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Note 5 - Leases

9 Months Ended

Sep. 30, 2023

5. Leases

Lessee Accounting

In December 2019, we entered into an operating lease agreement for a corporate office facility in Seattle, Washington (the “Head Lease”). The term of the lease is 87 months, with a rent date starting on May 1, 2020 and the lease ending on July 31, 2027. In July 2023, we entered into a sublease agreement (the “Sublease”) with an unrelated third party, whereby we agreed to sublease the entire corporate office facility to such party. See below in “Lessor Accounting” for more information.

In November 2020, we renewed the lease for our office facility in the UK. The term of the lease is 120 months, with rent payments starting on November 30, 2020 and the lease term ending on November 8, 2030. We have an opportunity to break the lease at the five-year mark in November 2025. As it is reasonably certain that we will utilize this option, the accounting for this lease utilized November 2025 as the end date. There was no material impact to our statement of operations or statement of cash flows as a result of entering into this lease.

Our leases have remaining terms of two to four years. Both of our leases contain renewal options. Because of changes in our business, we are not able to determine with reasonable certainty whether we will renew our Seattle, Washington or Trowbridge, UK leases. As a result, we have not considered renewal options when recording right-of-use (“ROU”) assets, lease liabilities or lease expense.

The following tables present the components of our lease expense and supplemental cash flow information related to our leases for the nine months ended September 30, 2023 and 2022 (in thousands):

	*Nine Months Ended*		*Nine Months Ended*
Total component lease expense was as follows:	*September 30, 2023*		*September 30, 2022*
Operating leases	$	309	$	271
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities	$	323	$	275

The following table presents supplemental balance sheet information related to our operating leases as of September 30, 2023 and 2022 (dollars in thousands):

	*September 30, 2023*			*September 30, 2022*
Right-of-use lease assets	$	732		$	1,340

Current portion of operating lease liability	$	373		$	351
Operating lease liability, net of current portion		824			1,107
Total operating lease liabilities	$	1,197		$	1,458

Weighted average remaining lease term (years)		3.5			4.5
Weighted average discount rate		8.5	%		8.5	%

The following table presents the amounts we are obligated to pay, by maturity, under our operating leases liabilities as of September 30, 2023 (in thousands):

Years Ending December 31,
2023, remainder of year	$	92
2024		372
2025		360
2026		276
2027		164
Total minimum lease payments		1,264
Less: amount representing interest		(67	)
Present value of lease liabilities	$	1,197

Lessor Accounting

In July 2023, we entered into the Sublease whereby we subleased our corporate office facility in Seattle, Washington to an unrelated third party. We have retained the primary obligation for the Head Lease. The term of the Sublease is 47 months, which began on September 1, 2023 and ends on July 31, 2027, commensurate with the end date of the Head Lease. Rental income from the Sublease for the three and nine months ended September 30, 2023 was approximately $14,000 and is recorded in other income (expense) in the condensed consolidated statement of operations.

The following table presents our expected future rental receipts related to the Sublease as of September 30, 2023 (in thousands):

Years Ending December 31,
2023, remainder of year	$	41
2024		164
2025		169
2026		174
2027		89
Total future receipts		637

Right-of-Use Asset Impairment

We viewed the sublease transaction as a triggering event requiring us to review the recoverability of the carrying value of our ROU asset related to the Head Lease. Based on our analysis, the carrying value was not recoverable and, as such, we recorded an impairment charge of approximately $363,000 during the third quarter of 2023. The impairment charge was calculated as the difference between the carrying value of the asset as of September 1, 2023 (the beginning of the Sublease) and management’s estimate of the asset’s fair value as of that date. The fair value of the ROU asset was determined to be the net present value of future cash inflows of Sublease payments. The impairment charge was recorded in general and administrative expenses within the condensed consolidated statement of operations.