How does Kidokinetics recognize leases with a term of 12 months or less?

According to Kidokinetics's 2024 Franchise Disclosure Document, the company has elected an accounting policy where they do not recognize right-of-use assets and lease liabilities for short-term leases. Specifically, Kidokinetics recognizes leases with a term of 12 months or less at commencement on a straight-line basis over the lease term. This applies if Kidokinetics is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months.

For a prospective Kidokinetics franchisee, this accounting policy is relevant if they enter into any short-term leases for their business operations, such as for office space or equipment. Instead of recognizing a right-of-use asset and a corresponding lease liability on their balance sheet, the lease expense will be recognized evenly over the lease term.

This accounting treatment simplifies the financial reporting for these short-term leases, as it avoids the complexities of calculating the present value of lease payments and amortizing the right-of-use asset. However, it's important for franchisees to understand the conditions under which this policy applies, particularly the requirement that Kidokinetics is not reasonably certain to extend the lease beyond 12 months. If there is a likelihood of renewal, a different accounting treatment may be required.