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Note 5 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

5. Commitments and Contingencies

Leases

We have identified assets as the corporate office, warehouse, monitoring equipment and laboratory facilities over which we have control and obtain economic benefits fully and classified these as operating leases after assessing the terms under classification guidance. We have entered into several leases for trailers and carbon units with purchase option at the end of the term. We have concluded that it is reasonably certain that we would exercise the purchase option at the end of the term, hence the leases were classified as finance leases. All of our leases have remaining term of two years to fourteen years.

We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We will recognize those lease payments in the Consolidated Statements of Operations as we incur the expenses.

When discount rates implicit in leases cannot be readily determined, the Company uses the applicable incremental borrowing rate at lease commencement to perform lease classification tests on lease components and measure lease liabilities and right-of-use (“ROU”) assets. The incremental borrowing rate used by the Company was based on weighted average baseline rates commensurate with the Company’s secured borrowing rate over a similar term. At each reporting period, when there is a new lease initiated, the rates established for that quarter will be used.

On December 14, 2021, we entered into a real estate purchase agreements and lease disposition and development agreement with the City of Riverbank. We plan to utilize the purchased and leased properties, located at 5300 Claus Road in the city of Riverbank, California, for the construction of the Carbon Zero Facility. The lease commenced on April 1, 2022. The Company evaluated the lease in accordance with ASC 842 – Lease Accounting and classified the lease as a finance lease.

The components of lease expense and sublease income were as follows:

		*Three months ended September 30,*								*Nine months ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Operating lease cost
Operating lease expense		$	180			$	159			$	542			$	506
Short term lease expense			89				44				131				146
Variable lease expense			26				23				70				68
Total operating lease cost		$	295			$	226			$	743			$	720

Finance lease cost
Amortization of right-of-use assets		$	30			$	26			$	91			$	115
Interest on lease liabilities			83				98				256				217
Total finance lease cost		$	113			$	124			$	347			$	332

Cash paid for amounts included in the measurement of lease liabilities:

		*Three months ended September 30,*								*Nine months ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Operating cash flows used in operating leases		$	169			$	184			$	499			$	522
Operating cash flows used in finance leases			83				98				256				216
Financing cash flows used in finance leases		$	83			$	132			$	394			$	314

Supplemental non-cash flow information related to ROU asset and lease liabilities was as follows for the three and nine months ended September 30, 2023 and 2022:

		*Three months ended September 30,*								*Nine months ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Operating leases
Accretion of the lease liability		$	81			$	83			$	252			$	262
Amortization of right-of-use assets			100				76				291				244

The weighted average remaining lease term and weighted average discount rate as of September 30, 2023 are as follows:

Weighted Average Remaining Lease Term
Operating leases (in years)			4.5
Finance leases (in years)			13.3

Weighted Average Discount Rate
Operating leases			14.1	%
Finance leases			13.2	%

Supplemental balance sheet information related to leases was as follows:

		*September 30, 2023*				*December 31, 2022*
Operating leases
Operating lease right-of-use assets		$	2,159			$	2,449

Current portion of operating lease liability			390				338
Long term operating lease liability			1,890				2,189
Total operating lease liabilities			2,280				2,527

Finance leases
Property and equipment, at cost		$	2,889			$	3,045
Accumulated depreciation			(198	)			(112	)
Property and equipment, net			2,691				2,933

Other current liability			-				71
Other long term liabilities			2,666				2,911
Total finance lease liabilities			2,666				2,982

Maturities of operating lease liabilities were as follows:

Twelve months ended September 30,		*Operating leases*				*Finance leases*

2024		$	680			$	204
2025			672				176
2026			648				145
2027			641				145
2028			436				145
Thereafter			-				10,105
Total lease payments			3,077				10,920
Less imputed interest			(797	)			(8,254	)
Total lease liability		$	2,280			$	2,666

The Company acts as sublessor in certain leasing arrangements, primarily related to land and buildings. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. Sublease income and head lease expense for these transactions are recognized on a gross basis on the consolidated financial statements. This was recorded in the Selling, general and administrative expense section of the Consolidated Statements of Operations and Comprehensive Loss.

The components of lease income were as follows:

		*Three months ended September 30,*								*Nine months ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Lease income		$	230			$	429			$	1,182			$	429

Future lease commitments to be received by the Company as of September 30, 2023 were as follows:

Twelve months ended September 30,
2024		$	806
2025			729
2026			569
2027			474
2028			474
Thereafter			711
Total future lease commitments		$	3,763

Legal Proceedings

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. While the ultimate outcome of these matters is not presently determinable, it is in the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.