NOTE 6 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

Finance Leases


	March 31,		December 31,
	2020		2019
	(in thousands)
Finance equipment lease dated April 5, 2018	$	7	$	8
Finance equipment lease dated May 8, 2018		8		9
Finance equipment lease dated June 27, 2018		12		13
Finance equipment lease dated September 18, 2018		9		10
Finance equipment lease dated September 28, 2018		10		11
Finance equipment lease dated February 20, 2019		13		14
Finance equipment lease dated June 4, 2019		16		18
Finance equipment lease dated September 30, 2019		19		21
Total finance lease liabilities		94		104
Less current portion		(53)		(52)
Long term portion	$	41	$	52

The Company did not enter any finance leases during the quarter ended March 31, 2020.

During the year ended December 31, 2019, the Company entered into three finance leases for computer equipment for three-year terms. The Company recognized these arrangements as finance leases based on the determination that the leases exceeded 75% of the economic life of the underlying assets. The Company initially recorded the equipment and finance leases liability at the estimated present value of the aggregate amount of the minimum lease payments of approximately $61,000.

The leases include base monthly payments in aggregate of approximately $5,000, due on the contract monthly anniversary of each calendar month. At the expiration of the lease, the Company is required to return all leased equipment to the lessor with right of repurchase at fair value. The Company has made payments in the amount of approximately $14,000 during the quarter ended March 31, 2020. The effective interest rate of the finance leases is estimated at 6.0% based on the implicit rate in the lease agreements.

The following summarizes the right to use assets under finance leases included in property and equipment:


	March 31,		December 31,
	2020		2019
	(in thousands)
Classes of property
Computer equipment	$	157	$	157
Less: accumulated depreciation		(73)		(60)
	$	84	$	97

The following summarizes the total remaining future minimum finance lease payments at March 31, 2020 (in thousands):


Period ending December 31,
2020	$	46
2021		43
2022		10
Total minimum lease payments		99
Amount representing interest		(5)
Present value of minimum lease payments		94
Current portion of finance lease obligations		53
Finance lease obligations, less current portion	$	41

Operating Leases

The Company’s principal offices are located at 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, consisting of approximately 5,151 square feet as of December 31, 2019. The Company’s principal office originally consisted of approximately 2,362 square feet. On December 21, 2017, effective February 1, 2018, the Company amended its existing lease to expand its principal office to approximately 4,248 square feet and to extend the expiration date to September 30, 2021. Beginning February 1, 2018, the basic rent increased to $9,598 per month. On October 2, 2018, effective December 1, 2018, the Company further amended its existing lease to expand its principal office to approximately 5,151 square feet. In accordance with the amended lease, rent increased to $11,810 on January 1, 2019, escalating over time to $12,977 at the end of the lease, which was further extended to October 31, 2022.

On December 29, 2017, effective February 1, 2018, the Company amended its existing lease to expand its Atlanta office from approximately 2,739 square feet to approximately 3,831 square feet. Beginning February 1, 2018, the basic rent increased by $1,500 through the remainder of the lease term. In February 2019, the Company entered into a lease for new offices in Marietta, Georgia located at 450 Franklin Gateway, Marietta, Georgia consisting of approximately 9,662 square feet. The new lease commenced on June 1, 2019, with move-in on June 15, 2019.

Beginning in 2017, the Company leased office space in New York for $300 per month, which was increased to $850 per month in October 2018 through May 31, 2019. Beginning in June 2019, the Company moved to larger office space in New York, leased for $4,482 per month, for a term of 12 months ending May 31, 2020. Beginning November 1, 2015, we subleased an office in Scottsdale, Arizona from a company controlled by our Executive Chairman for $3,578 per month, which continues on a month to month basis as of March 31, 2020. These New York and Scottsdale properties were considered short-term leases and therefore were not measured under Topic 842.

The Company has made operating lease payments in the amount of approximately $63,000 during the three months ended March 31, 2020. Rent expense charged to operations, which differs from rent paid due to rent credits and to increasing amounts of base rent, is calculated by allocating total rental payments on a straight-line basis over the term of the lease. Operating lease liabilities at March 31, 2020 and December 31, 2019 consist of:


	March 31,		December 31,
	2020		2019
	(in thousands)
Tucson Arizona office lease	$	371	$	402
Marietta Georgia office lease		443		462
Total operating lease liabilities		814		864
Less current portion		(214)		(209)
Long term portion	$	600	$	655

As of January 1, 2019, the Company adopted the provisions of ASC Topic 842 using the modified retrospective method. In adopting ASC Topic 842, Leases (Topic 842), the Company elected the ‘package of practical expedients’, which permitted it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of twelve (12) months or less. Effective January 1, 2019, the Company initially recognized operating lease liabilities of approximately $568,000 based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The discount rate utilized in such present value calculation was 6% based on an estimate of the Company’s incremental borrowing rate. At such time, the Company also recognized corresponding right-of-use (“ROU”) assets of approximately $557,000 and eliminated the prior period deferred rent of approximately $11,000.

During the fiscal year ended December 31, 2019, the Company entered into an operating lease for new office space in Marietta, Georgia, for a five-year term. The Company measured and recorded a right of use asset and corresponding operating lease liability of approximately $484,000 at the lease commencement date in June 2019.

The following summarizes the total remaining future minimum operating lease payments at March 31, 2020 (in thousands):


Period ending December 31,
2020	$	192
2021		262
2022		257
2023		118
2024		81
Total minimum lease payments		910
Less: present value discount		(96)
Present value of minimum lease payments		814
Current portion of operating lease obligations		214
Operating lease obligations, less current portion	$	600

The following summarizes lease expenses for the three months ended March 31, 2020 (in thousands):


Finance lease expenses:
Depreciation and amortization expense	$	14
Interest on lease liabilities		1
Finance lease expense		15
Operating lease expense		64
Short-term lease expense		31
Total lease expenses	$	110

The following table provides information about the remaining lease terms and discount rates applied as of March 31, 2019:


Weighted average remaining lease term (years)
Operating Leases		3.64
Finance Leases		1.79
Weighted average discount rate (%)
Operating Leases		6.00
Finance Leases		6.00