6. 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 was for two years, and there was an option to extend the lease for an additional year. On March 3, 2023, the Company expanded its leased space through a lease amendment by an additional 2,456 square feet commencing March 15, 2023. The term of the amended lease is for three years with an option to extend the lease for three additional years.

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 lease amendment represents a modification of the original lease, and the Company evaluated the new agreement under ASC 842. The Company classified the lease as an operating lease and, on March 15, 2023, determined that the present value of the lease was approximately $1.0 million using a discount rate of 10.0%. 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 three years was not considered reasonably certain on September 30, 2023. During the three and nine months ended September 30, 2023, the Company reflected amortization of right-of-use asset of approximately $77,000 and $196,000, respectively, resulting in a right of use asset balance as of September 30, 2023, of approximately $0.8 million.

During the nine months ended September 30, 2023, the Company made cash payments on the lease of $236,000 towards the lease liabilities. As of September 30, 2023, the total lease liability was approximately $0.9 million. 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 three and nine months ended September 30, 2023, was $100,000 and $253,000, respectively.

As of September 30, 2023, maturities of the Company’s lease liabilities are as follows (in thousands):