NOTE 3 — LEASES

We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate for the expected remaining lease term at commencement date for new leases, or as of February 1, 2019 for existing leases, in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

Our only operating lease relates to our New York office sublease, which expired in November 2019. In the second quarter of fiscal year 2018, we closed our New York office and subleased the office space for the remaining period of the original lease term. As a result of vacating and subleasing the office, we recorded a $472,000 loss on exit of the operating lease in fiscal year 2018. The associated lease liability reduced the right-of-use asset upon adoption of ASC 842. As of October 31, 2019, the total minimum rentals due to our lessor by us and to be received by us from our sublessee were $48,000 and $24,000, respectively.

As of October 31, 2019, operating lease right-of use assets totaling $17,000 are recorded in Prepaid and other current assets, and the associated lease liability of $48,000 is included in Accrued expenses within the condensed consolidated balance sheets. The Company used a discount rate of 8.0% to determine the lease liability.

Total costs associated with leased assets are as follows:


	Three Months Ended October 31, 2019
Operating lease cost	$	54,000
Sublease income		(72,000)
Total operating lease income	$	(18,000)

	Nine Months Ended October 31, 2019
Operating lease cost	$	171,000
Sublease income		(216,000)
Total operating lease income	$	(45,000)

In the third quarter of fiscal year 2018, we assigned our then current Atlanta office lease that would have expired in November 2022 and entered into a membership agreement to occupy shared office space in Atlanta. As a result of assigning the office lease, we recorded a $562,000 loss on exit of the operating lease in the third quarter of fiscal year 2018. The membership agreement does not qualify as a lease under ASC 842 as the owner has substantive substitution rights, therefore the Company recognizes expenses as incurred. See Note 7 – Commitments and Contingencies for further details on our shared office arrangement.