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 September 30, 2017
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:
| 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: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
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ☑ NO
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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Non-accelerated filer | Smaller Reporting Company | ||
| 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 6, 2017,11, 2022, was 15,067,790 shares.
MINIM, INC. AND SUBSIDIARIES
INDEX
| 2 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
MINIM, INC.
Consolidated Balance Sheets
| ASSETS | September 30, 2017 (Unaudited) | December 31, 2016 |
| Current assets | ||
| Cash and cash equivalents | $90,853 | $179,846 |
| Accounts receivable, net of allowances of $661,892 at September 30, 2017 and $507,296 at December 31, 2016 | 2,104,555 | 2,498,259 |
| Inventories, net | 5,306,662 | 4,926,612 |
| Prepaid expenses and other current assets | 935,984 | 652,402 |
| Total current assets | 8,438,054 | 8,257,119 |
| Other assets | 398,824 | 588,907 |
| Equipment, net | 187,374 | 175,743 |
| Total assets | $9,024,252 | $9,021,769 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Bank debt | $594,778 | $1,306,620 |
| Accounts payable | 3,761,662 | 2,502,323 |
| Accrued expenses | 1,214,240 | 1,051,616 |
| Total liabilities | 5,570,680 | 4,860,559 |
| Commitments and contingencies (Note 4) | ||
| Stockholders' equity | ||
| Common stock: Authorized: 25,000,000 shares at $0.01 par value | ||
| Issued and outstanding: 15,037,790 shares at September 30, 2017 and 14,685,290 shares at December 31, 2016 | 150,378 | 146,853 |
| Additional paid-in capital | 40,163,143 | 39,893,919 |
| Accumulated deficit | (36,859,949) | (35,879,562) |
| Total stockholders' equity | 3,453,572 | 4,161,210 |
| Total liabilities and stockholders' equity | $9,024,252 | $9,021,769 |
September 30, 2022 (Unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,437,756 | $ | 12,570,445 | ||||
| Restricted cash | 500,000 | 500,000 | ||||||
| Accounts receivable, net of allowance of doubtful accounts of $335,804 and $236,819 as of September 30, 2022 and December 31, 2021, respectively | 6,210,464 | 4,880,663 | ||||||
| Inventories, net | 30,312,862 | 33,891,287 | ||||||
| Prepaid expenses and other current assets | 327,509 | 587,885 | ||||||
| Total current assets | 38,788,591 | 52,430,280 | ||||||
| Equipment, net | 736,312 | 762,818 | ||||||
| Operating lease right-of-use assets, net | 212,483 | 241,626 | ||||||
| Goodwill | 58,872 | 58,872 | ||||||
| Intangible assets, net | 170,555 | 262,698 | ||||||
| Other assets | 567,629 | 544,738 | ||||||
| Total assets | $ | 40,534,442 | $ | 54,301,032 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Bank credit line | $ | 5,844,559 | $ | 5,065,074 | ||||
| Accounts payable | 6,934,424 | 12,458,246 | ||||||
| Current maturities of government loan | — | 34,237 | ||||||
| Current maturities of operating lease liabilities | 158,468 | 143,486 | ||||||
| Accrued expenses | 5,621,518 | 5,279,917 | ||||||
| Deferred revenue, current | 563,026 | 291,296 | ||||||
| Total current liabilities | 19,121,995 | 23,272,256 | ||||||
| Operating lease liabilities, less current maturities | 54,015 | 98,811 | ||||||
| Deferred revenue, noncurrent | 690,698 | 443,452 | ||||||
| Total liabilities | 19,866,708 | 23,814,519 | ||||||
| Commitments and Contingencies (Note 6) | - | |||||||
| Stockholders’ equity | ||||||||
| Preferred Stock, authorized: shares at $ par value; shares issued and outstanding | — | — | ||||||
| Common Stock, authorized: shares at $ par value; issued and outstanding: shares at September 30, 2022 and shares at December 31, 2021, respectively | 465,786 | 458,850 | ||||||
| Additional paid-in capital | 90,515,197 | 89,313,273 | ||||||
| Accumulated deficit | (70,313,249 | ) | (59,285,610 | ) | ||||
| Total stockholders’ equity | 20,667,734 | 30,486,513 | ||||||
| Total liabilities and stockholders’ equity | $ | 40,534,442 | $ | 54,301,032 | ||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
MINIM, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||
2017 | 2016 | 2017 | 2016 | |
| Net sales | $8,582,076 | $5,990,432 | $20,556,157 | $12,688,142 |
| Cost of goods sold | 5,515,753 | 4,064,834 | 13,561,520 | 8,727,755 |
| Gross profit | 3,066,323 | 1,925,598 | 6,994,637 | 3,960,387 |
| Operating expenses: | ||||
| Selling | 1,812,921 | 1,473,787 | 5,341,239 | 3,520,030 |
| General and administrative | 383,475 | 354,237 | 1,153,753 | 1,236,239 |
| Research and development | 457,309 | 352,849 | 1,367,718 | 1,154,789 |
2,653,705 | 2,180,873 | 7,862,710 | 5,911,058 | |
| Operating income (loss) | 412,618 | (255,275) | (868,073) | (1,950,671) |
| Other income (expense): | ||||
| Interest income | 22 | 21 | 59 | 238 |
| Interest expense | (30,636) | (27,778) | (87,178) | (32,115) |
| Other, net | 65 | 41,482 | (11,072) | 42,232 |
| Total other income (expense) | (30,549) | 13,725 | (98,191) | 10,355 |
| Income (loss) before income taxes | 382,069 | (241,550) | (966,264) | (1,940,316) |
| Income taxes | 4,984 | 2,034 | 14,123 | 3,312 |
| Net income (loss) | $377,085 | $(243,584) | $(980,387) | $(1,943,628) |
| Net income (loss) per share: | ||||
| Basic | $0.03 | $(0.02) | $(0.07) | $(0.14) |
| Diluted | $0.02 | $(0.02) | $(0.07) | $(0.14) |
| Basic weighted average common and common equivalent shares | 14,953,285 | 13,877,407 | 14,851,229 | 13,722,680 |
| Diluted weighted average common and common equivalent shares | 16,419,374 | 13,877,407 | 14,851,229 | 13,722,680 |
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales | $ | 13,832,780 | $ | 15,036,170 | $ | 39,995,803 | $ | 44,946,889 | ||||||||
| Cost of goods sold | 10,749,970 | 10,542,788 | 30,182,996 | 30,871,998 | ||||||||||||
| Gross profit | 3,082,810 | 4,493,382 | 9,812,807 | 14,074,891 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | 3,802,735 | 3,499,636 | 11,286,370 | 9,882,832 | ||||||||||||
| General and administrative | 1,922,315 | 1,371,430 | 4,991,959 | 3,775,291 | ||||||||||||
| Research and development | 1,310,300 | 1,788,677 | 4,227,290 | 4,563,207 | ||||||||||||
| Total operating expenses | 7,035,350 | 6,659,743 | 20,505,619 | 18,221,330 | ||||||||||||
| Sale of trademark, net | — | 3,955,626 | — | 3,955,626 | ||||||||||||
| Operating income (loss) | (3,952,540 | ) | 1,789,265 | (10,692,812 | ) | (190,813 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (93,733 | ) | (81,237 | ) | (261,802 | ) | (187,599 | ) | ||||||||
| Gain on forgiveness of debt (Note 5) | — | — | — | 20,000 | ||||||||||||
| Total other expense | (93,733 | ) | (81,237 | ) | (261,802 | ) | (167,599 | ) | ||||||||
| Income (loss) before income taxes | (4,046,273 | ) | 1,708,028 | (10,954,614 | ) | (358,412 | ) | |||||||||
| Income taxes | 16,307 | 8,132 | 73,026 | 41,123 | ||||||||||||
| Net income (loss) | $ | (4,062,580 | ) | $ | 1,699,896 | $ | (11,027,640 | ) | $ | (399,535 | ) | |||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | (0.09 | ) | $ | 0.04 | $ | (0.24 | ) | $ | (0.01 | ) | |||||
| Diluted | $ | (0.09 | ) | $ | 0.04 | $ | (0.24 | ) | $ | (0.01 | ) | |||||
| Basic weighted average common and common equivalent shares | 46,527,248 | 42,301,480 | 46,297,906 | 37,705,175 | ||||||||||||
| Diluted weighted average common and common equivalent shares | 46,527,248 | 43,437,476 | 46,297,906 | 37,705,175 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
MINIM, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Unaudited)
For the nine months ended September 30, 2022
| Common Stock | Additional Paid In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2021 | 45,885,043 | $ | 458,850 | $ | 89,313,273 | $ | (59,285,610 | ) | $ | 30,486,513 | ||||||||||
| Net loss | — | — | — | (2,538,500 | ) | (2,538,500 | ) | |||||||||||||
| Stock option exercises | 180,774 | 1,807 | 97,362 | — | 99,169 | |||||||||||||||
| Stock-based compensation | — | — | 562,875 | — | 562,875 | |||||||||||||||
| Balance at March 31, 2022 | 46,065,817 | $ | 460,657 | $ | 89,973,510 | $ | (61,824,110 | ) | $ | 28,610,057 | ||||||||||
| Net loss | — | — | — | (4,426,559 | ) | (4,426,559 | ) | |||||||||||||
| Stock option exercises, net | 250,141 | 2,501 | 135,134 | — | 137,635 | |||||||||||||||
| Stock-based compensation | — | — | 272,480 | — | 272,480 | |||||||||||||||
| Balance at June 30, 2022 | 46,315,958 | $ | 463,158 | $ | 90,381,124 | $ | (66,250,669 | ) | $ | 24,593,613 | ||||||||||
| Net loss | — | — | — | (4,062,580 | ) | (4,062,580 | ) | |||||||||||||
| Common stock issued for vested restricted stock units | 262,772 | 2,628 | (2,628 | ) | — | — | ||||||||||||||
| Stock-based compensation | 136,701 | 136,701 | ||||||||||||||||||
| Balance at September 30, 2022 | 46,578,730 | $ | 465,786 | $ | 90,515,197 | $ | (70,313,249 | ) | $ | 20,667,734 | ||||||||||
For the nine months ended September 30, 2021
| Common Stock | Additional Paid In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | 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 | ) | |||||||||||||
| 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 | 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 | ||||||||||
| Net income | — | — | — | 1,699,896 | 1,699,896 | |||||||||||||||
| Net income (loss) | 1,699,896 | 1,699,896 | ||||||||||||||||||
| Stock option exercises | 225,112 | 2,251 | 428,599 | — | 430,850 | |||||||||||||||
| Public offering equity, net of issuance costs | 10,000,000 | 100,000 | 22,630,049 | — | 22,730,049 | |||||||||||||||
| Stock-based compensation | 157,875 | — | 157,875 | |||||||||||||||||
| Balance at September 30, 2021 | 45,856,351 | $ | 458,601 | $ | 89,074,838 | $ | (57,486,478 | ) | $ | 32,046,961 | ||||||||||
See accompanying notes to consolidated financial statements.
| 5 |
MINIM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||
2017 | 2016 | |
Cash flows from operating activities: | ||
| Net income (loss) | $(980,387) | $(1,943,628) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 391,181 | 389,487 |
| Stock based compensation | 170,074 | 164,795 |
| Provision for accounts receivable allowances | 540 | 8,988 |
| Provision for inventory reserves | 186,440 | 10,450 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 393,164 | (1,801,446) |
| Inventories | (566,490) | (1,454,910) |
| Prepaid expenses and other assets | (327,462) | (193,245) |
| Accounts payable and accrued expenses | 1,421,963 | 1,084,228 |
| Net cash provided by (used in) operating activities | 689,023 | (3,735,281) |
| Cash flows from investing activities: | ||
| Cost of other assets | (75,000) | (295,000) |
| Additions to plant and equipment | (93,849) | (32,303) |
| Net cash provided by (used in) investing activities | (168,849) | (327,303) |
| Cash flows from financing activities: | ||
| Net funds received from (to) bank credit lines | (711,842) | 2,141,799 |
| Proceeds from stock option exercises | 102,675 | 249,389 |
| Net cash provided by (used in) financing activities | (609,167) | 2,391,188 |
| Net change in cash | (88,993) | (1,671,396) |
| Cash and cash equivalents at beginning of period | 179,846 | 1,846,704 |
| Cash and cash equivalents at end of period | $90,853 | $175,308 |
| Supplemental disclosures of cash flow information: | ||
| Cash paid during the period for: | ||
| Interest | $87,178 | $32,115 |
| Income taxes | $14,123 | $3,312 |
| 2022 | 2021 | |||||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | (11,027,640 | ) | $ | (399,535 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 616,704 | 719,312 | ||||||
| Amortization of right-of-use assets | 133,057 | 99,819 | ||||||
| Amortization of debt issuance costs | 53,404 | 25,708 | ||||||
| Amortization of sales contract costs | 28,814 | 22,738 | ||||||
| Stock-based compensation | 972,056 | 773,717 | ||||||
| Provision for accounts receivable allowances | 98,984 | — | ||||||
| Provision for inventory reserves | 839,012 | 118,927 | ||||||
| Non-cash loan forgiveness | — | (20,000 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,428,785 | ) | (2,375,552 | ) | ||||
| Inventories | 2,739,413 | (6,856,073 | ) | |||||
| Prepaid expenses and other current assets | 260,376 | (52,587 | ) | |||||
| Other assets | 48,846 | (88,814 | ) | |||||
| Accounts payable | (5,523,817 | ) | (821,096 | ) | ||||
| Accrued expenses | 341,615 | (2,199,616 | ) | |||||
| Deferred revenue | 518,975 | 1,140,067 | ||||||
| Operating lease liabilities | (133,728 | ) | (99,684 | ) | ||||
| Net cash used in operating activities | (11,462,714 | ) | (10,012,669 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment | (252,624 | ) | (546,047 | ) | ||||
| Certification costs capitalized | (345,983 | ) | (88,708 | ) | ||||
| Net cash used in investing activities | (598,607 | ) | (634,755 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from the SVB bank credit line | 726,081 | 7,092,509 | ||||||
| Costs associated with bank credit line | — | (92,905 | ) | |||||
| Repayment of the Rosenthal bank credit line | — | (2,442,246 | ) | |||||
| Repayment of government loan | (34,252 | ) | — | |||||
| Net proceeds from public offering | — | 22,730,049 | ||||||
| Proceeds from stock option exercises | 236,803 | 1,152,259 | ||||||
| Net cash provided by financing activities | 928,632 | 28,439,666 | ||||||
| Net decrease in cash and cash equivalents | (11,132,689 | ) | 17,792,242 | |||||
| Cash, cash equivalents, and restricted cash – Beginning | 13,070,445 | 1,571,757 | ||||||
| Cash, cash equivalents, and restricted cash – Ending | $ | 1,937,756 | $ | 19,363,999 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 263,097 | $ | 187,662 | ||||
| Income taxes | $ | 73,026 | $ | 41,122 | ||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
MINIM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) SummaryNATURE OF OPERATIONS AND BASIS OF PRESENTATION
Minim, Inc. and its wholly owned subsidiaries, Cadence Connectivity, Inc., MTRLC LLC, and Minim Asia Private Limited, are herein collectively referred to as “Minim” or the “Company”. The Company delivers intelligent networking 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 January 21, 2022, Zoom Connectivity, Inc. filed with the Secretary of Significant Accounting Policies
Basis of Presentation
The accompanying condensedunaudited consolidated financial statements of the Company 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 statements”information that are normally required by U.S. generally accepted accounting principles (“GAAP”) are unaudited. However, thecan be condensed consolidated balance sheet as of December 31, 2016 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 results 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 amounts in the Company's 2016consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
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 three- and nine- month period ended September 30, 2021.
Liquidity
The Company’s operations have historically been financed through the issuance of common stock and borrowings. Since inception, the Company has incurred significant losses and negative cash flows from operations. During the nine months ended September 30, 2022, the Company incurred a net loss of $11.0million and had negative cash flows from operating activities of $11.5million. As of September 30, 2022, the Company had an accumulated deficit of $70.3million and cash and cash equivalents of $1.4 million. The SVB Loan Agreement matures, and all outstanding amounts become due and payable on November 1, 2023. These conditions raise substantial doubt about our ability to continue as a going concern within one year from the date of filing these financial statements. 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, decreasing operating costs, obtaining additional equity or debt financing. 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. If cash on hand and availability on the line of credit are not sufficient, the Company will and has the ability to reduce expenses and defer inventory purchases to preserve cash on hand.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K10-K/A for the year ended December 31, 2016.2021. The Company’s significant accounting policies did not change during the nine months ended September 30, 2022.
| 7 |
Recently AdoptedIssued Accounting Standards
In MarchJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 as of January 1, 2017 and elected an accounting policy to record forfeitures as they occur. The impact of this change in accounting policy had an insignificant effect on accumulated deficit as of January 1, 2017. ASU 2016-09 also provides that companies no longer record excess tax benefits or certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies are recorded as income tax expense or benefit in the statement of operations. There was no financial statement impact of adopting this provision of ASU 2016-09 as the Company is currently in a net operating loss position and the excess tax benefits that existed from options previously exercised had a full valuation allowance. The effects of adopting the remaining provisions in ASU 2016-09 affecting the classification of awards as either equity or liabilities when an entity partially settles the award in cash in excess of the employer’s minimum statutory withholding requirements and classification in the statement of cash flows did not have a significant impact on the Company’s financial position, results of operations or cash flows.
With the exception of the new standard discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s cashfinancial position, results of operations and cash equivalentsflows.
(3) REVENUE AND OTHER CONTRACTS WITH CUSTOMERS
Revenue is recognized for each distinct performance obligation as control is transferred to the customer. Revenue attributable to hardware products bundled with Software-as-a-Service (“SaaS”) offerings are recognized at the time control of the product transfers to the customer. The transaction price allocated to the 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.
Transaction Price Allocated to the Remaining Performance Obligations
The remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced.
Contract costs
The Company recognizes the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that certain sales commissions meet the requirements to be capitalized, and the Company amortizes these costs on a consistent basis with the pattern of transfer of the goods and services in the contract. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets on our consolidated balance sheets.
The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. These costs include sales commissions on September 30, 2017 was approximately $91 thousand, down from $180 thousandSaaS contracts with a contract period of one year or less as sales commissions on December 31, 2016. Major usescontract renewals are commensurate with those paid on the initial contract.
Contract Balances
The Company records accounts receivable when it has an unconditional right to the consideration. Contract liabilities consist of cash were a $980 thousand lossdeferred revenue, which represents payments received in advance of revenue recognition related to SaaS agreements and for prepayments for products or services yet to be delivered.
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Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer.
The following table reflects the contract balances as of the periods ended:
SCHEDULE OF CONTRACT BALANCES
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts receivable | $ | 6,210,464 | $ | 4,880,663 | ||||
| Total contract assets | $ | 6,210,464 | $ | 4,880,663 | ||||
| Deferred revenue, current | $ | 563,026 | $ | 291,296 | ||||
| Deferred revenue, noncurrent | 690,698 | 443,452 | ||||||
| Total contract liabilities | $ | 1,253,724 | $ | 734,748 | ||||
During the three and nine months ended September 30, 2017, a decrease2022, the change in contract liabilities balances was as follows:
SCHEDULE OF CHANGE IN CONTRACT BALANCES
| Balance at December 31, 2021 | $ | 734,748 | ||
| Billings | 177,759 | |||
| Revenue recognized | (80,483 | ) | ||
| Balance at March 31, 2022 | $ | 832,024 | ||
| Billings | 365,868 | |||
| Revenue recognized | (95,327 | ) | ||
| Balance at June 30, 2022 | $ | 1,102,565 | ||
| Billings | 274,347 | |||
| Revenue recognized | (123,188 | ) | ||
| Balance at September 30, 2022 | $ | 1,253,724 |
Disaggregation of approximately $712 thousand in bank debt, an increase of approximately $380 thousand in inventory, and an increase of approximately $284 thousand in prepaid expenses. These were offsetRevenue
The following table sets forth our revenues by an increase of approximately $1.4 million in accounts payable and accrued expenses, a decrease of approximately $394 thousand in accounts receivable, and a decrease of approximately $190 thousand in other assets.distribution channel:
SCHEDULE OF DISAGGREGATION OF REVENUE BY DISTRIBUTION CHANNEL
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Retailers | $ | 13,463,696 | $ | 14,377,917 | $ | 38,548,176 | $ | 41,165,195 | ||||||||
| Distributors | 180,800 | 645,568 | 550,177 | 3,431,652 | ||||||||||||
| Other | 188,284 | 12,685 | 897,450 | 350,042 | ||||||||||||
| Revenues | $ | 13,832,780 | $ | 15,036,170 | $ | 39,995,803 | $ | 44,946,889 | ||||||||
The following table sets forth our revenues by product:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cable modems & gateways | $ | 13,363,315 | $ | 14,561,563 | $ | 38,460,865 | $ | 41,956,973 | ||||||||
| Other networking products | 233,962 | 268,324 | 1,009,469 | 483,659 | ||||||||||||
| SaaS | 235,503 | 206,283 | 525,469 | 2,506,257 | ||||||||||||
| Revenues | $ | 13,832,780 | $ | 15,036,170 | $ | 39,995,803 | $ | 44,946,889 | ||||||||
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(4) BALANCE SHEET COMPONENTS
Inventories
Inventories, net consists of the Motorola brand, new product introductions, increased shelf space, growing online retailer sales, and international expansion. Because of projected sales increases, the associated improved net income, and its Financing Agreement (as defined below) with
| Inventories consist of : | September 30, 2017 | December 31, 2016 |
| Materials | $1,287,621 | $888,830 |
| Work in process | 209,694 | 27,708 |
| Finished goods | 3,809,347 | 4,010,074 |
| Total | $5,306,662 | $4,926,612 |
SCHEDULE OF INVENTORIES
September 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | 526,469 | $ | 1,047,156 | ||||
| Work in process | 4,817,935 | 7,540 | ||||||
| Finished goods | 24,968,458 | 32,836,591 | ||||||
| Total | $ | 30,312,862 | $ | 33,891,287 | ||||
Finished goods includes consigned inventory held by our customers of $835,800$3.8 million and $4.5 million at September 30, 20172022 and $442,300 at December 31, 2016.2021, respectively and includes in-transit inventory of $1.3 million and $6.3 million at September 30, 2022 and December 31, 2021, respectively. The Company reviews inventory for obsolete and slow movingslow-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 were $1.6 million and $0.8 million as of September 30, 2022, and December 31, 2021, respectively.
Accrued expenses
Accrued expenses consist of the following:
SCHEDULE OF ACCRUED EXPENSES
September 30, 2022 | December 31, 2021 | |||||||
| Inventory purchases | $ | 153,926 | $ | 287,571 | ||||
| Payroll & related benefits | 700,844 | 210,495 | ||||||
| Professional fees | 470,738 | 229,597 | ||||||
| Royalty costs | 1,650,000 | 1,588,025 | ||||||
| Sales allowances | 2,130,272 | 1,958,050 | ||||||
| Sales and use tax | 66,888 | 50,916 | ||||||
| Other | 448,850 | 955,263 | ||||||
| Total accrued other expenses | $ | 5,621,518 | $ | 5,279,917 | ||||
(5) BANK CREDIT LINES AND GOVERNMENT LOANS
Bank Credit Line
On December 18, 2012, the Company entered into a Financing Agreement with Rosenthal & Rosenthal, Inc. (the “Financing Agreement”). The Financing Agreement, as amended, provided for up to $5.0 million of revolving credit, subject to a borrowing base formula and other terms and conditions as specified therein.
On March 12, 2021, the Company terminated its Financing Agreement with Rosenthal & Rosenthal and entered into a loan and security agreement with Silicon Valley Bank (the “SVB Loan Agreement”). On November 1, 2021, the Company entered into the First Amendment to the SVB Loan Agreement. The SVB Loan Agreement, as amended, provides for a revolving facility up to a principal amount of $25.0 million, which is subject to a borrowing base formula. The SVB Loan Agreement matures, and all outstanding amounts become due and payable on November 1, 2023. The SVB Loan Agreement is secured by substantially all the Company’s assets but excludes the Company’s intellectual property. All other substantial terms, including the commercial credit card line of $1.0 million, of the SVB Loan Agreement remain unchanged.
The Company Incurred $143 thousand of origination costs in connection with the SVB Loan Agreement. These origination costs were recorded as debt discount and are being expensed over the remaining term of the SVB Loan Agreement. Amortization of debt issuance costs was $60,096 for$18 thousand and $12 thousand in the three months ended September 30, 20172022 and $7,838 for the three months ended September 30, 2016. The provision for inventory reserves2021, respectively. Amortization of debt issuance costs was $186,440 for$53 thousand and $26 thousand in the nine months ended September 30, 20172022 and $10,4502021, respectively.
As of September 30, 2022, the Company had $5.9 million outstanding, which is net of origination costs of $47.8 thousand, on its SVB Loan Agreement, with availability of $0.5 million. The interest rate was 7.25% as of September 30, 2022.
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Government Loans
On April 15, 2020, the Company entered into a note payable with Primary Bank, a bank under the Small Business Administration (“SBA”), Paycheck Protection Program (“PPP”), in the amount of $583 thousand, which matured on April 15, 2022. Under the terms of the PPP note, the Company was able to apply for and receive forgiveness of $513 thousand of the original principal balance in 2020. During the nine months ended September 30, 2016.2022, the PPP note is fully repaid.
In February 2021, the Company received an additional forgiveness of $20 thousand related to the Economic Injury Disaster Loan Advance received with the PPP note.
(6) COMMITMENTS AND CONTINGENCIES
(a) Lease Obligations
The Company has entered into agreements to lease its warehouses and distribution centers and certain office space under operating leases. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Right-of-use (“ROU”) assets and lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less.
The components of lease costs were as follows:
SCHEDULE OF COMPONENTS OF LEASE COSTS
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease costs | $ | 39,937 | $ | 41,507 | $ | 121,748 | $ | 100,211 | ||||||||
| Short-term lease costs | 5,400 | — | 5,400 | 31,840 | ||||||||||||
| Total lease costs | $ | 45,337 | $ | 41,507 | $ | 127,148 | $ | 132,051 | ||||||||
The weighted-average remaining lease term and discount rate were as follows:
SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE
| Period Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating leases: | ||||||||
| Weighted average remaining lease term (years) | 1.2 | 0.6 | ||||||
| Weighted average discount rate | 4.2 | % | 7.1 | % | ||||
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
| 2022 | 2021 | |||||||
| Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating cash flow information: | ||||||||
| Amounts included in measurement of lease liabilities | $ | 140,899 | $ | 88,523 | ||||
| Non-cash activities: | ||||||||
| ROU asset obtained in exchange for lease liability | $ | 103,914 | $ | 88,523 | ||||
The maturity of the Company’s operating lease liabilities as of September 30, 2022, were as follows:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| Years ended December 31, | ||||
| 2022 (remainder) | $ | 41,133 | ||
| 2023 | 155,379 | |||
| 2024 | 22,794 | |||
| Total lease payments | $ | 219,306 | ||
| Less: imputed interest | (6,823 | ) | ||
| Present value of operating lease liabilities | $ | 212,483 | ||
| Operating lease liabilities, current | $ | 158,468 | ||
| Operating lease liabilities, noncurrent | $ | 54,015 | ||
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(b) Commitments and 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 that it believes are without merit. The Company's management believes that the ultimate resolution of such matters will not materially and adversely affect the Company's business, financial position, or results of operations.
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:
| Year ending December 31, | |
| 2017 | $3,000,000 |
| 2018 | $3,500,000 |
| 2019 | $4,500,000 |
| 2020 | $5,100,000 |
SCHEDULE OF MINIMUM ANNUAL ROYALTY PAYMENTS
| Years ending December 31, | ||||
| 2022 (remaining) | $ | 1,650,000 | ||
| 2023 | 6,850,000 | |||
| 2024 | 7,100,000 | |||
| 2025 | 7,100,000 | |||
| Total | $ | 22,700,000 | ||
Royalty expense under the License Agreement was $583,333$1.7 million and $1.6 million for the third quarter of 2016three months ended September 30, 2022 and $750,0002021, respectively, and $5.0 million and $4.8 million for the third quarter of 2017,nine months ended September 30, 2022 and royalty expense is2021, respectively. Royalty expenses are included in selling expenseand marketing expenses on the accompanying condensed consolidated statements of operations.
(c) Contingencies
The balanceCompany is subject 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.
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 committed royalty expense for 2017 amounts to $750,000 forloss can be reasonably estimated. This review is updated periodically as additional information becomes available. If both of the remaining quarter of 2017.
In the ordinary course of its business, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with the Production Sharing Agreement (“PSA”) entered into between the Company and NAPS. The extension term is December 1, 2015 through November 30, 2018 and allows the Company to contract additional Mexican personnel to work in the Tijuana facility.
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(7) SIGNIFICANT CUSTOMER AND DEPENDENCY ON KEY SUPPLIERS
Relatively few customerscompanies account for a substantial portion of the Company’s revenues. In the third quarter of 2017, three customersmonths ended September 30, 2022, two companies, including a marketplace facilitator, accounted for 10% or greater separatelyindividually and 92% combined of87% in the Company’s total net sales. In the first nine months of 2017, three customers accounted for 10% or greater separately and 90% combinedaggregate of the Company’s total net sales. At September 30, 2017,2022, three customerscompanies, including a marketplace facilitator, with an accounts receivable balance of 10% or greater individually accounted for a combined 83%91% of the Company’s accounts receivable. In the third quarter of 2016, three customersmonths ended September 30, 2021, two companies, including a marketplace facilitator, accounted for 10% or greater separatelyindividually and 86% combined of85% in the Company’s total net sales. In the first nine months of 2016, three customers accounted for 10% or greater separately and 81% combinedaggregate of the Company’s total net sales. At September 30, 20162021, three customerscompanies with an accounts receivable balance of 10% or greater individually accounted for a combined 88%82% 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 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 Financing Agreement with Rosenthal & Rosenthal, Inc. (the “Financing Agreement”). The Financing Agreement originallysingle source supplier, in part due to the lack of alternative sources of supply. During the three months ended September 30, 2022 and 2021, the Company had two suppliers and one supplier, respectively, that provided for up to $1.75 million of revolving credit, subject to a borrowing base formula91% and other terms and conditions. The Financing Agreement continued until November 30, 2014 with automatic renewals from year to year thereafter, unless sooner terminated by either party. The lender has the right to terminate the Financing Agreement at any time on 60 days’ prior written notice.
(8) SALE OF TRADEMARK
One August 12, 2021, the Company entered into an amendmentagreement with Zoom Video Communications, Inc. to sell, and sold, all of the Company’s right, title and interest in the ZOOM® trademark for cash consideration in the amount of $4.0 million, net of legal costs incurred of $44 thousand. The Company did not have a carrying basis in the trademark that was subject to the Financing Agreement (the “Amendment”) with an effective date of January 1, 2013. The Amendment clarified the definition of current assetsagreement and recorded in the Financing Agreement, reducedthree and nine months ended September 30, 2021 income of approximately $4.0 million, which is recorded in income from continuing operations pursuant to ASC 360-10, Impairment or Disposal of Long-Lived Assets.
(9) INCOME TAXES
During the size ofthree and nine months ended September 30, 2022, we recorded no income tax benefits for the revolving credit line to $1.25 million,net operating losses incurred or for the research and revised the financial covenants so that Zoom is required to maintain tangible net worth of not less than $2.0 million and working capital of not less than $1.75 million.
We have evaluated the positive and negative evidence bearing upon the Company’s ability to October 1, 2015,realize its deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We considered the Second Amendment eliminated $2,500 in monthly charges forhistory of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that it is more likely than not that we will not realize the Financing Agreement. Effective December 1, 2015, the Second Amendment reduces the effective ratebenefits of interest to 2.25% plus an amount equal to the higher of prime rate or 3.25%.
As of September 30, 2017,2022 and December 31, 2021, the Company washad federal net operating loss carry forwards of approximately $60.0 million and $62.7 million, respectively, which are available to offset future taxable income. They are due to expire in compliance with both its working capital and tangiblevarying amounts from 2022 to 2040. Federal net worth covenants. Atoperating losses occurring after December 31, 2017, of approximated $21.5 million may be carried forward indefinitely. As of September 30, 2017,2022 and December 31, 2021, the Company’s tangibleCompany had state net worthoperating loss carry forwards of approximately $26.8 million and $19.9 million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts from 2033 through 2040. We recorded minimum state income taxes and taxes related to our operations in Mexico. For the three and nine months ended September 30, 2022 and 2021, income tax expense was approximately $3.1 million, while$16 thousand and $73 thousand, respectively, compared to prior year periods of $8 thousand and $41 thousand, respectively.
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(10) RELATED PARTY TRANSACTIONS
The Company leases office space located at the Company’s working capital848 Elm Street, Manchester, NH. The landlord is an affiliate entity owned by Mr. Hitchcock. The two-year facility lease agreement was approximately $2.9 million.
SCHEDULE OF NET INCOME (LOSS) PER SHARE
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | (4,062,580 | ) | $ | 1,699,896 | $ | (11,027,640 | ) | $ | (399,535 | ) | |||||
| Denominator: | ||||||||||||||||
| Weighted average common shares - basic | 46,527,248 | 42,301,480 | 46,297,906 | 37,705,175 | ||||||||||||
| Effect of dilutive common share equivalents | — | 1,135,996 | — | — | ||||||||||||
| Weighted average common shares - dilutive | 46,527,248 | 43,437,476 | 46,297,906 | 37,705,175 | ||||||||||||
| Basic net income (loss) per share | $ | (0.09 | ) | $ | 0.04 | $ | (0.24 | ) | $ | (0.01 | ) | |||||
| Diluted net income (loss) per share | $ | (0.09 | ) | $ | 0.04 | $ | (0.24 | ) | $ | (0.01 | ) | |||||
Diluted loss from operations. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential shares of common stock had been issued. Potential shares of common stock that may be issued by the Company include shares of common 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 stock at the average market price during the period.
(12) SUBSEQUENT EVENTS
The Company previously filed in Form 8-K on April 28, 2022 that the Company had received a letter (the “Notification Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the minimum closing bid price per share for its ordinary shares was below $ for a period of 30 consecutive business days and that the Company did not meet the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2).
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company had a compliance period of 180 calendar days, or until October 24, 2022 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. During this period, the Company had not regained compliance by October 24, 2022. On October 25, 2022, the Company requested and received an additional 180 calendar day extension (“Extended Notification Letter”), which expires April 23, 2023. The Company has intention to cure the deficiency during the second compliance period.
If at any time during the Compliance Period, the closing bid price per share of the Company’s ordinary shares is at least $ for a minimum of 10 consecutive business days, Nasdaq will provide the Company a written confirmation of compliance and the matter will be closed.
The Notification Letter and Extended Notification Letter had no immediate effect on the listing or trading of the Company’s ordinary shares on the Nasdaq Capital Market.
The Company has evaluated subsequent events from September 30, 2022 through the date of this filing and has determined that there are no such events, other than those noted above, requiring recognition or disclosure in the financial statements.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Management’s Discussion and Analysis of 1995.
The following discussion should be read in conjunction with the attached Unaudited Condensed Consolidated Financial Statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, found in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on August 19, 2022. Although we believe that the assumptions underlying the forward-looking statements contained in this Quarterly Report are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. The risks, uncertainties and other factors which mayassumptions referred to above that could cause our or our industry's actual results performance or achievements to bediffer materially different from any futurethe results performance or achievements expressed or implied by thesuch forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding: Zoom's plans, expectationsthose discussed under the heading “Risk Factors” in Part II, Item 1A hereto and intentions, including statements relating to Zoom's prospects and plans relating to sales of and markets for its products; and Zoom's financial condition or results of operations.
Overview
We deliver a comprehensive WiFi as a Service platform to make everyone’s connected home safe and supportive for life and work. We believe the year ended December 31, 2016, filed withhome router must go the Securities and Exchange Commission on March 22, 2017 and in our other filings with the Securities and Exchange Commission. Readers should also be cautioned that results of any reported period are often not indicative of results for any future period.
We continually seek to improve our product designs and manufacturing approach in order to improveelevate product performance and reduce our costs. We pursue a strategy of outsourcing rather than internally developing our modemhardware product chipsets, which are application-specific integrated circuits that form the technology base for our modems. By outsourcing the chipset technology, we are able to concentrate our research and development resources on modem system design, leverage the extensive research and development capabilities of our chipset suppliers, and reduce our development time and associated costs and risks. As a result of this approach, we are able to quickly develop new products while maintaining a relatively low level of research and development expense as a percentage of net sales. We also outsource aspects of our manufacturing to contract manufacturers as a means of reducing our costs of production, and to provide us with greater flexibility in our production capacity.
| 15 |
Generally, our gross margin for a given product generally depends on a number of factors, including the type of customer to whom we are selling. The gross margin for products sold to retailers tends to be higher than for some of our other customers; but the sales, support, returns, and overhead costs associated with products sold to retailers also tend to be higher. Our sales to certain countries are currently handled by a single master distributor for each country, who handles the support and marketing costs within the country. Gross margin for sales to these master distributors tends to be low, since lower pricing to these distributors helps them to cover the support and marketing costs for their country.
Our cash and cash equivalents balance on September 30, 20172022 was $1.4 million compared to $12.6 million on December 31, 2021. On September 30, 2022, we had 32 employees, 27$5.8 million of outstanding borrowings on our asset-based credit line with availability of $0.5 million and working full-timecapital of $19.7 million. The SVB Loan Agreement matures, and 5 working less than five days per week. Twelve employees were engagedall outstanding amounts become due and payable on November 1, 2023. The Company is evaluating financing and equity options and is currently executing plans to reduce inventory levels by purchasing a selection of products while selling existing inventory to improve cash and inventory positions by the end of the 2022 fiscal year.
The Company’s ability to maintain adequate levels of liquidity depends in researchpart on our ability to sell inventory on hand, increasing SaaS sales, and developmentcollect related receivables.
Although the Company has recently experienced losses and quality control. Five employees were involvedhas a decrease in sales in the current quarter compared to prior quarters as a result of declining consumer spending in home networking equipment since the peak of the pandemic, our sales are ahead of pre-pandemic sales. In the three and nine months ended September 30, 2022 and 2021, we generated net sales of $13.8 million and $15.0 million, respectively, and $40.0 million and $44.9 million, respectively.
There have been no material changes due to the impact of the COVID-19 pandemic on our business from that disclosed in our most recently filed Annual Report. Our most recent Annual Report on Form 10-K/A for the year ended December 31, 2021 as filed with the SEC on August 19, 2022 provides additional information about our business and operations.
Recent Accounting Standards
See Note 2 Summary of Significant 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 m
Critical Accounting Policies and Estimates
Our consolidated 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, which are revenue recognition, product returns, inventory valuation and costs of goods sold, and valuation of deferred tax assets are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K/A for the year ended December 31, 2021. For the nine months ended September 30, 2022, there have been no significant changes in our critical accounting policies and estimates.
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Results of Operations
The following table sets forth certain financial data derived from our consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 presented in absolute dollars and as a percentage of net sales, with dollars and percentage change period over period:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Net sales | $ | 13,833 | �� | $ | 15,036 | $ | (1,203 | ) | (8.0 | )% | 39,996 | $ | 44,947 | $ | (4,951 | ) | (11.0 | )% | ||||||||||||||
| Cost of goods sold | 10,750 | 10,543 | 207 | 2.0 | 30,183 | 30,872 | (689 | ) | (2.2 | ) | ||||||||||||||||||||||
| Gross profit | 3,083 | 4,493 | (1,410 | ) | (31.4 | ) | 9,813 | 14,075 | (4,262 | ) | (30.3 | ) | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Selling and marketing | 3,803 | 3,500 | 303 | 8.7 | 11,286 | 9,883 | 1,403 | 14.2 | ||||||||||||||||||||||||
| General and administrative | 1,922 | 1,371 | 551 | 40.2 | 4,992 | 3,775 | 1,217 | 32.2 | ||||||||||||||||||||||||
| Research and development | 1,310 | 1,789 | (479 | ) | (26.8 | ) | 4,227 | 4,564 | (337 | ) | (7.4 | ) | ||||||||||||||||||||
| Total operating expenses | 7,035 | 6,660 | 375 | 5.6 | 20,505 | 18,222 | 2,283 | 12.5 | ||||||||||||||||||||||||
| Gain on sale of trademark, net | — | 3,956 | 3,956 | — | 3,956 | 3,956 | ||||||||||||||||||||||||||
| Operating income (loss) | (3,952 | ) | 1,789 | (5,741 | ) | (320.9 | ) | (10,692 | ) | (191 | ) | (10,501 | ) | (5,497.9 | ) | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest expense, net | (94 | ) | (81 | ) | (13 | ) | (16.0 | ) | (262 | ) | (188 | ) | (74 | ) | (39.3 | ) | ||||||||||||||||
| Other, net | — | — | — | — | — | 20 | (20 | ) | (100 | ) | ||||||||||||||||||||||
| Total other income (expense) | (94 | ) | (81 | ) | (13 | ) | (16.0 | ) | (262 | ) | (168 | ) | (94 | ) | (56.0 | ) | ||||||||||||||||
| Income (loss) before income taxes | (4,046 | ) | 1,708 | (5,754 | ) | (336.9 | ) | (10,954 | ) | (359 | ) | (10,595 | ) | (2,951.3 | ) | |||||||||||||||||
| Income taxes | 16 | 8 | 8 | 100.0 | 73 | 41 | 32 | 78.0 | ||||||||||||||||||||||||
| Net income (loss) | $ | (4,062 | ) | $ | 1,700 | $ | (5,762 | ) | (338.9 | )% | $ | (11,027 | ) | $ | (400 | ) | $ | (10,627 | ) | (2,656.8 | )% | |||||||||||
Comparison of the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2021
The following table sets forth our revenues by product and the changes in revenues for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Cable modems & gateways | $ | 13,363 | $ | 14,562 | $ | (1,199 | ) | (8.2 | )% | $ | 38,461 | $ | 41,957 | $ | (3,496 | ) | (8.3 | )% | ||||||||||||||
| Other network products | 234 | 268 | (34 | ) | (12.7 | ) | 1,010 | 2,506 | (1,496 | ) | (59.7 | ) | ||||||||||||||||||||
| SaaS | 236 | 206 | 30 | (14.6 | ) | 525 | 484 | 41 | 8.5 | |||||||||||||||||||||||
| Total | $ | 13,833 | $ | 15,036 | $ | (1,203 | ) | (8.0 | )% | $ | 39,996 | $ | 44,947 | $ | (4,951 | ) | (11.0 | )% | ||||||||||||||
The Company’s revenues by geographic area are earned entirely in North America, with the exception of immaterial sales in regions beyond North America, for the three and nine months ended September 30, 2022 and 2021.
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Net Sales
Our total net sales decreased year-over-year by $1.2 million or 8.0% in the three months ended September 30, 2022 and by $5.0 million or 11.0% in the nine months ended September 30, 2022. The decrease in net sales is directly attributable to decreased sales of Motorola branded cable modems and gateways. In both 2022 and 2021, we primarily generated our sales by selling cable modems and gateways. Sales related to SaaS offerings increased by $30 thousand or 14.6% in the three months ended September 30, 2022 and increased by $41 thousand or 8.5% during the nine months ended September 30, 2022. The decrease in the other category of $34 thousand and $1.5 thousand in the three and nine months ended 2022 compared to 2021 is primarily due to a reduction in DSL products and a refocus on new product introductions.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of the following: the cost of finished products from our third-party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; import duties/tariffs; warranty costs associated with returned goods; write-downs for excess and obsolete inventory; amortization of certain acquired intangibles and software development costs; and costs attributable to the provision of service offerings.
The decrease in gross profit was attributable to higher cost inventory resulting from inflationary costs and recording inventory reserves on a specific product. We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods sold due to fluctuations and increases in prices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess or obsolete inventory.
The following table presents net sales and gross margin, for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Net sales | $ | 13,833 | $ | 15,036 | $ | (1,203 | ) | (8.0 | )% | $ | 39,996 | $ | 44,947 | $ | (4,951 | ) | (11.0 | )% | ||||||||||||||
| Gross margin | 22.3 | % | 29.9 | % | 24.5 | % | 31.3 | % | ||||||||||||||||||||||||
Gross profit and gross margin decreased in the three and nine months ended September 30, 2022, compared to the three months ended in the prior fiscal year period, primarily due to higher component material costs related to chipset premiums and recording of inventory reserves on a specific product.
For the remainder of fiscal 2022, we expect gross margin to be subject to similar variabilities experienced in fiscal 2021. In 2021, we experienced meaningful increase in costs for sea freight transportation as well as costs of materials and components for our products. We expect these costs to remain elevated for the foreseeable future. We continue to experience disruptions from the pandemic, with manufacturing partners being affected by factory uptime, and scarcity of materials and components. Forecasting gross margin percentages is difficult, and there are several risks related to our ability to maintain or improve our current gross margin levels. Our cost of goods sold as a percentage of net sales can vary significantly based upon factors such as: uncertainties surrounding revenue volumes, including future pricing and/or potential discounts as a result of the economy, competition, the timing of sales, and related production level variances; import customs duties and imposed tariffs; changes in technology; changes in product mix; expenses associated with writing off excessive or obsolete inventory; fluctuations in freight costs; manufacturing and purchase price variances; and changes in prices on commodity components.
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Selling and Marketing
Selling and marketing expenses consist primarily of advertising, trade shows, corporate communications and other marketing expenses, product marketing expenses, outbound freight costs, amortization of certain intangibles, personnel expenses for sales and marketing staff, technical support expenses, and facility allocations. The following table presents sales and marketing expenses, for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Selling and marketing | $ | 3,803 | $ | 3,500 | $ | 303 | 8.7 | % | $ | 11,286 | $ | 9,883 | $ | 1,403 | 14.2 | % | ||||||||||||||||
Selling and marketing expenses increased in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to increases in marketing program campaigns of $433 thousand and Motorola royalty fees of $63 thousand. Selling and marketing expenses increased in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to an increase in marketing program campaigns of $1.2 million and Motorola royalty fees of $0.2 million.
For the remainder of fiscal 2022, we expect our selling and marketing expenses as a percentage of net sales in fiscal 2022 to be above fiscal 2021 levels. Expenses may fluctuate depending on sales levels achieved as certain expenses, such as commissions, are determined based upon the net sales achieved. Forecasting selling and marketing expenses is highly dependent on expected net sales levels and could vary significantly depending on actual net sales achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs.
General and Administrative
General and administrative expenses consist of salaries and related expenses for executives, finance and accounting, human resources, information technology, professional fees, including legal costs associated with defending claims against us, allowance for doubtful accounts, facility allocations, and other general corporate expenses. The following table presents general and administrative expenses, for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| General and administrative | $ | 1,922 | $ | 1,371 | $ | 551 | 40.2 | % | $ | 4,992 | $ | 3,775 | $ | 1,217 | 32.3 | % | ||||||||||||||||
General and administrative expenses increased in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to increases in personnel expenses of $405 thousand, including $130 thousand in severance expense, software subscriptions of $87 thousand, and increases in professional fees of $162 thousand. General and administrative expenses increased in the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, primarily due to increases in personnel expenses of $1.0 million, director fees of $291 thousand, and software subscriptions of $510 thousand, partially offset by a decrease in professional fees of $376 thousand.
Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, and other factors.
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Research and Development
Research and development expenses consist primarily of personnel expenses, payments to suppliers for design services, safety and regulatory testing, product certification expenditures to qualify our products for sale into specific markets, prototypes, IT, and other consulting fees. Research and development expenses are recognized as they are incurred. Our research and development organization is focused on enhancing our ability to introduce innovative and easy-to-use products and services. The following table presents research and development expenses, for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, 2022 | September 30, 2021 | $ Change | % Change | September 30, 2022 | September 30, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||||||||||||||||||
| Research and development | $ | 1,310 | $ | 1,789 | $ | (479 | ) | (26.8 | )% | $ | 4,227 | $ | 4,564 | $ | (337 | ) | (7.4 | )% | ||||||||||||||
Research and development expenses decreased in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to personnel expenses. Research and development expenses decreased in the nine months ended September 30, 2022, as compared to the three months ended September 30, 2021, primarily due to product certification costs.
We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We continue to invest in research and development to expand our hardware product offerings focused on premium WiFi 6E, WiFi 6, and software solutions. For the remainder of fiscal 2022, we expect research and development expenses as a percentage of net sales in fiscal 2022 to be in line with or slightly above fiscal 2021 levels. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net sales, depending on actual net sales achieved in any given year.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents and borrowings under our SVB line-of-credit. As described below, management judgmentsof September 30, 2022, we had cash and estimates must be madecash equivalents of $1.4 million as compared to $12.6 million on December 31, 2021. On September 30, 2022, we had $5.8 million of borrowings outstanding and $0.5 million available on our $25.0 million SVB line-of-credit and working capital of $19.7 million. We have funded our operations and investing activities primarily through borrowings on our line of credit, the sale of assets and the sale of our common stock.
Our historical cash outflows have primarily been associated with: (1) cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing and research and development infrastructure and other working capital needs; (2) expenditures related to increasing our manufacturing capacity and improving our manufacturing efficiency; (3) capital expenditures related to the acquisition of equipment; and (4) cash used to repay our debt obligations and related interest expense. Fluctuations in our working capital due to timing differences of our cash receipts and cash disbursements also impact our cash inflows and outflows.
Cash Flows
The following table presents our cash flows for the periods presented:
Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash used in operating activities | $ | (11,463 | ) | $ | (10,013 | ) | ||
| Cash used in investing activities | (599 | ) | (635 | ) | ||||
| Cash provided by financing activities | 929 | 28,440 | ||||||
| Net decrease in cash and cash equivalents | $ | (11,133 | ) | $ | (17,792 | ) | ||
Cash Flows from Operating Activities. Cash used in connection withoperating activities of $11.5 million for 2022 reflected our net loss of $11.0 million, adjusted for non-cash expenses, consisting primarily of $0.6 million of depreciation and amortization and $1.0 million of stock-based compensation expense. Uses of cash includes an increase of accounts receivables of $1.4 million and a decrease in accounts payable of $5.5 million. Sources of cash included a decrease of inventories of $2.7 million, decrease of other assets of $0.3 million, increase in accrued expenses of $0.3 million, and increases in deferred revenue of $0.5 thousand.
Cash used in operating activities of $10.0 million for 2021 reflected our net loss of $0.4 million, adjusted for non-cash expenses, consisting primarily of stock-based compensation expense of $0.8 million. Uses of cash include an increase of accounts receivables of $2.4 million, increase in inventories of $6.8 million and increase in accounts payable of $0.8 million and accrued expenses of $2.2 million. Sources of cash included an increase in deferred revenue of $1.1 million.
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Cash Flows from Investing Activities. In 2022, $0.3 million was used to purchase equipment and $0.3 million was used for certification costs.
In 2021, cash of $0.5 million was used to purchase equipment and $0.1 million was used for certification costs.
Cash Flows from Financing Activities. Cash provided by financing activities in 2022 consisted of a source of cash of $0.7 million from borrowings under our SVB line-of-credit, and $0.2 million in proceeds from the preparationexercise of common stock options.
Cash provided by financing activities in 2021 consisted of a source of cash of $22.7 million in a public offering, $7.1 million from borrowings under our SVB line-of-credit, and $1.2 million in proceeds from the exercises of common stock options. Uses of cash include the repayment of the Rosenthal & Rosenthal, Inc. line-of-credit of $2.4 million.
Future Liquidity Needs
Our primary short-term needs for capital, which are subject to change, include expenditures related to:
| ● | the acquisition of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities; | |
| ● | upgrades to our information technology infrastructure to enhance our capabilities and improve overall productivity; | |
| ● | support of our commercialization efforts related to our current and future products, including expansion of our direct sales force and field support resources; | |
| ● | the continued advancement of research and development activities. |
Our capital expenditures are largely discretionary and within our control. We expect that our product sales and the resulting operating loss as well as the status of each of our product development programs, will significantly impact our cash management decisions.
The Company’s operations have historically been financed through the issuance of common stock and borrowings. Since inception, the Company has incurred significant losses and negative cash flows from operations. During the nine months ended September 30, 2022, the Company incurred a net loss of $11.0 million and had negative cash flows from operating activities of $11.5 million. As of September 30, 2022, the Company had an accumulated deficit of $70.3 million and cash and cash equivalents of $1.4 million. The SVB Loan Agreement matures, and all outstanding amounts become due and payable on November 1, 2023. These conditions raise substantial doubt about our ability to continue as a going concern within one year from the date of filing these financial statements. WeThe Company’s financial statements have identified areas where material differences could resultbeen prepared assuming the Company will continue as a going concern and contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the amountnormal 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, decrease operating costs, obtain additional equity or debt financing. The Company is currently executing plans to reduce inventory levels by purchasing a selection of products while selling existing inventory to improve cash and inventory positions by the end of the 2022 fiscal year. We intend to retain any future earnings to support operations and to finance the growth and development of our business, and we do not anticipate paying any dividends in the foreseeable future.
Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of any future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital required to support our net sales costs,growth, funds required to service our debt, the receipt of and expenses for any period if we had made different judgments or used different estimates.
Our ability to fund our longer-term cash needs is subject to various risks, many of December 31, 2016 we had federal net operating loss carry forwards of approximately $54.0 million which are beyond our control—See “Risk Factors—We may require significant additional capital to pursue our growth strategy, and our failure to raise capital when needed could prevent us from executing our growth strategy.” Should we require additional funding, such as additional capital investments, we may need to raise the required additional funds through bank borrowings or public or private sales of debt or equity securities. We cannot assure that such funding will be available in needed quantities or on terms favorable to offset future taxable income. They are due to expire in varying amounts from 2018 to 2036. As of December 31, 2016,us, if at all.
At September 30, 2022, we had Massachusettshave Federal and state net operating loss carry forwards of approximately $7.3$60.0 million which areand $26.8 million, respectively, available to offsetreduce future taxable income. They are due to expire in varying amounts from 2031 through 2036. 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.
Commitments and cable modem routers.
During the nine months ended September 30, 2017,2022, 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-K10-K/A for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
We did not have any material changes to our off-balance sheet arrangements from those disclosed in our Form 10-Kas of September 30, 2022. See Note 6 to the accompanying consolidated financial statements for the year ended December 31, 2016.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 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 Securities Exchange Act of 1934, as amended (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 Officer who is alsoand our Acting 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 Officer and Acting 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, 2017.2022. Based upon that evaluation and other than as disclosed herein, our Chief Executive Officer and Acting 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/A for the year ended December 31, 2021, we identified material weaknesses with financial reporting to account for inventory transactions. These material weaknesses could result in the Company incorrectly reporting its inventory. To remediate the material weaknesses, the Company is instituting reporting enhancements within its accounting system, standardized and timely account reconciliations, and independent and regular reviews by the finance department to ensure the Company inventory records are complete and accurate. The material weaknesses will not be considered remediated until the applicable 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 these material weaknesses will be completed before the end of 2022.
Other than as disclosed herein, there were no significant changes in our internal controlscontrol over financial reporting that occurred during the period covered by this reportthree months ended September 30, 2022 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
None.
| ITEM 1A. | RISK FACTORS |
There have been no material changes to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include the risk factors containedset forth in our 2021 Annual Report on Form 10-K/A for the year ended December 31, 2021, filed with the SEC on August 19, 2022, which includes a detailed discussion of our risk factors in Part I, “Item 1A. Risk Factors”, which discussion is hereby incorporated by reference into this Part II, Item 1A. Our Risk Factors could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K10-K/A for the fiscal year ended December 31, 2016, filed with2021, are not the SEC on March 22, 2017, as well as those discussed in this reportonly risks we face. Additional risks and inuncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our other filings with the SEC.business, financial position, or future results of operations.
| 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 |
| Exhibit No. | Exhibit Description | |
| CEO Certification | ||
| 32.1 | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.† | |
| CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.† | ||
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, 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 and Exchange Act of 1934, the Companyregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MINIM, INC. (Registrant) | |||
| Date: November | By: | /s/ | DUSTIN TACKER |
Dustin Tacker Chief Financial Officer ( | |||
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