Annual report pursuant to Section 13 and 15(d)

Leases

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Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases

Note 25 - Leases

 

The Company has an operating lease for its administrative office in Palo Alto, California, effective October 1, 2014, for 8.3 years.  The initial lease rate was $14,225 per month with escalating payments.  In connection with the lease, the Company is obligated to pay $8,985 monthly for operating expenses for building repairs and maintenance.  The Company also has an operating lease for its administrative office in Encino, CA. This lease was effective June 1, 2014 and will end on July 31, 2021. The current lease rate is $6,984 per month and $276 per month for the common area maintenance. Additionally, the Company has an operating lease for its administrative office in Coquitlam, Canada, from October 1, 2016 through September 30, 2021. The initial lease rate was $8,931 CAD per month with escalating payments.  In connection with the lease, the Company is obligated to pay $6,411 CAD monthly for operating expenses for building repairs and maintenance.  The Company has an operating lease for its administrative office in Toronto, Canada, from August 15, 2019 through July 31, 2021. The monthly lease rate is $24,506 CAD per month with no escalating payments.  In connection with the lease, the Company is obligated to pay $9,651 CAD monthly for operating expenses for building repairs and maintenance.  Additionally, the Company has an operating lease for its administrative office in New Westminster, Canada, from August 1, 2019 through July 31, 2021. The initial lease rate was $575 CAD per month. The Company has an operating lease for its administrative office in Hyderabad, India, from January 1, 2019 through February 28, 2024. The monthly lease rate is 482,720 INR per month with 5% escalating payments.  In connection with the lease, the Company is obligated to pay 68,960 INR monthly for operating expenses for building repairs and maintenance.  The Company has no other operating or financing leases with terms greater than 12 months. 

 

The Company adopted ASC Topic 842, Leases ("ASC Topic 842") effective January 1, 2019 using the modified-retrospective method, and thus, the prior comparative period continues to be reported under the accounting standards in effect for that period.

 

The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. At the time of adoption, the Company did not have any leases with terms of 12 months or less, which would have resulted in short-term lease payments being recognized in the consolidated statements of income on a straight-line basis over the lease term. All of the Company's leases were previously classified as operating and are similarly classified as operating lease under the new standard.

 

On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use asset of $641,992, lease liability of $683,575 and eliminated deferred rent of $41,583. The adoption of ASC 842 did not have a material impact to prior year comparative periods and a result, a cumulative-effect adjustment was not required. The Company determined the lease liability using the Company's estimated incremental borrowing rate of 8.0% to estimate the present value of the remaining monthly lease payments. With the Locality acquisition, the Company adopted ASC Topic 842 effective May 21, 2019 for the Westminster, Canada office operating lease. With the Jibestream acquisition, the Company adopted ASC Topic 842 effective August 15, 2019 for the Toronto, Canada office operating lease. With the India acquisition, the Company adopted ASC Topic 842 effective January 1, 2019 for the Hyderabad, India office operating lease.

 

Right-of-use assets is summarized below (in thousands):

 

    As of
December 31,
2019
 
Palo Alto, CA Office   $ 808  
Encino, CA Office     188  
Hyderabad, India Office     375  
Coquitlam, Canada Office     273  
Westminster, Canada Office     10  
Toronto, Canada Office     405  
Less accumulated amortization     (474 )
Right-of-use asset, net   $ 1,585  

 

Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our consolidated statement of income for the period ended December 31, 2019 was $839,000.

 

During the year ended December 31, 2019, the Company recorded $568,715 as rent expense to the right-of-use assets.

 

Lease liability is summarized below (in thousands):

 

    As of
December 31,
2019
 
Total lease liability   $ 1,613  
Less: short term portion     (776 )
Long term portion   $ 837  

 

Maturity analysis under the lease agreement is as follows (in thousands):

 

Year ending December 31, 2020   $ 736  
Year ending December 31, 2021     592  
Year ending December 31, 2022     335  
Year ending December 31, 2023     118  
Year ending December 31, 2024     16  
Total   $ 1,797  
Less: Present value discount     (184 )
Lease liability   $ 1,613  

 

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of Topic 842. As of December 31, 2019, the weighted average remaining lease term is 2.61 years and the weighted average discount rate used to determine the operating lease liabilities was 8.0%.