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Investment in Leasing Operations:

6 Months Ended

Jun. 25, 2022

5. Investment in Leasing Operations:

In May 2021, the Company made the decision to no longer solicit new leasing customers and will pursue an orderly run-off for its leasing portfolio.

Investment in leasing operations consists of the following:


	June 25, 2022		December 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$	2,020,200	$	3,387,500
Estimated unguaranteed residual value of equipment		658,900		1,316,100
Unearned lease income, net of initial direct costs deferred		(206,400)		(418,100)
Security deposits		(649,800)		(1,122,500)
Total investment in direct financing and sales-type leases		1,822,900		3,163,000
Allowance for credit losses		(40,400)		(63,600)
Net investment in direct financing and sales-type leases		1,782,500		3,099,400
Operating leases:
Operating lease assets		753,800		626,200
Less accumulated depreciation and amortization		(555,200)		(605,700)
Net investment in operating leases		198,600		20,500
Total net investment in leasing operations	$	1,981,100	$	3,119,900

As of June 25, 2022, the $2.0 million total net investment in leases consists of $1.9 million classified as current and $0.1 million classified as long-term. As of December 25, 2021, the $3.1 million total net investment in leases consists of $2.9 million classified as current and $0.2 million classified as long-term.

As of June 25, 2022, there were no customers with leased assets greater than 10% of the Company’s total assets.

Future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred, is as follows for the remainder of fiscal 2022 and the full fiscal years thereafter as of June 25, 2022:


	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2022		1,506,400		175,300
2023		510,300		31,000
2024		3,500		100
	$	2,020,200	$	206,400

The activity in the allowance for credit losses for leasing operations during the first six months of 2022 and 2021, respectively, is as follows:


	June 25, 2022		June 26, 2021
Balance at beginning of period	$	63,600	$	270,200
Provisions charged to expense		(24,600)		(111,400)
Recoveries		1,400		—
Balance at end of period	$	40,400	$	158,800

The Company’s investment in direct financing and sales-type leases (“Investment In Leases”) and allowance for credit losses by loss evaluation methodology are as follows:


	June 25, 2022				December 25, 2021
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	1,822,900	$	40,400	$	3,163,000	$	63,600
Individually evaluated for loss potential		—		—		—		—
Total	$	1,822,900	$	40,400	$	3,163,000	$	63,600

The Company’s key credit quality indicator for its investment in direct financing and sales-type leases is the status of the lease, defined as accruing or non-accrual. Leases that are accruing income are considered to have a lower risk of loss. Non-accrual leases are those that the Company believes have a higher risk of loss. The following table sets forth information regarding the Company’s accruing and non-accrual leases. Delinquent balances are determined based on the contractual terms of the lease.


	June 25, 2022
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total

Total investment in leases	$	1,822,900	$	—	$	—	$	—	$	1,822,900


	December 25, 2021
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total

Total investment in leases	$	3,163,000	$	—	$	—	$	—	$	3,163,000

The Company leases high-technology and other business-essential equipment to its leasing customers. Upon expiration of the initial term or extended lease term, depending on the structure of the lease, the customer may return the equipment, renew the lease for an additional term, or purchase the equipment. Due to the uncertainty of such outcome at the end of the lease term, the lease as recorded at commencement represents only the current terms of the agreement. As a lessor, the Company’s leases do not contain non-lease components. The residual values reflect the estimated amounts to be received at lease termination from sales or other dispositions of leased equipment to unrelated parties. The leased equipment residual values are based on the Company’s best estimate. The Company’s risk management strategy for its residual value includes the contractual obligations of its customers to maintain, service, and insure the leased equipment, the use of third party remarketers as well as the analytical review of historical asset dispositions.

Leasing income as presented on the Consolidated Condensed Statements of Operations consists of the following:


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Interest income on direct financing and sales-type leases	$	205,300	$	482,800	$	483,800	$	1,102,500
Selling profit (loss) at commencement of sales-type leases		34,800		356,300		1,298,000		1,430,000
Operating lease income		528,300		476,500		910,100		960,800
Income on sales of equipment under lease		328,700		1,479,900		932,100		2,225,500
Other		114,900		53,100		459,700		366,800
Leasing income	$	1,212,000	$	2,848,600	$	4,083,700	$	6,085,600