Lease Right of Use Asset and Liability

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Lease Right of Use Asset and Liability

The Company is a lessee under a lease of the office space it occupies in Burlingame, California, which expires in June of 2020, but also provides for two, successive one-year lease extension options for amounts that are substantially below the market rent for the property. The lease provides for monthly rental payments according to a fixed schedule of increasing rent payments. As a result of the below-market extension options, the Company has determined that it is reasonably certain that it will extend the lease and has, therefore, included such extended term in its calculation of the right of use asset (“ROU Asset”) and lease liability recognized in connection with the lease.

In addition to a fixed monthly payment schedule, the office lease also includes an obligation for the Company to make future variable payments for certain common areas and building operating and lessor costs, which have been and will be recognized as expense in the periods in which they are incurred. As a direct pass-through of applicable expense, such costs have not been allocated as a component of the lease.

The ROU Asset includes the amortized value of both the amount of liability recognized at January 1, 2019 upon adoption of Topic 842 and the amount attributable to the below market lease component recognized upon acquisition of JHC on October 1, 2018.

The lease liability associated with the office lease was calculated by discounting the fixed, minimum lease payments over the remaining lease term, including the below-market extension periods, at a discount rate of 7.25%, which represents the Company’s estimate of the incremental borrowing rate for a collateralized loan for the type of underlying asset that was the subject of the office lease at the time the lease liability was evaluated. The Company estimates that the future minimum lease commitments for base rent of its office space were as follows as of June 30, 2019 and December 31, 2018:

	June 30, 2019			December 31, 2018
2019	$	98,200		$	193,500
2020		196,400			196,400
2021		199,300			199,300
2022		101,100			101,100
		595,000		$	690,300
Discount		(58,900	)
Lease liability at June 30, 2019	$	536,100

During the quarter ended June 30, 2019, the Company recognized amortization, finance costs and other expense related to the office lease as follows:

Fixed rental expense during the quarter	$	110,900
Variable lease expense		32,000
Total lease expense during the quarter	$	142,900

The Company expects that the variable lease expense will total approximately $10,700 per month through the end of the lease, including the two extension periods.