4. Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

4. 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 Plano, TX, Allen, TX 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 three years and eleven months as of December 31, 2020. The San Marcos operating lease liability has a life of three months as of December 31, 2020. 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 on January 1, 2019. The Plano operating lease liability has a life of two years and nine months as of December 31, 2020 and had an initial recognition of an operating ROU asset and related lease liability of $225 thousand during the year ended December 31, 2020. The Allen operating lease liability has a life of four years and ten months as of December 31, 2020 and had an initial recognition of an operating ROU asset and related lease liability of $824 thousand during the year ended December 31, 2020.

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 years ended December 31, 2020 and 2019, the Company had approximately $380,000 and $294,000, respectively, in operating cash flows related to operating leases.

Lease Abandonment

Because of the breach of contract mentioned in the following Legal Proceedings section, management decided to abandon our offices subject to the Richardson ROU operating lease. The final move out of employees, applicable furnishings and server datacenter was in early December 2020. We have applied the abandonment guidance in ASC 360-10-35. We believe “abandonment” means ceasing to use the underlying asset and lacking either the intent or the ability to sublease the underlying asset. Accordingly, lease abandonment charges incurred for this ROU asset for the year ended December 31, 2020 totaled $1.1 million.

Schedule of Items Appearing on the Statement of Operations:

	Year Ended
	December 30, 2020		December 31, 2019
Operating expense:
Amortization expense – Finance ROU		43		59
Lease expense – Operating ROU		380		433
Other expense:
Interest expense – Finance ROU		2		4

Future minimum lease obligations consisted of the following at December 31, 2020 (in thousands):

	Operating			Finance
Period ending December 31,	ROU Leases			ROU Leases		Total
2021	$	584		$	21	$	605
2022		644			–		644
2023		640			–		640
2024		549			–		549
2025		167			–		167
	$	2,584		$	21	$	2,605
Less Interest*		(230	)		–
	$	2,354		$	21

*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

On February 16, 2021, Intrusion Inc. instituted legal proceedings in the District Court of Dallas County, Texas, 14^th Judicial District against Purple Plaza LLC, the landlord for the facilities we previously occupied in Richardson, Texas. This lawsuit claims damages for breach of contract for, among other things, failure to maintain and repair the leased facilities and to provide adequate heating, air conditioning, and ventilation on the premises, resulting in a constructive eviction. Intrusion is seeking damages in excess of $1,000,000 together with a declaratory judgment that any of Intrusion’s remaining obligations under the lease have terminated. The landlord filed a general denial on March 5, 2021.

In addition to this pending litigation, we are subject to various other legal proceedings and claims that may arise in the ordinary course of business. We do not believe that any claims exist where the outcome of such matters would have a material adverse effect on our consolidated financial position, operating results or cash flows. However, there can be no assurance such legal proceedings will not have a material impact on future results. 

We are not aware of any material claims outstanding or pending against Intrusion Inc. at December 31, 2020.