Lease Right of Use Asset and Liability

12 Months Ended

Dec. 31, 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 determined that it was reasonably certain that it would 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 maturities of operating lease base rent of its office space were as follows as of December 31, 2019:

	December 31, 2019
2020	$	145,000
2021		147,200
2022		74,700
		366,900
Discount		(30,500	)
Lease liability at December 31, 2019	$	336,400

At December 31, 2018, the Company estimated that the future minimum lease commitments for its office space, including both the base rent and operating expenses, and storage facility were as follows:

	December 31, 2018
2019	$	193,500
2020		196,400
2021		199,300
2022		101,100
	$	690,300

During the year ended December 31, 2019, the Company recognized amortization, finance costs and other expense related to the office lease as follows:

Fixed rental expense during the year	$	443,500
Variable lease expense		116,000
Total lease expense during the year	$	559,500

The Company expects that the variable lease expense will total approximately $7,500 per month through the end of the lease, including the two extension periods.