10. Right-of-use Asset and Leasing Liabilities

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Right-of-use Asset and Leasing Liabilities

10. 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 two months as of September 30, 2020. The San Marcos operating lease liability has a life of six months as of September 30, 2020. The adoption of the lease accounting standard resulted in the recognition of an operating ROU asset of $1,553 thousand and a related lease liability of $1,744 thousand during the first quarter of 2019.

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: (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) 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 12 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 nine months ended September 30, 2020 and 2019, the Company had $271 thousand and $177 thousand, respectively, in lease payments related to operating leases.

Schedule of Items Appearing on the Statement of Operations:

	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating expense:
Amortization expense – Finance ROU	$	11	$	16	$	32	$	48
Lease expense – Operating ROU		82		82		248		244
Other expense:
Interest expense – Finance ROU	$	–	$	1	$	2	$	3

Future minimum lease obligations consisted of the following at September 30, 2020 (in thousands):

	Operating			Finance
Period ending September 30,	ROU Leases			ROU Leases			Total
2021	$	363		$	31		$	394
2022		367			2			369
2023		378			–			378
2024		384			–			384
2025		62			–			62
Thereafter		–			–			–
	$	1,554		$	33		$	1,587
Less Interest*		(164	)		(1	)
	$	1,390		$	32

*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.