OPERATING AND FINANCE LEASE OBLIGATIONS

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

OPERATING AND FINANCE LEASE OBLIGATIONS

NOTE 6 – OPERATING AND FINANCE LEASE OBLIGATIONS

On May 10, 2018, InsPro LLC and Baldwin Tower Office Building, LLC (“Landlord”) entered into an eighth amendment to the lease agreement between InsPro LLC and the Landlord for the Company’s Eddystone Pennsylvania office (“Lease Agreement” and “Operating Lease”), whereby InsPro LLC and Landlord agreed to amend the Lease Agreement to extend the term through January 31, 2022 for 17,567 of rentable square feet at a monthly cost of $30,010 for the period February 1, 2019 through January 31, 2022. InsPro LLC may terminate the Lease Agreement effective January 31, 2021, provided InsPro LLC notifies Landlord of an early termination and pays Landlord an early termination fee of $30,000 by October 31, 2020.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”), which requires all leases with a term greater than 12 months to be recognized on the balance sheet, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance.  We adopted ASU 2016-02 effective January 1, 2019, on a modified retrospective basis, without adjusting comparative periods presented. Effective January 1, 2019, the Company established a right-of-use model (ROU) asset in the amount of $1,009,878, an operating lease liability - current in the amount of $307,010 and operating lease liability – long term in the amount of $702,868 for the Lease Agreement, which is the Company’s only lease with a term greater than 12 months. The adoption of ASU 2016-02 did not materially affect our consolidated statement of operations or our consolidated statements of cash flows. We made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet and to recognize all lease payments for leases with a term greater than 12 months on a straight-line basis over the lease term in our consolidated statements of operations. 

Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Company’s statement of operations.

The Company’s subsidiary, InsPro LLC, has entered into several finance lease obligations to purchase equipment used for operations (“Finance Leases”). The Company has the option to purchase the equipment at the end of each finance lease agreement for one dollar.

Lease expense is reported in the statement of operations as follows:

Operating and Finance leases

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Lease expense is reported in the statement of operations as follows:
Operating lease expense
Cost of revenues	$	67,998	$	65,025	$	135,748	$	128,601
Selling, general and administrative expenses		22,033		25,006		44,313		49,997
Total operating lease expense	$	90,031	$	90,031	$	180,061	$	178,598
Finance lease expense
Interest expense	$	6,267	$	6,149	$	12,151	$	11,469

Supplemental cash flow information related to leases is as follows:

	For the Six Months Ended June 30,
	2019		2018
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	180,061	$	178,598
Financing cash flows from finance leases	$	72,858	$	88,592
Right-of-use assets obtained in exchange for operating lease obligations	$	1,009,878	$	-
Equipment acquired through finance lease obligations	$	80,963	$	228,968

Supplemental balance sheet information related to leases is as follows:  

	June 30, 2019			December 31, 2018
Operating Lease
Operating lease right-of-use-asset	$	858,708
Operating lease - current liability	$	316,494
Operating lease - long term liability		542,214
Total operating lease liabilities	$	858,708
Finance Leases
Property and equipment, gross	$	1,981,674		$	1,900,711
Accumulated depreciation		(1,734,443	)		(1,654,075	)
Property and equipment, net	$	247,231		$	246,636
Finance leases - current liabilities	$	116,837		$	115,771
Finance leases - long term liabilities		157,598			150,559
Total finance lease liabilities	$	274,435		$	266,330
Weighted average remaining lease term (years)
Operating lease		2.6			-
Finance leases		2.8			2.7
Weighted average discount rate
Operating lease		6.1	%		-
Finance leases		9.1	%		9.3	%

Future minimum payments required under operating and finance leases are as follows:

	Operating Lease		Finance Leases
Six months ending December 31, 2019	$	180,062	$	70,244
2020		360,123		119,943
2021		360,123		66,984
2022		30,010		37,789
2023		-		13,758
Total future payments		930,319		308,718
Less amount representing interest		71,611		34,283
Total future payments less interest		858,708		274,435
Less current portion		316,494		116,837
Long-term portion	$	542,214	$	157,598