14.

Leases

We maintain leases of office facilities and equipment. Leases generally have remaining terms of one year to five years, whereas leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets. We recognize lease expense for minimum lease payments on a straight-line basis over the term of the lease. Certain leases include options to renew or terminate. Renewal options are exercisable based upon our discretion and vary based on the nature of each lease, with renewal periods generally ranging from one year to five years. The term of the lease includes renewal periods, only if we are reasonably certain that we will exercise the renewal option. When determining if a renewal option is reasonably certain of being exercised, we consider several factors, including but not limited to, the cost of moving to another location, the cost of disruption to operations, whether the purpose or location of the leased asset is unique and the terms associated with extending the lease.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease ROU assets represent the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. Our real estate leases, which are comprised primarily of office spaces, represent a majority of the lease liability. The majority of our lease payments are fixed, although an immaterial portion of payments are variable in nature. Variable lease payments vary based on changes in facts and circumstances related to the use of the ROU and are recorded as incurred. We use an incremental borrowing rate based on rates available at commencement in determining the present value of future payments.

We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. We apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Lease contracts are evaluated at inception to determine whether they contain a lease and whether we obtain the right to control an identified asset. The following table summarizes the classification of operating ROU assets and lease liabilities on the consolidated balance sheets (in thousands):

Operating Leases	Classification	March 31, 2020		December 31, 2019
Leased Assets
Operating lease - right of use assets	Long term assets	$	2,053	$	2,215

Lease Liabilities
Operating lease liabilities - Current	Other current liabilities		1,159		1,153
Operating lease liabilities	Long term liabilities		2,704		3,000
		$	3,863	$	4,153

We executed a sublease agreement with a tenant to sublease 3,650 square feet from the office space in Sykesville on May 1, 2019. This agreement is in addition to the 3,822 of square feet previously subleased, which was entered into on April 1, 2017. The sublease does not relieve us of our primary lease obligation. The lessor agreements are both considered operating leases, maintaining the historical classification of the underlying lease. We do not recognize any underlying assets for the subleases as a lessor of operating leases. The net amount received from the sublease is recorded within selling, general and administrative expenses.

The table below summarizes the lease income and expenses recorded in the consolidated statements of operations incurred during the three months ended March 31, 2020, (in thousands):

		Three months ended
Lease Cost	Classification	March 31, 2020			March 31, 2019
Operating lease cost ⁽¹⁾	Selling, general and administrative expenses	$	321		$	228
Short-term leases costs ⁽²⁾	Selling, general and administrative expenses		1			38
Sublease income⁽³⁾	Selling, general and administrative expenses		(32	)		(16	)
Net lease cost		$	290		$	250

⁽¹⁾ Includes variable lease costs which are immaterial.

⁽²⁾ Include leases maturing less than twelve months from the report date.

⁽³⁾Sublease portfolio consists of 2 tenants, which sublease parts of our principal executive office located at 1332 Londontown Blvd, Suite 200, Sykesville, MD.

The future minimum lease payments under non-cancellable operating leases are reflected below. This table also reflects the reconciliation of the undiscounted cash flows to the discounted operating lease liabilities as recognized at March 31, 2020 consolidated balance sheet (in thousands):

	Operating Leases
2020	$	995
2021		1,292
2022		1,184
2023		622
2024		106
After 2024		-
Total lease payments	$	4,199
Less: Interest		336
Present value of lease payments	$	3,863

We calculated the weighted-average remaining lease term, presented in years below and the weighted-average discount rate for our operating leases. As noted in our lease accounting policy, we use the incremental borrowing rate as the lease discount rate.

Lease Term and Discount Rate	March 31, 2020	December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	3.28	3.51
Weighted-average discount rate
Operating leases	5.00%	5.00%

The table below sets out the classification of lease payments in the consolidated statement of cash flows. The right-of-use assets obtained in exchange for operating lease liabilities represent the new operating leases obtained through our business combinations during the three months ended March 31, 2020.

(in thousands)

	Three months ended
Other Information	March 31, 2020		March 31, 2019
- Operating cash flows used in operating leases	$	339	$	235
Cash paid for amounts included in measurement of liabilities		339		235