NOTE 6 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

Finance Leases


	September 30,		December 31,
	2019		2018
Finance equipment lease dated April 5, 2018	$	9,076	$	13,056
Finance equipment lease dated May 8, 2018		10,076		14,525
Finance equipment lease dated June 27, 2018		15,528		21,701
Finance equipment lease dated September 18, 2018		11,290		15,368
Finance equipment lease dated September 28, 2018		12,530		16,672
Finance equipment lease dated February 20, 2019		15,665		—
Finance equipment lease dated June 4, 2019		18,761		—
Finance equipment lease dated September 30, 2019		20,695		—
Total finance lease liabilities		113,621		81,322
Less current portion		(51,735)		(30,172)
Long term portion	$	61,886	$	51,150

During the nine months ended September 30, 2019, the Company entered into three finance leases for computer equipment, each for a three-year term. 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 the finance leases liability at the estimated present value of the minimum lease payments of $19,754, $20,903 and $20,695, respectively.

During the year ended December 31, 2018, the Company entered into five finance leases (formerly known as capital leases) for computer equipment for a three-year term. 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 the finance lease liability at the estimated present value of the minimum lease payments of $95,506.

The leases include base monthly payments in the aggregate of $4,761, due on the monthly anniversary of each contract. 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 under these leases in the total amount of $29,053 during the nine months ended September 30, 2019. The effective interest rate of the finance leases is estimated at 6% 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:


	September 30,		December 31,
Classes of Property	2019		2018

Computer equipment	$	156,858	$	95,506
Less: accumulated depreciation		(46,706)		(16,117)
	$	110,152	$	79,389

The following summarizes total future minimum finance lease payments at September 30, 2019:


Period ending December 31,
2019	$	14,839
2020		57,126
2021		41,382
2022		10,083
Total minimum lease payments		123,430
Amount representing interest		(9,809)
Present value of minimum lease payments		113,621
Current portion of finance lease obligations		51,735
Finance lease obligations, less current portion	$	61,886

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 September 30, 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.

The Company also had offices in Atlanta,Georgia located at 3901 Roswell Road, Suite 134, leased for an aggregate of $3,937 per month as of December 31, 2017 under a lease that expired on September 30, 2019. 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 September 30, 2019. 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 $222,564 during the nine months ended September 30, 2019. 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 September 30, 2019 and January 1, 2019 consist of:


	September 30,		January 1,
	2019		2019
Tucson Arizona office lease	$	431,815	$	518,309
Marietta Georgia office lease		481,864		—
Atlanta Georgia office lease		—		49,959
Total operating lease liabilities		913,679		568,268
Less current portion		(204,411)		(166,252)
Long term portion	$	709,268	$	402,016

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 12 month or less. Effective January 1, 2019, the Company initially recognized operating lease liabilities of $568,268 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 $557,212 and eliminated the prior period deferred rent of $11,056.

During the nine months ended September 30, 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 $483,565 at the lease commencement date in June 2019.

The following summarizes total future minimum operating lease payments at September 30, 2019:


Period ending December 31,
2019	$	79,854
2020		267,500
2021		262,219
2022		244,245
2023		118,166
2024		80,638
Total minimum lease payments		1,052,622
Less: present value discount		(138,943)
Present value of minimum lease payments		913,679
Current portion of operating lease obligations		204,411
Operating lease obligations, less current portion	$	709,268

The following summarizes lease expenses for the nine months ended September 30, 2019:


Finance lease expenses:
Depreciation/amortization expense	$	34,185
Interest on lease liabilities		5,269
Finance lease expense		39,454
Operating lease expense		193,739
Short-term lease expense		66,784
Total lease expenses	$	299,977