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LEASES

12 Months Ended

Dec. 31, 2022

NOTE 7: LEASES

The Company leases manufacturing, research and administrative facilities under operating leases. The Company evaluates its contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all of the Company’s leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. The lease terms may include options to extend when it is reasonably certain that the Company will exercise that option. The Company did not consider that option in calculating right-of-use assets and lease liability as the Company is not reasonably certain it will extend the contract beyond the current terms.

Topic ASC 842 requires the Company to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. Right-of-use assets are recorded in non-current assets on the Company’s consolidated balance sheets. Current and non-current lease liabilities are recorded within current liabilities and non-current liabilities, respectively, on its consolidated balance sheets. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease.

As of September 15, 2022, the Company and its landlord agreed to terminate the Company’s office lease at 3200 Southwest Freeway, Suite 2500, Houston, Texas. As such the Company reduced its operating lease liabilities by $3.7 million and reduced its right-of-use

assets by $3.5 million. A gain on lease termination was recorded in general and administrative expenses during the year ended December 31, 2022.

As of December 31, 2022, the Company had total operating lease liabilities of approximately $7.6 million and right-of-use assets of approximately $5.5 million, which were included in the consolidated balance sheet. As of December 31, 2021, the Company had total operating lease liabilities of approximately $11.9 million and right-of-use assets of approximately $9.8 million, which were included in the consolidated balance sheet.

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right-of-use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases.

The following summarizes quantitative information about the Company’s operating leases:



	For the Years Ended
		December 31,
	2022		2021
Operating lease expense summary:
Operating lease expense	$	1,483,000		1,702,000
Short-term lease expense		48,000		—
Variable lease expense		648,000		606,000
Total	$	2,179,000	$	2,308,000

The weighted-average remaining lease term as of December 31, 2022 and December 31, 2021 was approximately 7.5 years and 8.4 years, respectively. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2022 and December 31, 2021 was approximately 5.5% and 5.7%, respectively.

Maturities of the Company’s operating leases, excluding short-term leases, are as follows:


Year ending December 31, 2023		983,000
Year ending December 31, 2024		1,254,000
Year ending December 31, 2025		1,290,000
Year ending December 31, 2026		1,177,000
Year ending December 31, 2027		1,163,000
Thereafter		3,590,000
Total		9,457,000
Less present value discount		(1,840,000)
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at December 31, 2022	$	7,617,000

For the Years Ended

December 31,

Other information:

Operating cash flows - operating leases