NORTECH SYSTEMS INC Leases Disclosure

NOTE 5. LEASES

 

We have operating leases for certain manufacturing sites, office space, and equipment. Most leases include the option to renew, with renewal terms that can extend the lease term from one1 to five5 years or more. Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2025, we do not have material lease commitments that have not commenced. We have financing leases for certain property and equipment used in the normal course of business.

 

The components of lease expense were as follows for the years ended December 31:

SCHEDULE OF COMPONENTS OF LEASE EXPENSE 

Lease Cost		2025				2024
Operating lease cost		$	2,364			$	2,318
Finance lease interest cost			42				25
Finance lease amortization expense			212				451
Total lease cost		$	2,618			$	2,794

 

Supplemental balance sheets information related to leases was as follows as of December 31:

SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION RELATED TO LEASES 

		Balance Sheets Location		2025				2024
Assets
Operating lease assets		Operating lease assets		$	7,016			$	8,139
Finance lease assets		Property, plant and equipment			714				411
Total leased assets				$	7,730			$	8,550
Liabilities
Current
Current operating lease liabilities		Current portion of operating lease obligations		$	1,332			$	1,175
Current finance lease liabilities		Current portion of finance lease obligations			274				143
Noncurrent
Long-term operating lease liabilities		Long-term operating lease liabilities, net			6,476				7,773
Long-term finance lease liabilities		Long-term finance lease obligations, net			626				311
Total lease liabilities				$	8,708			$	9,402

 

Supplemental cash flow information related to leases was as follows for the years ended December 31:

 SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION 

		2025				2024
Operating Leases
Cash paid for amounts included in the measurement of lease liabilities		$	1,806			$	1,821
Operating lease assets obtained in exchange for lease obligations		$	-			$	2,336

 

The operating lease assets obtained in exchange for lease obligations in the year ended December 31, 2024 was largely due to the renewal of our lease in Maple Grove and Milaca, Minnesota, as well as leasing of additional space in our Suzhou, China facility.

 

Future maturities of lease liabilities were as follows:

 SCHEDULE OF FUTURE PAYMENTS OF LEASE LIABILITIES 

		Operating Leases				Finance Leases				Total
		Operating Leases				Finance Leases				Total
2026		$	1,873			$	320			$	2,193
2027			1,580				211				1,791
2028			1,569				211				1,780
2029			979				196				1,175
2030			900				76				976
Thereafter			3,769				-				3,769
Total lease payments		$	10,670			$	1,014			$	11,684
Less: interest			(2,862	)			(114	)			(2,976	)
Present value of lease liabilities		$	7,808			$	900			$	8,708

 

 

The lease term and discount rate as of December 31, 2025 were as follows:

 SCHEDULE OF LEASE TERM AND DISCOUNT RATE 

Weighted-average remaining lease term (years)
Operating leases			7.1
Finance leases			4.0
Weighted-average discount rate
Operating leases			8.1	%
Finance leases			6.7	%