NOTE 6 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

Finance Leases


	June 30,		December 31,
	2019		2018
Finance equipment lease dated April 5, 2018	$	10,410	$	13,056
Finance equipment lease dated May 8, 2018		11,581		14,525
Finance equipment lease dated June 27, 2018		17,616		21,701
Finance equipment lease dated September 18, 2018		12,670		15,368
Finance equipment lease dated September 28, 2018		13,932		16,672
Finance equipment lease dated February 20, 2019		17,518		—
Finance equipment lease dated June 4, 2019		20,371		—
Total finance lease liabilities		104,098		81,322
Less current portion		(44,556)		(30,172)
Long term portion	$	59,542	$	51,150

During the six months ended June 30, 2019, the Company entered into two 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 and $20,903, 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 $4,131, 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 $18,662 during the six months ended June 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:


	June 30,		December 31,
	2019		2018
Classes of property
Computer equipment	$	136,162	$	95,506
Less: accumulated depreciation		(35,359)		(16,117)
	$	100,803	$	79,389

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


Period ending December 31,
2019	$	23,649
2020		49,571
2021		33,827
2022		4,416
Total minimum lease payments		111,463
Amount representing interest		(7,365)
Present value of minimum lease payments		104,098
Current portion of finance lease obligations		44,556
Finance lease obligations, less current portion	$	59,542

Operating Leases

The Company’s principal executive offices are located at 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, consisting of approximately 5,151 square feet as of June 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 Arizona 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 Arizona 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 has offices in Atlanta, located at 3901 Roswell Road, Suite 134, leased for an aggregate of $3,937 per month as of December 31, 2017 under a lease expiring on September 30, 2019. On December 29, 2017, effective February 1, 2018, the Company amended its existing lease to expand its Georgia 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, we 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, we 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 June 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 $191,843 during the six months ended June 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 June 30, 2019 and January 1, 2019 consist of:


	June 30,		January 1,
	2019		2019
Tucson Arizona office lease	$	461,170	$	518,309
Marietta Georgia office lease		474,708		—
Atlanta Georgia office lease		16,986		49,959
Total operating lease liabilities		952,864		568,268
Less current portion		(190,559)		(166,252)
Long term portion	$	762,305	$	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 six months ended June 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 June 30, 2019:


Period ending December 31,
2019	$	124,838
2020		267,500
2021		262,219
2022		244,245
2023		118,166
2024		80,638
Total minimum lease payments		1,097,606
Less: present value discount		(144,742)
Present value of minimum lease payments		952,864
Current portion of operating lease obligations		190,559
Operating lease obligations, less current portion	$	762,305

The following summarizes lease expenses for the six months ended June 30, 2019:


Finance lease expenses:
Depreciation/amortization expense	$	27,877
Interest on lease liabilities		2,693
Finance lease expense		30,570
Operating lease expense		114,120
Short-term lease expense		38,698
Total lease expenses	$	183,388