Right-of-use Asset and Leasing Liabilities

9 Months Ended

Sep. 30, 2023

Right-of-use Asset And Leasing Liabilities

Right-of-use Asset and Leasing Liabilities

3. 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 expired on September 30, 2023. In October 2023, the Company signed a new lease with a term of eleven years and one month that commences upon completion of tenant improvements. A temporary lease has been signed and is effective until tenant improvements are complete. The data service center operating lease liability has a life of two years and one month as of September 30, 2023.

In accordance with ASC 842, the Company has elected 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 lease approximates the federal reserve’s prime rate.

For the three and nine months ended September 30, 2023, the Company had $0.1 and $0.3 million respectively, in lease payments related to operating leases. For the three and nine months ended September 30, 2023, the Company had $1 and $56 thousand respectively, in lease payments related to financing leases.

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

	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Operating expense:
Amortization expense – Finance ROU	$	166	$	166	$	499	$	498
Lease expense – Operating ROU	$	112	$	82	$	268	$	268
Other expense:
Interest expense – Finance ROU	$	2	$	7	$	13	$	29

Future minimum lease obligations consisted of the following as of September 30, 2023 (in thousands):

	Operating			Finance
Period ending December 31,	ROU Leases			ROU Leases		Total
2023	$	20		$	611	$	631
2024		123			8		131
2025		115			2		117
	$	258		$	621	$	879
Less Interest*		(10	)		–
	$	248		$	83

* 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.