(

)

Leases

The Company determines if an arrangement is a lease at its inception. The Company has entered into operating leases for real estate. These leases have initial terms which range from

years to

years, and often include

one

or more options to renew. These renewal terms can extend the lease term by

years, and will be included in the lease term when it is reasonably certain that the Company will exercise the option. The Company's existing leases do

not

contain significant restrictive provisions; however, certain leases contain provisions for payment of real estate taxes, insurance and maintenance costs by the Company. The lease agreements do

not

contain any residual value guarantees. Some of the real estate lease agreements include periods of rent holidays and payments that escalate over the lease term by specified amounts. All operating lease expenses are recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the right-of-use asset is amortized over the lease term.

Some leases

may

require variable lease payments based on factors specific to the individual agreements. Variable lease payments for which we are typically responsible for include real estate taxes, insurance and common area maintenance expenses based on the Company's pro-rata share, which are excluded from the measurement of the lease liability. Additionally,

one

of the Company's real estate leases has lease payments that adjust based on annual changes in the Consumer Price Index (“CPI”). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Incremental payments due to changes in the index are treated as variable lease costs and expensed as incurred.

These operating leases are included in “Operating lease right-of-use assets” on the Company's

October

2020

consolidated balance sheet, and represent the Company's right to use the underlying asset for the lease term. The Company's obligations to make lease payments are included in “Operating lease liabilities, current portion” and “Operating lease liabilities, net of current portion” on the Company's consolidated balance sheets. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As of

October 4, 2020,

total right-of-use assets and operating lease liabilities were approximately

$6,315,000

and

$7,131,000,

respectively. As of

December

31,

2019,

total right-of-use assets and operating lease liabilities were approximately

$7,014,000

and

$7,747,000,

respectively.

We primarily use our incremental borrowing rate, which is updated quarterly, based on the information available at commencement date, in determining the present value of lease payments. If readily available, we would use the implicit rate in a new lease to determine the present value of lease payments. The Company has certain contracts for real estate which

may

contain lease and non-lease components which it has elected to treat as a single lease component.

The Company has entered into various short-term operating leases, primarily for office equipment with an initial term of

twelve

months or less. Lease payments associated with short-term leases are expensed as incurred and are

not

recorded on the Company's balance sheet. The related lease expense for short-term leases was

not

material for the

three

and

nine

months ended

October 4, 2020

and

September 29, 2019.

The following table presents information related to lease expense for the

three

and

nine

months ended

October

2020

and

September 29, 2019 (

in thousands):

	Three Months Ended				Nine Months Ended
	October 4,		September 29,		October 4,		September 29,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Finance lease expense:
Amortization expense	$	112	$	123	$	340	$	356
Interest expense		71		85		220		266
Operating lease expense		351		351		1,053		1,053
Variable lease expense		77		65		239		208
Total lease expense	$	611	$	624	$	1,852	$	1,883

The following table presents supplemental cash flow information related to leases (in thousands):

	Nine Months Ended
	October 4,		September 29,
	2020		2019
	(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	989	$	1,074
Operating cash flows from finance leases		220		266
Financing cash flows from finance leases		623		466

The annual future minimum lease payments as of

October 4, 2020

are as follows (in thousands):

	Operating			Finance
	Leases			Leases
Next 12 months	$	1,472		$	612
12 to 24 months		1,488			612
24 to 36 months		1,505			612
36 to 48 months		1,391			575
48 to 60 months		1,226			549
Thereafter		2,008			183
Total lease payments		9,090			3,143
Less imputed interest		(1,959	)		(731	)
Total	$	7,131		$	2,412

The following table presents certain information related to lease terms and discount rates for leases as of

October 4, 2020:

	Operating		Finance
	Leases		Leases
Weighted-average remaining lease term (years)		6.4		5.1
Weighted-average discount rate (percentage)		8.0		10.2