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LEASE LIABILITIES AND RIGHT OF USE ASSETS

6 Months Ended

Jun. 30, 2023

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 has finance leases to purchase computer equipment. The amortization expense of the leased equipment is included in depreciation expense. As of June 30, 2023 and December 31, 2022, the Company’s outstanding finance lease obligations totaled $23,000 and $45,000, respectively. The effective interest rate of the finance leases is estimated at 6.0% based on the implicit rate in the lease agreements.

The following summarizes the assets acquired under finance leases included in property and equipment, net of disposals:


	June 30,		December 31,
(in thousands)	2023		2022
Computer equipment	$	214	$	214
Less: accumulated depreciation		(192)		(172)
Assets acquired under finance leases, net	$	22	$	42

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, New York, New York, and Miami Beach, Florida. The lease for the principal office located in Tucson consists of 627 square feet and ends in October 2024. 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. Upon commencement of the New York lease, we recorded a right-of-use asset and corresponding operating lease liability of $876,000 in the first quarter of 2022.

In the second quarter of 2023, we terminated one of the leases for the Miami Beach office, reducing the leased space to approximately 2,000 square feet. The remaining lease will expire in May 2024. In connection with the early termination of this lease, the right-of-use asset and lease liability were reduced by $38,000 and $40,000, respectively.

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

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 Statement of Operations. As of June 30, 2023, the lease liability related to the Marietta, GA office was $135,000.

In addition, the Company entered into membership agreements to occupy shared office space in Lehi, Utah, Portland, Oregon, and Seattle, Washington. Because the membership agreements do not qualify as a lease under ASC 842, we expense the membership fees as they are incurred.

The Company made operating lease payments in the amount of $271,000 and $291,000 during the six months ended June 30, 2023 and 2022, respectively.

The following summarizes the total lease liabilities and remaining future minimum lease payments at June 30, 2023 (in thousands):


Year ending December 31,	Finance Leases		Operating Leases		Total
2023 (6 months remaining)	$	17	$	241	$	258
2024		7		345		352
2025		—		219		219
2026		—		225		225
Total minimum lease payments		24		1,030		1,054
Less: present value discount		(1)		(88)		(89)
Total lease liabilities		23		942		965
Current portion of lease liabilities		23		415		438
Long term portion of lease liabilities	$	—	$	527	$	527

The following summarizes expenses associated with our finance and operating leases for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
(in thousands)	2023			2022
Finance lease expenses:
Depreciation expense	$	20	$	29
Interest on lease liabilities		1		2
Total Finance lease expense		21		31
Operating lease expense		266		323
Short-term lease and related expenses		117		79
Total lease expenses	$	404	$	433

The following table provides information about the remaining lease terms and discount rates applied as of June 30, 2023 and 2022:


	June 30,
	2023	2022
Weighted average remaining lease term (years)
Operating Leases	2.84	3.40
Finance Leases	0.78	1.57
Weighted average discount rate (%)
Operating Leases	6.00	6.00
Finance Leases	6.00	6.00