Commitments and Contingencies

Right-of-use Asset and Leasing Liabilities

Under the new lease accounting standard, we have determined that we have leases for right-of-use (ROU) assets. We have both finance right-of-use assets and operating right-of-use assets with a related lease liability. Our finance lease right-of-use assets consist of computer hardware and a copying machine. Our operating lease right-of-use assets include our rental agreements for our offices in Richardson and San Marcos, CA. Both types of lease liabilities are determined by the net present value of total payments and are amortized over the life of the lease. Both types of lease obligations are designed to terminate with the last scheduled payment. All of the finance lease right-of-use assets have a

three

year life and are in various stages of completion. The Richardson operating lease liability has a life of

four

years and

eleven

months as of

December 31, 2019.

The San Marcos operating lease liability has a life of

fifteen

months as of

December 31, 2019.

The adoption of the lease accounting standard resulted in the recognition of an operating ROU asset of

$1,580

thousand and a related lease liability of

$1,771

thousand.

Additional qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company adopted ASC

842

prospectively and elected the package of transition practical expedients that does

not

require reassessment of: (

) whether any existing or expired contracts are or contain leases, (

) lease classification and (

) initial direct costs. In addition, the Company has elected other available practical expedients to

not

separate lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of

months or less.

As the implicit rate is

not

readily determinable for the Company's lease agreement, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. This discount rate for the lease approximates SVB's prime rate.

Supplemental cash flow information includes operating cash flows related to operating leases. For the years ended

December 31, 2019

and

2018,

the Company had approximately

$294,000

and

$264,000,

respectively, in operating cash flows related to operating leases.

Schedule of Items Appearing on the S

tatement of Operations:

	Year Ended
	December 30, 2019		December 31, 2018
Operating expense:
Amortization expense – Finance ROU		59		65
Lease expense – Operating ROU		433		316
Other expense:
Interest expense – Finance ROU		4		5

Future minimum lease obligations consisted of the following at

December 31, 2019 (

in thousands):

	Operating			Finance
Period ending December 31,	ROU Leases			ROU Leases			Total
2020	$	362		$	45		$	407
2021		361			21			382
2022		369			—			369
2023		380			—			380
2024		352			—			352
	$	1,824		$	66		$	1,890
Less Interest*		(225	)		(2	)
	$	1,599		$	64

*Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying condensed consolidated statement of operations.

Legal Proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business. We do

not

believe that the outcome of those matters will have a material adverse effect on our consolidated financial position, operating results or cash flows. However, there can be

assurance such legal proceedings will

not

have a material impact.

We are

not

aware of any material claims outstanding or pending against Intrusion Inc. at

December

31,

2019.