UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to ________
Commission File Number 0-53722
MINIM, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 04-2621506 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 03101 | ||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (617) 423-1072
(Former Name or Former Address, and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.01 per share | MINM | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |||
| Non-accelerated filer | Smaller | |||
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Yes☐ No ☑
The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of November 10, 2020,August 11, 2021, was 24,058,642 shares.
MINIM, INC. AND SUBSIDIARIES
INDEX
| 1 |
| ITEM 1. | FINANCIAL STATEMENTS |
MINIM, INC.
Consolidated BalanceBalance Sheets
| ASSETS | September 30, 2020 (Unaudited) | December 31, 2019 |
| Current assets | ||
| Cash and cash equivalents | $4,013,690 | $1,216,893 |
| Restricted cash | 800,000 | 150,000 |
| Accounts receivable, net | 6,577,447 | 4,070,576 |
| Inventories, net | 9,693,326 | 7,440,350 |
| Prepaid expenses and other current assets | 128,847 | 269,738 |
| Total current assets | 21,213,310 | 13,147,557 |
| Other assets | 914,884 | 349,335 |
| Operating lease right-of-use assets, net | 107,343 | 102,716 |
| Equipment, net | 460,534 | 303,099 |
| Total assets | $22,696,071 | $13,902,707 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | $10,513,620 | $5,024,529 |
| Current maturities of long-term debt | 354,968 | –– |
| Current maturities of operating lease liabilities | 72,739 | 102,716 |
| Accrued expenses | 4,015,666 | 2,666,471 |
| Total current liabilities | $14,956,993 | $7,793,716 |
| Long-term debt, less current maturities | 228,332 | –– |
| Operating lease liabilities, less current maturities | 34,738 | –– |
| Total liabilities | $15,220,063 | $7,793,716 |
| Commitments and contingencies (Notes 4 and 5) | ||
| Stockholders' equity | ||
| Common stock: Authorized: 40,000,000 shares at $0.01 par value | ||
| Issued and outstanding: 23,921,142 shares at September 30, 2020 and 20,929,928 shares at December 31, 2019 | 239,211 | 209,299 |
| Additional paid in capital | 50,454,720 | 46,496,330 |
| Accumulated deficit | (43,217,923) | (40,596,638) |
| Total stockholders' equity | 7,476,008 | 6,108,991 |
| Total liabilities and stockholders' equity | $22,696,071 | $13,902,707 |
June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 812,373 | $ | 771,757 | ||||
| Restricted cash | 750,000 | 800,000 | ||||||
| Accounts receivable, net of allowance of doubtful accounts of $173,603 as of June 30, 2021 and December 31, 2020 | 9,254,845 | 9,203,334 | ||||||
| Inventories, net | 19,579,030 | 16,504,840 | ||||||
| Prepaid expenses and other current assets | 304,455 | 399,119 | ||||||
| Total current assets | 30,700,703 | 27,679,050 | ||||||
| Equipment, net | 633,662 | 455,066 | ||||||
| Operating lease right-of-use assets, net | 91,179 | 86,948 | ||||||
| Goodwill | 58,872 | 58,872 | ||||||
| Intangible assets, net | 332,963 | 388,629 | ||||||
| Other assets | 845,855 | 942,404 | ||||||
| Total assets | $ | 32,663,234 | $ | 29,610,969 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Bank credit line | $ | 7,228,672 | $ | 2,442,246 | ||||
| Accounts payable | 12,204,708 | 11,744,834 | ||||||
| Current maturities of government loan | 60,470 | 65,225 | ||||||
| Current maturities of operating lease liabilities | 92,654 | 65,651 | ||||||
| Accrued expenses | 5,045,579 | 7,465,063 | ||||||
| Deferred revenue, current | 349,961 | — | ||||||
| Total current liabilities | 24,982,044 | 21,783,019 | ||||||
| Long term government loan, less current maturities | — | 15,245 | ||||||
| Operating lease liabilities, less current maturities | — | 22,235 | ||||||
| Deferred revenue, noncurrent | 652,899 | — | ||||||
| Total Liabilities | 25,634,943 | 21,820,499 | ||||||
| Commitments and Contingencies (Note 6) | - | - | ||||||
| Stockholders’ equity | ||||||||
| Common Stock: Authorized: shares at $ par value; issued and outstanding: shares at June 30, 2021 and shares at December 31, 2020, respectively | 356,350 | 350,749 | ||||||
| Additional paid-in capital | 65,858,315 | 64,526,664 | ||||||
| Accumulated deficit | (59,186,374 | ) | (57,086,943 | ) | ||||
| Total stockholders’ equity | 7,028,291 | 7,790,470 | ||||||
| Total liabilities and stockholders’ equity | $ | 32,663,234 | $ | 29,610,969 | ||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
MINIM, INC.
Consolidated Statements of Operations
Three Months Ended September 30, | Nine Months Ended September 30, | |||
2020 | 2019 | 2020 | 2019 | |
| Net sales | $12,027,457 | $10,874,149 | $34,255,817 | $27,042,961 |
| Cost of goods sold | 8,150,901 | 7,746,821 | 25,160,174 | 18,728,928 |
| Gross profit | 3,876,556 | 3,127,328 | 9,095,643 | 8,314,033 |
| Operating expenses: | ||||
| Selling | 2,012,314 | 2,067,728 | 6,650,047 | 7,068,841 |
| General and administrative | 1,468,187 | 733,486 | 3,012,292 | 1,858,043 |
| Research and development | 728,258 | 563,881 | 2,025,502 | 1,484,160 |
| Total operating expenses | 4,208,759 | 3,365,095 | 11,687,841 | 10,411,044 |
| Operating loss | (332,203) | (237,767) | (2,592,198) | (2,097,011) |
| Other income (expense): | ||||
| Interest income | 272 | 5,626 | 1,064 | 9,627 |
| Interest expense | (5,420) | –– | (13,852) | (48,405) |
| Other, net | (1,150) | 36,156 | (707) | 34,251 |
| Total other income (expense) | (6,298) | 41,782 | (13,495) | (4,527) |
| Loss before income taxes | (338,501) | (195,985) | (2,605,693) | (2,101,538) |
| Income taxes | 2,920 | 3,641 | 15,592 | 24,319 |
| Net loss | $(341,421) | $(199,626) | $(2,621,285) | $(2,125,857) |
| Net loss per share: | ||||
| Basic and diluted | $(0.01) | $(0.01) | $(0.12) | $(0.11) |
| Basic and diluted weighted average common and common equivalent shares | 23,887,718 | 20,832,174 | 22,419,823 | 18,696,083 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | 14,893,145 | $ | 10,272,757 | $ | 29,910,719 | $ | 22,228,360 | ||||||||
| Cost of goods sold | 10,415,427 | 8,148,888 | 20,329,211 | 17,009,273 | ||||||||||||
| Gross profit | 4,477,718 | 2,123,869 | 9,581,508 | 5,219,087 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | 3,209,247 | 2,283,490 | 6,383,196 | 4,637,733 | ||||||||||||
| General and administrative | 1,326,493 | 716,166 | 2,403,861 | 1,544,105 | ||||||||||||
| Research and development | 1,386,358 | 644,492 | 2,774,530 | 1,297,244 | ||||||||||||
| Total operating expenses | 5,922,098 | 3,644,148 | 11,561,587 | 7,479,082 | ||||||||||||
| Operating loss | (1,444,380 | ) | (1,520,279 | ) | (1,980,079 | ) | (2,259,995 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (78,041 | ) | (2,242 | ) | (106,362 | ) | (7,640 | ) | ||||||||
| Other, net | — | 892 | 20,000 | 443 | ||||||||||||
| Total other income (expense) | (78,041 | ) | (1,350 | ) | (86,362 | ) | (7,197 | ) | ||||||||
| Loss before income taxes | (1,522,421 | ) | (1,521,629 | ) | (2,066,441 | ) | (2,267,192 | ) | ||||||||
| Income taxes | 31,490 | 6,356 | 32,990 | 12,672 | ||||||||||||
| Net loss | $ | (1,553,911 | ) | $ | (1,527,985 | ) | $ | (2,099,431 | ) | $ | (2,279,864 | ) | ||||
| Net loss per share: | ||||||||||||||||
| Basic and diluted | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.10 | ) | ||||
| Basic and diluted weighted average common and common equivalent shares | 35,482,181 | 22,275,441 | 35,368,931 | 21,776,101 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
MINIM, INC.
Consolidated Statements of Stockholders’ Equity
Common Stock | |||||
Shares | Amount | Additional Paid In Capital | Accumulated Deficit | Total | |
| Balance at January 1, 2020 | 20,929,928 | $209,299 | $46,496,330 | $(40,596,638) | $6,108,991 |
| Net loss | –– | –– | –– | (751,879) | (751,879) |
| Stock option exercise | 346,834 | 3,468 | 194,190 | –– | 197,658 |
| Stock based compensation | –– | –– | 127,053 | –– | 127,053 |
| Balance at March 31, 2020 | 21,276,762 | $212,767 | $46,817,573 | $(41,348,517) | $5,681,823 |
| Net loss | –– | –– | –– | (1,527,985) | (1,527,985) |
| Private investment offering, net of offering costs of $237,030 | 2,237,103 | 22,371 | 3,140,999 | –– | 3,163,370 |
| Stock option exercise | 267,566 | 2,676 | 211,716 | –– | 214,392 |
| Stock based compensation | –– | –– | 67,548 | –– | 67,548 |
| Balance at June 30, 2020 | 23,781,431 | $237,814 | $50,237,836 | $(42,876,502) | $7,599,148 |
| Net loss | –– | –– | –– | (341,421) | (341,421) |
| Stock option exercise | 139,711 | 1,397 | 129,443 | –– | 130,840 |
| Stock based compensation | –– | –– | 87,441 | –– | 87,441 |
| Balance at September 30, 2020 | 23,921,142 | $239,211 | $50,454,720 | $(43,217,923) | $7,476,008 |
Common Stock | |||||
Shares | Amount | Additional Paid In Capital | Accumulated Deficit | Total | |
| Balance at January 1, 2019 | 16,124,681 | $161,247 | $41,035,936 | $(37,320,838) | $3,876,345 |
| Net loss | –– | –– | –– | (1,121,118) | (1,121,118) |
| Stock option exercise | 37,500 | 375 | 4,725 | –– | 5,100 |
| Stock based compensation | –– | –– | 175,012 | –– | 175,012 |
| Balance at March 31, 2019 | 16,162,181 | $161,622 | $41,215,673 | $(38,441,956) | $2,935,339 |
| Net loss | –– | –– | –– | (805,113) | (805,113) |
| Private investment offering, net of offering costs of $57,391 | 4,545,455 | 45,454 | 4,897,155 | –– | 4,942,609 |
| Stock option exercise | 35,000 | 350 | 8,400 | –– | 8,750 |
| Stock based compensation | –– | –– | 138,756 | –– | 138,756 |
| Balance at June 30, 2019 | 20,742,636 | $207,426 | $46,259,984 | $(39,247,069) | $7,220,341 |
| Net loss | –– | –– | –– | (199,626) | (199,626) |
| Stock option exercise | 137,500 | 1,375 | 32,975 | –– | 34,350 |
| Stock based compensation | –– | –– | 118,276 | –– | 118,276 |
| Balance at September 30, 2019 | 20,880,136 | $208,801 | $46,411,235 | $(39,446,695) | $7,173,341 |
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at December 31, 2020 | 35,074,922 | $ | 350,749 | $ | 64,526,664 | $ | (57,086,943 | ) | $ | 7,790,470 | ||||||||||
| Net loss | — | — | — | (545,520 | ) | (545,520 | ) | |||||||||||||
| Private investment offering, net of offering costs of $237,030 | ||||||||||||||||||||
| Private investment offering, net of offering costs of $237,030, shares | ||||||||||||||||||||
| Stock option exercises | 287,932 | 2,879 | 376,268 | — | 379,147 | |||||||||||||||
| Stock-based compensation | — | — | 404,718 | — | 404,718 | |||||||||||||||
| Balance at March 31, 2021 | 35,362,854 | $ | 353,628 | $ | 65,307,650 | $ | (57,632,463 | ) | $ | 8,028,815 | ||||||||||
| Net loss | — | — | — | (1,553,911 | ) | (1,553,911 | ) | |||||||||||||
| Stock option exercises, net | 268,385 | 2,722 | 339,541 | — | 342,263 | |||||||||||||||
| Stock-based compensation | — | — | 211,124 | — | 211,124 | |||||||||||||||
| Balance at June 30, 2021 | 35,631,239 | $ | 356,350 | $ | 65,858,315 | $ | (59,186,374 | ) | $ | 7,028,291 | ||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Additional Paid In Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at December 31, 2019 | 20,929,928 | $ | 209,299 | $ | 46,496,330 | $ | (40,596,638 | ) | $ | 6,108,991 | ||||||||||
| Net loss | — | — | — | (751,879 | ) | (751,879 | ) | |||||||||||||
| Stock option exercises | 346,834 | 3,468 | 194,190 | — | 197,658 | |||||||||||||||
| Stock-based compensation | — | — | 127,053 | — | 127,053 | |||||||||||||||
| Balance at March 31, 2020 | 21,276,762 | $ | 212,767 | $ | 46,817,573 | $ | (41,348,517 | ) | $ | 5,681,823 | ||||||||||
| Net loss | — | — | — | (1,527,985 | ) | (1,527,985 | ) | |||||||||||||
| Private investment offering, net of offering costs of $237,030 | 2,237,103 | 22,371 | 3,140,999 | — | 3,163,370 | |||||||||||||||
| Stock option exercises | 267,566 | 2,676 | 211,716 | — | 214,392 | |||||||||||||||
| Stock-based compensation | — | — | 67,548 | — | 67,548 | |||||||||||||||
| Balance at June 30, 2020 | 23,781,431 | $ | 237,814 | $ | 50,237,836 | $ | (42,876,502 | ) | $ | 7,599,148 | ||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
MINIM, INC.
Consolidated Statements of CashCash Flows
Nine Months Ended September 30, | ||
2020 | 2019 | |
Cash flows from operating activities: | ||
| Net loss | $(2,621,285) | $(2,125,857) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 139,940 | 252,471 |
| Amortization of right-of-use assets | 91,572 | 268,155 |
| Stock based compensation | 282,042 | 432,044 |
| (Recovery of) provision for accounts receivable allowances | (102,632) | 8,549 |
| Provision for inventory reserves | 19,781 | 19,983 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | (2,404,239) | (1,996,450) |
| Inventories | (2,272,757) | 1,565,903 |
| Prepaid expenses and other current assets | 140,891 | 533,486 |
| Operating lease liabilities | (91,438) | (293,489) |
| Accounts payable and accrued expenses | 6,838,286 | 494,221 |
| Net cash provided by (used in) operating activities | 20,161 | (839,984) |
| Cash flows from investing activities: | ||
| Certification and software costs incurred and capitalized | (608,384) | (135,000) |
| Purchases of equipment | (254,540) | (120,715) |
| Net cash used in investing activities | (862,924) | (255,715) |
| Cash flows from financing activities: | ||
| Net payments on bank credit lines | –– | (1,741,272) |
| Proceeds from debt | 583,300 | –– |
| Net proceeds from private placement offering | 3,163,370 | 4,942,609 |
| Proceeds from stock option exercises | 542,890 | 48,200 |
| Net cash provided by financing activities | 4,289,560 | 3,249,537 |
| Net increase in cash, cash equivalents, and restricted cash | 3,446,797 | 2,153,838 |
| Cash, cash equivalents, and restricted cash- Beginning | 1,366,893 | 125,982 |
| Cash, cash equivalents, and restricted cash- Ending | $4,813,690 | $2,279,820 |
| Supplemental disclosures of cash flow information: | ||
| Cash paid during the period for: | ||
| Interest | $13,852 | $48,405 |
| Income taxes | $15,592 | $24,319 |
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown above: | ||
| Cash and cash equivalents | $4,013,690 | $2,129,820 |
| Restricted cash | 800,000 | 150,000 |
| Total cash, cash equivalents and restricted cash | $4,813,690 | $2,279,820 |
Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | (2,099,431 | ) | $ | (2,279,864 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 337,463 | 96,546 | ||||||
| Amortization of right-of-use assets | 54,971 | 54,640 | ||||||
| Stock-based compensation | 615,842 | 194,601 | ||||||
| Provision recovery of accounts receivable allowances | — | (112,308 | ) | |||||
| Provision for inventory reserves | 118,927 | 9,578 | ||||||
| Non-cash loan forgiveness | (20,000 | ) | — | |||||
| Non-cash interest expense | 13,999 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (51,511 | ) | (817,929 | ) | ||||
| Inventories | (3,193,116 | ) | 2,808,903 | |||||
| Prepaid expenses and other current assets | 94,664 | 44,604 | ||||||
| Other assets | (65,898 | ) | — | |||||
| Accounts payable | 454,713 | 2,106,480 | ||||||
| Accrued expenses | (2,377,861 | ) | 1,155,687 | |||||
| Deferred revenue | 966,399 | — | ||||||
| Operating lease liabilities | (54,434 | ) | (54,506 | ) | ||||
| Net cash used in operating activities | (5,205,273 | ) | 3,206,431 | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment | (297,947 | ) | (71,910 | ) | ||||
| Certification costs incurred and capitalized | — | (308,000 | ) | |||||
| Net cash used in investing activities | (297,947 | ) | (379,910 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from bank credit lines | 4,865,332 | — | ||||||
| Proceeds from debt | — | 583,300 | ||||||
| Net proceeds from private placement offering | — | 3,163,370 | ||||||
| Bank credit line | (92,905 | ) | — | |||||
| Proceeds from stock option exercises | 721,409 | 412,050 | ||||||
| Net cash provided by financing activities | 5,493,836 | 4,158,720 | ||||||
| �� | ||||||||
| Net change in cash | (9,383 | ) | 6,985,241 | |||||
| Cash, cash equivalents, and restricted cash - Beginning | 1,571,757 | 1,366,893 | ||||||
| Cash, cash equivalents, and restricted cash - Ending | $ | 1,562,373 | $ | 8,352,134 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 106,417 | $ | 8,432 | ||||
| Income taxes | $ | 32,990 | $ | 12,672 | ||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
MINIM, INC.
| (1) | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Minim, Inc., formerly known as Zoom Telephonics, Inc., and its wholly owned subsidiaries, Zoom Connectivity, Inc. and MTRLC LLC, are herein collectively referred to as the “Company”. We deliver innovative Internet access products that reliably and securely connect homes and offices around the world. We are the exclusive global license holder to the Motorola brand for home networking hardware. The Company designs and manufactures products including cable modems, cable modem/routers, mobile broadband modems, wireless routers, Multimedia over Coax (“MoCA”) adapters and mesh home networking devices. Our AI-driven cloud software platform and applications make network management and security simple for home and business users, as well as the service providers that assist them— leading to higher customer satisfaction and decreased support burden.
On June 3, 2021, the Company filed with the Secretary of Significant Accounting Policies
On July 7, 2021, the Company’s common stock, $ par value per share (the “Common Stock”), ceased trading on the OTCQB and commenced trading on The Nasdaq Capital Market under the ticker symbol “MINM.”
Basis of Presentation
The accompanying condensedunaudited consolidated financial statements, (the “financial statements”including the accounts of Minim, Inc. and its wholly-owned subsidiaries, have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are unaudited. However, thenormally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed consolidated balance sheet as of December 31, 2019 was derived from audited financial statements.or omitted. In the opinion of management, the accompanying financial statements include all normal and recurring adjustments that are considered necessary adjustments to present fairlyfor the condensed consolidatedfair presentation of the Company’s financial position results of operations and cash flows of Zoom Telephonics, Inc. (the “Company” or “Zoom”). The adjustments are of a normal, recurring nature.
The Company has evaluated subsequent events from Septemberresults of the Company’s operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods.
Certain prior year amounts have been reclassified to conform to the current year presentation. None of the reclassifications impacted the consolidated statements of operations for the period ended June 30, 2020 through2020.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this filingthe consolidated financial statements and has determined that there are no such events requiring recognition or disclosure in the financial statements.
| 6 |
Zoom Connectivity Merger
On November 12, 2020, the Company is registered in eachentered into an Agreement and Plan of these states. SalesMerger (the “Merger Agreement”) with Zoom Connectivity, Inc., (“Zoom Connectivity”), a Delaware corporation, that designs, develops, sells and Use Tax filings are completedsupports an IoT security platform that enables and filed and tax remitted back tosecures a better connected home. Under the states is consistent with the individual state filing requirements. Changes to state sales tax regulations are monitored to stay current with the law. As of September 30, 2020, approximately $50 thousandMerger Agreement, Elm Acquisition Sub, Inc., a wholly-owned subsidiary of the original state sales tax liability remains open. The additional liabilityCompany, was merged with and into Zoom Connectivity in exchange for shares of approximately $37 thousand relates to sales tax that has been collected and not yet remitted to the respective states.
Immediately prior to closing of the Merger Agreement, the majority stockholder of the Company was also the majority stockholder of Zoom Connectivity. As a result of the common ownership upon closing of the transaction, price; (iv) allocationthe merger was considered a common-control transaction and was outside the scope of the transaction price to the performance obligationsbusiness combination guidance in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
September 30, 2020 | December 31, 2019 | |
| Gross accounts receivable | $6,751,050 | $4,346,810 |
| Allowance for doubtful accounts | (173,603) | (276,234) |
| Total accounts receivable, net | $6,577,447 | $4,070,576 |
September 30, 2020 | December 31, 2019 | |
| Audit, legal, payroll | $273,190 | $256,966 |
| Royalty costs | 2,056,714 | 1,125,000 |
| Sales and use tax | 87,114 | 148,836 |
| Sales allowances * | 1,178,591 | 901,196 |
| Other | 420,057 | 234,473 |
| Total accrued expenses | $4,015,666 | $2,666,471 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||
2020 | 2019 | 2020 | 2019 | |
| Retailers | $9,797,021 | $10,479,310 | $29,093,066 | $25,152,291 |
| Distributors | 1,628,387 | 122,111 | 3,813,533 | 1,087,152 |
| Other | 602,049 | 272,728 | 1,349,218 | 803,518 |
| Total | $12,027,457 | $10,874,149 | $34,255,817 | $27,042,961 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||
2020 | 2019 | 2020 | 2019 | |
| Cable modems & gateways | $11,399,705 | $10,004,675 | $31,762,498 | $24,291,501 |
| Other | 627,752 | 869,474 | 2,493,319 | 2,751,460 |
| Total | $12,027,457 | $10,874,149 | $34,255,817 | $27,042,961 |
| (2) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020. The Company’s significant accounting policies did not change during the six months ended June 30, 2021.
Recently IssuedAdopted Accounting Standards
In June 2016,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principals in Topic 740 and clarifies and amends existing guidance. The Company adopted the new standard effective January 1, 2021. The adoption had no impact on the Company’s financial condition, results of operations or cash flows.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, "
With the FASB issued ASU 2019-12 “
| (3) | REVENUE RECOGNITION |
The Company primarily sells hardware products to its customers. The hardware products include cable modems and gateways, mobile broadband modems, wireless routers, MoCA adapters and mesh home networking devices. The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet. The Company accounts for point-of-sale taxes on a net basis.
| 7 |
The Company also sells and earns revenues from software as a service (“SaaS”), including software service that enables and secures a better-connected home with the AI-driven smart home WiFi management and security platform. Customers do not have the contractual right or ability to continuetake possession of the hosted software.
The Company has concluded that transfer of control of its hardware products transfers to the customer upon shipment or delivery, depending on the delivery terms of the purchase agreement. Revenues from sales of hardware products are recognized at a point in time upon transfer of control.
The Company sells software as going concern withina SaaS offering. The SaaS agreements are offered over a defined contract period, generally one year, fromand are sold to Internet service providers, who then promote the date of filing these financial statements.services to their subscribers. These services are available as an on-demand application over the defined term. The Company’s condensed consolidated financial statements have been prepared assumingagreements include service offerings, which deliver applications and technologies via cloud-based deployment models that the Company will continuedevelops functionality for, provides unspecified updates and enhancements for, and hosts, manages, provides upgrade and support for the customers access by entering into solution agreements for a stated period. The monthly fees charged to the customers are based on the number of subscribers utilizing the services each month, and the revenue recognized generally corresponds to the monthly billing amounts as the services are delivered.
Multiple Performance Obligations
During the six months ended June 30, 2021, the Company introduced new hardware products that include SaaS software services as a going concernbundled product to its customers. The Company accounts for these sales in accordance with the multiple performance obligation guidance of ASC Topic 606. For multiple performance obligation contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are determined to be distinct if they are both capable of being distinct and contemplates continuitydistinct within the context of operations, realizationthe contract. In determining whether performance obligations meet the criteria of assetsbeing distinct, the Company considers a number of factors, such as degree of interrelation and satisfaction of liabilitiesinterdependence between obligations, and commitmentswhether or not the good or service significantly modifies or transforms another good or service in the normal coursecontract. SaaS included with certain hardware products is considered distinct from the hardware, and therefore the hardware and SaaS software services offerings are treated as separate performance obligations.
After identifying the separate performance obligations, the transaction price is allocated to the separate obligations on a relative standalone selling price basis (“SSP”). SSP’s are generally determined based on the prices charged to customers when the performance obligation is sold separately or using an adjusted market assessment. The estimated SSP of business.the hardware and SaaS offerings are directly observable from the sales of those products and software based on a range of prices.
Revenue is recognized for each distinct performance obligation as control is transferred to the customer. In general, control of the hardware transfers to the customer at time of shipment or delivery while the SaaS offering is delivered over the service period. Revenue attributable to hardware products bundled with SaaS offerings are recognized at the time control of the product transfers to the customer. The Company’s abilitytransaction price allocated to continuethe SaaS offering is recognized ratably beginning when the customer is expected to activate their account and over a three-year period that the Company has estimated based on the expected replacement of the hardware.
The following table includes estimated revenue expected to be recognized in the future related to performance obligations for the SaaS offering that are unsatisfied or (partially unsatisfied) as of June 30, 2021:
SCHEDULE OF PERFORMANCE OBLIGATIONS
| 1 year | 2 years | Greater than 2 years | Total | |||||||||||||
| Performance obligations | $ | 349,961 | $ | 330,391 | $ | 322,508 | $ | 1,002,860 | ||||||||
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Other considerations of ASC 606 include the following:
● Warranties - the Company does not provide separate warranty for purchase to customers. Therefore, there is not a separate performance obligation. The Company does account for assurance-type warranties as a going concern is contingent upon, among other factors,cost accrual and the Company’s ability to generate sufficient cash flow from operations, maintain or decrease operating expense ratios, obtain additional equity or debt financing and comply with the financial and other covenants contained in the Company’s Financing Agreement, as amended, as described in Note 7. These financial statementswarranties do not include any adjustmentsadditional distinct services other than the assurance that the goods comply with agreed-upon specifications. The warranty reserve was not material at June 30, 2021 and December 31, 2020.
● Returned Goods - analyses of actual returned products are compared to the recoverabilityproduct return estimates and classificationhistorically have resulted in immaterial differences. The Company has concluded that the current process of recorded asset amountsestimating the return reserve represents a fair measure to adjust revenue. Returned goods are a form of variable consideration and classificationunder Topic 606 are estimated and recognized as a reduction of liabilitiesrevenue as performance obligations are satisfied (e.g., upon shipment of goods). The sales returns accrual was $1.3 million and $775 thousand at June 30, 2021 and December 31, 2020, respectively.
● Price protection - price protection provides that might be necessary shouldif the Company be unablereduces the price on any products sold to continuethe customer, the Company will guarantee an account credit for the price difference for all quantities of that product that the customer still holds. Price protection is variable and under Topic 606 is estimated and recognized as a going concern.
● Volume Rebates and Promotion Programs - volume rebates are variable dependent upon the volume of US tariffs and the Coronavirus (“COVID-19”) pandemic has created potential disruptions togoods sold-through the Company’s operations.customers to end-users and under Topic 606 are estimated and recognized as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). The 25% US tariffs assessed on products imported from China had a significant impact on cashrebate and
Contract Balances
The Company implemented cost cutting measures to conserve cash during the nine months ended September 30, 2020, including delaying the planned start dates of all new hiring during 2020, and not renewing the same footprint of its headquarters office leaserecords accounts receivable when it expiredhas an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in June 2020. The Company downsized its executive offices by retaining a small office within the Cityadvance of Boston on a short-term, month-to-month basis at a costperformance. Contract liabilities consist of $682 per month starting November 1, 2020. The Company negotiated extended and improved payment terms through the end of June 2020 with its primary outsourced manufacturing partner and as of September 30, 2020deferred revenue, where the Company has fully paid all invoices with these extended payment terms.
The following table reflects the contract balances as of periods ended:
SCHEDULE OF CONTRACT BALANCES
| Balance Sheet Location | June 30, 2021 | December 31, 2020 | ||||||||
| Accounts receivable, net | Accounts receivable, net | $ | 9,254,845 | $ | 9,203,334 | |||||
| Contract liabilities - current | Deferred revenue, current | $ | 349,961 | $ | — | |||||
| Contract liabilities – non-current | Deferred revenue, non-current | $ | 652,899 | $ | — | |||||
The Company’s business is controlled as a single operating segment that consists of the United States Departmentmanufacture and sale of Homeland Securitycable modems and resulting fromgateway, and the continued 25% tariff on imports from China, the Company was required to commit to three letters of credit totaling $800 thousand. These funds are reported as restricted cash on the accompanying condensed consolidated balance sheets:
| Effective Date | Expiration Date | September 30, 2020 | December 31, 2019 |
| July 9, 2019 | July 8, 2020 * | $150,000 | $150,000 |
| January 8, 2020 | January 7, 2021 | 400,000 | –– |
| April 6, 2020 | April 5, 2021 | 250,000 | –– |
| Total | $800,000 | $150,000 |
Disaggregated revenue by distribution channel for three and six months ended:
SCHEDULE OF DISAGGREGATION OF REVENUE
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Retailers | $ | 12,995,760 | $ | 8,321,755 | $ | 26,787,278 | $ | 19,296,044 | ||||||||
| Distributors | 1,872,934 | 1,587,617 | 2,786,084 | 2,185,146 | ||||||||||||
| Other | 24,451 | 363,385 | 337,357 | 747,170 | ||||||||||||
| Total | $ | 14,893,145 | $ | 10,272,757 | $ | 29,910,719 | $ | 22,228,360 | ||||||||
| 9 |
Disaggregated revenue by product license agreement with Motorola through 2025for three and also entered into a new license agreement with Motorola to sell consumer grade home security and monitoring products and to provide related services. The Company continues to develop new products and expects to introduce several new models to the market during the remainder of 2020 and 2021.
| Inventories consist of : | September 30, 2020 | December 31, 2019 |
| Raw Materials | $2,228,272 | $911,054 |
| Work in process | –– | 10,284 |
| Finished goods | 7,465,054 | 6,519,012 |
| Total | $9,693,326 | $7,440,350 |
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cable Modems & gateways | $ | 12,808,320 | $ | 9,192,784 | $ | 27,395,410 | $ | 20,362,794 | ||||||||
| Software as a service | 152,704 | — | 277,376 | — | ||||||||||||
| Other | 1,932,121 | 1,079,973 | 2,237,933 | 1,865,566 | ||||||||||||
| Total | $ | 14,893,145 | $ | 10,272,757 | $ | 29,910,719 | $ | 22,228,360 | ||||||||
| Revenues | $ | 14,893,145 | $ | 10,272,757 | $ | 29,910,719 | $ | 22,228,360 | ||||||||
| (4) | INVENTORIES |
SCHEDULE OF INVENTORIES
| Inventories consist of : | June 30, 2021 | December 31, 2020 | ||||||
| Raw materials | $ | 1,521,699 | $ | 1,238,332 | ||||
| Work in process | 7,414 | 84,203 | ||||||
| Finished goods | 18,049,917 | 15,182,305 | ||||||
| Total | $ | 19,579,030 | $ | 16,504,840 | ||||
Finished goods includesinclude consigned inventory held by our customers of approximately $0.7$3.4 million at SeptemberJune 30, 20202021 and approximately $1.8$2.3 million at December 31, 2019. 2020 and in-transit inventory of $5.6 million and $6.2 million at June 30, 2021 and December 31, 2020, respectively. The Company reviews inventory for obsolete and slow-moving products each quarter and makes provisions based on its estimate of the probability that the material will not be consumed or that it will be sold below cost. The provision for inventory reserves was negligible$214 thousand and $139 thousand for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.
| (5) | ACCRUED EXPENSES |
Accrued expenses consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
June 30, 2021 | December 31, 2020 | |||||||
| Inventory | $ | 280,408 | $ | 1,458,850 | ||||
| Payroll & related compensation | 149,100 | 853,402 | ||||||
| Professional fees | 588,156 | 618,308 | ||||||
| Royalty costs | 1,586,571 | 1,906,439 | ||||||
| Sales allowances | 1,714,068 | 1,559,847 | ||||||
| Sales and use tax | 70,528 | 183,264 | ||||||
| Other | 656,748 | 884,953 | ||||||
| Total accrued other expenses | $ | 5,045,579 | $ | 7,465,063 | ||||
| (6) | COMMITMENTS AND CONTINGENCIES |
(a) Lease Obligations
In May 2020, the Company signed a two-year lease agreement for 3,218 square feet at 275 Turnpike Executive Park in Canton, MA. The agreement includes a one-time option to cancel the second year of lease with three months advance notice. The location is currently being occupied by the research and development group of the Company. Rent expense was $13 thousand and $4 thousand for the three months ended June 30, 2021 and 2020, respectively. Rent expense was $27 thousand and $4 thousand for the six months ended June 30, 2021 and 2020, respectively.
Upon the completion of the Zoom Connectivity Merger, the Company assumed Zoom Connectivity’s office facility lease located at the 848 Elm Street in Manchester, NH. The two-year facility lease agreement is effective from August 1, 2019 to July 31, 2021 and provides for the lease of 2,656 square feet of office space. Rent expense was $8 thousand and $15 thousand for the three and six months ended June 30, 2021, respectively.
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In June 2019, the Company signed a twelve-month lease agreement for offices at 225 Franklin Street, Boston, MA. The lease for this office expired on June 30, 2020. The Company has elected to apply the short-term lease exception under ASC 842, which does not require the recognition of an operating lease liability or right-of-use asset on the consolidated balance sheet in relation to the lease at 225 Franklin Street. Rent expense was $134 thousand and $261 thousand for the three and six months ended June 30, 2020, respectively.
The Company performs most of the final assembly, testing, packaging, warehousing and distribution at an approximately 24,000 square foot production and warehouse facility in Tijuana, Mexico. On April 16, 2021, the Company signed a lease extension to November 30, 2021. Rent expense was $22 thousand and $49 thousand for the three and six months ended June 30, 2021, respectively.
The Company also had a lease for approximately 1,550 square feet in Boston, MA that expired on October 31, 2019 and was terminated effective June 30, 2020. The Company had another lease for approximately 1,500 square feet in Boston that was terminated effective July 31, 2020. The Company has elected to apply the short-term lease exception for both of these leases under ASC 842. Rent expense for these leases was $35 thousand and $71 thousand for the three and ninesix months ended SeptemberJune 30, 2020, respectively.
At inception of a lease the Company determines whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and 2019,non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component.
As of June 30, 2021, the Company’s estimated future minimum committed rental payments, excluding executory costs, under the operating leases described above to their expiration or the earliest possible termination date, whichever is sooner. There is no future minimum committed rental payment that extend beyond 2022.
Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and long-term operating lease liabilities on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in general and administrative expenses on the consolidated statements of operations.
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The following table presents information about the amount and timing of the Company’s operating leases as of June 30, 2021.
SCHEDULE OF LEASE MATURITY
| June 30, 2021 | ||||
| Maturity of Lease Liabilities | Lease Payments | |||
| 2021 (remaining) | $ | 72,741 | ||
| 2022 | 22,794 | |||
| Less: Imputed interest | (2,881 | ) | ||
| Present value of operating lease liabilities | $ | 92,654 | ||
| Balance Sheet Classification | ||||
| Current maturities of operating lease liabilities | $ | 92,654 | ||
| Operating lease liabilities, less current maturities | — | |||
| Total operating lease liabilities | $ | 92,654 | ||
| Other Information | ||||
| Weighted-average remaining lease term for operating leases | 0.7 | |||
| Weighted-average discount rate for operating leases | 7.1 | % | ||
Cash Flows
During the three months ended June 30, 2021 and 2020, the Company recorded an additional lease liability and corresponding right-of-use asset of $59 thousand and $96 thousand, respectively. During the six months ended June 30, 2021 and 2020, the operating lease liability was reduced by $58 thousand and $55 thousand, respectively, and amortization expense of the right-of-use assets was $55 thousand and $55 thousand, respectively.
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES
| 2021 | 2020 | |||||||
Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating cash flow information: | ||||||||
| Amounts included in measurement of lease liabilities | $ | 59,202 | $ | 57,404 | ||||
| Non-cash activities: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | 59,202 | $ | 96,199 | ||||
(b) Commitments
The Company is party to a license agreement with Motorola Mobility LLC pursuant to which the Company has an exclusive license to use certain trademarks owned by Motorola Trademark Holdings, LLC for the manufacture, sale and marketing of consumer cable modem products, consumer routers, WiFi range extenders, MoCa adapters, cellular sensors, home powerline network adapters, and access points worldwide through a wide range of authorized sales channels. The license agreement, has a term ending December 31, 2025.
In connection with the License Agreement, the Company has committed to reserve a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. Additionally, the Company is required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments as follows:
SCHEDULE OF MINIMUM ANNUAL ROYALTY PAYMENTS
| Years ending December 31, | ||||
| 2021 (remaining) | $ | 3,175,000 | ||
| 2022 | 6,600,000 | |||
| 2023 | 6,850,000 | |||
| 2024 | 7,100,000 | |||
| 2025 | 7,100,000 | |||
| Total | $ | 30,825,000 | ||
| Total minimum royalty payments | $ | 30,825,000 | ||
Royalty expense under the license agreement was $1.6 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $3.2 million and $2.5 million for the six months ended June 30, 2021 and 2020, respectively. The royalty expense is included in selling and marketing expenses on the accompanying consolidated statements of operations.
| 12 |
(c) Contingencies
The Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are without merit.
On February 16, 2021, the Company received a letter from a law firm representing a purported stockholder of the Company requesting the opportunity to review certain books and records of the Company to investigate the possibility of breaches of fiduciary duty by current and former members of the Board of Directors and the Company’s controlling stockholder in connection with his and his affiliates’ acquisition of majority control of the Company without compensating the Company’s minority stockholders and the acquisition by merger of Zoom Connectivity in which he held a substantial equity stake. The parties have been in negotiations with the counsel for the purported stockholder to resolve this matter. The Company believes that the resolution of this matter is likely to include the imposition of certain corporate governance restrictions, which would expand on current practices of the Company over a longer period of time than the standstill agreement currently in effect with the Company’s controlling stockholder, on the Company and the controlling stockholder and his affiliates and the payment of legal expenses. The matter is under negotiation and is subject to change based upon the negotiations and any other factors that may arise. There can be no assurance that this matter will be resolved on satisfactory terms.
On June 29, 2021, the Company received a letter from a law firm representing a purported stockholder of the Company making a litigation demand on behalf of the Company and its stockholders to address certain alleged misconduct by the Company’s Board of Directors in connection with the implementation of an amendment to the Company’s Amended and Restated Certificate of Incorporation without having received proper stockholder approval thereof as required under Delaware corporation law. The letter demanded that the Board of Directors take immediate action to: deem the amendment ineffective and make appropriate disclosure of that fact and seek a valid stockholder approval of the amendment; and adopt and implement adequate internal controls and systems at the Company designed to prohibit and prevent a recurrence of the circumstances. The letter requested a response or contact with the law firm on or before July 16, 2021. On June 30, 2021, the Company filed with the Delaware Secretary of State a Certificate of Correction to void the previously filed amendment to the Company’s Amended and Restated Certificate of Incorporation. The Company filed an amendment to a Current Report on Form 8-K to disclose these matters. The Company held a special meeting of stockholders on July 22, 2021 and received the requisite stockholder approval of the amendment. On July 23, 2021, the Company filed with the Delaware Secretary of State an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock to shares, consisting of shares of Common Stock and shares of Preferred Stock. The Company filed a Current Report on Form 8-K to disclose these matters. It is also expected that the Nominating and Governance Committee of the Board of Directors will review the Company’s internal controls and systems and the circumstances described in the demand letter to determine if any additional actions are necessary to prevent the recurrence of the circumstances relating to the foregoing events. The Company anticipates that the law firm that sent the demand letter will seek recovery of attorneys’ fees relating to this matter. The ultimate amount of any such recovery could be material but is not presently ascertainable. The Company intends vigorously to defend against any such claim for recovery of legal fees. There can be no assurance that this matter will be resolved on satisfactory terms.
The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of the loss cannot be made. Except for the matter disclosed above, at June 30, 2021, the Company is not currently a party to any legal proceedings that, if determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole. The Company expenses its legal fees as incurred.
In the ordinary course of its business, in addition to the matters described above, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with their business. Some of such additional proceedings include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of such matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. Management believes that the Company has adequate legal defenses with respect to such additional legal proceedings to which it is a defendant or respondent and that the outcome of such proceedings is not likely to have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.
| 13 |
| (7) | BANK CREDIT LINES AND GOVERNMENT LOANS |
Bank Credit Line
On January 23, 2020, William Schulze filed a complaint,December 18, 2012 and subsequently filed anas amended, complaint on April 3, 2020 (collectively the “Schulze Complaint”) as lead plaintiff on behalf of purchasers of Zoom modems in a putative class action lawsuit against Zoom in the U.S. District Court for the District of Massachusetts. The Schulze Complaint alleged that Zoom modems were sold as new despite containing refurbished parts. On July 28, 2020, the lead plaintiff filed a Stipulation of Dismissal that dismissed the Schulze Complaint with prejudice. The Company does not have any other pending or outstanding material legal proceedings.
On March 2020, Zoom entered into an amendment to the Networking Product License Agreement (the “Third Amendment”) with Motorola Mobility LLC. The Third Amendment expands Zoom’s exclusive license to use the Motorola trademark to a wide range of authorized channels worldwide, including Service Provider Channels. The Networking Product License Agreement, as amended, has a ten-year term beginning January 1, 2016 through December 31, 2025 and modified the minimum annual royalty payments starting for the year ending December 31,12, 2021, as outlined below.
The Company incurred $93 thousand in advertising, merchandisingorigination costs in connection with entering into the SVB Loan Agreement. These origination costs were recorded as a debt discount and promotionare being expensed over the remaining term of the related products. Additionally, the Company is required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments as follows:
| Year Ending December 31, | |
| 2021 | $2,050,000 |
| 2022 | $2,300,000 |
| 2023 | $2,550,000 |
| 2024 | $2,800,000 |
| 2025 | $2,800,000 |
As of June 30, 2021, the Company had $7.3 million outstanding, net of origination costs of $79 thousand, on the SVB Loan Agreement, and this credit line had availability of $2.8 million. The interest rate was 4.25% as of June 30, 2021.
Government Loans
On March 27, 2020, the Coronavirus Aid, Relief, and $117.6 thousand forEconomic Security Act (the “CARES Act”) was enacted to provide financial aid to family and businesses impacted by the third quarter of 2019. Rent expense was $263.8 thousand for the first nine months of 2020 and $325.4 thousand for the first nine months of 2019.
On April 11, 2020, Zoom Connectivity entered into a note payable with Primary Bank and received $545 thousand under the PPP. This note payable matures on March 11, 2022 with a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial term of two years, is unsecured and guaranteed by the SBA. Under the terms of the PPP note, the Company was able to apply for forgiveness of the amount due on the balance sheet.
In February 2021, the Company received an additional forgiveness of operations.
For the period ended June 30, 2021, the Company has recorded $61 thousand of the Company’s operating leases asPPP loans in current maturities of September 30, 2020.
| Maturity of Lease Liabilities | Lease Payments | |
| 2020 (remaining) | $39,429 | |
| 2021 | 53,365 | |
| 2022 | 22,794 | |
| Total undiscounted operating lease payments | 115,588 | |
| Less: Imputed interest | (8,111) | |
| Present value of operating lease liabilities | $107,477 | |
| Balance Sheet Classification | ||
| Current maturities of operating lease liabilities | $72,739 | |
| Operating lease liabilities, less current maturities | 34,738 | |
| Total operating lease liabilities | $107,477 | |
| Other Information | ||
| Weighted-average remaining lease term for operating leases | 1.3 years | |
| Weighted-average discount rate for operating leases | 10% | |
| 14 |
Nine Months Ended September 30, | ||
2020 | 2019 | |
| Operating cash flow information: | ||
| Amounts included in measurement of lease liabilities | $96,832 | $297,790 |
Non-cash activities: | ||
| Right-of-use assets obtained in exchange for lease obligations | $96,199 | $395,565 |
| (8) | SIGNIFICANT CUSTOMER AND DEPENDENCY ON KEY SUPPLIERS |
Relatively few companies account for a substantial portion of the Company’s revenues. In the third quarter of 2020,three months ended June 30, 2021, three companies accounted for 10% or greater individually and 85% in the aggregate of the Company’s total net sales. In the first nine months of 2020, three companies accounted for 10% or greater individually, and 88%93% in the aggregate of the Company’s total net sales. At SeptemberJune 30, 2020, three2021, two companies with an accounts receivable balance of 10% or greater individually accounted for a combined 91%78% of the Company’s accounts receivable. In the third quarter of 2019, twothree months ended June 30, 2020, three companies accounted for 10% or greater individually and 86% in the aggregate of the Company’s total net sales. In the first nine months of 2019, two companies accounted for 10% or greater individually, and 83%88% in the aggregate of the Company’s total net sales. At SeptemberJune 30, 2019, three2020, four companies with an accounts receivable balance of 10% or greater individually accounted for a combined 86%89% of the Company’s accounts receivable.
The Company’s customers generally do not enter into long-term agreements obligating them to purchase products. The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in orders from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company'sCompany’s significant customers.
The Company participates in the PC peripherals industry, which is characterized by aggressive pricing practices, continually changing customer demand patterns and rapid technological developments. The Company'sCompany’s operating results could be adversely affected should the Company be unable to successfully anticipate customer demand accurately; manage its product transitions, inventory levels and manufacturing process efficiently; distribute its products quickly in response to customer demand; differentiate its products from those of its competitors or compete successfully in the markets for its new products.
The Company depends on many third-party suppliers for key components contained in its product offerings. For some of these components, the Company may only use a single source supplier, in part due to the lack of alternative sources of supply. During the third quarterthree months ended June 30, 2021, the Company had one supplier that provided 99% of the Company’s purchased inventory. During the three months ended June 30, 2020, the Company had one supplier that provided 94%98% of the Company'sCompany’s purchased inventory.
| (9) | INCOME TAXES |
During the third quartersix months ended June 30, 2021 and 2020, we recorded 0 income tax benefits for the net operating losses incurred or for the research and development tax credits generated due to the uncertainty of 2019,realizing a benefit from those items.
We have evaluated the Company had one supplierpositive and negative evidence bearing upon the Company’s ability to realize its deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We considered the history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that provided 95%it is more likely than not that we will not realize the benefits of the Company's purchased inventory. During the first nine monthsour deferred tax assets. As a result, as of June 30, 2021 and December 31, 2020, we recorded a full valuation allowance against our net deferred tax assets.
As of June 30, 2021 and December 31, 2020, the Company had two suppliers that provided 99%federal net operating loss carry-forwards of the Company's purchased inventory. During the first nine monthsapproximately $64 million and $61.8 million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts starting in 2021. Federal net operating losses occurring after December 31, 2017, of 2019,approximated $15.9 million may be carried forward indefinitely. As of June 30, 2021 and December 31, 2020, the Company had one supplierstate net operating loss carry-forwards of approximately $21 million and $19.2 million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts from 2032 through 2040. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that provided 95% of the Company's purchased inventory.
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| (10) | EARNINGS (LOSS) PER SHARE |
Basic lossearnings (loss) per share is calculated by dividing net lossincome (loss) attributable to common stockholders by the weighted-average number of common shares, except for periods with a loss from operations.shares. Diluted lossearnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential shares of common stockCommon Stock had been issued. Potential shares of common stockCommon Stock that may be issued by the Company include shares of common stockCommon Stock that may be issued upon exercise of outstanding stock options. Under the treasury stock method, the unexercised options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase shares of common stockCommon Stock at the average market price during the period.
SCHEDULE OF NET LOSS PER SHARE
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (1,553,911 | ) | $ | (1,527,985 | ) | $ | (2,099,431 | ) | $ | (2,279,864 | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares - basic | 35,482,181 | 22,275,441 | 35,368,931 | 21,776,101 | ||||||||||||
| Potentially dilutive common share equivalent | 1,511,030 | 314,493 | 1.511,030 | 314,493 | ||||||||||||
| Weighted average common shares - dilutive | $ | 36,993,211 | $ | 22,589,934 | 36,879,961 | 22,090,594 | ||||||||||
| Basic net loss per share | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.10 | ) | ||||
| Diluted net loss per share | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.10 | ) | ||||
Diluted loss per common share excludes the effects of 306,532 and common share equivalents for the three-month period ended June 30, 2021 and 2020, respectively, since such inclusion would be anti-dilutive. Basic and diluted loss per common share for the three-month period ended September 30, 2019 was $0.01, and dilutedDiluted loss per common share excludes the effects of 496,319 and common share equivalents for the six-month period ended June 30, 2021 and 2020, respectively, since such inclusion would be anti-dilutive. Basic
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| (11) | RELATED PARTY TRANSACTIONS |
Zoom Connectivity
On November 12, 2020, the Company entered into the Merger Agreement pursuant to which the Company and diluted loss per common shareZoom Connectivity merged and combined their businesses. Zoom Connectivity offers a cloud WiFi management platform that enables and secures a better-connected home by providing AI-driven WiFi management and IoT security platform for the nine-month period ended September 30, 2020 was $0.12,homes, SMBs, and diluted loss per common share excludes the effects of 306,532 common share equivalents, since such inclusion would be anti-dilutive. Basic and diluted loss per common share for the nine-month period ended September 30, 2019 was $0.11, and diluted loss per common share excludes the effects of 496,319 common share equivalents, since such inclusion would be anti-dilutive.
Zoom Connectivity Relationship
On July 25, 2019, the Company entered into a Master Partnership Agreement with Minim,Zoom Connectivity together with a related Statement of Work, License, Collaborative Agreement, Software/Service Availability Agreement and Software/Service Support Level Agreement (collectively, the “Partnership Agreement”). Mr. Hitchcock was the Chairman of Zoom Connectivity. Under the Partnership Agreement, the Company willwould integrate Minim software and services into certain hardware products distributed by the Company, and Minim willZoom Connectivity would be entitled to certain fees and a portion of revenue received from the end users of such services and software. The Company and MinimZoom Connectivity entered into an additional Statement of Work on December 31, 2019 providing for further integration of MinimZoom Connectivity services, with a monthly minimum payment of $5,000$5 thousand payable by the Company to MinimZoom Connectivity starting in January 2020 for a period of thirty-six36 months and a requirement for MinimZoom Connectivity to purchase at least $90,000$90 thousand of the Company’s hardware by December 2022. Minimum monthly payments under this agreement increased to $15,000 as of$15 thousand in July 2020. As of SeptemberDuring the six months ended June 30, 2020, $45 thousand of payments were made by the Company has made total payments of $90,000 to MinimZoom Connectivity under the Partnership Agreement. The Company recorded $45 thousand of expenses for the six months ended June 30, 2020. The Partnership Agreement terminated upon completion of the Zoom Connectivity Merger. During the six months ended June 30, 2020, $45 thousand of payments were made by the Company to Zoom Connectivity under the Partnership Agreement. As of June 30, 2021, 0 amounts were due from or to the Company under the former Partnership Agreement.
Zoom Connectivity leases office space located at the 848 Elm Street, Manchester, NH. The landlord is an affiliate entity owned by Mr. Hitchcock. The two-year facility lease agreement is effective from August 1, 2019 to July 31, 2021 and provides for 2,656 square feet at an aggregate annual rental price of $30 thousand. For the three-month period and six-month period ended June 30, 2021, the rent expense was $8 thousand and $15 thousand, respectively.
| (12) | SUBSEQUENT EVENTS |
On July 7, 2021, the Company’s Common Stock ceased trading on the OTCQB and commenced trading on The Nasdaq Capital Market under the ticker symbol “MINM.”
On July 20, 2021, the Company renewed its Manchester, New Hampshire headquarter offices with an effective term from August 1, 2021 to July 31, 2022. During the annual term, the rent expense is $30,000.
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A proposal on the amendment to our Amended and Restated Certificate of Incorporation was considered but not approved by the stockholders of the Company at its 2021 Annual Meeting of Stockholders held on June 2, 2021. The voting results of this proposal reflected a tabulation report that treated the proposal as “routine”; however, the Company’s proxy materials for the 2021 Annual Meeting of Stockholders described the proposal as “non-routine.” When tabulated as a non-routine matter, this proposal was not approved by the Company’s stockholders. Certain shares of Common Stock beneficially owned by executive officers and directors of the Company who had been stockholders of Zoom Connectivity, inadvertently were not voted at the meeting. If those votes had been cast at the meeting and were voted for the proposal, the proposal would have been approved by the requisite vote of the Company’s stockholders. See Note (6), Commitments and Contingencies in these Notes to Consolidated Financial Statements (Unaudited). On September 26, 2020,June 30, 2021, the Company filed with the Secretary of State of the State of Delaware a Certificate of Correction to void the previously filed amendment to the Company’s Certificate of Incorporation. The Company held a special meeting of stockholders on July 22, 2021 and received the requisite stockholder approval of the amendment. On July 23, 2021, the Company filed with the Delaware Secretary of State an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock to shares, consisting of shares of Common Stock and shares of preferred stock, $ par value per share (the “Preferred Stock”).
On July 28, 2021, the Company entered into an exclusivityunderwriting agreement with B. Riley Securities, Inc., as representative (the “Exclusivity Agreement”“Representative”) with Minim regardingof the several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell an aggregate of shares of the Company’s Common Stock, to the Underwriters (the “Public Offering”). The shares of Common Stock were sold to the public at an offering price of $ per share and were purchased by the Underwriters from the Company at a possible business combination. This Exclusivity Agreement was extended on October 7, 2020price of $ per share. The Company also granted the Underwriters a 30-day option to purchase up to an additional shares of Common Stock. On August 2, 2021, the Company received $22.7 million in aggregate net proceeds after deducting Underwriters’ discounts, commissions, and again on November 3, 2020, extendingother offering expenses after issuing shares of the Exclusivity AgreementCompany’s Common Stock through November 20, 2020.
One August 12, 2021, the Company entered into a Standstillan agreement with Zoom Video Communications, Inc. (“Zoom Video”) to sell, and Voting Agreement with Zulu Holdings LLC (“Zulu”) and Mr. Hitchcock (the “Standstill Agreement”). Mr. Hitchcock and Zulu, which is an entity controlled by Mr. Hitchcock, beneficially own the majority of the common stock of the Company. Pursuant to the terms of the Standstill Agreement, each of Zulu, Mr. Hitchcock and their controlled affiliates (the “Restricted Parties”) have agreed not to effect any (a) transaction involving the Company and any Restricted Party, in which any Restricted Party would have a material interest different from stockholders of the Company generally, (b) purchase of more than 10% of the then total number of shares of outstanding Company common stock, and (c) sale, transfer or other disposition of Company common stock to a third party that would result in such third party beneficially owning more than 20.0%sold, all of the Company’s outstanding common stock immediately after giving effect to such transaction. right, title and interest in the ZOOM® trademark for cash consideration in the amount of $4 million.
The duration of the “Standstill Period” lastsCompany has evaluated subsequent events from June 30, 2021 through the earlier of: (i) such time as the Restricted Parties beneficially own less than 45.0% of the outstanding common stock of the Company, and (ii) the third anniversary of the date of this filing and has determined that there are no additional events requiring recognition or disclosure in the Standstill Agreement.financial statements.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
“Safe Harbor"Harbor” Statement under the Private Securities Litigation Reform Act of 1995.
Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry'sindustry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to statements regarding: Zoom'sthe Company’s plans, expectations and intentions, including statements relating to Zoom'sthe Company’s prospects and plans relating to sales of and markets for its products; and Zoom'sthe Company’s financial condition or results of operations.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential"“may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include those discussed in the risk factors set forth or discussed in Item 1A of Part II of this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 202013, 2021 and in our other filings with the Securities and Exchange Commission.SEC, including Amendment No. 2 to our Registration Statement on Form S-1 filed with the SEC on July 28, 2021. Readers should also beare cautioned that results of any reported period are often not indicative of results for any future period.
Overview
Minim delivers a comprehensive WiFi as a Service platform to make everyone’s connected home safe and supportive for life and work.
We believe the home router must go the way of the mobile phone. Today’s routers are simple, single-purpose devices that rarely receive firmware updates and have underdeveloped management applications, making them the #1 target in residential cybersecurity attacks. It can be so much more.
The router must offer frequent security updates, helpful apps, extensive personalization options and a delightful interface. That is what Minim delivers— not just the router or just an app, but WiFi as a Service. Technically, it’s composed of an intelligent router managed by a smart operating system that leverages cloud computing and AI to analyze and optimize the smart home, combined with intuitive applications to engage with it.
Minim serves both consumers and businesses with its WiFi as a Service platform:
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| ● | Consumers – Home broadband users can find our modem, router, modem/router, mesh WiFi, and MoCA networking products and mobile app under the Motorola brand on leading electronics retailers and e-commerce platforms in the U.S. and globally. With Motorola connectivity, our customers benefit from: |
| o | Savings on rental fees from their ISPs |
| o | Improved connected device performance |
| o | Fast internet speeds |
| o | Free support from our team of U.S.-based technicians |
| o | Reliability with 2-year product warranties |
| ● | Internet Service Providers (ISPs) - Over 140 ISP customers to date have selected Minim to enhance their broadband services with our mobile app and improve customer support via the Minim Care Portal. ISP customers benefit from increased revenue through service plan upgrades and better subscriber retention, as well as decreased operational expenses through truck roll avoidance and reduced support calls. |
| ● | Hybrid & Small Businesses have selected Minim as an alternative to traditional enterprise security solutions, granting the business customer extensive cost savings, fast deployment times, and easy maintenance. |
| ● | Original Equipment Manufacturers (OEMs) can freely and independently integrate the Minim agent in their networking devices. OEM customers benefit from increased competitiveness of their product offering and a recurring revenue stream with our software services. Our system integrator and OEM customers sell our products under their brand or incorporate our products as a component of their systems. |
Our intelligent networking products can now be found in leading retailers across the US, over 140 ISP broadband offerings globally, and now in India e-commerce markets. We derive our net sales primarily from sales of Internet accesshave been recently awarded a patent for an intuitive, guided, and other communications-relatedstandard approach to mesh WiFi system setup. Our products including cable modemsare differentiated by their ability to make complex network security and modem/routers (gateways), Digital Subscriber Line (“DSL”) modemsmanagement simple, even enjoyable.
For the past three quarters, the company has posted exceptional year-over-year margin expansion and modem/routers, routers, MESH WiFi and other local area network products, and dial-up modems through retailers, distributors, and other customers. We sell our products through a direct sales force and through independent sales agents. Most of our employees workrevenue growth; in the greater Boston Massachusetts area. second quarter 2021, Minim doubled the topline growth rate of its product category in US retailers, per NPD Group retail data. On the horizon, we see margin expansion and growth opportunities in subscription software, new markets, new channels, and new product categories, such as connected security cameras and thermostats.
The global smart home market is expected to reach $313.95 billion by 2026 at a 25.3% CAGR, according to Mordor Intelligence. Looking ahead, we are aligned on a powerful imperative: to make the world’s smartest connectivity products accessible to everyone for personal and business use.
The Company was founded in 1977 and is headquartered in Manchester, New Hampshire.
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COVID-19 Pandemic
We are experienced in electronics hardware, firmware,subject to risks and software design and test, regulatory certifications, product documentation, and packaging; and we use that experience in developing each product in-house or in partnership with suppliers who are typically based in Asia. Electronic assembly and testing of our products in accordance with our specifications is typically done in Asia, and we conduct further testing, and manage warehousing shipping and related distribution logistics in our Tijuana facility.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of what we viewassets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our more significantfinancial statements may be affected. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.
Our critical accounting policies and estimates. As described below, management judgments and estimates must be made and used in connection with the preparation of our financial statements. We have identified areas where material differences could result in the amount and timing of our net sales, costs, and expenses for any period if we had made different judgments or used different estimates.
Recent Accounting Standards
See Note 2 Summary of approximately $56.3 millionSignificant Accounting Policies, in Notes to Unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Report on 10-Q, for a full description of recent accounting standards, include the expected dates of adoption and estimated effects on the financial condition and results of operations, which are available to offset future taxable income. They are due to expire in varying amounts from the end of 2020 to 2038. As of December 31, 2019, we had state net operating loss carry forwards of approximately $11.4 million which are available to offset future taxable income. They are due to expire in varying amounts from 2031 through 2038. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized.
Results of Operations
The following table sets forth the unaudited consolidated statements of operations for the three months ended Septemberand six months ended June 30, 20202021, with the comparable reporting period in the preceding year.
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| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, 2021 | June 30, 2020 | $ Change | % Change | June 30, 2021 | June 30, 2020 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Net sales | $ | 14,893 | $ | 10,273 | $ | 4,620 | 45.0 | % | $ | 29,911 | $ | 22,228 | $ | 7,683 | 34.6 | % | ||||||||||||||||
| Cost of goods sold | 10,415 | 8,149 | 2,267 | 27.8 | % | 20,329 | 17,009 | 3,320 | 19.5 | % | ||||||||||||||||||||||
| Gross profit | 4,448 | 2,124 | 2,354 | 110.8 | % | 9,582 | 5,219 | 4,363 | 83.6 | % | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Selling and marketing expenses | 3,209 | 2,283 | 926 | 40.5 | % | 6,383 | 4,638 | 1,745 | 37.6 | % | ||||||||||||||||||||||
| General and administrative expenses | 1,327 | 716 | 610 | 85.2 | % | 2,404 | 1,544 | 860 | 55.7 | % | ||||||||||||||||||||||
| Research and development expenses | 1,386 | 644 | 742 | 115.1 | % | 2,775 | 1,297 | 1,478 | 113.9 | % | ||||||||||||||||||||||
| Total operating expenses | 5,922 | 3,643 | 2,278 | 62.5 | % | 11,562 | 7,479 | 4,083 | 54.6 | % | ||||||||||||||||||||||
| Operating loss | (1,444 | ) | (1,519 | ) | 76 | (5.0 | )% | (1,980 | ) | (2,260 | ) | 280 | (12.4 | )% | ||||||||||||||||||
| Operating income (expense): | ||||||||||||||||||||||||||||||||
| Interest expense, net | (78 | ) | (3 | ) | (75 | ) | (106 | ) | (8 | ) | (98 | ) | ||||||||||||||||||||
| Other, net | — | 1 | (1 | ) | 20 | 0 | 19 | |||||||||||||||||||||||||
| Total other income (expense) | (78 | ) | (2 | ) | (76 | ) | (86 | ) | (7 | ) | (79 | ) | ||||||||||||||||||||
| Loss before income taxes | (1,522 | ) | (1,521 | ) | (1 | ) | 0.1 | % | (2,066 | ) | (2,267 | ) | 201 | (8.9 | )% | |||||||||||||||||
| Income taxes | 32 | 7 | 25 | 33 | 13 | 20 | ||||||||||||||||||||||||||
| Net loss | $ | (1,554 | ) | $ | (1,528 | ) | $ | 24 | 1.6 | % | $ | (2,099 | ) | $ | (2,280 | ) | $ | 221 | (8 | )% | ||||||||||||
Net Sales. Our total net sales increased in the three and six months ended June 30, 2021 compared to prior years by $4.6 million and $7.7 million, respectively. The growth in net sales is directly attributable to increased sales of Motorola branded cable modems and gateways. In the first six months of 2021, we primarily generated our sales by selling cable modems and gateways. Software sales related to SaaS offerings were $0.2 million in the three and six months ended June 30, 2021. The Company had no SaaS related sales in the three months ended Septemberand six months ended June 30, 2019
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, 2021 | June 30, 2020 | $ Change | $ Change | June 30, 2021 | June 30, 2020 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Cable modems & gateways | $ | 12,808 | $ | 9,193 | $ | 3,615 | 39.3 | % | $ | 27,395 | $ | 20,363 | $ | 7,032 | 34.5 | % | ||||||||||||||||
| Software as a service | 153 | — | 153 | 100 | % | 278 | — | 278 | 100 | % | ||||||||||||||||||||||
| Other | 1,932 | 1,080 | 852 | 78.9 | % | 2,238 | 1,865 | 373 | 20.0 | % | ||||||||||||||||||||||
| Total | $ | 14,893 | $ | 10,273 | $ | 4,620 | 45.0 | % | $ | 29,911 | $ | 22,228 | $ | 7,683 | 34.6 | % | ||||||||||||||||
As shown in the table below, our net sales in North America increased in the three months ended and six months ended June 30, 2021 compared to prior years. Net sales were $12.0 million foroutside North America decreased in the third quarterthree months ended Septemberand six months ended June 30, 2020 (“Q3 2020”), up 10.6% from $10.9 million for the third quarter of 2019 (“Q3 2019”). We reported a net loss of $341 thousand or $0.01 per share for Q3 20202021 compared a net loss of $200 thousand or $0.01 per share for Q3 2019.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, 2021 | June 30, 2020 | $ Change | % Change | June 30, 2021 | June 30, 2020 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| North America | $ | 14,849 | $ | 10,051 | $ | 4,798 | 26.5 | % | $ | 29,675 | 21,789 | $ | 7,886 | 36.2 | % | |||||||||||||||||
| Outside North America | 44 | 222 | (178 | ) | (80.2 | )% | 236 | 439 | (203 | ) | (46.2 | )% | ||||||||||||||||||||
| Total | $ | 14,893 | $ | 10,273 | $ | 4,620 | 24.6 | % | $ | 29,911 | 22,228 | $ | 7,683 | 34.6 | % | |||||||||||||||||
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Relatively few companies account for a significant impact on cash and net loss for 2019.substantial portion of the Company’s revenues. In the third quarter of 2020, these tariffs were $115.5 thousand. These tariffs had a very unfavorable impact on our financial performance until July 2020, the first full month after which the Company fully transitioned all of its core production supply out of China. In late 2019, the Company made the decision to move its outsourced manufacturing operations from China to Vietnam, primarily to end the exposure to the trade-war imposed tariffs with China. While the COVID-19 pandemic caused delays in the original transition plan, the Company worked actively with its primary outsourced development partner to establish manufacturing operations in Haiphong, Vietnam. As previously noted, the transition to Vietnam was completed in June 2020. All manufacturing of existing models now takes place in Vietnam. For the balance of the year, only the initial manufacturing runs of new models will take place in China. The elimination of tariffs for products imported from China will release an additional $800 thousand in restricted cash once the performance bonds are fully closed out and released by the bond holders, which is expected to occur between July 2021 and January 2022.
Our customers generally do not enter into long-term agreements obligating them to purchase our products. Because of our significant customer concentration, our net sales and operating income could fluctuate significantly due to changes in political or economic conditions or the loss of, reduction of business with, or less favorable terms for any of our significant customers. A reduction or delay in orders from any of our significant customers, or a delay or default in payment by any significant customer could materially harm our business, results of operation and liquidity.
Gross Profit.
Gross profit wasOperating Expense. Total operating expense increased to $5.9 million and $11.6 million for the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020 of $3.6 million and $7.5 million, respectively. The table below illustrates the change in operating expense.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| Operating Expenses | June 30, 2021 | June 30, 2020 | $ Change | % Change | June 30, 2021 | June 30, 2020 | $ Change | % Change | ||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Selling and marketing expense | $ | 3,209 | $ | 2,283 | 925 | 40.5 | % | $ | 6,383 | $ | 4,638 | $ | 1,745 | 37.6 | % | |||||||||||||||||
| General and administrative expense | 1,327 | 716 | 610 | 85.2 | % | 2,404 | 1,544 | 860 | 58.4 | % | ||||||||||||||||||||||
| Research and development expense | 1,386 | 644 | 742 | 115.1 | % | 2,775 | 1,297 | 1,478 | 113.9 | % | ||||||||||||||||||||||
| Total operating expense | $ | 5,922 | $ | 3,643 | 2,278 | 62.5 | % | $ | 11,562 | $ | 7,479 | $ | 4,083 | 55.1 | % | |||||||||||||||||
Selling and Marketing Expense. Selling and marketing expense increased for the three and six months ended June 30, 2021 compared to the prior year periods primarily due to an increase in Motorola trademark royalty costs.
General and Administrative Expense.
General and administrative expenseResearch and Development Expense.
Research and development expenseOther Income (Expense).
OtherIncome Tax Expense (Benefit). We recorded minimum state income taxes and tax related to our operations in Mexico. For the three and six months ended June 30, 2021 income tax expense was $13.5$31 thousand versus $4.5and $33 thousand, inrespectively, compared to prior year periods of $6 thousand and $13 thousand.
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Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the nine-months ended September 30, 2019.
| Three Months Ended | Six Months Ended | |||||||
| June 30, 2020 | June 30, 2020 | |||||||
| Pro forma revenue | $ | 10,430,519 | $ | 22,493,626 | ||||
| Pro forma net loss | $ | (2,267,626 | ) | $ | (4,093,297 | ) | ||
| Pro forma net loss per share, basic and diluted | $ | (0.07 | ) | $ | (0.13 | ) | ||
Liquidity and Capital Resources
The Company’s cash cash equivalents and restricted cash balance on SeptemberJune 30, 20202021 was $4.8$1.6 million of which $750 thousand was restricted. This compares to $1.6 million on December 31, 2020 of which $800 thousand was restricted and related to tariff payment bonds. This compares to $1.4 million on December 31, 2019,restricted. As of which $150 thousand was restricted and related to tariff payment bonds. On SeptemberJune 30, 2020,2021, the Company had no borrowings$7.2 million outstanding underand $2.8 million available on its $4.0 million working capitalasset-based credit line $583.3 thousand outstanding under a note,with Silicon Valley Bank and working capital of $6.3 million, and a current ratio of 1.4.
On February 4, 2021, the Company will continue as a going concern and contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company’s ability to continue as a going concern is contingent upon, among other factors, the Company’s ability to generate sufficient cash flow from operations, maintain or decrease operating expense ratios, obtain additional equity or debt financing and comply with the financial and other covenants contained in the Company’s Financing Agreement, as amended with Rosenthal & Rosenthal, Inc. as described in Note 7. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
On March 12, 2021, the Company terminated its Financing Agreement with Rosenthal & Rosenthal, Inc. and entered into the Silicon Valley Bank (“SVB Loan Agreement”). The SVB Loan Agreement provides for a revolving facility up to a principal amount of $12.0 million. The SVB Loan Agreement matures, and all outstanding amounts become due and payable on March 12, 2023. The SVB Loan Agreement is secured by substantially all the Company’s credit line has a maturity dateassets but excludes the Company’s intellectual property. The availability of November 2020, and automatically renews from year to year unless cancelledborrowings under the termsSVB Loan Agreement is subject to certain conditions and requirements, and the borrowing base amount is up to (a) 85% of Financingeligible accounts receivable balances plus (b) the least of (i) 60% of eligible inventory, (ii) 85% of net orderly liquidation value, and (iii) $4.8 million. In conjunction with the SVB Loan Agreement, as amended.
On March 26, 2020,July 28, 2021, the Company entered into an extension of its networking product licenseunderwriting agreement with Motorola through 2025B. Riley Securities, Inc., as representative (the “Representative”) of the several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and also entered intosell an aggregate of 10,000,000 shares of the Company’s Common Stock, to the Underwriters. The shares of Common Stock were sold to the public at an offering price of $2.50 per share and were purchased by the Underwriters from the Company at a new license agreement with Motorola to sell consumer grade home security and monitoring products and to provide related services.price of $2.32715 per share. The Company continuesalso granted the Underwriters a 30-day option to develop new productspurchase up to an additional 1,500,000 shares of Common Stock (the “Option Shares”). On August 2, 2021, the Company received $22.7 million in aggregate net proceeds after deducting Underwriters’ discounts, commissions, and other offering expenses after issuing 10,000,000 shares of the Company’s Common Stock through the Public Offering.
Based on the Company’s present business plan, funding available under the SVB Loan Agreement and the net proceeds of the Company’s Public Offering , the Company expects to introduce several new models to the market during the remainder of 2020 and 2021.
Commitments
During the ninesix months ended SeptemberJune 30, 2020,2021, except as otherwise disclosed in this Form 10-Q, there were no material changes to our capital commitments and contractual obligations from those disclosed in our Form 10-K for the year ended December 31, 2019.
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of SeptemberJune 30, 2020. With the adoption of ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, effective January 1, 2019, off-balance sheet lease arrangements are now reported on the Company’s condensed consolidated balance sheets.2021. See Note 56 to the accompanying condensed consolidated financial statements for additional disclosure.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information under this Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive ChairmanOfficer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In connection with the preparation of this Quarterly Report on the Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management including our Chief Executive ChairmanOfficer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30,March 31, 2020. Based upon that evaluation and other than as disclosed herein, our Chief Executive ChairmanOfficer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
During our preparation of our Annual Report on Form 10-K for the year ended December 31, 2020, we identified a material weakness with tracking and timely recording of in-transit inventory where title had been transferred to the Company. This material weakness could result in the Company under-reporting its inventory and current liabilities. The Company’s logistics firm had not provided title transfer dates to the Company for in-transit inventory. The material weakness only impacted the consolidated balance sheet, other than stockholders’ equity, as of December 31, 2020, resulting in equal increases in the Company’s inventory and current liabilities, and did not impact the consolidated statements of operations.
To remediate the material weakness described above, the Company instituted a process, which includes requiring the Company’s logistics firm to provide title transfer dates to the Company for in-transit inventory. The Company will timely record inventory and related liabilities based on the title transfer date, and a member of the finance department will review the Company records for completeness and accuracy. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed before the end of 2021.
Other than as disclosed herein, there were no changes in our internal control over financial reporting during the period covered by this reportquarter ended June 30, 2021 that have affected, or are reasonably likely to affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
On February 16, 2021, the Company received a description of our material pending legal proceedings, please refer to Note 4(a), “Contingencies”letter from a law firm representing a purported stockholder of the NotesCompany requesting the opportunity to Condensed Financial Statements includedreview certain books and records of the Company to investigate the possibility of breaches of fiduciary duty by current and former members of the Board of Directors and the Company’s controlling stockholder in Part I, Item 1connection with his and his affiliates’ acquisition of majority control of the Company without compensating the Company’s minority stockholders and the acquisition by merger of Zoom Connectivity in which he held a substantial equity stake. The parties have been in negotiations with the counsel for the purported stockholder to resolve this matter. The Company believes that the resolution of this Quarterlymatter is likely to include the imposition of certain corporate governance restrictions, which would expand on current practices of the Company over a longer period of time than the standstill agreement currently in effect with the Company’s controlling stockholder, on the Company and the controlling stockholder and his affiliates and the payment of legal expenses. The matter is under negotiation and is subject to change based upon the negotiations and any other factors that may arise. There can be no assurance that this matter will be resolved on satisfactory terms.
On June 29, 2021, the Company received a letter from a law firm representing a purported stockholder of the Company making a litigation demand on behalf of the Company and its stockholders to address certain alleged misconduct by the Company’s Board of Directors in connection with the implementation of an amendment to the Company’s Amended and Restated Certificate of Incorporation without having received proper stockholder approval thereof as required under Delaware corporation law. The letter demanded that the Board of Directors take immediate action to: deem the amendment ineffective and make appropriate disclosure of that fact and seek a valid stockholder approval of the amendment; and adopt and implement adequate internal controls and systems at the Company designed to prohibit and prevent a recurrence of the circumstances. The letter requested a response or contact with the law firm on or before July 16, 2021. On June 30, 2021, the Company filed with the Delaware Secretary of State a Certificate of Correction to void the previously filed amendment to the Company’s Amended and Restated Certificate of Incorporation. The Company filed an amendment to a Current Report on Form 10-Q,8-K to disclose these matters. The Company held a special meeting of stockholders on July 22, 2021 and received the requisite stockholder approval of the amendment. On July 23, 2021, the Company filed with the Delaware Secretary of State an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock to 62,000,000 shares, consisting of 60,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock. The Company filed a Current Report on Form 8-K to disclose these matters. It is also expected that the Nominating and Governance Committee of the Board of Directors will review the Company’s internal controls and systems and the circumstances described in the demand letter to determine if any additional actions are necessary to prevent the recurrence of the circumstances relating to the foregoing events. The Company anticipates that the law firm that sent the demand letter will seek recovery of attorneys’ fees relating to this matter. The ultimate amount of any such recovery could be material but is not presently ascertainable. The Company intends vigorously to defend against any such claim for recovery of legal fees. There can be no assurance that this matter will be resolved on satisfactory terms.
In the ordinary course of business, in addition to the matters described above, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with its business. Some of such additional proceedings include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of such matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. Management believes that the Company has adequate legal defenses with respect to such additional legal proceedings to which it is incorporated herein by reference.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
Nevertheless, we call your attention to the Item 1A. –Risk Factors section ofcontained in our Form 10-K for the year ended December 31, 2019 as supplemented by the additional risk factors found in the Item 1A. – Risk Factors section of our Form 10-Q for the quarterly period ended March 31, 2020.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
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| ITEM 6. | EXHIBITS |
______________
| * | In accordance with Rule 12b-32 under the Exchange Act, reference is made to the documents previously filed with the SEC, which documents are hereby incorporated by reference. |
| + | Compensation Plan or Arrangement. |
| † | In accordance with Item 601(b)(32)(ii) of Regulation S-K, the certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MINIM, INC. (Registrant) | ||
| Date: | By: | /s/ SEAN DOHERTY |
Sean Doherty Chief Financial Officer (on behalf of Registrant and as Principal Financial Officer) | ||
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