0001104659-20-122514 | 10-Q | XBRL Viewer

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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2020	Nov. 02, 2020
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-36305
Entity Registrant Name	Semler Scientific, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-1367393
Entity Address, Address Line One	2340-2348 Walsh Avenue, Suite 2344
Entity Address, City or Town	Santa Clara
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	95051
City Area Code	877
Local Phone Number	774-4211
Title of 12(b) Security	N/A
Trading Symbol	smlr
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		6,658,114
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001554859
Amendment Flag	false

Condensed Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Condensed Statements of Income - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Condensed Statements of Income
Revenues	$ 10,727	$ 8,902	$ 26,530	$ 23,616
Operating expenses:
Cost of revenues	820	974	2,370	2,755
Engineering and product development	672	617	2,277	1,777
Sales and marketing	2,116	2,345	7,283	6,626
General and administrative	1,564	1,855	4,634	4,798
Total operating expenses	5,172	5,791	16,564	15,956
Income from operations	5,555	3,111	9,966	7,660
Interest income (expense)	(2)	2	(5)
Other income (expense)	38	(1)	64	(3)
Other expense	40	(3)	69	(3)
Pre-tax net income	5,595	3,108	10,035	7,657
Income tax provision (benefit)	729	(4,671)	1,421	(4,594)
Net income	$ 4,866	$ 7,779	$ 8,614	$ 12,251
Net income per share, basic	$ 0.74	$ 1.20	$ 1.31	$ 1.91
Weighted average number of shares used in computing basic income per share	6,578,808	6,492,501	6,553,522	6,410,588
Net income per share, diluted	$ 0.61	$ 0.96	$ 1.07	$ 1.51
Weighted average number of shares used in computing diluted income per share	8,038,513	8,108,053	8,046,759	8,121,996

Condensed Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current Assets:
Cash	$ 16,793	$ 7,741
Trade accounts receivable, net of allowance for doubtful accounts of $56 and $36 respectively	3,455	3,486
Prepaid expenses and other current assets	1,530	216
Total current assets	21,778	11,443
Assets for lease, net	1,802	2,079
Property and equipment, net	258	249
Notes receivable	500
Other non-current assets	432	15
Long-term deferred tax assets	3,277	4,501
Total assets	28,047	18,287
Current liabilities:
Accounts payable	336	338
Accrued expenses	4,277	3,914
Deferred revenue	960	955
Other short-term liabilities	78
Total current liabilities	5,651	5,207
Long-term liabilities:
Other long-term liabilities	345	7
Total long-term liabilities	345	7
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 6,640,833, and 6,556,221 shares issued, and 6,615,833 and 6,531,221 shares outstanding (treasury shares of 25,000, and 25,000, respectively)	7	7
Additional paid-in capital	19,764	19,400
Retained earnings (accumulated deficit)	2,280	(6,334)
Total stockholders' equity	22,051	13,073
Total liabilities and stockholders' equity	$ 28,047	$ 18,287

Condensed Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Condensed Balance Sheets
Allowance for doubtful accounts on trade accounts receivable (in dollars)	$ 56	$ 36
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	6,640,833	6,556,221
Common stock, shares outstanding	6,615,833	6,531,221
Treasury stock, shares	25,000	25,000

Statements of Stockholders' Equity - USD ($)	Common Stock	Treasury Stock	Additional Paid-In Capital	Retained Earnings / (Accumulated Deficit)	Total
Balance at Dec. 31, 2018	$ 6,000	$ 0	$ 25,608,000	$ (21,418,000)	$ 4,196,000
Balance (in shares) at Dec. 31, 2018	6,349,985	(25,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Warrant Re-purchase	$ 0	$ 0	(2,687,000)	0	(2,687,000)
Warrant Exercises	$ 0	$ 0	0	0	0
Warrant Exercises (in shares)	36,197	0
Stock Option Exercises	$ 1,000	$ 0	59,000	0	60,000
Stock Option Exercises (in shares)	166,734	0
Stock-based Compensation	$ 0	$ 0	282,000	0	282,000
Net income	0	0	0	12,251,000	12,251,000
Balance at Sep. 30, 2019	$ 7,000	$ 0	23,262,000	(9,167,000)	14,102,000
Balance (in shares) at Sep. 30, 2019	6,552,916	(25,000)
Balance at Jun. 30, 2019	$ 6,000	$ 0	23,161,000	(16,946,000)	6,221,000
Balance (in shares) at Jun. 30, 2019	6,484,414	(25,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Warrant Exercises	$ 0	$ 0	0	0	0
Warrant Exercises (in shares)	13,670	0
Stock Option Exercises	$ 1,000	$ 0	15,000	0	16,000
Stock Option Exercises (in shares)	54,832	0
Stock-based Compensation	$ 0	$ 0	86,000	0	86,000
Net income	0	0	0	7,779,000	7,779,000
Balance at Sep. 30, 2019	$ 7,000	$ 0	23,262,000	(9,167,000)	14,102,000
Balance (in shares) at Sep. 30, 2019	6,552,916	(25,000)
Balance at Dec. 31, 2019	$ 7,000	$ 0	19,400,000	(6,334,000)	13,073,000
Balance (in shares) at Dec. 31, 2019	6,556,221	(25,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Employee Stock Grant	$ 0	$ 0	0	0	0
Employee Stock Grant (in shares)	641	0
Stock Option Exercises	$ 0	$ 0	174,000	0	$ 174,000
Stock Option Exercises (in shares)	83,971	0			85,226
Stock-based Compensation	$ 0	$ 0	190,000	0	$ 190,000
Net income	0	0	0	8,614,000	8,614,000
Balance at Sep. 30, 2020	$ 7,000	$ 0	19,764,000	2,280,000	22,051,000
Balance (in shares) at Sep. 30, 2020	6,640,833	(25,000)
Balance at Jun. 30, 2020	$ 7,000	$ 0	19,598,000	(2,586,000)	17,019,000
Balance (in shares) at Jun. 30, 2020	6,588,176	(25,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Employee Stock Grant	$ 0	$ 0	0	0	0
Employee Stock Grant (in shares)	641	0
Stock Option Exercises	$ 0	$ 0	104,000	0	104,000
Stock Option Exercises (in shares)	52,016	0
Stock-based Compensation	$ 0	$ 0	62,000	0	62,000
Net income	0	0	0	4,866,000	4,866,000
Balance at Sep. 30, 2020	$ 7,000	$ 0	$ 19,764,000	$ 2,280,000	$ 22,051,000
Balance (in shares) at Sep. 30, 2020	6,640,833	(25,000)

Condensed Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
Condensed Statements of Cash Flows - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 8,614	$ 12,251
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Depreciation	412	470
Deferred tax expense	1,224	(4,709)
Loss on disposal of assets for lease	178	159
Bad debt expense	43	42
Stock-based compensation expense	190	282
Changes in Operating Assets and Liabilities:
Trade accounts receivable	(13)	(512)
Prepaid expenses and other assets	(1,315)	(122)
Other non-current assets	(416)
Accounts payable	(2)	389
Accrued expenses	264	109
Deferred revenue	5	734
Other current and non-current liabilities	416
Net Cash Provided by Operating Activities	9,600	9,093
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment	(103)	(106)
Notes receivable	(400)
Purchase of assets for lease	(219)	(1,102)
Net Cash Used in Investing Activities	(722)	(1,208)
CASH FLOWS FROM FINANCING ACTIVITIES:
Re-purchase of warrants		(2,687)
Exercise of stock options	174	60
Net Cash Provided by (Used in) Financing Activities	174	(2,627)
INCREASE IN CASH	9,052	5,258
CASH, BEGINNING OF PERIOD	7,741	3,284
CASH, END OF PERIOD	$ 16,793	$ 8,542

Basis of Presentation

9 Months Ended

Sep. 30, 2020

Basis of Presentation

Basis of Presentation

1. Basis of Presentation

Semler Scientific, Inc., a Delaware corporation (“Semler” or “the Company”), prepared the unaudited interim financial statements included in this report in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 9, 2020 (the “Annual Report”). In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any future period, including the full year.

On January 30, 2020, the World Health Organization (“WHO”) declared the recent novel coronavirus (COVID-19) outbreak a global health emergency, which prompted national, state and local governments to begin putting actions in place to slow the spread of COVID-19. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. The outbreak of COVID-19 resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. While restrictions began to ease in the second quarter and activities began to resume, recent outbreaks could lead to restrictions being reimplemented. For the nine months ended September 30, 2020, the Company’s revenues, primarily from variable-fee licenses, were negatively impacted by the COVID-19 pandemic. For the three months ended September 30, 2020, the Company’s revenues, primarily from variable-fee licenses, rebounded to and even exceeded pre-COVID-19 levels. The extent and duration of the pandemic is unknown, and the future effects on the Company’s business are uncertain and difficult to predict. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future.

Recently Issued Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-08 – Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customer (Topic 606). The amendments on this update require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction in the transaction price should be based on the grant-date fair value of the share-based payment award. This standard is effective for the Company’s annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this new accounting guidance did not have a material impact on its financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of costs. The ASU specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This standard is effective for the Company’s annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this this new accounting guidance did not have a material impact on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements removing the requirements to disclosure amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. In addition, it modified certain disclosures related to Level 3 fair value measurements and added additional disclosures regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period. This update is effective for the Company’s annual periods beginning after December 15, 2019,

including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this this new accounting guidance did not have a material impact on its financial statements.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). This ASU requires timelier recording of credit losses on loans and other financial instruments held. Instead of reserves based on a current probability analysis, Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. All organizations will now use forward-looking information to better inform their credit loss estimates. Topic 326 requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide information about the amounts recorded in the financial statements. In addition, Topic 326 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to introduce amendments which will affect the recognition and measurement of financial instruments, including derivatives and hedging. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326); Targeted Transition Relief. The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments upon adoption of Topic 326. This standard and related amendments are effective for the Company’s fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt the new standard in the first quarter of fiscal year 2023. The Company does not anticipate this new standard will have a material impact on its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. This update is effective for the Company’s annual periods beginning after December 15, 2020, including interim periods within those fiscal years. The Company will adopt the new standard in the first quarter of fiscal year 2021. The Company does not anticipate this update will have a material impact on its financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This ASU is effective for fiscal years beginning after December 15, 2021. The adoption of this ASU is not expected to have any impact on the Company's results of operations, cash flows or financial position.

In March 2020, FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016 (ASU No. 2016-13). The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on its financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to

be discontinued. The ASU can be adopted no later than December 1, 2022, with early adoption permitted. The Company has not yet adopted this ASU and is evaluating the effect of adopting this new accounting guidance.

Variable-fee Revenue

9 Months Ended

Sep. 30, 2020

Variable-fee Revenue

Variable-fee Revenue

2. Variable-fee Revenue

The Company recognizes variable-fee licenses (i.e., fee per test) and sales of hardware equipment and accessories in accordance with Topic 606. Total fees from variable-fee licenses represent approximately $4,088 and $2,660 of revenues for the three months ended September 30, 2020 and 2019, respectively. Total fees from variable-fee licenses represent approximately $7,080 and $6,166 for the nine months ended September 30, 2020 and 2019, respectively. Total sales of hardware and equipment accessories represent approximately $332 and $291 of revenues for the three months ended September 30, 2020 and 2019, respectively. Total sales of hardware and equipment accessories represent approximately $732 and $842 of revenues for the nine months ended September 30, 2020 and 2019, respectively. Essentially all of the variable-fee licenses are with large healthcare organizations. The remainder of the revenue is earned from leasing the Company's testing product for a fixed fee, which is not subject to Topic 606.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-URI http://asc.fasb.org/topic&trid=49130388

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130556-203045

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130550-203045

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

+ Details

Assets for Lease, net

9 Months Ended

Sep. 30, 2020

Assets for Lease, net

Assets for Lease, net

3. Assets for Lease, net

The Company enters into contracts with customers for the Company’s QuantaFlo^® product. The Company has determined these contracts meet the definition of a lease under Topic 842. The lease portfolio primarily consists of operating leases that are short-term in nature (monthly, quarterly or one year, all of which have renewal options). The assets associated with these leasing arrangements are identified below as assets for lease. During the three months ended September 30, 2020 and 2019, the Company recognized approximately $6,307 and $5,951, respectively, in lease revenues related to these arrangements. During the nine months ended September 30, 2020 and 2019, the Company recognized approximately $18,718 and $16,608, respectively, in lease revenues related to these arrangements, which is included in Revenues on the Condensed Statements of Income.

Assets for lease consist of the following:


	September 30,		December 31,
	2020		2019
Assets for lease	$	3,272	$	3,374
Less: accumulated depreciation		(1,470)		(1,295)
Assets for lease, net	$	1,802	$	2,079

Depreciation expense amounted to $146 and $124 for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense amounted to $318 and $361 for the nine months ended September 30, 2020 and 2019, respectively. Reduction to accumulated depreciation for returned items was $56 and $38 for the three months ended September 30, 2020 and 2019, respectively. Reduction to accumulated depreciation for returned items was $143 and $115 for the nine months ended September 30, 2020 and 2019, respectively. The Company recognized a loss on disposal of assets for lease in the amount of $54 and $62 for the three months ended September 30, 2020 and 2019, respectively. The Company recognized a loss on disposal of assets for lease in the amount of $178 and $159 for the nine months ended September 30, 2020 and 2019, respectively.

Property and Equipment, net

9 Months Ended

Sep. 30, 2020

Property and Equipment, net

Property and Equipment, net

4. Property and Equipment, net

Capital assets consist of the following:


	September 30,		December 31,
	2020		2019
Capital assets	$	739	$	636
Less: accumulated depreciation		(481)		(387)
Capital assets, net	$	258	$	249

Depreciation expense amounted to $32 and $38 for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense amounted to $94 and $109 for the nine months ended September 30, 2020 and 2019, respectively.

Accrued Expenses

9 Months Ended

Sep. 30, 2020

Accrued Expenses

Accrued Expenses

5. Accrued Expenses

Accrued expenses consist of the following:


	September 30,		December 31,
	2020		2019
Compensation	$	2,953	$	2,803
Accrued taxes		875		378
Miscellaneous accruals		449		733
Total accrued expenses	$	4,277	$	3,914

Concentration of Credit Risk

9 Months Ended

Sep. 30, 2020

Concentration of Credit Risk

Concentration of Credit Risk

6. Concentration of Credit Risk

Credit risk is the risk of loss from amounts owed by the financial counterparties. Credit risk can occur at multiple levels; as a result of broad economic conditions, challenges within specific sectors of the economy, or from issues affecting individual companies. Financial instruments that potentially subject the Company to credit risk consist of cash and accounts receivable.

The Company maintains cash with major financial institutions. The Company’s cash consists of bank deposits held with banks that, at times, exceed federally insured limits. The Company limits its credit risk by dealing with counterparties that are considered to be of high credit quality and by performing periodic evaluations of the relative credit standing of these financial institutions.

Management periodically monitors the creditworthiness of its customers and believes that it has adequately provided for any exposure to potential credit loss. For the three months ended September 30, 2019, three customers accounted for 47.0%, 15.7% and 12.4% of the Company’s revenues, respectively. For the nine months ended September 30, 2019, three customers accounted for 50.7%, 12.9%, and 12.8% of the Company’s revenues, respectively. For the three months ended September 30, 2020, two customers accounted for 39.2% and 29.8% of the Company’s revenues. For the nine months ended September 30, 2020, two customers accounted for 47.2% and 20.4% of the Company’s revenues, respectively. As of December 31, 2019, three customers accounted for 55.9%, 17.6% and 12.0% of the Company’s accounts receivable, respectively. As of September 30, 2020, three customers accounted for 42.2%, 11.6% and 11.1% of the Company’s accounts receivable, respectively. The Company’s largest customer in terms of both revenues and accounts receivable in the three months ended September 30, 2020 is a U.S. diversified healthcare company and its affiliated plans.

As of December 31, 2019, two vendors accounted for 15.9% and 14.1% of the Company’s accounts payable, respectively. As of September 30, 2020, three vendors accounted for 19.4%, 17.5%, and 13.0% of the Company’s accounts payable, respectively.

Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies

Commitments and Contingencies

7. Commitments and Contingencies

Facilities Leases

The Company recognized facilities lease expenses of $32 and $17 for the three months ended September 30, 2020 and 2019, respectively. The Company recognized facilities lease expenses of $67 and $51 for the nine months ended September 30, 2020 and 2019, respectively.

On July 31, 2020, the Company entered into a 61-month lease agreement for office space to use, as necessary, for office administration, lab space and assembly and storage purposes, located in Santa Clara, California. The Company took possession of the leased office space in September 2020, and the lease is effective through September 30, 2025. The following table summarizes the future

minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of September 30, 2020:


	Total
October 2020 through December 2020	$	21
2021		85
2022		87
2023		90
2024		93
2025		71
Thereafter		—
Total undiscounted future minimum payments		447
Less: present value discount		(28)
Total lease liabilities		419
Lease expense in excess of cash payments		(7)
Total right of use (“ROU”) asset	$	412

As of September 30, 2020, the Company’s ROU asset was $412, which is recorded on the Company’s balance sheet as other current assets. The Company’s current maturities of operating lease liabilities were $75, and the Company’s noncurrent lease liabilities were $345, which are recorded on the Company’s balance sheet as other short-term liabilities and other long-term liabilities, respectively. During the three and nine months ended September 30, 2020, the Company paid $0 in operating leases reflected as a reduction in operating cash flows.

Indemnification Obligations

The Company enters into agreements with customers, partners, lenders, consultants, lessors, contractors, sales representatives and parties to certain transactions in the ordinary course of the Company’s business. These agreements may require the Company to indemnify the other party against third party claims alleging that its product infringes a patent or copyright. Certain of these agreements require the Company to indemnify the other party against losses arising from: a breach of representations or covenants, claims relating to property damage, personal injury or acts or omissions of the Company, its employees, agents or representatives. The Company has also agreed to indemnify the directors and certain of the officers and employees in accordance with the by-laws of the Company. These indemnification provisions will vary based upon the nature and terms of the agreements. In many cases, these indemnification provisions do not contain limits on the Company’s liability, and the occurrence of contingent events that will trigger payment under these indemnities is difficult to predict. As a result, the Company cannot estimate its potential liability under these indemnities. The Company believes that the likelihood of conditions arising that would trigger these indemnities is remote and, historically, the Company has not made any significant payment under such indemnification provisions. Accordingly, the Company has not recorded any liabilities relating to these agreements. In certain cases, the Company has recourse against third parties with respect to the aforesaid indemnities, and the Company believes it maintains adequate levels of insurance coverage to protect the Company with respect to potential claims arising from such agreements.

Stock Incentive Plan

9 Months Ended

Sep. 30, 2020

Stock Incentive Plan

Stock Incentive Plan

8. Stock Incentive Plan

The Company’s stock-based compensation program is designed to attract and retain employees while also aligning employees’ interests with the interests of its stockholders. Stock options have been granted to employees under the stockholder-approved 2007 Key Person Stock Option Plan (“2007 Plan”) and stock options and restricted stock have been granted to employees under the stockholder-approved 2014 Stock Incentive Plan (“2014 Plan”). Stockholder approval of the 2014 Plan became effective in September 2014. The 2014 Plan originally provided that the aggregate number of shares of common stock that may be issued pursuant to awards granted under the 2014 Plan may not exceed 450,000 shares (the “Share Reserve”), however in October 2015, the stockholders approved a 1,500,000 increase to the Share Reserve. In addition, the Share Reserve automatically increases on January 1st of each year, for a period of not more than 10 years, beginning on January 1st of the year following the year in which the 2014 Plan became effective and ending

on (and including) January 1, 2024, in an amount equal to 4% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The Company’s Board of Directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of common stock than would otherwise occur. On January 1, 2020, the Share Reserve increased by 261,249 shares due to the automatic 4% increase. The Share Reserve is currently 2,783,616 shares as of September 30, 2020.

In light of stockholder approval of the 2014 Plan, the Company no longer grants equity awards under the 2007 Plan. As of September 30, 2020, 0 shares of an aggregate total of 407,500 shares were available for future stock-based compensation grants under the 2007 Plan and 1,259,200 shares of an aggregate total of 2,783,616 shares were available for future stock-based compensation grants under the 2014 Plan.

Restricted Stock

The Company granted 641 shares of restricted stock to an employee in the three and nine months ended September 30, 2020.

Stock Options

Aggregate intrinsic value represents the difference between the closing market value as of September 30, 2020 of the underlying common stock and the exercise price of outstanding, in-the-money options. A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2020 is as follows:


	Options Outstanding
				Weighted
	Number of	Weighted		Average
	Stock	Average		Remaining	Aggregate
	Options	Exercise		Contractual	Intrinsic Value
	Outstanding	Price		Term (In Years)	(in thousands)
Balance, January 1, 2020	1,581,582	$	3.23	5.86	$	70,827
Options exercised	(85,226)		2.77	—		—
Balance, September 30, 2020	1,496,356	$	3.25	5.15	$	75,023
Exercisable as of September 30, 2020	1,447,502	$	3.14	5.08	$	72,741

The total compensation cost related to unvested stock option awards not yet recognized was $244 as of September 30, 2020. The weighted average period over which the total unrecognized compensation cost related to these unvested stock awards will be recognized is 0.7 years. There were no options granted during the three or nine months ended September 30, 2020 or 2019.

The Company has recorded an expense of $62 and $86 as it relates to stock-based compensation for the three months ended September 30, 2020 and 2019, respectively. The Company has recorded an expense of $190 and $282 as it relates to stock-based compensation for the nine months ended September 30, 2020 and 2019, respectively:


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Cost of Revenue	$	—	$	1	$	—	$	1
Engineering and Product Development		—		2		—		14
Sales and Marketing		—		7		—		39
General and Administrative		62		76		190		228
Total	$	62	$	86	$	190	$	282

Income Taxes

9 Months Ended

Sep. 30, 2020

Income Taxes

Income Taxes

9. Income Taxes

The Company’s income tax provision for the three and nine months ended September 30, 2020 and 2019, respectively, reflects its estimate of the effective tax rates expected to be applicable for the full year, adjusted for any discrete events that are recorded in the period in which they occur. The estimates are re-evaluated each quarter based on the estimated tax expense for the full year.

The effective tax rate for the three months and nine months ended September 30, 2020 was 13.19% and 14.17%, respectively, compared to (150)% and (60)%, respectively, in the same periods of the prior year. The increase in the effective tax rate for the three months and nine months ended September 30, 2020 is primarily related to the release of the valuation allowance against the deferred tax assets for federal and state net operating loss (“NOL”) carryforwards and other related deferred tax assets in the quarter ended September 30, 2019.

The effective tax rate for the three months and nine months ended September 30, 2020 differed from the U.S. federal statutory rate of 21%primarily due to state income taxes (net of federal benefit) partially offset by tax benefits associated with employee equity plans and federal and state research and development credit benefit. The effective tax rate for the three months and nine months ended September 30, 2019 differed from the U.S. federal statutory rate of 21% primarily due to NOL carryforwards that offset potential current taxes for which a full valuation allowance had been previously provided being fully released during the quarter ended September 30, 2019.

On March 27, 2020, the Coronavirus Aid Relief, and Economic Security Act was signed into law. The Company has evaluated the impact of the new regulations and determined that there is no material impact to its financial statements.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

Net Income Per Share, Basic and Diluted

9 Months Ended

Sep. 30, 2020

Net Income Per Share, Basic and Diluted

Net Income Per Share, Basic and Diluted

10. Net Income Per Share, Basic and Diluted

Basic earnings per share (“EPS”) represent net income attributable to common stockholders divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents net income attributable to common stockholders divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method.

Basic and diluted EPS is calculated as follows:


	Three months ended September 30,
	2020					2019
	Shares	Net Income		EPS		Shares	Net Income		EPS
Basic	6,578,808	$	4,866	$	0.74	6,492,501	$	7,779	$	1.20
Common stock warrants	70,291		—			155,490		—
Common stock options	1,389,414		—			1,460,062		—
Diluted	8,038,513	$	4,866	$	0.61	8,108,053	$	7,779	$	0.96


	Nine months ended September 30,
	2020					2019
	Shares	Net Income		EPS		Shares	Net Income		EPS
Basic	6,553,522	$	8,614	$	1.31	6,410,588	$	12,251	$	1.91
Common stock warrants	69,682		—			190,144		—
Common stock options	1,423,556		—			1,521,264		—
Diluted	8,046,759	$	8,614	$	1.07	8,121,996	$	12,251	$	1.51

The were no weighted average shares outstanding of common stock equivalents excluded from the computation of diluted net loss per share for the three or nine months ended September 30, 2020 and 2019.

Exclusive Distribution Agreement

9 Months Ended

Sep. 30, 2020

Exclusive Distribution Agreement.

Exclusive Distribution Agreement

11. Exclusive Distribution Agreement

In September 2020, the Company entered into an agreement to exclusively market and distribute a new product line in the United States, including Puerto Rico, for a privately-held company. Under this distribution agreement, the Company agreed to purchase $1,200 of product inventory. The Company also agreed to certain minimum quotas of product inventory during the term of the agreement and to make royalty payments ranging from 0% to 10% of net sales depending on the average net sales price of the distributed products. Unless early terminated in accordance with its terms, the exclusive distribution agreement will remain in full force and effect until December 31, 2024, and thereafter there is an option for this agreement to be automatically renewed for additional 4-year terms. In September 2020, the Company made a prepayment of $900 for inventory to be delivered during the quarter ending December 31, 2020, which has been recorded in the condensed balance sheet as prepaid expenses and other current assets.

Note Receivable

9 Months Ended

Sep. 30, 2020

Note Receivable

Note Receivable

12. Note Receivable

In September 2020, the Company acquired a $500 promissory note from a privately-held company in a new product area. The Company funded $400 of the note, and the remaining $100 was retained for expense reimbursement. This note receivable is recorded on the Company’s balance sheet as of September 30, 2020. This note has an interest rate of 10%, has customary terms for default and fully matures upon the one-year anniversary of the issuance date. The Company expects to receive no payments on this note during the remainder of 2020 and full payment of $550 for the note and interest upon maturity in 2021.

Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events

Subsequent Events

13. Subsequent Events

Following the note receivable investment referred to in Note 12, in October 2020, the Company made an investment in the equity securities of such privately-held company for 40,922 shares of the Company’s common stock.

In October 2020, the Company acquired a convertible note in a third privately-held company in a new product area for a purchase price of $58, which note converted into shares of preferred stock concurrent with the Company’s purchase of additional shares of preferred stock for $250. Subsequently, the Company acquired a $1,500 convertible promissory note, which is convertible into shares of preferred stock, and warrants to purchase shares of common stock of this third privately-held company. The Company funded $1,400 of the note, and the remaining $100 was retained for expense reimbursement.

Basis of Presentation (Policies)	9 Months Ended
Basis of Presentation (Policies)	Sep. 30, 2020
Basis of Presentation
Basis of Presentation	Semler Scientific, Inc., a Delaware corporation (“Semler” or “the Company”), prepared the unaudited interim financial statements included in this report in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 9, 2020 (the “Annual Report”). In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any future period, including the full year. On January 30, 2020, the World Health Organization (“WHO”) declared the recent novel coronavirus (COVID-19) outbreak a global health emergency, which prompted national, state and local governments to begin putting actions in place to slow the spread of COVID-19. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. The outbreak of COVID-19 resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. While restrictions began to ease in the second quarter and activities began to resume, recent outbreaks could lead to restrictions being reimplemented. For the nine months ended September 30, 2020, the Company’s revenues, primarily from variable-fee licenses, were negatively impacted by the COVID-19 pandemic. For the three months ended September 30, 2020, the Company’s revenues, primarily from variable-fee licenses, rebounded to and even exceeded pre-COVID-19 levels. The extent and duration of the pandemic is unknown, and the future effects on the Company’s business are uncertain and difficult to predict. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future.
Recently Issued Accounting Pronouncements	Recently Issued Accounting Pronouncements Accounting Pronouncements Recently Adopted In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-08 – Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customer (Topic 606). The amendments on this update require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction in the transaction price should be based on the grant-date fair value of the share-based payment award. This standard is effective for the Company’s annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this new accounting guidance did not have a material impact on its financial statements. In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of costs. The ASU specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This standard is effective for the Company’s annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this this new accounting guidance did not have a material impact on its financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements removing the requirements to disclosure amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. In addition, it modified certain disclosures related to Level 3 fair value measurements and added additional disclosures regarding the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period. This update is effective for the Company’s annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020 and determined that the adoption of this this new accounting guidance did not have a material impact on its financial statements. Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). This ASU requires timelier recording of credit losses on loans and other financial instruments held. Instead of reserves based on a current probability analysis, Topic 326 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. All organizations will now use forward-looking information to better inform their credit loss estimates. Topic 326 requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide information about the amounts recorded in the financial statements. In addition, Topic 326 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to introduce amendments which will affect the recognition and measurement of financial instruments, including derivatives and hedging. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326); Targeted Transition Relief. The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments upon adoption of Topic 326. This standard and related amendments are effective for the Company’s fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt the new standard in the first quarter of fiscal year 2023. The Company does not anticipate this new standard will have a material impact on its financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. This update is effective for the Company’s annual periods beginning after December 15, 2020, including interim periods within those fiscal years. The Company will adopt the new standard in the first quarter of fiscal year 2021. The Company does not anticipate this update will have a material impact on its financial statements. In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This ASU is effective for fiscal years beginning after December 15, 2021. The adoption of this ASU is not expected to have any impact on the Company's results of operations, cash flows or financial position. In March 2020, FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016 (ASU No. 2016-13). The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on its financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The ASU can be adopted no later than December 1, 2022, with early adoption permitted. The Company has not yet adopted this ASU and is evaluating the effect of adopting this new accounting guidance.

Assets for Lease, net (Tables)

9 Months Ended

Sep. 30, 2020

Assets for Lease, net

Schedule of assets for lease


	September 30,		December 31,
	2020		2019
Assets for lease	$	3,272	$	3,374
Less: accumulated depreciation		(1,470)		(1,295)
Assets for lease, net	$	1,802	$	2,079

Property and Equipment, net (Tables)

9 Months Ended

Sep. 30, 2020

Property and Equipment, net

Schedule of capital assets


	September 30,		December 31,
	2020		2019
Capital assets	$	739	$	636
Less: accumulated depreciation		(481)		(387)
Capital assets, net	$	258	$	249

Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2020

Accrued Expenses

Schedule of accrued expenses


	September 30,		December 31,
	2020		2019
Compensation	$	2,953	$	2,803
Accrued taxes		875		378
Miscellaneous accruals		449		733
Total accrued expenses	$	4,277	$	3,914

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies

Summary of the future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms

minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of September 30, 2020:


	Total
October 2020 through December 2020	$	21
2021		85
2022		87
2023		90
2024		93
2025		71
Thereafter		—
Total undiscounted future minimum payments		447
Less: present value discount		(28)
Total lease liabilities		419
Lease expense in excess of cash payments		(7)
Total right of use (“ROU”) asset	$	412

Stock Incentive Plan (Tables)

9 Months Ended

Sep. 30, 2020

Stock Incentive Plan

Schedule of stock option activity


	Options Outstanding
				Weighted
	Number of	Weighted		Average
	Stock	Average		Remaining	Aggregate
	Options	Exercise		Contractual	Intrinsic Value
	Outstanding	Price		Term (In Years)	(in thousands)
Balance, January 1, 2020	1,581,582	$	3.23	5.86	$	70,827
Options exercised	(85,226)		2.77	—		—
Balance, September 30, 2020	1,496,356	$	3.25	5.15	$	75,023
Exercisable as of September 30, 2020	1,447,502	$	3.14	5.08	$	72,741

Schedule of stock-based compensation


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Cost of Revenue	$	—	$	1	$	—	$	1
Engineering and Product Development		—		2		—		14
Sales and Marketing		—		7		—		39
General and Administrative		62		76		190		228
Total	$	62	$	86	$	190	$	282

Net Income Per Share, Basic and Diluted (Tables)

9 Months Ended

Sep. 30, 2020

Net Income Per Share, Basic and Diluted

Schedule of basic and diluted net EPS


	Three months ended September 30,
	2020					2019
	Shares	Net Income		EPS		Shares	Net Income		EPS
Basic	6,578,808	$	4,866	$	0.74	6,492,501	$	7,779	$	1.20
Common stock warrants	70,291		—			155,490		—
Common stock options	1,389,414		—			1,460,062		—
Diluted	8,038,513	$	4,866	$	0.61	8,108,053	$	7,779	$	0.96


	Nine months ended September 30,
	2020					2019
	Shares	Net Income		EPS		Shares	Net Income		EPS
Basic	6,553,522	$	8,614	$	1.31	6,410,588	$	12,251	$	1.91
Common stock warrants	69,682		—			190,144		—
Common stock options	1,423,556		—			1,521,264		—
Diluted	8,046,759	$	8,614	$	1.07	8,121,996	$	12,251	$	1.51

Variable-fee Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Variable-fee Revenue (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Variable-fee Revenue
Revenue from variable-fee licenses	$ 4,088	$ 2,660	$ 7,080	$ 6,166
Revenue from sales of hardware and equipment accessories	$ 332	$ 291	$ 732	$ 842

Assets for Lease, net (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets for Lease, net
Assets for lease	$ 3,272	$ 3,374
Less: accumulated depreciation	(1,470)	(1,295)
Assets for lease, net	$ 1,802	$ 2,079

Assets for Lease, net - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Assets for Lease, net
Lease revenue	$ 6,307	$ 5,951	$ 18,718	$ 16,608
Depreciation expense	146	124	318	361
Reduction to accumulated depreciation for returned items	56	38	143	115
Loss on disposal of assets for lease	$ (54)	$ (62)	$ (178)	$ (159)

- Definition

Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 30
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8906-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 4
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130543-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130545-203045

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 924
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SAB Topic 11.L)
-URI http://asc.fasb.org/extlink&oid=6472922&loc=d3e499488-122856

+ Details

Property and Equipment, net (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Property and Equipment, net
Capital assets	$ 739	$ 636
Less: accumulated depreciation	(481)	(387)
Capital assets, net	$ 258	$ 249

Property and Equipment, net - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Property and Equipment, net
Depreciation expense	$ 32	$ 38	$ 94	$ 109

Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Accrued Expenses
Compensation	$ 2,953	$ 2,803
Accrued taxes	875	378
Miscellaneous accruals	449	733
Total accrued expenses	$ 4,277	$ 3,914

Concentration of Credit Risk (Details)	3 Months Ended		9 Months Ended		12 Months Ended
Concentration of Credit Risk (Details)	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Customer concentration risk \| Revenue
Concentration of Credit Risk
Number of customers	2	3	2	3
Customer concentration risk \| Revenue \| Customer one
Concentration of Credit Risk
Concentration risk percentage	39.20%	47.00%	47.20%	50.70%
Customer concentration risk \| Revenue \| Customer two
Concentration of Credit Risk
Concentration risk percentage	29.80%	15.70%	20.40%	12.90%
Customer concentration risk \| Revenue \| Customer three
Concentration of Credit Risk
Concentration risk percentage		12.40%		12.80%
Customer concentration risk \| Accounts receivable
Concentration of Credit Risk
Number of customers			3		3
Customer concentration risk \| Accounts receivable \| Customer one
Concentration of Credit Risk
Concentration risk percentage			42.20%		55.90%
Customer concentration risk \| Accounts receivable \| Customer two
Concentration of Credit Risk
Concentration risk percentage			11.60%		17.60%
Customer concentration risk \| Accounts receivable \| Customer three
Concentration of Credit Risk
Concentration risk percentage			11.10%		12.00%
Vendor concentration risk \| Accounts payable
Concentration of Credit Risk
Number of vendors			3		2
Vendor concentration risk \| Accounts payable \| Vendor one
Concentration of Credit Risk
Concentration risk percentage			19.40%		15.90%
Vendor concentration risk \| Accounts payable \| Vendor two
Concentration of Credit Risk
Concentration risk percentage			17.50%
Vendor concentration risk \| Accounts payable \| Vendor three
Concentration of Credit Risk
Concentration risk percentage			13.00%
Vendor concentration risk \| Accounts payable \| Vendor Four
Concentration of Credit Risk
Concentration risk percentage					14.10%

Commitments and Contingencies (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Commitments and Contingencies
Facilities lease expense	$ 32	$ 17	$ 67	$ 51
Total ROU asset	$ 412		$ 412

Commitments and Contingencies - Minimum rental payments required under operating leases (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Minimum rental payments required under operating leases
October 2020 through December 2020	$ 21
2021	85
2022	87
2023	90
2024	93
2025	71
Total undiscounted future minimum payments	447
Less: present value discount	(28)
Total lease liabilities	419
Lease expense in excess of cash payments	(7)
Total ROU asset	$ 412

Stock Incentive Plan (Details) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020 USD ($) $ / shares shares	Dec. 31, 2019 USD ($) $ / shares shares
Number of Stock Options Outstanding
Balance, Beginning \| shares	1,581,582
Options exercised \| shares	(85,226)
Balance, Ending \| shares	1,496,356	1,581,582
Exercisable, Ending \| shares	1,447,502
Weighted Average Exercise Price
Balance, Beginning \| $ / shares	$ 3.23
Options exercised \| $ / shares	2.77
Balance, Ending \| $ / shares	3.25	$ 3.23
Exercisable, Ending \| $ / shares	$ 3.14
Weighted Average Remaining Contractual Term, Options Outstanding (in years)	5 years 1 month 24 days	5 years 10 months 9 days
Weighted Average Remaining Contractual Term, Options Exercisable (in years)	5 years 29 days
Aggregate Intrinsic Value, Options Outstanding \| $	$ 75,023	$ 70,827
Aggregate Intrinsic Value, Options Exercisable \| $	$ 72,741

Stock Incentive Plan - Stock-based compensation - Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 62	$ 86	$ 190	$ 282
Cost of Revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		1		1
Engineering and Product Development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		2		14
Sales and Marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		7		39
General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 62	$ 76	$ 190	$ 228

Stock Incentive Plan - Additional information (Details) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 31, 2020	Oct. 31, 2015	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost related to non-vested stock options			$ 244		$ 244
Weighted average period of unvested stock awards					8 months 12 days
Stock-based compensation expense			$ 62	$ 86	$ 190	$ 282
Number of stock option granted			0	0	0	0
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares granted			641		641
2007 Key Person Stock Option Plan \| Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for future stock-based compensation grants			0		0
Maximum number of shares issued pursuant to awards granted under plan			407,500		407,500
2014 Stock Incentive Plan \| Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for future stock-based compensation grants			1,259,200		1,259,200
Maximum number of shares issued pursuant to awards granted under plan			2,783,616		2,783,616		450,000
Maximum term of stock option grants		10 years
Number of share reserve increased	261,249	1,500,000
Percentage of shares reserve increased	4.00%	4.00%

Income Taxes (Details)	3 Months Ended		9 Months Ended
Income Taxes (Details)	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Taxes
Effective income tax rate	13.19%	150.00%	14.17%	60.00%
Federal statutory rate	21.00%	21.00%	21.00%	21.00%

Net Income Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net Income Per Share, Basic and Diluted
Basic EPS (in shares)	6,578,808	6,492,501	6,553,522	6,410,588
Common stock warrants (in shares)	70,291	155,490	69,682	190,144
Common stock options (in shares)	1,389,414	1,460,062	1,423,556	1,521,264
Diluted EPS (in shares)	8,038,513	8,108,053	8,046,759	8,121,996
Net Income - Basic EPS	$ 4,866	$ 7,779	$ 8,614	$ 12,251
Net Income - Common stock warrants	0	0	0	0
Net Income - Common stock options	0	0	0	0
Net Income - Diluted EPS	$ 4,866	$ 7,779	$ 8,614	$ 12,251
Basic EPS (in dollars per share)	$ 0.74	$ 1.20	$ 1.31	$ 1.91
Diluted EPS (in dollars per share)	$ 0.61	$ 0.96	$ 1.07	$ 1.51

Net Income Per Share, Basic and Diluted - Additional Information (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net Income Per Share, Basic and Diluted
Weighted average shares outstanding	0	0	0	0

Exclusive Distribution Agreement (Details) $ in Thousands	1 Months Ended
Exclusive Distribution Agreement (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Product inventory purchases	$ 1,200
Renewal term (in years)	4 years
Prepayment for inventory	$ 900
Minimum
Royalty on net sales (in percent)	0.00%
Maximum
Royalty on net sales (in percent)	10.00%

Note Receivable (Details) $ in Thousands	1 Months Ended
Note Receivable (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Note Receivable
Notes acquired	$ 500
Funded note	400
Retention of Expense	$ 100
Interest rate	10.00%
Payments receive on the note during the remainder of 2020	$ 0
Payment of note and interest upon maturity in 2021	$ 550

Subsequent Events - (Details) - USD ($) $ in Thousands	1 Months Ended
Subsequent Events - (Details) - USD ($) $ in Thousands	Oct. 31, 2020	Sep. 30, 2020
Subsequent Event [Line Items]
Retention of Expense		$ 100
Funded note		$ 400
Subsequent Event
Subsequent Event [Line Items]
Equity interest acquired (in shares)	40,922
Convertible note purchase price	$ 58
Preferred Stock Purchase Price	250
Convertible promissory note received	1,500
Retention of Expense	100
Funded note	$ 1,400