5. Lease Obligations

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Lease Obligations

In May 2020, the Company signed a two-year lease agreement for 3,218 square feet at 275 Turnpike Executive Park, Canton MA. The agreement includes a one-time option to cancel the second year of lease with three-month advance notice. The location is currently being occupied by the research and development group of the Company. Rent expense for the three and six months ended June 30, 2020 was negligible.

In June 2016, the Company signed a three-year sub-lease agreement for 11,480 square feet on the 28th floor of 99 High Street, Boston, MA 02110. The lease for this facility expired on June 30, 2019. The Company signed a twelve-month lease agreement for offices at 225 Franklin Street, Boston, MA and completed the move to this location on June 28, 2019. The lease has an automatic renewal option provision and renews unless cancelled under the terms of the agreement. This lease originally expired on June 30, 2020, although the Company is currently leasing space on a short-term basis while reviewing options for long-term lease for headquarters in Boston. The Company has elected to apply the short-term lease exception under ASC 842 which does not require the recognition of an operating lease liability or right-of-use asset on the condensed consolidated balance sheet in relation to the lease at 225 Franklin Street. Rent expense was $133.6 thousand for the second quarter of 2020 and $98.6 thousand for the second quarter of 2019. Rent expense was $260.8 thousand for the first six months of 2020 and $207.8 thousand for the first six months of 2019.

The Company performs most of the final assembly, testing, packaging, warehousing and distribution at a production and warehouse facility in Tijuana, Mexico. In November 2014, the Company signed a one-year lease with five one-year renewal options thereafter for an 11,390 square foot facility in Tijuana, Mexico. In September 2015, Zoom extended the term of the lease from December 1, 2015 through November 30, 2018. In September 2015, Zoom also signed a new lease for additional space in the adjacent building, which doubled its capacity. The term of this lease was from March 1, 2016 through November 30, 2018. The Company currently has a signed lease extension to stay in the existing facilities through at least November 30, 2020. Rent expense was $26.6 thousand for both the second quarter of 2020 and the second quarter of 2019. Rent expense was $53.1 thousand for both the first six months of 2020 and the first six months of 2019.

The Company also had a lease for approximately 1,550 square feet in Boston, MA that expired on October 31, 2019 and had been renewed for an additional 12 -month period starting November 1, 2019. The Company has since negotiated out of this lease effective June 30, 2020. The Company had another one-year lease signed in December 2019 for approximately 1,500 square feet in Boston. The Company also negotiated out of this lease effective July 31, 2020. The Company has elected to apply the short-term lease exception for both of these leases under ASC 842 which does not require the recognition of an operating lease liability or right-of-use asset on the condensed consolidated balance sheet in relation to this lease. Rent expense for these leases was approximately $35.4 thousand for the second quarter of 2020 and $18.0 thousand for the second quarter of 2019. Rent expense was $70.8 thousand for the first six months of 2020 and $36 thousand for the first six months of 2019.

At the inception of a lease the Company determines whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component.

 As of June 30, 2020, the Company's estimated future minimum committed rental payments, excluding executory costs, under the operating leases described above to their expiration or the earliest possible termination date, whichever is sooner, are approximately $79 thousand for 2020, approximately $53 thousand for 2021, and approximately $23 thousand for 2022. There are no future minimum committed rental payments that extend beyond 2022.

Operating Leases

Operating leases are included in operating lease right-of-use assets, current maturities of operating lease liabilities, and operating lease liabilities, less current maturities on the condensed consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Based on the Company's financial position and ability to obtain financing at the time ASC 842 was adopted, 10% was considered by management to be a reasonable incremental borrowing rate when calculating the present value of remaining lease payments over the lease term. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in general and administrative expenses on the condensed consolidated statements of operations.

The following table presents information about the amount and timing of the Company’s operating leases as of June 30, 2020.

Maturity of Lease Liabilities	Lease Payments
2020 (remaining)	$	78,857
2021		53,365
2022		22,794
Total undiscounted operating lease payments		155,016
Less: Imputed interest		(10,607	)
Present value of operating lease liabilities	$	144,409
Balance Sheet Classification
Current maturities of operating lease liabilities	$	96,681
Operating lease liabilities, less current maturities		47,728
Total operating lease liabilities	$	144,409
Other Information
Weighted-average remaining lease term for operating leases		1.4 years
Weighted-average discount rate for operating leases		10	%

Cash Flows

Upon adoption of the new lease standard at the beginning of fiscal year 2019, the Company recorded a lease liability in the amount of $420,899, right-of-use assets of $395,565, and reclassified deferred rent of $25,334 as a reduction of the right-of-use assets. During the three months-ended June 30, 2020, the Company recorded an additional lease liability and corresponding right-of-use asset of $96,199 related to the Company’s lease at 275 Turnpike Executive Park. During the six months-ended June 30, 2020, the operating lease liability was reduced by $54,506 and we recorded amortization of our right-of-use assets of $54,640.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

	Six Months Ended June 30,
	2020		2019
Operating cash flow information:
Amounts included in measurement of lease liabilities	$	57,404	$	271,333
Non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	96,199	$	395,565