021, the Company assumed a lease used for office space with a remaining term of approximately 16 months that expires on July 1, 2023. Monthly payments are approximately $16,000 during the remaining life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

As part of the RVision business acquisition on April 1, 2021, the Company assumed a lease of office space with a remaining term of approximately 33 months that will expire on March 31, 2024. Monthly payments are $7,000 during the remaining life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

On February 1, 2022, the Company entered into a lease agreement with the new owners of the Tucson Building (see Note 11 – Property and Equipment, Net), for a term of 10 years with no option to renew. Monthly rent increases annually from $98,300 per month in year one to $128,200 a month in the final year of the lease. The Company posted a $1.0 million security deposit in connection with the commencement of the lease, which was initially classified in other assets – long term and subsequently reclassified against lease liabilities on the Consolidated Balance Sheet. The Company determined that the transactions represented a sale and leaseback and, accordingly, established a new operating lease ROU asset and operating lease liability of $10.1 million. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms. In May 2022, the Company abandoned its lease of the Tucson Building after previously defaulting on the lease.

In June 2022, ComSovereign Corp. abandoned its Dallas, TX office lease and VEO Photonics, Inc. abandoned its San Diego, CA office lease. In July 2022, the Company abandoned its Chantilly, VA office lease. In connection with the lease abandonments for the year ended December 31, 2022, the Company recognized $13.6 million in losses due to the write-offs of the ROU-assets and other abandoned assets and applied its security deposit assets against its operating lease liabilities (including $10.1 million related to the Tucson Building). As a result of the abandonment of leases, the Company has maintained its liabilities in connection with the leases until a release is negotiated with the lessors or the amount of mitigation is evident.

Other information related to the Company’s operating leases are as follows:

	December 31,
(Amounts in thousands)	2022		2021
Operating lease cost	$	1,341	$	1,253
Short-term lease cost	$	41	$	89

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	10,052	$	1,217

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	740	$	975

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of December 31, 2022 and 2021:

	December 31,
(Amounts in thousands)	2022	2021
Weighted average remaining lease term	7.9 years	5.4 years
Weighted average discount rate	5.52%	5.97%

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2022:

	Operating
(Amounts in thousands)	Leases
2023	$	1,815
2024		1,720
2025		1,625
2026		1,386
2027		1,424
Thereafter		6,862
Total minimum lease payments		14,832
Less: effect of discounting		(3,695	)
Present value of future minimum lease payments		11,137
Less: current obligations under leases		(1,321	)
Long-term lease obligations	$	9,816