Right-of-use Assets and Leasing Liabilities

12 Months Ended

Dec. 31, 2023

Right-of-use Assets And Leasing Liabilities

Right-of-use Assets and Leasing Liabilities

5. Right-of-use Assets and Leasing Liabilities

The Company has operating, and finance leases and records right-of-use assets and related lease liabilities as required under ASC Topic 842. The lease liabilities are determined by the net present value of the total lease payments and amortized over the life of the lease. 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 offices in Plano, TX, and a data service center in Allen, TX. The Plano offices operating lease expired on September 30, 2023. In October 2023, the Company signed a new lease with a term of eleven years and one month that commences upon completion of tenant improvements. A temporary lease has been signed and is effective until tenant improvements are complete. The data service center operating lease liability has a life of one year nine months as of December 31, 2023.

Lease balances are recorded on the Consolidated Balance Sheets as follows (in thousands): 

	December 31,
	2023		2022
Assets:
Finance leases, right-of-use assets, net	$	382	$	1,048
Operating leases, right-of-use assets, net		1,637		504
Total lease assets	$	2,019	$	1,552
Liabilities:
Current:
Finance leases liabilities, current portion	$	384	$	667
Operating leases liabilities, current portion		178		294
Noncurrent:
Finance leases liabilities, noncurrent portion		3		10
Operating leases liabilities, noncurrent portion		1,539		231
Total lease liabilities	$	2,104	$	1,202
Weighted average remaining lease term – Finance leases		0.58 years		1.58 years
Weighted average remaining lease term – Operating leases		9.66 years		2.20 years
Weighted average discount rate – Finance leases		3.32%		3.37%
Weighted average discount rate – Operating leases		7.67%		3.42%

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 the federal reserves’ prime rate.

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 the Company’s ability to make distributions.

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

	Year Ended
	December 30, 2023		December 31, 2022
Operating expense:
Amortization expense – Finance ROU	$	666	$	665
Lease expense – Operating ROU		329		304
Other expense:
Interest expense – Finance ROU		13		35
Total Lease Expense	$	1,008	$	1,004

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

	Year Ended
	December 30, 2023			December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	(261	)	$	(1,085	)
Financing cash flows for finance leases		(290	)		(645	)

Future minimum lease obligations consisted of the following as of December 31, 2023 (in thousands): 

	Operating			Finance
Year ending December 31,	ROU Leases			ROU Leases		Total
2024	$	310		$	384	$	694
2025		256			3		259
2026		196			–		196
2027		165			–		165
2028		223			–		223
Thereafter		1,517			–		1,517
	$	2,667		$	387	$	3,054
Less Interest*		(950	)		–
	$	1,717		$	387

* 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.