7.	COMMITMENTS AND CONTINGENCIES

Leases

We have noncancellable operating leases for offices and data centers expiring at various dates through

June 2024.

These operating leases are included in "Other long-term assets" on the Company's

December 31, 2019

Consolidated Balance Sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in "other current liabilities" and "Long-term lease obligation" on the Company's

December 31, 2019

Consolidated Balance Sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately

$1,258,000

January 1, 2019.

Operating lease right-of-use assets and liabilities commencing after

January 1, 2019

are recognized at commencement date based on the present value of lease payments over the lease term. As of

December 31, 2019,

total right-of-use assets and operating lease liabilities were approximately

$945,000

Because the rate implicit in each lease is

not

readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The weighted average discount rate used to determine our lease liabilities was

5.5

percent as of

December 31, 2019.

The weighted average remaining lease term as of

December 31, 2019

was

1.1

years. Future minimum lease payments are as follows:

Year ended December 31, (in thousands)
2020		531
2021		310
2022		90
2023		26
2024		6
Total minimum lease payments	$	963

The above future minimum lease payments include a total of

$274,000

payable to a related party. See Note

for further discussion.

The above future minimum lease payments include

$78,000

for operating leases for our offshore subsidiaries located in Bhopal, India and Mumbai, India. The rental expense for these facilities is classified as Research and Development expense as the facilities are utilized to house the software development and testing activities of our offshore subsidiaries. Lease expense of

$563,000

for the year ended

December 31, 2019,

consisted of

$230,000

included in Cost of revenue,

$210,000

included in General and Administrative and

$123,000

included in Research and Development. We used

$565,000

in cash from operations for operating leases in

2019.

Rental expense for leased facilities related to domestic operations amounted to

$439,000

and

$382,000

in the years ended

December 31, 2019

and

2018,

respectively.

Legal Matters

On or about

July 9, 2019,

a securities class action complaint was filed in the United States District Court for the Eastern District of New York (Case

No.

1:19

-cv-

03949

) by Michael Skrzeczkoski, individually and on behalf of all others similarly situated, against the company, and certain current and former directors and officers. The complaint alleges, among other things, that certain of our press releases and SEC filings were misleading as a result of the failure to disclose alleged related party transactions affecting revenue recognition and the absence of disclosure regarding certain allegations against former director Parker H. Petit in connection with his former position with MiMedx, Inc. The complaint seeks to recover attorney’s fees and costs and unspecified damages on behalf of purchasers who acquired our stock during the period from

January 23, 2019,

through

May 29, 2019,

and purportedly suffered financial harm as a result of the alleged misleading statements. On

September 26, 2019,

the Court appointed Edgardo Canez as lead plaintiff (“Lead Plaintiff”) on behalf of the putative class. On

November 18, 2019,

Lead Plaintiff, individually and on behalf of a putative class of persons or entities who purchased or otherwise acquired publicly traded company securities from

May 23, 2014

through

May 29, 2019,

filed an amended class action complaint against the company, and certain current and former directors and officers (the “Amended Complaint”). The Amended Complaint alleges similar allegations in violation of Sections

(b) and

(a) of the Securities Exchange Act as the previously filed complaint. The Amended Complaint seeks to recover attorney’s fees and costs and unspecified damages. On

January 2, 2020,

Defendants submitted a motion to dismiss and on

March 3, 2020,

briefing on the motion to dismiss was completed. The motion to dismiss is currently pending. We dispute these claims and intend to defend the matter vigorously. We have

not

determined the likelihood of loss to be probable nor is any potential loss estimable at this time, therefore we have

not

recorded any related liability as of

December 31, 2019.

On or about

February 14, 2020,

two

purported shareholders, derivatively and on behalf of the Company, filed substantially similar shareholder derivative actions in the Eastern District of New York against certain current and former directors and officers (the “Individual Defendants”), and the Company as a nominal defendant. The complaints assert claims against Messrs. Strange, Moise, Petit, Fuzzell and Chandler for a violation of Section

(a) of the Securities Exchange Act by issuing purportedly misleading statements in the Company’s

2017

and

2018

Proxies, and against the Individual Defendants for breaches of fiduciary duty, waste of corporate assets, and unjust enrichment arising out of, among other things, purportedly undisclosed related party transactions and other relationships as well as certain allegations against former director Parker H. Petit in connection with his former position with MiMedx, Inc and other companies. The relief sought in the complaints includes changes to the Company’s corporate governance procedures, unspecified damages, equitable relief, restitution, and attorney’s fees and costs. We have

not

determined the likelihood of loss to be probable nor is any potential loss estimable at this time, therefore we have

not

recorded any related liability as of

December 31, 2019.

There are

other pending or threatened legal proceedings. However, in the ordinary course of business, from time to time we

may

be involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. We accrue for unpaid legal fees for services performed to date.