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Note 5 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

NOTE 5 — Commitments and Contingencies

Operating Lease Obligations

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 recognized operating lease right-of-use assets and operating lease liabilities in the amount of approximately $1.57 million and $1.85 million, respectively, which represented the presented the present value of future lease payments using a discount rate of 6.25% per annum.

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. Operating lease expense is recognized on a straight-line basis over the lease term. 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.

The operating lease expense was allocated in cost of goods sold and operating costs based on department headcount and amounted to $418,909 and $412,833 for the twelve-month periods ended December 31, 2020 and 2019, respectively.

On December 30, 2020, the balances of right-of-use assets and liabilities for the operating leases were approximately $0.61 million and $0.74 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, on December 31, 2019.

Cash payments included in the measurement of our operating lease liabilities were $478,461 and $460,053 for the twelve-month periods ended December 30, 2020 and 2019, respectively.

Future minimum lease payments under the operating lease at December 31, 2020 are shown below:

Annual minimum payments:	Amount
2021		515,822
2022		262,789
Total minimum payments		778,611
Less: Present value factor		(37,260	)
Total operating lease liabilities		741,351
Less: Current portion of operating lease		(483,254	)
Long-term portion of operating lease	$	258,097

Finance Lease Obligations

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. On December 31, 2020, the Company has no equipment subject to financing arrangement, compared to equipment with a cost of $100,584 on December 31, 2019. The accumulated depreciation of the assets associated with the finance leases as of December 31, 2019 amounted $92,571.

Purchase Commitments

On December 31, 2020, the Company’s non-cancelable purchase commitments for inventory to be used in the ordinary course of business during 2021 were approximately $6,256,000.

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.