Right-of-use Asset and Leasing Liabilities

9 Months Ended

Sep. 30, 2022

Right-of-use Asset And Leasing Liabilities

Right-of-use Asset and Leasing Liabilities

10. Right-of-use Asset and Leasing Liabilities

The Company has operating and finance leases where it records the right-of-use assets and a related lease liability as required under ASC 842. The lease liabilities are determined by the net present value of total lease payments and amortized over the life of the lease. All obligations under the Company’s lease agreements are designed to terminate with the last scheduled payment. The Company’s leases are for the following types of assets:

· Computer hardware and copy machines- The Company’s finance lease right-of-use assets consist of computer hardware and copy machines. These leases have a three-year life and are in various stages of completion.

· Office space - The Company’s operating lease right-of-use assets include its rental agreements for its offices in Plano, TX, and a data service center in Allen, TX. The Plano offices operating lease liability was modified in 2021, to add an additional floor of office space and terminate the prior lease. The modified lease has a life of one year and one month as of September 30, 2022. The data service center operating lease liability has a life of three years and one month as of September 30, 2022.

Additional qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of: (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to combine lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

As the implicit rate is not readily determinable for the Company's lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. This discount rate for the leases approximates Silicon Valley Bank's prime rate.

Supplemental cash flow information includes operating cash flows related to operating leases. For the three and nine month periods ended September 30, 2022, the Company had $0.1 million and $0.3 million respectively, in lease payments related to operating leases. For the three and nine month periods ended September 30, 2021, the Company had $0.1 million and $0.2 million respectively, in lease payments related to operating leases.

On September 30, 2022, and December 31, 2021, the weighted average remaining lease term for the Company's operating leases was 2.37 and 2.94 years, respectively. On September 30, 2022, and December 31, 2021, the weighted average remaining lease term for the Company's finance leases was 1.85 and 2.66 years, respectively.

Schedule of Items Appearing on the Condensed Consolidated Statement of Operations (in thousands): 

	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Operating expense:
Amortization expense – Finance ROU	$	166	$	111	$	498	$	144
Lease expense – Operating ROU	$	82	$	66	$	268	$	252
Other expense:
Interest expense – Finance ROU	$	7	$	8	$	29	$	9

Future minimum lease obligations consisted of the following as of September 30, 2022 (in thousands): 

	Operating			Finance
Period ending December 31,	ROU Leases			ROU Leases			Total
2022	$	85		$	70		$	155
2023		307			679			986
2024		123			6			129
2025		115			1			116
	$	630		$	756		$	1,386
Less Interest*		(25	)		(22	)
	$	605		$	734

* Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying Condensed Consolidated Statement of Operations.