LEASES

12 Months Ended

Dec. 31, 2023

Leases

LEASES

NOTE 2: LEASES

We lease land, buildings, and certain equipment under non-cancellable operating leases. The Company leases office, indoor manufacturing, warehouse, and operating space in Houston, Texas and leases storage space in Mobile, Alabama to house its 3,400 metric ton and 3,500 metric ton carousel systems. We classify our leases related to certain office furniture and computer equipment as financing leases. The Company elects to apply the short-term lease exception; therefore, the Company will not record an ROU asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The Company elects to apply the practical expedient to not separate lease components from non-lease components and instead account for both as a single lease component for all asset classes.

Most leases include one or more options to renew, with renewal terms that can extend the lease term on a monthly, annual or longer basis. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term unless there is a transfer of title or purchase option that is reasonably certain of being exercised.

The Company elects to not capitalize any lease in which the estimated value of the underlying asset at the commencement date is less than the Company’s capitalization threshold. A lease would need to qualify for the low value exception based on various criteria.

For the year ended December 31, 2022, the Company recorded impairment charges of $820 for the impairment of its ROU operating lease asset related to the remaining lease of its former operating facility. The impairment was the result of abandoning the former operating facility to move to the Company’s current operating facility in October 2022.

As of December 31, 2023 and 2022, the Company does not have any subleases.

The following tables present information about our operating and finance leases:

	Classification	December 31, 2023		December 31, 2022
Assets
Operating	Right-of-use operating lease assets	$	5,856	$	6,184
Finance	Right-of-use finance lease assets		103		275
Total lease assets		$	5,959	$	6,459
Liabilities
Current
Operating	Current operating lease liabilities	$	480	$	863
Finance	Current finance lease liabilities		74		277
Non-current
Operating	Operating lease liability, long-term		6,136		6,518
Finance	Finance lease liability, long-term		24		–
Total lease liabilities		$	6,714	$	7,658

The components of our lease expense were as follows:

		Year Ended December 31,
	Classification	2023		2022
Finance lease costs
Amortization of ROU assets	Selling, general and administrative	$	292	$	104
Interest on lease liabilities	Interest (income) expense, net		10		2
Operating lease expense	Cost of sales		735		1,238
Operating lease expense	Selling, general and administrative		230		172
Short term lease expense	Cost of sales		306		494
Total lease expense		$	1,271	$	1,904

The lease term and discount rate for our operating and financing leases were as follows:

	December 31, 2023		December 31, 2022
Weighted-average remaining lease terms (years)
Operating leases		8.7		8.4
Finance leases		1.7		0.0
Weighted-average discount rates
Operating leases		7.97%		6.25%
Finance leases		7.44%		8.23%

Present value of lease liabilities:

Years ending December 31,	Operating Leases			Finance Leases
2024	$	990		$	78
2025		1,006			13
2026		1,021			13
2027		1,041			–
Thereafter		5,233			–
Total lease payments	$	9,291		$	104
Less: Interest		(2,675	)		(6	)
Present value of lease liabilities	$	6,616		$	98

For the year ended December 31, 2023, the Company did not have any sale/leaseback transactions. We had no material non-cash financing or operating leases entered into during the year ended December 31, 2023.

Supplemental cash flow information related to leases for the years ended December 31, 2023 and 2022

	Year Ended December 31,
	2023		2022
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	101		6,345
Finance leases		122		328