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Note 12 - Leases

9 Months Ended

Jun. 30, 2022

12. Leases

The Company leases facilities in the United States for its corporate and regional field offices. During the three and nine months ended June 30, 2022, the Company was also a lessee/sublessor for certain office locations.

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception, or upon modification of a contract and classify each lease as either an operating or finance lease at commencement. The Company reassesses lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.

ROU Model and Determination of Lease Term

The Company uses the Right-of-Use (“ROU”) model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates implicit in the Company’s leases are not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably certain that those options will be exercised.

Lease Costs

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the obligation for those payments is incurred.

Significant Assumptions and Judgments

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2) measurement of lease liabilities and ROU assets and (3) the term over which the ROU asset and leasehold improvements are amortized. The amount of depreciation and amortization, interest and rent expense would vary if different estimates and assumptions were used.

The components of net lease costs were as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Condensed Consolidated Statement of Operations:
Operating lease cost	$	33		$	27		$	111		$	74
Variable lease cost		11			14			21			41
Less: Sublease income, net		(20	)		(25	)		(40	)		(76	)
Total	$	24		$	16		$	92		$	39

Cash paid for amounts included in the measurement of lease liabilities was $133 and $170 for the nine months ended June 30, 2022 and 2021, all of which represents operating cash flows from operating leases. As of June 30, 2022, the weighted average remaining lease term was 2.7 years and the weighted average discount rate was 7.0%.

At June 30, 2022, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:

	Operating Leases			Receipts Subleases		Net Leases
Fiscal year:
2022 (remaining)	$	37			25		12
2023		173			101		72
2024		116			34		82
2025		69			-		69
2026		7			-		7
Total lease commitments		402			160		242
Less: Amount representing interest		(46	)
Present value of lease liabilities		356
Less: current portion		(199	)
Operating lease liabilities, net of current portion	$	157

The Company has leased additional office space starting in the third quarter of 2022 in Chicago IL. The lease ends in January 2028, with an early termination clause at the Company's option in August 2025. Total base rent for the entire term is $0.4 million.