LEASES

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

LEASES

6. LEASES

We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our consolidated balance sheets as of September 30, 2023 and December 31, 2022. The Company does not have any finance leases.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates. We review our incremental borrowing rate on a quarterly basis.

Our lease terms include options to extend the lease when we believe that we may want the right to exercise that option. Leases with a term of less than 12 months are not recorded in the consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.

If a lease is modified after the effective date, the operating lease ROU asset and liability are re-measured using the current incremental borrowing rate. During the three and nine months ended September 30, 2023, there were approximately $5,000 and $168,000, respectively, of unoccupied lease charges for two of the Company’s facilities. During the three and nine months ended September 30, 2022, there were approximately $257,000 and $786,000, respectively, of unoccupied lease charges. During the nine months ended September 30, 2022, there was a gain on lease termination of approximately $105,000.

During the nine months ended September 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended, and we entered into a new lease arrangement with the landlord for significantly less office space. Charges of approximately $2,000 and $73,000 for the three and nine months ended September 30, 2023, respectively, were incurred as a result of vacating the former premises. During the three and nine months ended September 30, 2022, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs of approximately $51,000 and $248,000, respectively. This termination of lease resulted in additional costs for the three and nine months ended September 30, 2023, of approximately $1,000 and $162,000, respectively. In addition, during the nine months ended September 30, 2023, the Company paid approximately $27,000 to settle a claim regarding a lease termination in India. These amounts are included in net loss on lease terminations and unoccupied lease charges in the consolidated statements of operations.

Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the consolidated statements of operations based on the nature of the expense. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. The Company also has some related party leases – see Note 8.

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	($ in thousands)
Operating lease cost	$	599	$	921	$	1,998	$	2,798
Short-term lease cost		-		4		-		79
Variable lease cost		7		5		26		24
Total - net lease cost	$	606	$	930	$	2,024	$	2,901

Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2023 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.

Supplemental balance sheet information related to leases is as follows:

	September 30, 2023			December 31, 2022
	($ in thousands)
Operating leases:
Operating lease ROU assets, net	$	4,491		$	4,921
Current operating lease liabilities	$	1,810		$	2,273
Non-current operating lease liabilities		2,789			3,207
Total operating lease liabilities	$	4,599		$	5,480
Operating leases:
ROU assets	$	6,172		$	8,293
Asset lease expense		(1,618	)		(3,286	)
Foreign exchange loss		(63	)		(86	)
ROU assets, net	$	4,491		$	4,921
Weighted average remaining lease term (in years):
Operating leases		4.5			5.1
Weighted average discount rate:
Operating leases		12.8	%		7.9	%

Supplemental cash flow and other information related to leases is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	($ in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	802	$	1,228	$	2,463	$	3,598
ROU assets obtained in exchange for lease liabilities:
Operating leases, excluding impairments and terminations	$	532	$	71	$	1,252	$	513

Maturities of lease liabilities are as follows:

Operating leases - Years ending December 31,	($ in thousands)
2023 (three months)	$	708
2024		1,998
2025		1,263
2026		501
2027		374
Thereafter		1,718
Total lease payments		6,562
Less: imputed interest		(1,963	)
Total lease obligations		4,599
Less: current obligations		(1,810	)
Long-term lease obligations	$	2,789