8. Right-of-use Asset and Leasing Liabilities

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Right-of-use Asset and Leasing Liabilities

8. 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 finances 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, and San Marcos, CA, and our data service center in Allen, TX. 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 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 eight months as of March 31, 2021, however, the corresponding right-of-use asset was impaired to $0 due to our abandonment of the lease as of December 31, 2020. The San Marcos operating lease liability terminated on March 31, 2021. The data service center operating lease liability has a life of four years and seven months as of March 31, 2021. The Plano executive offices operating lease liability has a life of two years and six months as of March 31, 2021. The Plano two additional offices operating lease liability had an initial recognition of an operating ROU asset and related lease liability of $31 thousand during the three months ended March 31, 2021. The Plano two additional offices lease liability has a life of two years and six months as of March 31, 2021,

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 Silicon Valley Bank's prime rate.

Supplemental cash flow information includes operating cash flows related to operating leases. For the three months ended March 31, 2021 and 2020, the Company had $69,000 and $88,000 respectively, in lease payments related to operating leases.

Schedule of Items Appearing on the Statement of Operations:

	Three Months Ended
	March 31, 2021		March 31, 2020
Operating expense:
Amortization Expense – Finance ROU	$	10	$	10
Lease expense – Operating ROU		88		83
Other expense:
Interest Expense – Finance ROU		1		1

 Future minimum lease obligations consisted of the following at March 31, 2021 (in thousands):

	Operating			Finance
Period ending March 31,	ROU Leases			ROU Leases		Total
2022	$	688		$	11	$	699
2023		662			–		662
2024		628			–		628
2024		454			–		454
Thereafter		117			–		117
	$	2,549		$	11	$	2,560
Less Interest*		(205	)		–
	$	2,344		$	11

*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.