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Note 10 - Commitments and Contingencies
 3 Months Ended
Mar. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 10 — Commitments and Contingencies

 

Operating Lease Obligations

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 1st of each year. The Company also signed a two-year equipment operating lease agreement in June 2020.

 

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 using a discount rate of 6.25% per annum.

 

The operating lease expense was allocated in cost of goods sold and operating costs based on department headcount and amounted to $107,765 and $103,208 for the first quarter of 2021 and 2020, respectively.

 

On March 31, 2021, the balances of right-of-use assets and liabilities for the operating lease are approximately $0.51 million and $0.63 million, respectively, compared to approximately $0.61 million and $0.74 million, respectively, at December 31, 2020.

 

Cash payments included in the measurement of our operating lease liabilities were $126,516 and $117,268 for the three months ended March 31, 2021 and 2020, respectively.

 

Future minimum lease payments under the operating lease at March 31, 2021 are shown below:

 

Annual minimum payments:  Amount
2021 (April 1 to December 31, 2021)   389,305 
2022 (through June 30, 2022)   262,789 
Total minimum payments   652,094 
Less: Present value factor   (26,352) 
Total operating lease liabilities   625,742 
Less: Current portion of operating lease   (495,695) 
Long-term portion of operating lease  $130,047

 

 

Finance Lease Obligations

The new standard, ASU 2016-02 classifies lessee leases into two types, operating and finance. On March 31, 2021, the Company has no equipment under finance lease. On March 31, 2020, equipment with a cost of $100,584 was subject to financing arrangements. The accumulated depreciation of the assets associated with the finance leases as of March 31, 2020 amounted to $96,578.

 

Purchase Commitments

As of March 31, 2021, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $8,689,000.

 

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.