Right-of-use Asset and Leasing Liabilities

9 Months Ended

Sep. 30, 2021

Right-of-use Asset And Leasing Liabilities

Right-of-use Asset and Leasing Liabilities

8. Right-of-use Asset and Leasing Liabilities

The Company has operating and finance leases where it records the right-of-use assets and a related lease liability as required under ASC 842. The lease liabilities are determined by the net present value of total lease payments and amortized over the life of the lease. All obligations under the Company’s lease agreements are designed to terminate with the last scheduled payment. The Company’s leases are for the following types of assets:

· Computer hardware and copy machines- The Company’s finance lease right-of-use assets consist of computer hardware and copy machines. These leases have a three-year life and are in various stages of completion.

· Office space - The Company’s operating lease right-of-use assets include its rental agreements for its offices in Plano, TX, and San Marcos, CA, and a data service center in Allen, TX. The Plano offices operating lease liability was modified during the three months ended September 30, 2021, to add an additional floor of office space and terminate the prior lease. The modified lease has a life of two years and one month as of September 30, 2021. 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 one month as of September 30, 2021. The Company also has an operating lease liability for its former corporate office in Richardson. The Richardson operating lease liability has a life of three years and two months as of September 30, 2021; however, the related right-of-use asset was fully impaired due to the Company’s abandonment of the lease as of 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 Silicon Valley Bank's prime rate.

Supplemental cash flow information includes operating cash flows related to operating leases. For the three months ended September 30, 2021, and 2020, the Company had $79,000 and $92,000, respectively, in lease payments related to operating leases. For the nine months ended September 30, 2021, and 2020, the Company had $200,000 and $271,000, respectively, in lease payments related to operating leases.

Schedule of Items Appearing on the Statement of Operations (in thousands): 

	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Operating expense:
Amortization expense – Finance ROU	$	111	$	11	$	144	$	32
Lease expense – Operating ROU	$	66	$	82	$	252	$	248
Other expense:
Interest expense – Finance ROU	$	8	$	–	$	9	$	2

Future minimum lease obligations consisted of the following as of September 30, 2021 (in thousands):

	Operating			Finance
	ROU Leases			ROU Leases			Total
Remaining 2021	$	410		$	8		$	418
2022		704			618			1,322
2023		705			618			1,323
2024		486			9			495
2025		115			1			116
Thereafter		–			–			–
	$	2,420		$	1,254		$	3,674
Less Interest*		(148	)		(52	)
	$	2,272		$	1,202

* 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.