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LEASES | 12 Months Ended
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Dec. 31, 2019
LEASES |
LEASES | (9) LEASES The Company has three operating leases pertaining to its corporate headquarters located in Englewood, CO. Details of each lease are as follows:
| 1. |  | The Company entered into a sublease agreement on October 20, 2017 with CSG Systems Inc. for approximately 41,715 square feet. The term of the sublease runs through June 30, 2023, with an option to extend for an additional two years through June 30, 2025. During the first year of the sublease, the rent per square foot is $7.50, increasing to $19.75 during the second year of the sublease and each year thereafter for the initial term increasing by an additional $1 per square foot. The Company has not yet determined whether it is reasonably certain to exercise its renewal option and has therefore only considered the initial term when determining the lease liability and lease asset. The Company is also obligated to pay its proportionate share of building operating expenses. The sub-landlord agreed to contribute approximately $0.2 million toward tenant improvements which is accounted for as a reduction of the operating lease asset and subsequently treated as a reduction of rent expense over the term of the lease. Upon lease commencement, the Company recorded an operating lease liability of $3.9 million and a corresponding right-of-use asset for $3.6 million.
| 2. |  | The Company entered into an amendment to its sublease agreement, above, on March 11, 2019 for an additional 21,420 square feet of office space. The term of the sublease for the additional space began on June 1, 2019 and runs through June 30, 2023, with an option to extend the term for an additional two years through June 30, 2025. During the first seven months of the Amendment to the Sublease, the rent per square foot is $10.00, increasing to $20.75 from January 1, 2020 through October 31, 2020. For annual periods beginning November 1, 2020, the price per square foot increases by an additional $1 per square foot. The expansion work was completed, and the lease commenced, on June 1, 2019. Upon lease commencement, the Company recorded an operating lease liability and a corresponding right-of-use asset for $1.6 million each.
| 3. |  | Subsequent to December 31, 2019, the Company entered into an amendment to its sublease agreement, above, on January 3, 2020 for an additional 22,546 square feet of office space. The term of the sublease will begin once certain expansion work is completed and will run through June 30, 2025. From the commencement date through October 31, 2020, the rent per square foot is $13.00, increasing to $21.75 per square foot from November 1, 2020 through October 31, 2021. The price per square foot increases by an additional $1 annually beginning November 1, 2021. The Company estimates that it will record a right-of-use asset and liability of $1.4 million each upon lease commencement.
The Company has one finance lease for office equipment as follows:
| 4. |  | The Company entered into an equipment lease on September 20, 2019 with Konica Minolta Premier Finance for a copier/printer and related software located at its corporate offices. The term of the equipment lease agreement is 5 years with the option to purchase the equipment at the end of the lease. The Company does not expect to exercise the option to purchase the equipment and, accordingly, has not considered the effect of the purchase in the evaluation of the lease asset and liability. Rent is to be paid monthly at a fixed rate for the term of the equipment lease agreement. Upon lease commencement, the Company recorded a finance lease liability and a corresponding right-of-use asset for $0.2 million each.
The Company’s operating leases do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the lease liability. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s incremental borrowing rate was determined to be 4.8% for its operating lease liabilities. The Company’s equipment lease agreement has an implicit rate of 8.3%, which was used to measure its finance lease liability. The remaining lease term was 3.5 years for the Company’s operating leases and 4.8 years for its finance leases. The table below reconciles the undiscounted future minimum lease payments under the Company’s operating and finance leases to the total operating and capital lease liabilities recognized on the consolidated balance sheets as of December 31, 2019 (in thousands):
|  | Operating lease liabilities |  | Finance lease liabilities
2020 |  | $ | 1,344 |  | $ | 57
2021 |  |  | 1,408 |  |  | 45
2022 |  |  | 1,473 |  |  | 45
2023 |  |  | 763 |  |  | 45
2024 |  |  | — |  |  | 34
Total undiscounted future minimum lease payments |  |  | 4,988 |  |  | 226
Less: Difference between undiscounted lease payments and discounted lease liabilities: |  |  | (495) |  |  | (36)
Total lease liabilities |  | $ | 4,493 |  | $ | 190
Operating and finance lease costs were $1.2 million and $0.9 million for years ended December 31, 2019 and 2018, which were included in the consolidated statement of operations under the following headings (in thousands):
|  | For the years ended December 31,
Operating Lease expense |  | 2019 |  | 2018
Costs of revenue - devices and supplies |  | $ | 121 |  | $ | 142
Sales and marketing expense |  |  | 170 |  |  | 114
General and administrative |  |  | 859 |  |  | 670
Total operating lease expense |  | $ | 1,150 |  | $ | 926
Finance Lease expense |  |  |  |  |  |
Amortization of right-of-use asset: |  |  |  |  |  |
Costs of revenue - devices and supplies |  | $ | 2 |  | $ | —
Sales and marketing expense |  |  | 4 |  |  | —
General and administrative |  |  | 13 |  |  | 10
Total amortization of right-of-use asset |  |  | 19 |  |  | 10
Interest expense and other |  |  | 5 |  |  | 2
Total finance lease expense |  | $ | 24 |  | $ | 12

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- Definition The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 + Details
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