The accompanying notes are integral to the consolidated financial statements.
The accompanying notes are integral to the consolidated financial statements.
The accompanying notes are integral to the consolidated financial statements.
The accompanying notes are integral to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Significant Accounting Policies
Business
Qualstar Corporation and its Subsidiaries (“Qualstar”, the “Company”, “we”, “us” or “our”) is organized into two strategic business segments, power solutions and data storage systems. Qualstar is a leading provider of data storage systems marketed under the Qualstar brand and of high efficiency and high-density power solutions marketed under the N2Power brand. Qualstar’s N2Power branded power solutions products provide unique power solutions to original equipment manufacturers (“OEMs”) for a wide range of markets, including communications networking, industrial, gaming, test equipment, lighting, medical as well as other market applications. Data storage system products include highly scalable automated magnetic tape-based storage solutions used to store, retrieve and manage electronic data primarily in the network computing environment and to provide solutions for organizations requiring backup, recovery and archival storage of critical electronic information.
Qualstar Corporation was incorporated in California in 1984 and operates four subsidiaries. N2Power, Inc. was formed in 2017 to operate the Company’s power supply business and Qualstar Corporation Singapore Private Limited (“QC Singapore”) was created in 2014 to give the Company an engineering footprint in Singapore and better service our contract manufacturers and our Asian distribution partners and customers. Qualstar has established two additional subsidiaries to aid in the Company’s global expansion. On July 4, 2018, a wholly-owned subsidiary of Qualstar Corporation, Qualstar Limited, was created to operate the Company’s data storage business in Europe and Africa. On September 5, 2018, a wholly-owned subsidiary of Qualstar Corporation, Q-Smart Data Private Limited, was created to operate the Company’s data storage business in Asia.
We sell our products globally through authorized resellers, distributers, and directly to OEMs. N2Power utilizes contract manufacturers in Asia to produce our power solutions products. Our storage products are manufactured by our OEM suppliers in other parts of the world and configured to order by us at our facility in Camarillo, California.
The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, N2Power, Inc., Qualstar Corporation Singapore Private Limited, Qualstar Limited and Q-Smart Data Private Limited. All significant intercompany accounts and transactions have been eliminated in consolidation.
Accounting Principles
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Estimates and Assumptions
Preparing financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples include estimates of loss contingencies, product life cycles and inventory obsolescence, bad debts, sales returns, warranty costs, share-based compensation forfeiture rates, the tax consequences of events that have been recognized in our consolidated financial statements or tax returns and determining when investment impairments are other-than-temporary. Actual results and outcomes may differ from management’s estimates and assumptions.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Title and risk of loss generally pass to our customers upon shipment. In limited circumstances where either title or risk of loss pass upon destination, we defer revenue recognition until such events occur. We derive revenues from two primary sources: products and services. Product revenue includes the shipment of product according to the agreement with our customers for data storage products and power supplies. Services include customer support (technical support), installations, consulting, and design services. A contract may include both product and services. Rarely, contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are typically estimated based on observable transactions when these services are sold on a standalone basis.
A variety of technical services can be contracted by our customers for a designated period of time. The service contracts allow customers to call Qualstar for technical support, replace defective parts and to have onsite service provided by Qualstar’s third party contract service provider. We record revenue for contract services at the amount of the service contract, but such amount is deferred at the beginning of the service term and amortized ratably over the life of the contract.
At December 31, 2019, we had deferred revenue of approximately $949,000 and no deferred profit. At December 31, 2018, we had deferred revenue of approximately $863,000 and no deferred profit.
Cash and Cash Equivalents
Qualstar classifies as cash equivalents only cash and those investments that are highly liquid, interest-earning investments with original maturities of three months or less from the date of purchase.
Restricted Cash
At December 31, 2019 and 2018, $100,000 in cash is restricted for use as collateral for the Company’s credit cards.
Concentration of Credit Risk, Other Concentration Risks and Significant Customers
Qualstar sells its products primarily through value added resellers located worldwide. Ongoing credit evaluations of customers’ financial condition are performed by Qualstar, and generally, collateral is not required. Potential uncollectible accounts have been provided for in the financial statements.
We have no outstanding debt nor do we utilize auction rate securities or derivative financial instruments in our investment portfolio. Cash and other investments may be in excess of FDIC insurance limits.
Our financial results could be affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Sales outside North America represented approximately 58.8% of net revenues for the twelve months ended December 31, 2019 and 43.1% of net revenues for the twelve months ended December 31, 2018.
Revenues from Qualstar’s largest customer totaled approximately 23.5% and 12.6% of revenues for the twelve months ended December 31, 2019 and 2018, respectively. At December 31, 2019, the largest customer’s accounts receivable balance, net of specific allowances, totaled approximately 23.4% of net accounts receivable. At December 31, 2018, the largest customer’s accounts receivable balance, net of specific allowances, totaled approximately 2.0% of net accounts receivable.
Suppliers
The primary suppliers of our power supplies segment, N2Power, are located in China. The primary suppliers of our tape storage products are located in California and Germany. If a manufacturer should be unable to deliver products to us in a timely basis or at all, our power supply or data storage business could be adversely affected. Though we have many years of favorable experience with these suppliers, there can be no assurance that circumstances might not change and compel a supplier to curtail or terminate deliveries to us.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts was as follows (in thousands):
Description
|
|
Balance at
Beginning
of
Period
|
|
|
Charged
to Costs
and
Expenses
|
|
|
Charged
to Other
Accounts
|
|
|
Deductions
(1)
|
|
|
Balance at
End of
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2019
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
40
|
|
Twelve months ended December 31, 2018
|
|
$
|
54
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
57
|
|
(1)
|
Uncollectible accounts written off, net of recoveries.
|
Inventories, net
Inventories are stated at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the term of the lease. Estimated useful lives are as follows:
Machinery and equipment (in years)
|
|
|
5
|
|
-
|
|
7
|
|
Furniture and fixtures (in years)
|
|
|
5
|
|
-
|
|
7
|
|
Leasehold Improvements (in years)
|
|
|
3
|
|
-
|
|
5
|
|
Computer equipment (in years)
|
|
|
3
|
|
-
|
|
5
|
|
Expenditures for normal maintenance and repairs are charged to expense as incurred, and improvements are capitalized. Upon the sale or retirement of property or equipment, the asset cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in the results of operations.
Long-Lived Assets
Qualstar reviews the impairment of long-lived assets whenever events or changes in circumstances indicate the carrying amount of any asset may not be recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount. If impairment is indicated, the amount of the loss to be recorded is based upon an estimate of the difference between the carrying amount and the fair value of the asset. Fair value is based upon discounted cash flows expected to result from the use of the asset and its eventual disposition and other valuation methods. No impairment losses of long-lived assets were recognized during the periods presented.
Shipping and Handling Costs
Qualstar records all customer charges for outbound shipping and handling to freight revenue. All inbound and outbound shipping and fulfillment costs are classified as costs of goods sold.
Warranty Obligations
We provide a three-year advance replacement warranty on all XLS and RLS libraries and a two-year warranty on our Q-Series libraries. This includes replacement of components, or if necessary, complete libraries. XLS libraries sold in North America also include one year of onsite service. Customers may purchase on-site service if they are located in the United States, Canada, and selected countries in Europe, Asia Pacific and Latin America. All customers may purchase extended warranty service coverage upon expiration of the standard warranty.
We provide a three-year warranty on all power supplies that includes repair or if necessary, replacement of the power supply.
A provision for costs related to warranty expense is recorded when revenue is recognized, which is estimated based on historical warranty costs incurred.
Activity in the liability for product warranty (included in other accrued liabilities) for the periods presented is as follows (in thousands):
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Beginning balance
|
|
$
|
365
|
|
|
$
|
322
|
|
Cost of warranty claims
|
|
|
(21
|
)
|
|
|
(15
|
)
|
Accruals for product warranties
|
|
|
(54
|
)
|
|
|
58
|
|
Ending balance
|
|
$
|
290
|
|
|
$
|
365
|
|
Engineering
All engineering costs are charged to expense as incurred. These costs consist primarily of engineering salaries, benefits, outside consultant fees, purchased parts and supplies directly involved in the design and development of new products, facilities and other internal costs.
Advertising
Advertising and promotion expenses include costs associated with direct and indirect marketing, trade shows and public relations. Qualstar expenses all costs of advertising and promotion as incurred. Advertising and promotion expenses for the years ended December 31, 2019 and 2018 were approximately $82,000 and $92,000, respectively.
Fair Value Measurements
We determine fair value measurements based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we follow the following fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) our own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs):
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;
Level 2: Other inputs observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs; and
Level 3: Unobservable inputs for which there is little or no market data and which requires the owner of the assets or liabilities to develop its own assumptions about how market participants would price these assets or liabilities.
Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
The following table presents our cash and cash equivalents and restricted cash measured at fair value on a recurring basis at December 31, 2019 and 2018 (in thousands):
|
|
December 31, 2019
|
|
|
|
Adjusted
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Cash &
Cash
Equivalents
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,863
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,863
|
|
|
$
|
3,863
|
|
Restricted Cash
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
100
|
|
Total
|
|
$
|
3,963
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,963
|
|
|
$
|
3,963
|
|
|
|
December 31, 2018
|
|
|
|
Adjusted
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Cash &
Cash
Equivalents
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,781
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,781
|
|
|
$
|
4,781
|
|
Restricted Cash
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
100
|
|
Total
|
|
$
|
4,881
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,881
|
|
|
$
|
4,881
|
|
Share-Based Compensation
Share-based compensation cost is measured at the grant date based on fair value of the award and is recognized as expense over the applicable vesting period (vesting can be immediate or over a period of four years) of the stock award using the straight-line method.
Income Taxes
Income taxes are accounted for using the liability method. Under this method, deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax credits and loss carry forwards. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A valuation allowance is established when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Earnings per Share
Basic net earnings per share has been computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options. Unexercised stock options are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.
Recent Accounting Guidance
Recent accounting guidance not yet adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes, which is intended to simplify the accounting standard and improve the usefulness of information provided in the financial statements. We intend to implement this new accounting guidance effective January 1, 2021, however early adoption is permitted. we are currently assessing the impact this new accounting guidance will have on our financial statements.
Recent accounting guidance adopted
FASB issued ASU 2016-02, ASU 2018-09, ASU 2018-10, 2018-11, and 2019-01 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements and to provide guidance related to accounting for leases, such as the application of an implicit rate, lessee reassessment of lease classification and certain transition adjustments. The Company elected ASU-11’s alternative transition approach of recording lease liabilities and right-of-use assets via a cumulative effect adjustment to retained earnings at the date of adoption. Effective January 1, 2019, the Company adopted ASU 2016-02, ASU 2018-09, ASU 2018-10, 2018-11 and 2019-0. The result is the recording of the lease liability and the right-of-use asset to the balance sheet and it did not have a material effect on our consolidated results of operations or consolidated cash flows.
In June 2018, the FASB issued ASU 2018-07 as a simplification for the accounting for non-employee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation. This standard is effective for fiscal years beginning after December 15, 2018. Effective January 1, 2019, the Company adopted ASU 2018-07 and it did not have a material effect on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02 to provide guidance related to adjustments for deferred tax assets and liabilities based on the changes created by the U.S. federal government tax bill enacted December 22, 2017. This standard is effective for fiscal years beginning after December 15, 2018. Effective January 1, 2019, the Company adopted ASU 2018-02 and it did not have a material effect on our consolidated financial statements.
Note 2 – Balance Sheet Details
Inventories, net
Inventories consist of the following, in thousands:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
199
|
|
|
$
|
136
|
|
Finished goods
|
|
|
2,341
|
|
|
|
2,761
|
|
Inventories, net
|
|
$
|
2,540
|
|
|
$
|
2,897
|
|
Property and Equipment, net
The components of property and equipment are as follows, in thousands:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
163
|
|
|
$
|
114
|
|
Furniture and fixtures
|
|
|
268
|
|
|
|
286
|
|
Machinery and equipment
|
|
|
609
|
|
|
|
844
|
|
Total property and equipment
|
|
|
1,040
|
|
|
|
1,244
|
|
Less accumulated depreciation and amortization
|
|
|
(918
|
)
|
|
|
(1,132
|
)
|
Property and equipment, net
|
|
$
|
122
|
|
|
$
|
112
|
|
Depreciation and amortization expense for the year ended December 31, 2019 and 2018 was $45,000 and $85,000, respectively.
Accrued Payroll and Related Liabilities
The components of accrued payroll and related liabilities are as follows, in thousands:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Accrued salaries and payroll taxes
|
|
$
|
69
|
|
|
$
|
66
|
|
Accrued vacation
|
|
|
123
|
|
|
|
119
|
|
Accrued bonuses
|
|
|
-
|
|
|
|
-
|
|
Total accrued payroll and related liabilities
|
|
$
|
192
|
|
|
$
|
185
|
|
Other Accrued Liabilities
The components of other accrued liabilities are as follows, in thousands:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty
|
|
$
|
290
|
|
|
$
|
365
|
|
Accrued commissions
|
|
|
55
|
|
|
|
41
|
|
Accrued contingent legal fees
|
|
|
-
|
|
|
|
100
|
|
Accrued deferred rent
|
|
|
-
|
|
|
|
22
|
|
Other accrued liabilities
|
|
|
23
|
|
|
|
31
|
|
Total other accrued liabilities
|
|
$
|
368
|
|
|
$
|
559
|
|
Note 3 – Income Taxes
The provision for (benefit from) income taxes is comprised of the following (in thousands):
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal (Net of a 2018 net operating loss benefit of $288)
|
|
$
|
—
|
|
|
$
|
—
|
|
State (Net of a 2018 and 2019 net operating loss benefit of $35 and $97, respectively)
|
|
|
7
|
|
|
|
3
|
|
Foreign
|
|
|
5
|
|
|
|
1
|
|
Provision for income taxes
|
|
$
|
12
|
|
|
$
|
4
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
(30
|
)
|
|
|
—
|
|
Deferred income tax
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
Net income tax expense
|
|
$
|
(18
|
)
|
|
$
|
4
|
|
The following is a reconciliation of the statutory federal income tax rate to Qualstar’s effective income tax rate:
|
|
Twelve Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Statutory federal income tax benefit
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
(7.9
|
)
|
|
|
6.6
|
|
Foreign income taxes, net of federal income tax benefit
|
|
|
(13.2
|
)
|
|
|
—
|
|
Deferred tax adjustment – NOL
|
|
|
42.6
|
|
|
|
—
|
|
Valuation allowance
|
|
|
8.2
|
|
|
|
(26.6
|
)
|
Other
|
|
|
0.2
|
|
|
|
(0.6
|
)
|
Effective income tax rate
|
|
|
50.9
|
%
|
|
|
0.4
|
%
|
The tax effect of temporary differences resulted in deferred income tax assets (liabilities) as follows (in thousands):
|
|
December 31,
2019
|
|
|
December 31, 2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
7,734
|
|
|
$
|
7,675
|
|
Engineering credit carry forwards
|
|
|
1,920
|
|
|
|
1,919
|
|
Inventory reserves
|
|
|
503
|
|
|
|
558
|
|
Capital loss and other credit carry forwards
|
|
|
6
|
|
|
|
—
|
|
Allowance for bad debts and returns
|
|
|
13
|
|
|
|
16
|
|
Stock compensation
|
|
|
330
|
|
|
|
287
|
|
Capitalized inventory costs, stock compensation and other accuals
|
|
|
389
|
|
|
|
233
|
|
Total gross deferred tax assets
|
|
|
10,895
|
|
|
|
10,688
|
|
Less valuation allowance on deferred tax assets
|
|
|
(10,686
|
)
|
|
|
(10,688
|
)
|
Net deferred tax assets
|
|
|
209
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and other
|
|
|
—
|
|
|
|
—
|
|
Right to use property
|
|
|
(179
|
)
|
|
|
—
|
|
Total deferred tax liabilities
|
|
|
(179
|
)
|
|
|
—
|
|
Net deferred taxes
|
|
$
|
30
|
|
|
$
|
—
|
|
On December 22, 2017, H.R. 1 (the “Tax Act”), originally known as the Tax Cuts and Jobs Act, was enacted in the United States. In addition to reducing the corporate tax rate to 21% effective January 1, 2018, the Tax Act contains many other tax provisions that affect recorded deferred tax assets and liabilities. The majority of these new provisions are also effective as of January 1, 2018, though there are a few that are effective during the 2017 calendar year. Although for 2017 the Company had federal alternative minimum tax (“AMT”) of approximately $12,000, the Tax Act eliminated the AMT effective January 1, 2018, and provides that any AMT credit carryforwards will be refunded. Accordingly, the 2017 AMT tax liability is being treated as a receivable, and was not treated as a current tax expense in 2017. In addition, the Tax Act provided new rules related to global intangible low-taxed income (“GILTI”). The Tax Act provides that a U.S. shareholder of any controlled foreign corporation (“CFC”) must include in taxable income its pro rata shares of GILTI income. The Company accounts for taxes related to GILTI as such income is incurred, however, currently, the Company’s share of GILTI income is immaterial.
As previously indicated, the Company records a valuation allowance against its net deferred income tax assets in accordance with ASC 740 “Income Taxes” when in management’s judgment, it is more likely than not that the deferred income tax assets will not be realized in the foreseeable future. For the year ended December 31, 2019 and 2018, the Company placed a valuation allowance on net deferred tax assets. With the exception of a small amount of deferred California taxes, the Company continues to fully offset its deferred tax assets with a valuation allowance, despite generating income in 2018 and 2017 given the Company’s significant book losses prior to 2017 and the current year book and tax loss. With regard to California deferred tax assets, since Qualstar files on a separate company basis, and Qualstar generated book income for 2017 and 2018, and a small loss for 2019, the Company expects to generate income in the subsequent year, therefore the Company reduced a small amount of the valuation allowance related to Qualstar’s separate company net operating loss carryovers.
The Company had net operating loss carry-forwards for federal income tax purposes of approximately $30.7 million as of December 31, 2019 and $30.4 million as of December 31, 2018. The Company had net operating loss carry-forwards for state income tax purposes of approximately $19.0 million as of December 31, 2019 and $19.7 million as of December 31, 2018. The Company had engineering and other credit carryforwards for tax purposes of $2.7 million as of December 31, 2019 and $2.7 million as of December 31, 2018.
If not utilized, the federal net operating loss will expire beginning in 2026, and other tax credit carry-forwards will expire beginning in 2024. If not utilized, the state net operating loss carry-forward as of December 31, 2019 will begin to expire beginning in 2020. The state engineering credit has no limit on the carry-forward period.
For U.S. purposes, the Company has completed its evaluation, as of December 31, 2017, of the net operating loss (“NOL”) and credit carryforward utilization limitations under Internal Revenue Code, as amended (the “Code”) Section 382 and 383, change of ownership rules. Code sections 382 and 383 impose certain limitations on the use of NOL or credit carryforwards in certain situations, including when a company has a change in ownership as defined in such sections. As of December 31, 2017, the Company has determined that it has not had a change in ownership within the meaning of IRC Sections 382 and 383. Management, at the date of this filing, is of the opinion that its NOL and credit carryforwards that can be utilized each year.
The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
29
|
|
|
$
|
29
|
|
Increases related to tax positions taken in current year
|
|
|
—
|
|
|
|
—
|
|
Increases related to tax positions taken in prior year
|
|
|
—
|
|
|
|
—
|
|
Decreases due to lapse of statute of limitations
|
|
|
—
|
|
|
|
—
|
|
Related interest and penalties, net of federal tax benefit
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31
|
|
$
|
29
|
|
|
$
|
29
|
|
The deferred tax asset amounts related to NOL and credit carryforwards have been reduced by approximately $527,000 of uncertain tax positions. The Company expects that any future changes in the unrecognized tax benefit will have no impact on the Company’s effective tax rate due to the existence of the valuation allowance.
The Company’s policy is to include interest and penalties on uncertain tax positions in income tax expense, but they are not significant at December 31, 2019. The Company files its tax returns by the laws of the jurisdictions in which it operates. The Company’s federal tax returns for fiscal years December 31, 2016 and subsequent and California tax returns for fiscal years December 31, 2015 and subsequent, are still subject to examination. Various state and foreign jurisdictions’ tax years remain open to examination as well, though the Company believes any additional assessment will be immaterial to its consolidated financial statements. The Internal Revenue Service performed an audit of the tax period December 31, 2017, the result was no change. The Company does not have any open examinations as of December 31, 2019. As of December 31, 2019, the operations of Qualstar Limited were not material for tax purposes and had no significant impact on the year-end tax provision.
Note 4 – Preferred Stock
Qualstar’s Articles of Incorporation allow for the Board of Directors to issue up to 5,000,000 shares of preferred stock. The Board of Directors has authority to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares of preferred stock without any future vote or action by the shareholders. At December 31, 2019 and 2018, there were no outstanding shares of preferred stock.
Note 5 –Stock Based Compensation
The Company granted to Steven N. Bronson, the Company’s President and Chief Executive Officer, 50,000 restricted stock units (the “Restricted Stock Units”) for shares of the Company’s common stock under the terms of the Company’s 2017 Stock Option and Incentive Plan and an associated Restricted Stock Unit Agreement with Mr. Bronson (the “Restricted Stock Unit Agreement”). The Restricted Stock Units were awarded pursuant to that certain employment agreement entered into between the Company and Mr. Bronson on April 13, 2019. 25,000 of the 50,000 restricted stock units vested and the underlying 25,000 shares of common stock became issuable as approved by the Company’s Compensation Committee on December 18, 2019. The share-based compensation of $139,000 was recorded for the twelve months ended December 31, 2019. No share-based compensation associated with outstanding stock options and restricted stock grants was recorded during the twelve months ended December 31, 2018. No income tax benefit was recognized in the statements of comprehensive income (loss) for share-based arrangements in any period presented.
Stock Option Plan
The Company has two share-based compensation plans as described below.
Qualstar adopted the 2008 Stock Incentive Plan (the “2008 Plan”) under which incentive and nonqualified stock options and restricted stock may be granted for shares of common stock. The 2008 Plan expired in 2018 and no additional options may be granted under that plan. However, 3,333 options that were previously granted under the 2008 Plan will continue under their terms.
The 2017 Stock Incentive Plan (the “2017 Plan”) permits the award of stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance shares, dividend equivalent rights and cash-based awards to employees (including executive officers), directors and consultants of the Company and its subsidiaries. The 2017 Plan authorizes the issuance of an aggregate of 300,000 shares of common stock and the plan is administered by the Compensation Committee of the Company’s Board of Directors.
With respect to options, the fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses various assumptions, such as volatility, expected term and risk-free interest rate. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination in determining forfeiture rates. The expected term of options granted is estimated based on the vesting term of the award, historical employee exercise behavior, expected volatility of the Company’s stock and an employee’s average length of service. The risk-free interest rate used in this model correlates to a U.S. constant rate Treasury security with a contractual life that approximates the expected term of the option award.
No options were granted in the fiscal years ended December 31, 2019 and 2018. The following table summarizes the assumptions used in the Black-Scholes model to determine the fair value of stock options granted in the fiscal year ended December 31, 2017.
|
|
Fiscal Year Ended
December 31, 2017
|
|
Expected lives, in years
|
|
|
5.0
|
|
Estimated volatility
|
|
|
36.89%
|
|
Dividend yield
|
|
|
—
|
|
Risk-free interest rate
|
|
|
1.92%
|
|
Weighted average fair value on grant date
|
|
|
$2.50
|
|
The following table summarizes all stock option activity:
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2017
|
|
|
188,033
|
|
|
$
|
7.38
|
|
|
|
8.63
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(5,500
|
)
|
|
|
7.08
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited, canceled or expired
|
|
|
(4,533
|
)
|
|
|
15.23
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2018
|
|
|
178,000
|
|
|
|
7.19
|
|
|
|
8.63
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited, canceled or expired
|
|
|
(16,667
|
)
|
|
|
7.38
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2019
|
|
|
161,333
|
|
|
$
|
7.17
|
|
|
|
7.49
|
|
|
|
—
|
|
Exercisable at December 31, 2019
|
|
|
161,333
|
|
|
$
|
7.17
|
|
|
|
7.49
|
|
|
|
—
|
|
At December 31, 2019 and 2018, there is no unrecognized compensation cost related to non-vested share-based compensation awards granted. No options vested during the years ended December 31, 2019 and 2018.
Restricted Stock Units
On October 29, 2019, the Company granted to Steven N. Bronson, the Company’s President and Chief Executive Officer, 50,000 restricted stock units (the “Restricted Stock Units”) for shares of the Company’s common stock under the terms of the Company’s 2017 Stock Option and Incentive Plan and an associated Restricted Stock Unit Agreement with Mr. Bronson (the “Restricted Stock Unit Agreement”). The Restricted Stock Units were awarded pursuant to that certain employment agreement entered into between the Company and Mr. Bronson on April 13, 2019. For each of the fiscal years ended December 31, 2019 and December 31, 2020, Restricted Stock Units for 25,000 shares of the Company’s common stock shall vest and the underlying common stock shall become issuable subject to the Company’s achievement of financial and performance objectives for the applicable fiscal year established by the Company’s Compensation Committee. Subject to the satisfaction of certain conditions, unvested Restricted Stock Units shall also vest and the underlying common stock shall become issuable upon Mr. Bronson’s death or disability, in the event the Company terminates Mr. Bronson’s employment without cause or if Mr. Bronson terminates his employment with the Company for good reason, and in the event of a change in control of the Company. The Compensation Committee approved vesting for the 25,000 shares on December 18, 2019.
Note 6 – Stockholders’ Equity
On December 5, 2018, the board of directors approved a stock repurchase program (the “Stock Repurchase Program”) to repurchase shares of the Company’s common stock. The program permitted repurchases of up to a maximum aggregate purchase price of $2,400,000 and the number of shares of Common Stock subject to repurchase was not to exceed 409,000. Under the Stock Repurchase Program, during in the fiscal years ended December 31, 2019 and 2018, 18,102 and 129,991 shares were repurchased, respectively, with a total of 148,093 shares having been repurchased since the program began. The program expired December 5, 2019.
Note 7 – Net Earnings Per Share
Basic net earnings per share has been computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net earnings per share has been computed by dividing net earnings by the weighted average common shares outstanding plus dilutive securities or other contracts to issue common stock as if these securities were exercised or converted to common stock.
The following table sets forth the computation of basic and diluted net income or loss per share for the periods indicated, in thousands, except per share amounts.
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
In thousands (except per share amounts):
|
|
|
|
|
|
|
|
|
Net income (a)
|
|
$
|
(7
|
)
|
|
$
|
1,486
|
|
Weighted average outstanding shares of common stock (b)
|
|
|
1,925
|
|
|
|
2,030
|
|
Dilutive potential common shares from employee stock options
|
|
|
-
|
|
|
|
27
|
|
Common stock and common stock equivalents (c)
|
|
|
1,925
|
|
|
|
2,057
|
|
Income per share:
|
|
|
|
|
|
|
|
|
Basic net income per share (a)/(b)
|
|
$
|
0.00
|
|
|
$
|
0.73
|
|
Diluted net income per share (a)/(c)
|
|
$
|
0.00
|
|
|
$
|
0.72
|
|
For the twelve months ended December 31, 2019 and 2018, 161,333 and 4,666 outstanding stock options were excluded from the calculation of diluted net income per share as their inclusion would have been anti-dilutive.
Note 8 – Commitments
Lease Agreements
The Company has entered into a new lease in Camarillo, California for its corporate headquarters beginning June 1, 2019. The facility is 9,910 square feet and is a 5 year and two-month lease, expiring July 31, 2024. The rent on this facility is $9,910 per month with a 3% step-up annually. Qualstar subleases a portion of the warehouse space to Interlink Electronics, Inc. (“Interlink”) and BKF Capital Group, Inc. (“BKF”) and is reimbursed for the space and other related expenses on a monthly basis. As described in Note 12, Interlink and BKF are related parties.
Qualstar leases a 15,160 square foot facility located in Simi Valley, California. The three-year lease began December 15, 2014 and has been renewed for an additional three years, expiring February 28, 2021. Rent on this facility is $11,000 per month with a step-up of 3% annually. On May 22, 2019, Qualstar entered into a Standard Sublease Multi-Tenant (the “Sublease”), with Stillwater Agency, Inc., a California corporation (“Stillwater”), for the Simi Valley location, which previously served as Qualstar’s corporate headquarters location and principal executive office. The term of the Sublease commenced on July 15, 2019 and ends on February 28, 2021 (the “Term”). The base rent under the Sublease is approximately $12,886 per month. Stillwater is also responsible for approximately nine percent (9%) of certain operating expenses and taxes associated with the office building in which the leased premises are located. Prior to entering the Sublease, Qualstar subleased a portion of the warehouse space to Interlink and was reimbursed for the space and other related expenses on a monthly basis.
Qualstar also leases approximately 5,400 square feet of office space in Westlake Village, California, that expires January 31, 2020, and will not be renewed. Rent on this facility is $11,000 per month, with a step-up of 3% annually. Effective March 21, 2016, Qualstar entered into a sublease agreement for the Westlake Village facility. The term of the sublease expires at the same time as the term of the master lease and the tenant pays Qualstar $12,000 per month with a step-up of 3% annually.
Effective April 1, 2016, a two-year lease was signed for 1,359 square feet for $2,500 per month in Singapore, which has been renewed until March 31, 2020. This lease will not be renewed.
Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any leases classified as financing leases.
The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of right of use (ROU) assets and lease liabilities during the fiscal year ended December 31, 2019 was 4.33%, derived from borrowing rate quotes as obtained from the Company’s business bank. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component.
Right of use assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of December 31, 2019, we have not recognized any impairment losses for our ROU assets.
We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
At December 31, 2019, the Company had current and long-term operating lease liabilities of $252,000 and $453,000, respectively, and right of use assets of $676,000.
Future minimum lease payments under these leases are as follows, in thousands, (unaudited):
Years Ending December 31,
|
|
Minimum
Lease
Payment
|
|
|
Sublease
Revenue
|
|
|
Net Minimum
Lease
Payment
|
|
2020
|
|
$
|
277
|
|
|
$
|
(167
|
)
|
|
$
|
110
|
|
2021
|
|
|
148
|
|
|
|
(26
|
)
|
|
|
122
|
|
2022
|
|
|
129
|
|
|
|
-
|
|
|
|
129
|
|
2023
|
|
|
133
|
|
|
|
-
|
|
|
|
133
|
|
2024
|
|
|
79
|
|
|
|
-
|
|
|
|
79
|
|
After
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total undiscounted future non-cancelable minimum lease payments
|
|
|
766
|
|
|
|
(193
|
)
|
|
|
573
|
|
Less: Imputed interest
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
Present value of lease liabilities
|
|
$
|
705
|
|
|
$
|
(193
|
)
|
|
$
|
512
|
|
In the Company's financial statements for periods prior to January 1, 2019, the Company accounts for leases under ASC 840, and provides for rent expense on a straight-line basis over the lease terms. Net rent expense for the years ended December 31, 2019 and 2018 was $164,000 and $151,000, respectively.
Other information related to our operating leases is as follows:
|
|
Year Ended
December 31,
2019
|
|
Weighted average remaining lease term in years
|
|
|
1.52
|
|
Weighted average discount rate
|
|
|
4.33
|
%
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
348
|
|
Operating cash flows from finance leases
|
|
|
-
|
|
Financing cash flows from finance leases
|
|
|
-
|
|
Note 9 – Segment Information
Based on the provisions of ASC 280, “Segment Reporting,” and the manner in which the Chief Operating Decision Maker analyzes the business, Qualstar has determined that it has two separate operating segments: power supply and data storage. Segment revenue, loss before income taxes and total assets were as follows, in thousands:
|
|
Twelve Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
Power Supplies
|
|
$
|
5,079
|
|
|
$
|
5,927
|
|
Data Storage:
|
|
|
|
|
|
|
|
|
Product
|
|
|
4,194
|
|
|
|
3,111
|
|
Service
|
|
|
4,166
|
|
|
|
3,191
|
|
Total Data Storage
|
|
$
|
8,360
|
|
|
$
|
6,302
|
|
Total Revenue
|
|
$
|
13,439
|
|
|
$
|
12,229
|
|
|
|
Twelve Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Income (loss) before Taxes
|
|
|
|
|
|
|
|
|
Power Supplies
|
|
$
|
(866
|
)
|
|
$
|
(153
|
)
|
Data Storage
|
|
|
841
|
|
|
|
1,643
|
|
Total Income (Loss) Before Income Taxes
|
|
$
|
(25
|
)
|
|
$
|
1,490
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Power Supplies
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
527
|
|
|
$
|
381
|
|
Accounts receivable, net
|
|
|
840
|
|
|
|
1,048
|
|
Inventories, net
|
|
|
872
|
|
|
|
1,576
|
|
Property and equipment
|
|
|
11
|
|
|
|
47
|
|
Other assets
|
|
|
107
|
|
|
|
102
|
|
|
|
|
2,357
|
|
|
|
3,154
|
|
Data Storage
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,336
|
|
|
|
4,400
|
|
Restricted cash
|
|
|
100
|
|
|
|
100
|
|
Accounts receivable, net
|
|
|
1,526
|
|
|
|
761
|
|
Inventories, net
|
|
|
1,668
|
|
|
|
1,321
|
|
Property and equipment
|
|
|
111
|
|
|
|
65
|
|
Right of use
|
|
|
676
|
|
|
|
-
|
|
Other assets
|
|
|
264
|
|
|
|
197
|
|
|
|
|
7,681
|
|
|
|
6,844
|
|
Total Assets
|
|
$
|
10,038
|
|
|
$
|
9,998
|
|
In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis consistent with GAAP. Our two segments are power supplies and data storage. The two segments discussed in this analysis are presented in the way we internally managed and monitored performance for the twelve months ended December 31, 2019. Internal resources were billed for the twelve months ended December 31, 2019 and 2018. Until the creation of our subsidiary to operate our power supply business, the power supplies segment tracked certain assets separately, and all others were recorded in the data storage segment for internal reporting presentations. Upon the creation of N2Power, Inc., the assets were separated, and the internal resources were billed appropriately.
The types of products and services provided by each segment are summarized below:
Power Supplies — The Company designs, manufactures, and sells small, open frame, high efficiency switching power supplies. These power supplies are used to convert AC line voltage to DC voltages, or DC voltages to other DC voltages for use in a wide variety of electronic equipment such as telecommunications equipment, machine tools, routers, switches, wireless systems and gaming devices.
Data Storage — The Company configures to order, supports and sells data storage devices used to store, retrieve and manage electronic data primarily in network computing environments. Tape libraries consist of cartridge tape drives, tape cartridges and robotics to move the cartridges from their storage locations to the tape drives under software control. Our tape libraries provide data storage solutions for organizations requiring backup, recovery and archival storage of critical data.
Geographic Information
Information regarding revenues attributable to Qualstar’s primary geographic operating regions is as follows, in thousands:
|
|
Twelve Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Total Revenue:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
7,900
|
|
|
$
|
6,957
|
|
Europe
|
|
|
1,696
|
|
|
|
1,849
|
|
Asia Pacific
|
|
|
3,787
|
|
|
|
3,276
|
|
Other
|
|
|
56
|
|
|
|
147
|
|
|
|
$
|
13,439
|
|
|
$
|
12,229
|
|
Power Supply Revenue:
|
|
|
|
|
|
|
|
|
North America
|
|
|
3,507
|
|
|
|
3,356
|
|
Europe
|
|
|
1,118
|
|
|
|
1,220
|
|
Asia Pacific
|
|
|
454
|
|
|
|
1,351
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
5,079
|
|
|
$
|
5,927
|
|
Data Storage Revenue:
|
|
|
|
|
|
|
|
|
North America
|
|
|
4,393
|
|
|
|
3,601
|
|
Europe
|
|
|
578
|
|
|
|
629
|
|
Asia Pacific
|
|
|
3,333
|
|
|
|
1,925
|
|
Other
|
|
|
56
|
|
|
|
147
|
|
|
|
$
|
8,360
|
|
|
$
|
6,302
|
|
The geographic classification of revenues is based upon the location to which the product is shipped. Qualstar does not have any significant long-lived assets outside of the United States.
Note 10 – Legal Proceedings
Qualstar is subject to a variety of claims and legal proceedings that arise from time to time in the ordinary course of our business. Although management currently believes that resolving claims against us, individually or in the aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. No accrual was necessary as of December 31, 2019. As of December 31, 2018, an amount of $100,000 was accrued for fees and costs related to a threatened dispute.
Note 11 – Benefit Plans
Qualstar has a voluntary deferred compensation plan (the “Plan”) qualifying for treatment under Internal Revenue Code Section 401(k). All employees are eligible to participate in the Plan following three months of service of employment and may contribute up to 100% of their compensation on a pre-tax basis, not to exceed the annual IRS maximum. Qualstar, at the discretion of management, may make matching contributions in an amount equal to 25% of the first 6% of compensation contributed by eligible participants. Qualstar suspended the discretionary matching contribution effective August 2009.
Note 12 – Related Party Transactions
Steven N. Bronson is the Company’s CEO and is also the President and CEO and a majority shareholder of Interlink Electronics, Inc. (“Interlink”) and BKF Capital Group, Inc. (“BKF”). Interlink reimburses Qualstar for leased space at the Camarillo facility and, previously the Simi Valley facility and for other administrative expenses paid by or on behalf of the Company. The total amount charged to Interlink for the twelve months ended December 31, 2019 and 2018, was $39,000 and $17,000, respectively. Interlink owed Qualstar $5,000 and $2,000 at December 31, 2019 and December 31, 2018, respectively.
The Company reimburses Interlink for expenses paid on the Company’s behalf. On December 1, 2017, the Company entered into various Consulting Agreements with Interlink. Pursuant to the Consulting Agreements, Interlink performs marketing and administrative services to the Company. Interlink receives approximately, $40,000 per month, plus expenses for these services. Also, Interlink occasionally pays travel and other expenses incurred by Qualstar employees. The Company reimbursed Interlink $264,000 and $213,000 for the twelve months ended December 31, 2019 and 2018, respectively. Qualstar owed Interlink $25,000 and $3,000, at December 31, 2019 and December 31, 2018, respectively.
The Company reimburses BKF for expenses paid on the Company’s behalf. BKF occasionally pays consulting expenses incurred by Qualstar. The Company reimbursed BKF $2,000 and $1,000 for the twelve months ended December 31, 2019 and 2018, respectively. No amount was owed to BKF as of December 31, 2019 and 2018.
Note 13 – Subsequent Events
Our first quarter of 2020 has been impacted by the extended Chinese New Year holiday and the unprecedented change in the global business environment brought on by COVID-19. At this time, in our power supply business, we are experiencing a delay in shipping dates to our customers, as our subcontracted manufacturers rebuild to full capacity. Although the Company has experienced few cancellations at this time, the Company is also seeing customers delay orders in both business segments.