Right-of-use Asset and Leasing Liabilities

12 Months Ended

Dec. 31, 2021

Right-of-use Asset And Leasing Liabilities

Right-of-use Asset and Leasing Liabilities

8. Right-of-use Asset and Leasing Liabilities

We have operating and finance leases where we record 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 our lease agreements are designed to terminate with the last scheduled payment. Our leases are for the following types of assets:

· Computer hardware and copy machines - Our 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 - Our operating lease right-of-use assets include rental agreements for our offices in Plano, TX and a data service center in Allen, TX. The Plano offices operating lease liability was modified during the year ended December 31, 2021, to add an additional floor of office space and terminate the prior lease. The modified lease has a life of one year and eleven months as of December 31, 2021. The data service center operating lease liability has a life of three years and ten months as of December 31, 2021. We also have an operating lease liability for our former corporate office in Richardson. The Richardson operating lease liability has a life of two years and eleven months as of December 31, 2021; however, the related right-of-use asset was fully impaired due to our abandonment of the lease as of December 31, 2020. See further discussion on the abandonment of this lease discussed below.

Lease balances are recorded on the consolidated balance sheet as follows (in thousands): 

	December 31,
	2021		2020
Assets:
Finance leases, right-of-use assets, net	$	1,709	$	20
Operating leases, right-of-use assets, net		808		1,010
Total lease assets		2,517		1,030
Liabilities:
Current:
Finance leases liabilities, current portion		644		21
Operating leases liabilities, current portion		935		487
Non-current:
Finance leases liability, noncurrent portion		673		–
Operating lease liability, noncurrent portion		1,250		1,867
Total lease liabilities	$	3,502	$	2,375
Weighted average remaining lease term – Finance leases		2.66 years		0.62 years
Weighted average remaining lease term – Operating leases		2.94 years		3.86 years
Weighted average discount rate – Finance leases		3.35%		4.55%
Weighted average discount rate – Operating leases		4.70%		4.31%

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.

The gross amount of assets recorded under our finance leases were $3.2 million and $1.2 million as of the years ended December 31, 2021 and 2020, respectively.

Certain of our lease agreements have options to extend the lease for a certain period after the expiration of the initial term. We recognize the cost of a lease over the expected total term of the lease, including optional renewal periods that we can reasonably expect to exercise. We do not have material obligations whereby we guarantee a residual value on assets we lease, nor do our lease agreements impose restrictions or covenants that could affect our ability to make distributions.

Lease Abandonment

As a result of the breach of contract mentioned in Legal Proceedings section below, management abandoned our offices subject to the Richardson ROU operating lease. The final move out of employees, applicable furnishings and server datacenter occurred 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 was $1.1 million.

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

	Year Ended
	December 30, 2021		December 31, 2020
Operating expense:
Amortization expense – Finance ROU	$	306	$	43
Lease expense – Operating ROU		341		380
Other expense:
Interest expense – Finance ROU		20		2
Loss on abandoned lease – Operating ROU		–		1,092
Total Lease Expense	$	667	$	1,517

Other supplemental information related to our leases are as follows: 

	Year Ended
	December 30, 2021			December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	33		$	1,092
Operating cash flows for finance leases		306			43
Financing cash flows for finance leases		(699	)		(43	)

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

	Operating			Finance
Period ending December 31,	ROU Leases			ROU Leases			Total
2022	$	1,005		$	679		$	1,684
2023		705			679			1,384
2024		486			6			492
2025		115			1			116
2026		–			–			–
	$	2,311		$	1,365		$	3,676
Less Interest*		(126	)		(48	)
	$	2,185		$	1,317

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