Right-of-use Asset and Leasing Liabilities

12 Months Ended

Dec. 31, 2022

Right-of-use Asset And Leasing Liabilities

Right-of-use Asset and Leasing Liabilities

5. Right-of-use Asset and Leasing Liabilities

The Company has operating, and finance leases and records right-of-use assets and related lease liabilities as required under ASC 842. The lease liabilities are determined by the net present value of total lease payments and amortized over the life of the lease. All obligations under the Company’s lease agreements are designed to terminate with the last scheduled payment. The Company leases are for the following types of assets:

· Computer hardware and copy machines – The Company’s finance lease right-of-use assets consist of computer hardware and copy machines. These leases have a three-year life and are in various stages of completion.

· Office space – The Company’s operating lease right-of-use assets include rental agreements for its offices in Plano, TX and a data service center in Allen, TX. The Plano offices operating lease liability was modified during the year ended December 31, 2021, to add an additional floor of office space and terminate the prior lease. The modified lease has a life of ten months as of December 31, 2022. The data service center operating lease liability has a life of two years and ten months as of December 31, 2022.

Lease balances are recorded on the consolidated balance sheet as follows (in thousands): 

	December 31,
	2022		2021
Assets:
Finance leases, right-of-use assets, net	$	1,048	$	1,709
Operating leases, right-of-use assets, net		504		808
Total lease assets		1,552		2,517
Liabilities:
Current:
Finance leases liabilities, current portion		667		644
Operating leases liabilities, current portion		294		935
Non-current:
Finance leases liability, noncurrent portion		10		673
Operating lease liability, noncurrent portion		231		1,250
Total lease liabilities	$	1,202	$	3,502
Weighted average remaining lease term – Finance leases		1.58 years		2.66 years
Weighted average remaining lease term – Operating leases		2.20 years		2.94 years
Weighted average discount rate – Finance leases		3.37%		3.35%
Weighted average discount rate – Operating leases		3.42%		4.70%

As the implicit rate is not readily determinable for the Company's lease agreement, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. This discount rate for the lease approximates federal reserves’ prime rate.

The gross amount of assets recorded under finance leases was $3.2 million as of the years ended December 31, 2022, and 2021.

Certain of the Company’s lease agreements have options to extend the lease after the expiration of the initial term. The Company recognizes the cost of a lease over the expected total term of the lease, including optional renewal periods that the Company can reasonably expect to exercise. The Company does not have material obligations whereby the Company guarantees a residual value on assets the Company leases, nor do the Company’s lease agreements impose restrictions or covenants that could affect its ability to make distributions.

Schedule of Items Appearing on the Statement of Operations (in thousands): 

	Year Ended
	December 30, 2022		December 31, 2021
Operating expense:
Amortization expense – Finance ROU	$	665	$	306
Lease expense – Operating ROU		304		341
Other expense:
Interest expense – Finance ROU		35		20
Total Lease Expense	$	1,004	$	667

Other supplemental information related to the Company’s leases are as follows: 

	Year Ended
	December 30, 2022			December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	(1,085	)	$	33
Operating cash flows for finance leases		665			306
Financing cash flows for finance leases		(645	)		(699	)

Future minimum lease obligations consisted of the following as of December 31, 2022 (in thousands): 

	Operating			Finance
Year ending December 31,	ROU Leases			ROU Leases			Total
2023	$	307		$	680		$	987
2024		123			8			131
2025		115			3			118
	$	545		$	691		$	1,236
Less Interest*		(20	)		(14	)
	$	525		$	677

* Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying consolidated statements of operations.