5. Operating Lease

The Company leases office space under an operating lease. In December 2021, the Company entered into a lease agreement for 2,367 square feet of office space commencing December 1, 2021. The initial lease term is for two years, and there is an option to extend the lease for an additional year.

In accounting for the leases, the Company adopted ASC 842 Leases on January 1, 2019, which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified the lease as an operating lease and, at December 1, 2021, determined that the present value of the lease was approximately $318,000 using a discount rate of 8.0%. In accordance with ASC 842, the right-of-use asset will be amortized over the life of the underlying lease. The Company determined that the option to extend the lease for an additional year was not considered reasonably certain at December 31, 2021. During the year ended December 31, 2021, the Company reflected amortization of right-of-use asset of approximately $12,000, resulting in a right of use asset balance of $305,000.

During the year ended December 31, 2021, the Company made cash payments on the lease of $14,000 towards the lease liabilities. As of December 31, 2021, the total lease liability was $306,000. ASC 842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Rent expense for the lease for the year ended December 31, 2021 was approximately $14,000.

Maturities of the Company’s lease liabilities are as follows (in thousands):