LEASE LIABILITIES AND RIGHT OF USE ASSETS

12 Months Ended

Dec. 31, 2025

LEASE LIABILITIES AND RIGHT OF USE ASSETS

LEASE LIABILITIES AND RIGHT OF USE ASSETS

NOTE 5 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating Leases

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company has operating leases for office space in Tucson, Arizona, and New York, New York. The lease for the principal office located in Tucson consists of approximately 627 square feet and ends in October 2026. The lease for the New York office, which consists of approximately 5,000 square feet, commenced in January 2022 and will expire in December 2026.

In March 2025, the Company entered into an agreement to sublease its office space in New York through the end of the original lease term in December 2026. The sublease did not relieve the Company of its original obligation under the lease, therefore the Company did not adjust the related lease liability. In the twelve months ended December 31, 2025, Company recognized a $50,000 loss on impairment associated with this right-of-use asset as the total remaining lease cost exceeds the expected sublease income. In the twelve months ended December 31, 2025, the Company recorded $132,000 in income related to the sublease.

In the second quarter of 2024, the Company entered into an agreement to sublease office space in Miami Beach, Florida, on a month-to-month basis. In addition, the Company entered into membership agreements to occupy shared office space in other locations. Because these agreements do not qualify as a lease under ASC 842, we expense the related rent and membership fees as they are incurred.

The Company made operating lease payments in the amount of $238,000 and $363,000 during the years ended December 31, 2025 and 2024, respectively.

The following summarizes the total lease liabilities and remaining future minimum lease payments at December 31, 2025 (in thousands):


Year ending December 31,	Operating Leases
2026	$	225
Total minimum lease payments		225
Less: present value discount		(7)
Total lease liabilities	$	218
Current portion of lease liabilities	$	218
Long term portion of lease liabilities	$	—

The following summarizes expenses associated with our finance and operating leases for the years ended December 31, 2025 and 2024:


	Year ended December 31,
(in thousands)	2025		2024
Finance lease expenses:
Depreciation expense	$	—	$	6
Total Finance lease expense		—		6
Operating lease expense		225		278
Sublease income		(132)		—
Short-term lease and related expenses		378		424
Total lease expenses	$	471	$	708

The following table provides information about the remaining lease terms and discount rates applied as of December 31, 2025 and 2024:


	As of December 31,
	2025	2024
Weighted average remaining lease term (years)
Operating Leases	1.00	2.00
Weighted average discount rate (%)
Operating Leases	6.00	6.00

AUDIOEYE INC 10-K