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Note 11 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

NOTE 11 — Commitments and Contingencies

Operating Leases

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019 and restated its reported results in January 2018, including the recognition of additional operating lease right-of-use assets and liabilities. On January 1, 2018, the Company recorded operating lease right-of-use assets and operating lease liabilities in the amount of approximately $1.57 million and $1.85 million, respectively.

The Company leases office space under a non-cancelable operating lease that provides the Company approximately 37,100 square feet in Newark, California. The lease agreement expires on June 30, 2022. Monthly base rent increases four percent per year annually on July 1^st of each year. We recognize operating lease expense on a straight-line basis over the lease term. The operating lease expense was $103,225 and $309,641 for the three and nine-month periods ended September 30, 2020. The operating lease expense was $107,638 and $325,607 for the three and nine-month periods ended September 30, 2019.

In June 2020, the Company also signed a new two-year equipment operating lease agreement. The Company will pay $1,519 in monthly installments starting in September of 2020 through June 2022.

On September 30, 2020, the balances of right-of-use assets and liabilities for the operating leases were approximately $0.70 million and $0.86 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, at December 31, 2019.

Cash payments included in the measurement of our operating lease liabilities were $121,976 and $356,513 for the three- and nine-month periods ended September 30, 2020, respectively, compared to $117,268 and $342,785, respectively, for the same periods a year ago.

Future minimum lease payments under the operating leases of the office and copier at September 30, 2020 are shown below:

Annual minimum payments:	Amount
2020 (October 1, 2020 to December 31, 2020)	$	126,516
2021		515,822
2022		262,789
Total minimum payments		905,127
Less: Amount attributable to interest		(49,941	)
Total operating lease liabilities		855,186
Less: Current portion of operating lease		(471,006	)
Long-term portion of operating lease	$	384,180

Finance Leases

The new standard, ASU 2016-02 classifies lessee leases into two types, operating and finance. The Company leases certain of its equipment under finance leases. The leases are collateralized by the underlying assets. At September 30, 2020, the Company has no equipment subject to financing arrangement, compared to equipment with a cost of $100,584 at December 31, 2019. The accumulated depreciation of the assets associated with the finance leases as of September 30, 2020 and December 31, 2019, amounted to zero and $92,571 respectively.

Purchase Commitments

As of September 30, 2020, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $3,252,000.

Legal Matters

The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. The Company is currently not a party to any material legal proceedings.