Annual report pursuant to Section 13 and 15(d)

Leases

v3.21.1
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases 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 amended operating lease for its administrative office in Coquitlam, Canada, from May 1, 2020 through September 30, 2022. The initial lease rate was CAD $4,479 per month with escalating payments. In connection with the lease, the Company is obligated to pay CAD $2,566 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 CAD $24,506 per month with no escalating payments. In connection with the lease, the Company is obligated to pay CAD $9,561 monthly for operating expenses for building repairs and maintenance. Starting in January 2021, the lease rate for the Toronto office space will be reduced due to a smaller leased office space. The extension agreement for the reduced office space is through June 30, 2026 with escalating payments. 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 CAD $575 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 an operating lease for its administrative office in Ratingen, Germany, from July 1, 2020 through June 30, 2022 with an initial lease rate of 641 EUR per month. The Company has an operating lease for its administrative office in Slough, United Kingdom, from July 1, 2020 through October 31, 2021. The monthly lease rate is 1,600 GBP per month with 4% escalating payments.
As part of the acquisition of Nanotron on October 5, 2020, the Company acquired right-of-use assets and lease liabilities related to an operating lease for an office suite (the Nanotron office) located in Berlin, Germany. The office space leased by Nanotron occupies one floor of the building with a predetermined fixed annual increase to the monthly payment, effective on June 1 of every year. The initial lease rate was €7,118 per month for the first year prior to annual rent increases. The lease was effective on June 1, 2020, and expires May 31, 2026. There are three lease extension options, on June 1, 2023, June 1, 2024 and June 1, 2025. The Company anticipates extending the lease on each date. As a result, the Company will evaluate the lease under the expected lease term through May 31, 2026.
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. With the Systat license agreement, the Company adopted ASC Topic 842 effective July 1, 2020 for the Ratingen, Germany and Slough, United Kingdom office operating leases. In regards to the Nanotron acquisition, Nanotron had adopted IFRS 16, which is the new leasing standard that parallels ASC 842, effective January 1, 2019. Per ASC 805 - "Business Combinations", lease assets and liabilities acquired as part of a business combination should be remeasured at their present value, as if the lease were a new lease as of the acquisition date. As
a result, the Company recalculated the present value of the lease as of the acquisition date, which will represent the balance of the operating lease right-of-use asset and operating lease liability moving forward.
Right-of-use assets is summarized below (in thousands):
As of December 31,
2020
As of December 31, 2019
Palo Alto, CA Office $ 630  $ 808 
Encino, CA Office 194  188 
Hyderabad, India Office 365  375 
Coquitlam, Canada Office 96  273 
Westminster, Canada Office 10  10 
Toronto, Canada Office 949  405 
Ratingen, Germany Office 18  — 
Berlin, Germany Office 583  — 
Slough, United Kingdom Office 34  — 
Less accumulated amortization (802) (474)
Right-of-use asset, net $ 2,077  $ 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, 2020 was $1.1 million.
During the year ended December 31, 2020, the Company recorded $656,110 as rent expense to the right-of-use assets.
Lease liability is summarized below (in thousands):
As of December 31, 2020 As of December 31, 2019
Total lease liability $ 2,104  $ 1,613 
Less: short term portion (647) (776)
Long term portion $ 1,457  $ 837 
Maturity analysis under the lease agreement is as follows (in thousands):
Year ending December 31, 2021 $ 694 
Year ending December 31, 2022 618 
Year ending December 31, 2023 369 
Year ending December 31, 2024 276 
Year ending December 31, 2025 261 
Year ending December 31, 2026 109 
Total $ 2,327 
Less: Present value discount (223)
Lease liability $ 2,104 
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, 2020, the weighted average remaining lease term is 3.92 and the weighted average discount rate used to determine the operating lease liabilities was 8.0%.