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7. OPERATING LEASES

12 Months Ended

Dec. 31, 2020

The Company periodically enters into operating lease contracts for office space and equipment. Arrangements are evaluated at inception to determine whether such arrangements constitute a lease. In accordance with the transition guidance of ASC 842, such arrangements are included on the consolidated balance sheets as of January 1, 2019.

Right of use assets, which we refer to as “ROU assets,” represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized on the transition date based on the present value of lease payments over the respective lease term, with the office space ROU asset adjusted for deferred rent liability.

The Company has two operating leases: an office space lease with a remaining lease term of 42 months and a copier lease with a remaining lease term of seven months as of December 31, 2020. In accordance with the transition guidance of ASC 842, such arrangements are included on the consolidated balance sheets as of January 1, 2019. All other leases are short-term leases, which for practical expediency, the Company has elected to not recognize as lease assets and lease liabilities.

In March 2017, the Company executed a new office lease for office space located in Fort Worth, Texas. On July 1, 2019, the Company amended the office lease agreement which became effective on August 22, 2019 upon completion by the landlord of certain leasehold improvements. Under the terms of the amended lease agreement, the Company leased an additional 1,682 rentable square feet of office space, which brought the total square footage leased to 5,877. The amended lease agreement extended the original term of the lease for a period of 36 months through June 30, 2024. The monthly base rental payments under the amended lease agreement are as follows:

From	Through	Monthly Base Rental
August 22, 2019	June 30, 2020	$	12,243.75
July 1, 2020	June 30, 2021	$	12,488.63
July 1, 2021	June 30, 2022	$	12,488.63
July 1, 2022	June 30, 2023	$	12,733.50
July 1, 2023	June 30, 2024	$	12,978.38

As the implicit rate in the leases is not determinable, the discount rate applied to determine the present value of lease payments is the Company’s incremental borrowing rate of 6.25%. The office space lease agreement contains no renewal terms, so no lease liability is recorded beyond the termination date. The copier lease can be automatically renewed but no lease liability is recorded beyond the initial termination date as exercising this option is not reasonably certain.

In accordance with ASC Topic 842, the Company has recorded lease assets of $467,653 and a related lease liability of $481,384 as of December 31, 2020. The Company recorded amortization expense of $117,598 in 2020 for its leased assets. Cash paid in 2020 for amounts included in the measurement of operating lease liabilities as of December 31, 2020 was $150,886. The present value of our operating lease liabilities is shown below.

Maturity of Operating Lease Liabilities

	December 31, 2020
2021	$	151,317
2022		151,333
2023		154,271
2024		77,870
2025		-
Thereafter		-

Total lease payments		534,791
Less imputed interest		(53,407	)
Present Value of Lease Liabilities	$	481,384

Operating lease liability - current		125,587
Operating lease liability – long term		355,797

As of December 31, 2020, our operating leases have a weighted average remaining lease term of 3.5 years and a weighted average discount rate of 6.25%.