LEASE LIABILITIES AND RIGHT OF USE ASSETS

9 Months Ended

Sep. 30, 2024

LEASE LIABILITIES AND RIGHT OF USE ASSETS

LEASE LIABILITIES AND RIGHT OF USE ASSETS

NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

Finance Leases

The Company had finance leases to purchase computer equipment that expired in the second quarter of 2024. The amortization expense of the leased equipment was included in depreciation expense. As of September 30, 2024 and December 31, 2023, the Company’s outstanding finance lease obligations totaled zero and $7,000, respectively. The effective interest rate of the finance leases was estimated at 6.0% based on the implicit rate in the lease agreements.

Operating Leases

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company has operating leases for office space in Tucson, Arizona, and New York, New York. The lease for the principal office located in Tucson consists of 627 square feet and ends in October 2025. The lease for the New York office, which consists of approximately 5,000 square feet, commenced in January 2022 and will expire in December 2026.

In the second quarter of 2024, the Company entered into an agreement to sublease office space in Miami Beach, Florida, on a month-to-month basis. In addition, the Company entered into membership agreements to occupy shared office space in Lehi, Utah, Tucson, Arizona, Portland, Oregon, and Seattle, Washington. Because these agreements do not qualify as a lease under ASC 842, we expense the related rent and membership fees as they are incurred.

In the first quarter of 2023, we closed our Marietta, Georgia office. As a result of abandoning the office space prior to its lease expiration in August 2024, we wrote off the associated right-of-use asset in full and recognized a $146,000 loss on impairment, which is included in General and administrative in the accompanying Consolidated Statement of Operations. As of September 30, 2024, the lease liability related to the Marietta, GA office was zero.

The Company made operating lease payments in the amount of $305,000 and $396,000 during the nine months ended September 30, 2024 and 2023, respectively.

NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS (continued)

The following summarizes the total lease liabilities and remaining future minimum lease payments at September 30, 2024 (in thousands):

Year ending December 31,	Operating Leases
2024 (3 months remaining)	$	53
2025		219
2026		225
Total minimum lease payments		497
Less: present value discount		(34)
Total lease liabilities		463
Current portion of lease liabilities		194
Long term portion of lease liabilities	$	269

The following summarizes expenses associated with our finance and operating leases for the nine months ended September 30, 2024 and 2023:

	Nine months ended September 30,
(in thousands)	2024		2023
Finance lease expenses:
Depreciation expense	$	6	$	26
Interest on lease liabilities		—		1
Total Finance lease expense		6		27
Operating lease expense		221		388
Short-term lease and related expenses		318		204
Total lease expenses	$	545	$	619

The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2024 and 2023:

	September 30,
	2024	2023
Weighted average remaining lease term (years)
Operating Leases	2.25	2.70
Finance Leases	—	0.57
Weighted average discount rate (%)
Operating Leases	6.00	6.00
Finance Leases	—	6.00