Cover
Cover - shares | 3 Months Ended | |
Mar. 31, 2020 | May 11, 2020 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2020 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 1-13810 | |
Entity Registrant Name | Socket Mobile, Inc. | |
Entity Central Index Key | 0000944075 | |
Entity Tax Identification Number | 94-3155066 | |
Entity Incorporation, State or Country Code | DE | |
Entity Address, Address Line One | 39700 Eureka Drive | |
Entity Address, City or Town | Newark | |
Entity Address, State or Province | CA | |
Entity Address, Country | US | |
Entity Address, Postal Zip Code | 94560 | |
Local Phone Number | (510) 933-3000 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 6,009,507 |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Statement [Abstract] | ||
Revenues | $ 4,220,686 | $ 4,628,592 |
Cost of revenues | 1,996,971 | 2,228,749 |
Gross profit | 2,223,715 | 2,399,843 |
Operating expenses | ||
Research and development | 880,638 | 893,737 |
Sales and marketing | 767,796 | 755,914 |
General and administrative | 666,116 | 703,182 |
Total operating expenses | 2,314,550 | 2,352,833 |
Operating income (loss) | (90,835) | 47,010 |
Interest expense, net | (19,492) | (28,501) |
Other income | 20,000 | |
Net income (loss) before income taxes | (90,327) | 18,509 |
Income tax (benefit) expense | 6,670 | |
Net income (loss) | $ (90,327) | $ 11,839 |
Net income (loss) per share: | ||
Basic | $ (0.01) | $ 0 |
Diluted | $ (0.01) | $ 0 |
Weighted average shares outstanding: | ||
Basic | 6,014,007 | 5,939,845 |
Diluted | 6,014,007 | 6,133,849 |
Balance Sheets (Unaudited)
Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 1,142,825 | $ 958,860 |
Accounts receivable, net | 2,814,491 | 2,837,006 |
Inventories, net | 3,294,719 | 3,178,908 |
Prepaid expenses and other current assets | 306,082 | 312,127 |
Deferred cost on shipments to distributors | 217,439 | 233,823 |
Total current assets | 7,775,556 | 7,520,724 |
Property and equipment: | ||
Machinery and office equipment | 2,279,501 | 2,195,405 |
Computer equipment | 1,234,120 | 1,336,445 |
Property and equipment, gross | 3,513,621 | 3,531,850 |
Accumulated depreciation | (2,630,816) | (2,667,340) |
Property and equipment, net | 882,805 | 864,510 |
Goodwill | 4,427,000 | 4,427,000 |
Other long-term assets | 191,718 | 202,611 |
Deferred tax assets | 5,506,934 | 5,506,934 |
Operating lease right-of-use asset | 850,704 | 936,708 |
Total assets | 19,634,717 | 19,458,487 |
Current liabilities: | ||
Accounts payable and accrued expenses | 1,993,605 | 2,084,848 |
Accrued payroll and related expenses | 537,170 | 566,350 |
Deferred revenue on shipments to distributors | 584,619 | 611,029 |
Short term portion of deferred service revenue | 29,693 | 32,900 |
Bank lines of credit | 1,939,492 | 1,412,449 |
Term loan – current portion | 208,333 | 333,333 |
Operating lease – current portion | 430,589 | 419,288 |
Finance lease – current portion | 4,180 | 8,291 |
Total current liabilities | 5,727,681 | 5,468,488 |
Long-term portion of deferred service revenue | 35,871 | 40,711 |
Long-term portion of operating lease | 603,697 | 715,062 |
Total liabilities | 6,367,249 | 6,224,261 |
Commitments and contingencies | ||
Stockholders’ equity: | ||
Common stock, $0.001 par value: Authorized – 20,000,000 shares, Issued and outstanding – 6,009,507 shares at March 31, 2020 and 6,017,674 shares at December 31, 2019 | 6,010 | 6,018 |
Additional paid-in capital | 61,190,548 | 61,066,971 |
Accumulated deficit | (47,929,090) | (47,838,763) |
Total stockholders’ equity | 13,267,468 | 13,234,226 |
Total liabilities and stockholders’ equity | $ 19,634,717 | $ 19,458,487 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2020 | Dec. 31, 2019 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Common stock par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 6,009,507 | 6,017,674 |
Common stock, shares outstanding | 6,009,507 | 6,017,674 |
Shareholders Equity (Unaudited)
Shareholders Equity (Unaudited) - USD ($) | Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Total |
Beginning Balance at Dec. 31, 2018 | $ 5,883 | $ 60,523,901 | $ (48,125,349) | $ 12,404,435 |
Beginning Balance (in shares) at Dec. 31, 2018 | 5,883,109 | |||
Restricted stock grants | 116 | (116) | 116,050 | |
Restricted stock grants (in shares) | $ 116,050 | |||
Stock-based compensation | $ 121,965 | $ 121,965 | ||
Net gain (loss) | 11,839 | 11,839 | ||
Ending Balance at Mar. 31, 2019 | $ 5,999 | 60,645,750 | (48,113,510) | 12,538,239 |
Ending Balance (in shares) at Mar. 31, 2019 | 5,999,159 | |||
Beginning Balance at Dec. 31, 2019 | $ 6,018 | 61,066,971 | (47,838,763) | $ 13,234,226 |
Beginning Balance (in shares) at Dec. 31, 2019 | 6,017,674 | |||
Restricted stock grants | 287,000 | |||
Repurchase of common stock | $ (5) | (8,491) | $ 8,496 | |
Repurchase of common stock (in shares) | (4,967) | |||
Cancellation of restricted stocks | $ (3) | 3 | ||
Cancellation of restricted stocks (in shares) | (3,200) | |||
Stock-based compensation | 132,055 | 132,055 | ||
Net gain (loss) | (90,327) | (90,327) | ||
Ending Balance at Mar. 31, 2020 | $ 6,010 | $ 61,190,548 | $ (47,929,090) | $ 13,267,468 |
Ending Balance (in shares) at Mar. 31, 2020 | 6,009,507 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Operating activities | ||
Net income (loss) | $ (90,327) | $ 11,839 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Stock-based compensation | 132,065 | 121,965 |
Depreciation and amortization | 147,279 | 100,515 |
Deferred tax expenses (benefits) | 6,670 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 22,515 | (597,043) |
Inventories | (115,811) | (223,297) |
Prepaid expenses and other current assets | 6,045 | (59,779) |
Accounts payable and accrued expenses | (91,243) | 146,882 |
Accrued payroll and related expenses | (29,180) | 35,033 |
Net deferred revenue on shipments to distributors | (10,026) | 37,131 |
Deferred service revenue | (8,047) | 23,533 |
Net change in operating lease | (14,060) | (9,550) |
Net cash used in operating activities | (50,790) | (406,101) |
Investing activities | ||
Purchases of equipment | (154,681) | (100,318) |
Net cash used in investing activities | (154,681) | (100,318) |
Financing activities | ||
Payments on finance leases | (4,111) | (3,808) |
Proceeds from borrowings under bank line of credit agreement | 3,980,000 | 4,109,000 |
Repayments of borrowings under bank line of credit agreement | (3,452,957) | (3,629,494) |
Repayments of bank term loan | (125,000) | (125,000) |
Common stock repurchases and related expenses | (8,496) | |
Net cash provided by financing activities | 389,436 | 350,698 |
Net increase (decrease) in cash and cash equivalents | 183,965 | (155,721) |
Cash and cash equivalents at beginning of period | 958,860 | 1,084,991 |
Cash and cash equivalents at end of period | 1,142,825 | 929,270 |
Supplemental disclosure of cash flow information | ||
Cash paid for interest | $ 19,650 | $ 25,331 |
Note 1 - Basis of Presentation
Note 1 - Basis of Presentation | 3 Months Ended |
Mar. 31, 2020 | |
Basis of Presentation | NOTE 1 Basis of Presentation The accompanying unaudited condensed financial statements of Socket Mobile, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for fair presentation have been included. The results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future period. These financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. |
Note 2 - Summary of Significant
Note 2 - Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 2 — Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Cash Equivalents and Fair Value of Financial Instruments The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At March 31, 2020 and December 31, 2019, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts. The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity. Revenue Recognition and Deferred Revenue On January 1, 2017, the Company adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside of the norm. At March 31, 2020, the deferred revenue and deferred cost on shipments to distributors were $584,619 and $217,439, respectively, compared to $611,029 and $233,823, respectively, at December 31, 2019. Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee is required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 effective January 1, 2019, which had no impact on the Company’s Statements of Operations. The most significant impact was the recognition of right-of-use assets and liabilities for the operating lease. At March 31, 2020, the balances of right-of-use assets and liabilities for the operating lease are approximately $0.85 million and $1.03 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, at December 31, 2019. Recently Issued Financial Accounting Standards In December 2019, the FASB issued ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning in fiscal 2021. The Company will evaluate the effect of adopting this new accounting guidance on its financial statements and disclosures. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, “Topic 326”) and ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). The effective date of Topic 326 for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company's financial statements and disclosures. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption. |
Note 3 - Inventories
Note 3 - Inventories | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventories | NOTE 3 — Inventories Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at March 31, 2020 and December 31, 2019 were as follows: March 31, December 31, 2020 2019 Raw materials and sub-assemblies $ 3,706,834 $ 3,767,588 Finished goods 235,524 241,681 Inventory reserves (647,639 ) (830,361 ) Inventory, net $ 3,294,719 $ 3,178,908 |
Note 4 - Bank Financing Arrange
Note 4 - Bank Financing Arrangements | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Bank Financing Arrangements | NOTE 4 — Bank Financing Arrangements Sixth Financing Agreement On June 14, 2019, the Company entered into the Sixth Amended and Restated Business Financing Agreement with the Bank. The Bank waived the default which occurred for the month ended April 30, 2019 when the Company’s Asset Coverage Ratio was 1.13 to 1.00, instead of the required 1.25 to 1.00. The Bank also increased the Eligible Receivable threshold for Ingram Micro from 50% to 60% of domestic receivables, and from 35% to 50% of all receivables (including both domestic and foreign receivables). Seventh Financing Agreement On January 8, 2020, the Company entered into the Seventh Amended and Restated Business Financing Agreement with the Bank which extends the maturity date of the Company’s revolving line of credit to January 31, 2022. The Asset Coverage Ratio was 1.4 to 1.0 on March 31, 2019. During the three months ended March 31, 2020, total repayments of the term loan was $125,000. Total amount borrowed under the domestic and international lines was $3,980,000 and the total repayments was $3,452,957. Amounts outstanding under the term loan and bank credit facilities at March 31, 2020 are as follows: March 31, 2020 Long-term portion of term loan — Current-portion of term loan 208,333 Term loan $ 208,333 March 31, 2020 Lines of credit -domestic line 1,635,601 Lines of credit -EXIM line 303,891 Total lines of credit $ 1,939,492 Interest expense on the term loan for three months ended March 31, 2020 was $4,027. Interest expense on the amounts drawn under the Company’s bank credit lines during the three months ended March 31, 2020 was $15,601. Accrued interest payable related to the amounts outstanding under the term loan and bank credit facilities at March 31, 2020 was $14,560. |
Note 5 - Segment Information an
Note 5 - Segment Information and Concentrations | 3 Months Ended |
Mar. 31, 2020 | |
Segment Reporting [Abstract] | |
Segment Information and Concentrations | NOTE 5 — Segment Information and Concentrations Segment Information The Company operates in the mobile barcode scanning and RFID/NFC data capture market. Mobile scanning typically consists of mobile devices such as smartphones or tablets, with mobile scanning or NFC peripherals for data collection, and third-party vertical applications software. The Company distributes its products in the United States and foreign countries primarily through distributors, resellers, and online. The Company markets its products primarily through application developers whose applications are designed to work with Company’s products. Revenues for the geographic areas for three months ended March 31, 2020 and 2019 were as follows: Three Months Ended March 31, Revenues: 2020 2019 United States $ 3,143,409 $ 3,677,801 Europe 615,529 492,992 Asia and rest of world 461,748 457,799 Total revenues $ 4,220,686 $ 4,628,592 Export revenues are attributable to countries based on the location of the Company’s customers. The Company does not hold long-lived assets in foreign locations. Major Customers Customers who accounted for at least 10% of the Company’s total revenues for the three months ended March 31, 2020 and 2019 were as follows: Three Months Ended March 31, 2020 2019 Ingram Micro, Inc. 36 % 42 % BlueStar, Inc. 17 % 21 % Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company invests its cash in demand deposit accounts in banks and the Company has not experienced losses on the investments. The Company’s trade accounts receivables are primarily with distributors. The Company performs ongoing credit evaluations of its customers’ financial condition, but the Company generally requires no collateral. Reserves are maintained for potential credit losses, and such losses have been within management’s expectations. Customers who accounted for at least 10% of the Company’s accounts receivable balances at March 31, 2020 and December 31, 2019 were as follows: March 31, December 31, 2020 2019 Ingram Micro Inc. 43 % 49 % BlueStar, Inc. 22 % 26 % Synnex Corporation 10 % * *Customer accounted for less than 10% of the Company’s accounts receivable balances Concentration of Suppliers Several of the Company’s component parts are produced by a sole or limited number of suppliers. Shortages could occur in these essential materials due to increased demand, or to an interruption of supply. Suppliers may choose to restrict credit terms or require advance payments causing delays in the procurement of essential materials. If the Company were unable to procure certain of such materials, it could have a material adverse effect upon its results. For the three months ended March 31, 2020 and 2019, two suppliers accounted for 60% and 45%, respectively, of the inventory purchases. At March 31, 2020 and December 31, 2019, 41% and 20%, respectively, of the Company’s accounts payable balances were concentrated with a single supplier. |
Note 6 - Stock-Based Compensati
Note 6 - Stock-Based Compensation | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Stock-Based Compensation | NOTE 6 — Stock-Based Compensation The Company recognizes the compensation cost in the financial statements for all stock-based awards to employees, including grants of stock options and restricted stocks, based on the fair value of the awards as of the date that the awards are issued. Compensation cost for stock-based awards is recognized on a straight-line basis over the vesting period. The fair values of stock options are generally determined using a binomial lattice valuation model which incorporates assumptions about expected volatility, risk-free interest rate, dividend yield, and expected life. There were no stock options granted for the three months ended March 31, 2020, compared to 165,600 shares granted to executive officers, selected employees and consultants for the three months ended March 31, 2019. The restricted stocks are issued to employees and consultants and are held in escrow by the Company until the shares vest on the schedule of 15% after year one, 20% after year two, 25% after year three and 40% after year four, subject to the employees and consultants being a continuing service provider on the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares are registered at grant, so share owners may vote at the annual stockholder meeting. Restricted stocks are granted at zero cost basis. Compensation cost of the restricted stocks is recognized on a straight-line basis over the 4-year vesting period. For the three months ended March 31, 2020 and 2019, the Company awarded 287,000 and 116,050 shares of restricted stock, respectively. Due to the existence of restrictions on sale or transfer until the stocks vest, the Company does not count the restricted stocks as issued and outstanding shares until they vest. Total stock-based compensation expense for the three months ended March 31, 2020 and 2019, was $132,065 and $121,965, respectively. |
Note 7 - Net Income (Loss) Per
Note 7 - Net Income (Loss) Per Share Applicable to Common Stockholders | 3 Months Ended |
Mar. 31, 2020 | |
Income Statement [Abstract] | |
Net Income (Loss) Per Share Applicable to Common Stockholders | NOTE 7 — Net Income (Loss) Per Share Applicable to Common Stockholders The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share: Three Months Ended March 31, 2020 2019 Numerator: Net income (loss) $ (90,327 ) $ 11,839 Denominator: Weighted average shares outstanding used in computing Basic 6,014,007 5,939,845 Effect of dilutive stock options — 194,004 Diluted 6,014,007 6,133,849 Net income (loss) per share applicable to common stockholders: Basic $ (0.01 ) $ 0.00 Diluted $ (0.01 ) $ 0.00 In the three months ended March 31, 2020, 2,536,925 stock options and restricted stock were excluded in the calculation of diluted net loss per share because their effect would be anti-dilutive. In the three months ended March 31, 2019, 2,265,930 stock options were excluded in the calculation of diluted net income per share because their effect would be anti-dilutive. |
Note 8 - Taxes
Note 8 - Taxes | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Taxes | NOTE 8 — Taxes The Company recorded no deferred tax benefit for the loss in the first quarter of 2020. In the first quarter of 2019, the Company recorded a deferred tax expense of $6,670. |
Note 9 - Commitments and Contin
Note 9 - Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 9 — Commitments and Contingencies Operating Lease 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 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. On March 31, 2020, the balances of right-of-use assets and liabilities for the operating lease are approximately $0.85 million and $1.03 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 $117,268 and $112,758 for the three months ended March 31, 2020 and 2019, respectively. Future minimum lease payments under the operating lease at March 31, 2020 are shown below: Annual minimum payments: Amount 2020 (April 1, 2020 to December 31, 2020) $ 361,187 2021 497,594 2022 (through June 30, 2022) 253,675 Total minimum payments $ 1,112,456 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 March 31, 2020 and December 31, 2019, equipment with a cost of $100,584 was subject to such financing arrangements. The accumulated depreciation of the assets associated with the finance leases as of March 31, 2020 and December 31, 2019, amounted to $96,578 and $92,571 respectively. Future minimum payments under finance lease and equipment financing arrangements as of March 31, 2020 are as follows: Annual minimum payments: Amount 2020 (April 1, 2020 to June 30, 2020) $ 4,227 Total minimum payments 4,227 Less amount representing interest (47 ) Present value of net minimum payments 4,180 Short term portion of finance leases (4,180 ) Long term portion of finance leases $ 0 Purchase Commitments As of March 31, 2020, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $5,936,000. 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. |
Note 10 - Subsequent Events
Note 10 - Subsequent Events | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 10 — Subsequent Events On April 20, 2020, the Company received a U.S. Small Business Administration Loan (the “SBA Loan”) from Western Alliance Bank, pursuant to the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), in the amount of $1,058,700 (the “Loan Proceeds”). Under the Paycheck Protection Program Loan Note (the “Promissory Note”), the SBA Loan has a fixed interest rate of 1%, a maturity date of April 20, 2022, and no payments are due on the SBA Loan for six months. There is no prepayment penalty. Pursuant to the terms of the SBA Loan and Promissory Note, the Company may apply for forgiveness of the amount due on the SBA Loan in an amount equal to the sum of the following costs incurred by the Company during the eight-week period beginning on April 20, 2020: payroll costs, any payment of interest on a covered mortgage obligation, payment on a covered rent obligation, and any covered utility payment. The amount of SBA Loan forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the CARES Act, although no more than 25% of the amount forgiven can be attributable to non-payroll costs. |
Summary of Significant Accounti
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Use of estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. |
Cash Equivalents and Fair Value of Financial Instruments | Cash Equivalents and Fair Value of Financial Instruments The Company considers all highly liquid investments purchased with a maturity date of 90 days or less at date of purchase to be cash equivalents. At March 31, 2020 and December 31, 2019, all of the Company’s cash and cash equivalents consisted of amounts held in demand deposit accounts in banks. The aggregate cash balance on deposit in these accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance on deposit in these accounts may, at times, exceed the federally insured limits. The Company has never experienced any losses in such accounts. The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, debt and foreign exchange contracts approximate fair value due to the relatively short period of time to maturity. |
Revenue Recognition and Deferred Revenue | Revenue Recognition and Deferred Revenue On January 1, 2017, the Company adopted ASC 606 “Revenue from Contracts with Customers” and implemented a new revenue recognition policy. Instead of deferring 100% of revenue and cost of revenue until products are sold by distributors, the new policy recognizes revenue on sales to distributors when shipping of product is completed and title transfers to the distributor, less a reserve for estimated product returns (sales and cost of sales). The reserves are based on estimates of future returns calculated from actual return history, primarily from stock rotations, plus knowledge of pending returns outside of the norm. At March 31, 2020, the deferred revenue and deferred cost on shipments to distributors were $584,619 and $217,439, respectively, compared to $611,029 and $233,823, respectively, at December 31, 2019. |
Leases | Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize a liability representing future lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases, a lessee is required to recognize at inception a right-of-use asset and a lease liability equal to the net present value of the lease payments, with lease expense recognized over the lease term on a straight-line basis. For leases with a term of twelve months or less, ASU 2016-02 allows a reporting entity to make an accounting policy election to not recognize a right-of-use asset and a lease liability, and to recognize lease expense on a straight-line basis. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company adopted ASU 2016-02 effective January 1, 2019, which had no impact on the Company’s Statements of Operations. The most significant impact was the recognition of right-of-use assets and liabilities for the operating lease. At March 31, 2020, the balances of right-of-use assets and liabilities for the operating lease are approximately $0.85 million and $1.03 million, respectively, compared to approximately $0.94 million, and $1.13 million, respectively, at December 31, 2019. |
Recently Issued Financial Accounting Standards | Recently Issued Financial Accounting Standards In December 2019, the FASB issued ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning in fiscal 2021. The Company will evaluate the effect of adopting this new accounting guidance on its financial statements and disclosures. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (collectively, “Topic 326”) and ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). The effective date of Topic 326 for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 on the Company's financial statements and disclosures. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption. |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventory components | Inventories consist principally of raw materials and sub-assemblies, which are stated at the lower of cost (first-in, first-out) or market. Inventories at March 31, 2020 and December 31, 2019 were as follows: March 31, December 31, 2020 2019 Raw materials and sub-assemblies $ 3,706,834 $ 3,767,588 Finished goods 235,524 241,681 Inventory reserves (647,639 ) (830,361 ) Inventory, net $ 3,294,719 $ 3,178,908 |
Bank Financing Arrangements (Ta
Bank Financing Arrangements (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Term loan and bank credit line balances | Amounts outstanding under the term loan and bank credit facilities at March 31, 2020 are as follows: March 31, 2020 Long-term portion of term loan — Current-portion of term loan 208,333 Term loan $ 208,333 March 31, 2020 Lines of credit -domestic line 1,635,601 Lines of credit -EXIM line 303,891 Total lines of credit $ 1,939,492 |
Segment Information and Concent
Segment Information and Concentrations (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Segment Reporting [Abstract] | |
Revenue by geographic areas | Revenues for the geographic areas for three months ended March 31, 2020 and 2019 were as follows: Three Months Ended March 31, Revenues: 2020 2019 United States $ 3,143,409 $ 3,677,801 Europe 615,529 492,992 Asia and rest of world 461,748 457,799 Total revenues $ 4,220,686 $ 4,628,592 |
Major customers accounted for at least 10% of total revenues | Customers who accounted for at least 10% of the Company’s total revenues for the three months ended March 31, 2020 and 2019 were as follows: Three Months Ended March 31, 2020 2019 Ingram Micro, Inc. 36 % 42 % BlueStar, Inc. 17 % 21 % |
Major customers accounted for at least 10% of net accounts receivable balances | Customers who accounted for at least 10% of the Company’s accounts receivable balances at March 31, 2020 and December 31, 2019 were as follows: March 31, December 31, 2020 2019 Ingram Micro Inc. 43 % 49 % BlueStar, Inc. 22 % 26 % Synnex Corporation 10 % * *Customer accounted for less than 10% of the Company’s accounts receivable balances |
Net Income (Loss) Per Share App
Net Income (Loss) Per Share Applicable to Common Stockholders (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Net income (loss) per share: | |
Net Income (Loss) Per Shares Applicable To Common Stockholders | The following table sets forth the reconciliation of basic shares to diluted shares and the computation of basic and diluted net income (loss) per share: Three Months Ended March 31, 2020 2019 Numerator: Net income (loss) $ (90,327 ) $ 11,839 Denominator: Weighted average shares outstanding used in computing Basic 6,014,007 5,939,845 Effect of dilutive stock options — 194,004 Diluted 6,014,007 6,133,849 Net income (loss) per share applicable to common stockholders: Basic $ (0.01 ) $ 0.00 Diluted $ (0.01 ) $ 0.00 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Future minimum payments for operating leases | Future minimum lease payments under the operating lease at March 31, 2020 are shown below: Annual minimum payments: Amount 2020 (April 1, 2020 to December 31, 2020) $ 361,187 2021 497,594 2022 (through June 30, 2022) 253,675 Total minimum payments $ 1,112,456 |
Future minimum payments under financing lease and equipment financing arrangements | Future minimum payments under finance lease and equipment financing arrangements as of March 31, 2020 are as follows: Annual minimum payments: Amount 2020 (April 1, 2020 to June 30, 2020) $ 4,227 Total minimum payments 4,227 Less amount representing interest (47 ) Present value of net minimum payments 4,180 Short term portion of finance leases (4,180 ) Long term portion of finance leases $ 0 |
Inventory Components (Details)
Inventory Components (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Raw materials and sub-assemblies | $ 3,706,834 | $ 3,767,588 |
Finished goods | 235,524 | 241,681 |
Inventory reserves | (647,639) | (830,361) |
Inventories, net | $ 3,294,719 | $ 3,178,908 |
Bank Financing Arrangements (De
Bank Financing Arrangements (Details Narrative) | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Term Loan for Stock Repurchase | |
Amount repaid | $ 125,000 |
Interest expense | 4,027 |
Accrued interest payable | 9,904 |
Domestic Line of Credit | |
Amount borrowed | 3,215,000 |
Amount repaid | 2,784,314 |
Interest expense | 13,684 |
Accrued interest payable | 3,943 |
Foreign Line of Credit | |
Amount borrowed | 765,000 |
Amount repaid | 668,643 |
Interest expense | 1,917 |
Accrued interest payable | $ 713 |
Amounts Outstanding under Bank
Amounts Outstanding under Bank Term Loan (Detail) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Long-term portion of term loan | ||
Current-portion of term loan | 208,333 | $ 333,333 |
Term loan balance | $ 208,333 |
Amounts Outstanding under Ban_2
Amounts Outstanding under Bank Lines of Credit (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Lines of credit - domestic line | $ 1,635,601 | |
Lines of credit - EXIM line | 303,891 | |
Total lines of credit | $ 1,939,492 | $ 1,412,449 |
Revenues By Geographic Areas (D
Revenues By Geographic Areas (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenues | $ 4,220,686 | $ 4,628,592 |
United States | ||
Revenues | 3,143,409 | 3,677,801 |
Europe | ||
Revenues | 615,529 | 492,992 |
Asia and rest of world | ||
Revenues | 461,748 | 457,799 |
Total | ||
Revenues | $ 4,220,686 | $ 4,628,592 |
Major customers accounted for a
Major customers accounted for at least 10% of total revenues (Details) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Ingram Micro Inc. | ||
Percent of total revenues | 36.00% | 42.00% |
Threshold percentage for disclosure | 10.00% | 10.00% |
BlueStar, Inc. | ||
Percent of total revenues | 17.00% | 21.00% |
Threshold percentage for disclosure | 10.00% | 10.00% |
Major Customers as a Percentage
Major Customers as a Percentage of Net Accounts Receivable Balances (Details) | Mar. 31, 2020 | Mar. 31, 2019 |
Ingram Micro Inc. | ||
Percent of net accounts receivable balances | 43.00% | 49.00% |
Threshold percentage for disclosure | 10.00% | 10.00% |
BlueStar, Inc. | ||
Percent of net accounts receivable balances | 22.00% | 26.00% |
Threshold percentage for disclosure | 10.00% | 10.00% |
Synnex Corporation | ||
Percent of net accounts receivable balances | 10.00% | |
Threshold percentage for disclosure | 10.00% | 10.00% |
Concentration of Suppliers (Det
Concentration of Suppliers (Details Narrative) | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Risks and Uncertainties [Abstract] | |||
Accounts payable balances with a single supplier | 41.00% | 20.00% | |
Percentage of inventory purchases from top two suppliers | 60.00% | 45.00% |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Stock-based compensation expenses | $ 132,055 | $ 121,965 |
Stock options granted | 165,600 | |
Restricted stock granted | 287,000 | 116,050 |
Net Income (Loss) per Share A_2
Net Income (Loss) per Share Applicable to Common Stockholders (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Numerator: | ||
Net income (loss) | $ (90,327) | $ 11,839 |
Denominator: Weighted average common shares outstanding used in computing net income (loss) per share: | ||
Basic | 6,014,007 | 5,939,845 |
Effect of dilutive stock options | 194,004 | |
Diluted | 6,014,007 | 6,133,849 |
Net income (loss) per share applicable to common stockholders: | ||
Basic | $ (0.01) | $ 0 |
Diluted | $ (0.01) | $ 0 |
Stock Options Excluded from Cal
Stock Options Excluded from Calculation of Diluted Net Loss Per Share (Details Narrative) - shares | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Net income (loss) per share: | ||
Stock Options Excluded from Calculation of Diluted Net Income (Loss) Per Share | 2,536,925 | 2,265,930 |
Taxes (Details)
Taxes (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Income tax (benefit) expense | $ 6,670 |
Commitments and Contingencies_2
Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | Jan. 01, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Rental expense for operating lease | $ 103,208 | $ 103,208 | ||
Operating lease cash payments | 117,268 | $ 112,758 | ||
Non-cancelable purchase commitments for inventory | 5,936,000 | |||
Original cost of equipment under finance leases | 100,584 | $ 100,584 | ||
Finance lease accumulated depreciation | 96,578 | 92,571 | ||
Operating lease right-of-use asset | 850,704 | 936,708 | $ 1,570,000 | |
Operating lease right-of-use liabilities | $ 1,034,286 | $ 1,134,350 | $ 1,850,000 |
Future Minimum Payments For Ope
Future Minimum Payments For Operating Leases (Details) | Mar. 31, 2020USD ($) |
Annual minimum payments: | |
2020 (April 1, 2020 to December 31, 2020) | $ 361,187 |
2021 | 497,594 |
2022 | 253,675 |
Total minimum payments | $ 1,112,456 |
Future Minimum Payments Under C
Future Minimum Payments Under Capital Lease And Equipment Financing Arrangements (Details) | Mar. 31, 2020USD ($) |
Annual minimum payments: | |
2020 (April 1, 2020 to June 30, 2020) | $ 4,227 |
Total minimum payments | 4,227 |
Less amount representing interest | (47) |
Present value of net minimum payments | 4,180 |
Short term portion of capital leases | (4,180) |
Long term portion of capital leases | $ 0 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) | 3 Months Ended |
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent events | On April 20, 2020, the Company received a U.S. Small Business Administration Loan (the “SBA Loan”) from Western Alliance Bank, pursuant to the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), in the amount of $1,058,700 (the “Loan Proceeds”). Under the Paycheck Protection Program Loan Note (the “Promissory Note”), the SBA Loan has a fixed interest rate of 1%, a maturity date of April 20, 2022, and no payments are due on the SBA Loan for six months. There is no prepayment penalty. Pursuant to the terms of the SBA Loan and Promissory Note, the Company may apply for forgiveness of the amount due on the SBA Loan in an amount equal to the sum of the following costs incurred by the Company during the eight-week period beginning on April 20, 2020: payroll costs, any payment of interest on a covered mortgage obligation, payment on a covered rent obligation, and any covered utility payment. The amount of SBA Loan forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the CARES Act, although no more than 25% of the amount forgiven can be attributable to non-payroll costs. |