FiEE, Inc 10-Q for FY2024 Q1
FiEE, Inc. (FIEE)
About this 10-Q
FiEE, Inc filed this 10-Q on May 20, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $639.89K
- down 94.0% from $10.75M a year earlier
- Net loss
- $3.26M
- compared with a net loss of $4.07M a year earlier
- Diluted EPS
- -$1.18
- compared with -$2.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from________ to ________
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code:
(Former Name or Former Address, 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 | ||
| The |
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.
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).
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 growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 ☐
The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of May 20, 2024, was shares.
MINIM, INC. AND SUBSIDIARIES
INDEX
i
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
MINIM, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, (Unaudited) | December 31, | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of doubtful accounts of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Current maturities of operating lease liabilities | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| 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 March 31, 2024 and shares at December 31, 2023 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
MINIM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Vendor liability forgiveness, net of asset transfers (Note 7) | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other expense: | ||||||||
| Interest income (expense), net | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share | $ | ) | $ | ) | ||||
| Weighted average common and common equivalent shares: Basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
2
MINIM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
For the three months ended March 31, 2024
| Preferred Stock | Common Stock | Additional Paid In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Preferred stock issuance | - | |||||||||||||||||||||||||||
| Issuance of warrants | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
For the three months ended March 31, 2023
| Preferred Stock | Common Stock | Additional Paid In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for vested restricted units | - | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
MINIM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization of debt issuance costs | ||||||||
| Stock based compensation | ||||||||
| Provision for accounts receivable allowances | ( | ) | ||||||
| Vendor liability forgiveness, net of asset transfers | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment | ( | ) | ||||||
| Certification costs capitalized | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from the bank credit line | ( | ) | ||||||
| Proceeds from preferred stock issuance | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents - Beginning | ||||||||
| Cash and cash equivalents - Ending | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Cash is reported on the condensed consolidated statements of cash flows as follows: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
4
MINIM, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Minim, Inc. and its wholly owned subsidiaries, MME Sub 1 LLC, 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 were the exclusive global license holder to the Motorola brand for home networking hardware until 2023. 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.
Basis of Presentation
The accompanying unaudited 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 information that are normally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. All intercompany balances and transactions have been eliminated in consolidation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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.
On April 17, 2023, the Company effected a
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 three months ended March 31, 2024, the Company
incurred a net loss of $3.3
5
Merger Agreement with e2 Companies, LLC
On March 12, 2024, the “Company”, and its wholly owned subsidiary, MME Sub 1 LLC, a Florida limited liability company (“Merger Sub”), formed in March 2024, entered into an Agreement and Plan of Merger (“Merger Agreement”) with e2Companies LLC, a Florida limited liability company (“e2Companies”). Pursuant to the Merger Agreement, Merger Sub will merge with and into e2Companies, with e2Companies remaining as the surviving entity (the “Merger”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), holders of the outstanding common units of e2Companies (“e2 Shares”) will receive such number of shares of common stock, par value $0.01 per share, of the Company (“Company Shares”) representing 97% of the issued and outstanding Company Shares (on a fully-diluted basis).
Pursuant to the terms of the Merger Agreement, the Company has agreed to appoint, upon the Effective Time, two individuals selected by the Company to the Company’s board of directors.
The Merger Agreement contains representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Merger is conditioned upon, among other things, (i) the Company Shares to be issued in the Merger (“Merger Consideration”) being approved for listing on the Nasdaq Capital Market (“Nasdaq”), (ii) the effectiveness of a registration statement on Form S-4 registering the Merger Consideration; (iii) any waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will have expired or been terminated; and (iv) the consent or approval of the Company’s stockholders, as applicable, of (a) the Merger, (b) the issuance of the Merger Consideration, and (c) an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to among other things, change the Company’s name to e2Companies, Inc. following the Merger (the “Stockholder Approvals”).
The Merger Agreement may be terminated under certain customary and limited circumstances prior to the closing including by the mutual consent of the Company and e2Companies if the closing has not occurred by June 15, 2024. The Merger Agreement is subject to the right of either party to obtain a 30 day extension, and including, but not limited to, Stockholder Approvals having not been obtained, Company Shares being delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), upon uncured breaches of representations, warranties and covenants or if a court of competent jurisdiction permanently restrains the Merger from occurring.
(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, 2023. The Company’s significant accounting policies did not change during the three months ended March 31, 2024.
Recently Issued Accounting Standards
There have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows.
(3) REVENUE AND OTHER CONTRACTS WITH CUSTOMERS
Revenue 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.
6
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 condensed 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 SaaS contracts with a contract period of one year or less as sales commissions on contract 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. The Company did
Disaggregation of Revenue
The following table sets forth our revenues by distribution channel:
| Schedule of disaggregation of revenue by distribution channel | ||||||||
Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Retailers | $ | $ | ||||||
| Distributors | ||||||||
| Other | ||||||||
| $ | $ | |||||||
The following table sets forth our revenues by product:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cable modems & gateways | $ | $ | ||||||
| Other networking products | ||||||||
| SaaS | ||||||||
| $ | $ | |||||||
7
(4) BALANCE SHEET COMPONENTS
Inventories
Inventories, net consists of the following:
| Schedule of inventories | ||||||||
March 31, 2024 | December 31, 2023 | |||||||
| Materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
The Company did
Accrued expenses
Accrued expenses consist of the following:
| Schedule of accrued expenses | ||||||||
March 31, 2024 | December 31, 2023 | |||||||
| Payroll & related benefits | $ | $ | ||||||
| Professional fees | ||||||||
| Board of director fees | ||||||||
| Sales allowances | ||||||||
| Sales and use tax | ||||||||
| Vendor contingent payments (Note 7) | ||||||||
| Total accrued other expenses | $ | $ | ||||||
(5) BANK CREDIT LINES AND GOVERNMENT LOANS
Bank Credit Line
On March 12, 2021, the Company terminated its Financing Agreement 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
“First Amendment”). The SVB Loan Agreement, as amended, provides for a revolving facility
up to a principal amount of $
The SVB Loan Agreement is secured by substantially all of the Company’s assets but excludes the Company’s intellectual property.
8
On December 12, 2022, the Company entered into its second Amendment to the SVB Loan Agreement (the
“Second Amendment”). The Second Amendment (i) reduced the aggregate amount available
under the revolving credit line from $
The Company incurred $
On October 18, 2023, the Company paid in full the outstanding balance and immediately terminated
the SVB Loan Agreement. As of March 31, 2024 and December 31, 2023, the Company had $
Covenants
The SVB Loan Agreement
included a minimum interest expense of $
In addition, pursuant to the SVB Loan Agreement, the Company cannot pay any dividends without the prior written consent of SVB.
Bridge Loan
On November 30, 2022 (the “Effective Date”), the Company and Slingshot Capital, LLC (“Slingshot
Capital”) entered into a Bridge Loan Agreement (the “Bridge Loan Agreement”) pursuant
to which Slingshot Capital agreed to make available a bridge loan in the principal
amount up of up to $
Principal amounts borrowed
under the Bridge Loan Agreement bear interest of 8.00% per annum for the period from the Effective Date until February 28, 2023.
Unpaid principal after February 28, 2023 bear an interest of
In connection with the Bridge Loan Agreement, the Company, Slingshot Capital, and Silicon Valley Bank (the “Senior Lender”) executed a subordination agreement (the “Subordination Agreement”) on November 30, 2022. The Loan Agreement is subordinated to the outstanding indebtedness and obligations under the Company’s senior credit facility. Subject to the Senior Lender’s written consent, the Company shall grant Slingshot Capital a second-priority security interest in all of the Company’s collateral, which shall be subordinated to any and all security interests granted to the Senior Lender and at all times shall be limited to the same collateral granted to the Senior Lender under the senior credit facility.
Principal and interest are not due and payable until the maturity date, which is January 15, 2024, unless the Company’s senior credit facility with the Senior Lender is paid in full in cash on an earlier date.
The Company reimbursed Slingshot Capital $
9
On December 6, 2023, the Company and Slingshot Capital entered into a Debt Conversion Agreement
(“Conversion Agreement”) pursuant to which the Company agreed to issue shares
of the Company’s common stock (based on $ per share) (the “Shares”) in exchange for the cancellation
of a total principal amount of $
Slingshot Capital is owned by the Company’s former Chairperson of the Board and a former Board of Director, Jeremy Hitchcock and Elizabeth Hitchcock, respectively.
(6) Leases
The Company has entered into agreements to lease certain office space as well as its former warehouses and distribution centers 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 | ||||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease costs | $ | $ | ||||||
| Short-term lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
The weighted-average remaining lease term and discount rate were as follows:
| Schedule of weighted average remaining lease term and discount rate | ||||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating leases: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
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 | ||||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating cash flow information: | ||||||||
| Amounts included in measurement of lease liabilities | $ | $ | ||||||
| Non-cash activities: | ||||||||
| ROU asset obtained in exchange for lease liability | $ | $ | ||||||
10
The maturity of the Company’s operating lease liabilities as of March 31, 2024 were as follows:
| Schedule of maturity of operating lease liabilities | ||||
| Years ended December 31, 2024 (remainder) | $ | |||
| Total lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
| Operating lease liabilities, current | $ | |||
| Operating lease liabilities, noncurrent | $ |
(7) COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company was a 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 had a term ending December 31, 2025 prior to its cancellation in 2023.
In connection with the license agreement, the Company had committed to reserve a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. Additionally, the Company was required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments. Following the Company’s agreement with Motorola Mobility LLC on January 22, 2024, the Company’s quarterly royalty payments, in addition to current and future obligations, were satisfied in exchange for certain assets of the Company.
Royalty expense under the License Agreement amounted to $
On January 22, 2024, the Company, entered into a Letter Agreement re Product Purchase (the “Letter
Agreement”) and a Debt Settlement Agreement (the “Settlement Agreement,” and
the Letter Agreement, the “Agreements”) with Motorola Mobility, LLC (“Motorola”).
Pursuant to the Letter Agreement, the Company (A) initially transferred a portion
of its inventory to Motorola and (B) agreed to transfer the reminder of such inventory
upon receipt of certain funding in order to satisfy liabilities owed to Motorola,
while agreeing to continue to provide certain customer and technical support. Pursuant
to the Settlement Agreement,
(b) Vendor Obligation Releases
In its efforts to manage its
liquidity and cash-flow position, the Company negotiated and executed liability release agreements with certain vendors in Q4 2023
who comprised $
11
(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.
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 both 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. At March 31, 2023, 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, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these 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 the legal proceedings to which it is a defendant or respondent, and that the outcome of these pending 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.
(8) SIGNIFICANT CUSTOMER AND DEPENDENCY ON KEY SUPPLIERS
Relatively few companies account for a substantial portion of the Company’s revenues. In the three months ended March 31, 2024, two companies, including a marketplace facilitator, accounted for 10% or greater
individually and
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’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’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 three months ended March 31, 2024, the Company did not have any concentration of suppliers. During the three months ended March 31, 2023, the Company had one supplier that provided
12
(9) INCOME TAXES
During the three months ended March 31, 2024, we recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated due to the uncertainty of realizing a benefit from those items.
We have evaluated the positive 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 it is more likely than not that we will not realize the benefits of our deferred tax assets. As a result, as of March 31, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.
As of March 31, 2024
and December 31, 2023, the Company had federal net operating loss carry forwards of approximately $
(10) RELATED PARTY TRANSACTIONS
The Company leases office space located at 848 Elm Street, Manchester, NH. The landlord
is an affiliate entity owned by Mr. Hitchcock. The two-year facility lease agreement was effective from August 1, 2019, to July 31, 2021 and was extended to July 31, 2022. On July 18, 2022, the lease agreement was amended to a month-to-month lease arrangement and
may be terminated by either party with a 60-day notice. The facility lease agreement provides for
On November 30, 2022, the Company and Slingshot Capital, LLC (“Slingshot Capital”) entered into
a Bridge Loan Agreement (the “Bridge Loan Agreement”) pursuant to which Slingshot
Capital agreed to make available a bridge loan in the principal amount up of up to
$
On December 6, 2023, the Company and Slingshot Capital entered into a Debt Conversion Agreement
(“Conversion Agreement”) pursuant to which the Company agreed to issue shares
of the Company’s common stock (based on $ per share) (the “Shares”) in exchange for the cancellation
of a total principal amount of $
Slingshot Capital is owned by the Company’s former Chairperson of the Board and a former Board Member, Jeremy Hitchcock and Elizabeth Hitchcock, respectively.
13
Net loss per share for the three months ended March 31, 2024 and 2023, respectively, are as follows:
| Schedule of net income (loss) per share | ||||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average common shares – basic | ||||||||
| Effect of dilutive common share equivalents | ||||||||
| Weighted average common shares – dilutive | ||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
Diluted loss per common share for the three months ended March 31, 2024 and 2023 excludes the effects of 5,230,769 and 49,402 common share equivalents, respectively, since such inclusion would be anti-dilutive. The common share equivalents consist of shares of common stock issuable upon exercise of outstanding preferred stock, warrants, restricted stock units, and stock options.
(12) EQUITY
Preferred Stock and Warrants
On January 23, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with David Lazar (“Lazar”), a member of our Board of Directors, whereby, at the closing
of the transactions contemplated by the Purchase Agreement (the “Closing”), the Company sold and Lazar (or to any transferee of Lazar’s which acquires the Securities Purchase Rights, as defined below, hereinafter a “Lazar
Transferee”) purchased two million shares of the Company’s preferred stock, $ par value per share (the “Preferred Stock”), at a price per
share of $, for an aggregate purchase price of $
The Company evaluated the Series A Preferred Stock and Warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because neither the Series A Preferred Stock nor the Warrants met the definition of liability instruments.
The
Warrants are classified as component of permanent equity because they are freestanding financial instruments that are legally detachable
and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an
obligation for the Company to repurchase its shares, and permit the holder to receive a fixed number of shares of common stock upon exercise.
In addition, the Warrants do not provide any guarantee of value or return. The Company valued the Warrants at issuance using the Black-Scholes
option pricing model and determined the fair value of the Warrants to purchase
14
The
proceeds from the issuance of the Series A Preferred Stock to the Company were allocated based on the relative fair value of the Warrants
as compared to the fair value of the Series A Preferred Stock. The fair value of the Warrants incorporates assumptions regarding our common
stock price, dividend yield, stock price volatility, as well as assumptions regarding the risk-free interest rate. Using this model, the
Warrants was valued at $
The fair value of the Series A Preferred Stock was determined based on assumptions that incorporated
our common stock price and dividend rate. The Company valued the Series A Preferred Stock at $
On
February 26, 2024, the
(13) SUBSEQUENT EVENTS
The Company has evaluated subsequent events from March 31, 2024, 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 Financial Condition and Results of Operations, as well as information contained in “Risk Factors” in Part II, Item 1A and elsewhere in this Quarterly Report on Form 10-Q, contain “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, as amended. We intend that these forward-looking statements be subject to the safe harbor created by those provisions. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” “future,” “potential,” “target,” “seek,” “continue,” “if” or other similar words. Forward-looking statements include statements regarding our strategies as well as (1) our ability to predict revenue and reduce costs related to our products or service offerings, (2) our ability to effectively manage our sales channel inventory and product mix to reduce excess inventory and lost sales, (3) our ability to forecast product sales volumes and accordingly manufacture and manage inventory, (4) our ability to generate sales of Motorola brand products sufficient to make that portion of our business profitable, and retain the Motorola brand license for the Motorola brand product we produce, (5) fluctuations in the level or quality of inventory, (6) the sufficiency of our capital resources and the availability of debt and equity financing, (7) the continuing impact of uncertain global economic conditions on the demand for our products, (8) our ability to maintain and scale adequate and secure software platform infrastructure, (9) the impact of competition on demand for our products and services and (10) our competitive position.
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, 2023, found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 12, 2024. 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 assumptions referred to above, that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those discussed under the heading “Risk Factors” in Part II, Item 1A hereto and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise that may arise after the date of this Quarterly Report on Form 10-Q.
Overview
We historically delivered comprehensive WiFi as a Service platform to make everyone’s connected home safe and supportive for life and work.
Generally, our gross margin for a given product depends on a number of factors, including the type of customer to whom we were selling. The gross margin for products sold to retailers tended 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 tended to be higher.
Our cash and cash equivalents balance on March 31, 2024 was $1.0 million compared to $0.7 million on December 31, 2023. On March 31, 2024, we had no outstanding borrowings and working capital of negative $0.3 million.
The Company’s ability to maintain adequate levels of liquidity depends in part on our ability to sell inventory on hand and collect related receivables. The Company is evaluating options related to its liquidity. The Company will continue to monitor its costs in relation to its sales and adjust its cost structure accordingly.
The Company continues to experience losses, which in part is due to declining revenues. In the three months ended March 31, 2024 and 2023, we generated net sales of $0.6 million and $10.8 million, respectively.
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Our most recent Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 12, 2024, 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, including the expected dates of adoption and estimated effects on the financial condition and results of operations, which are hereby incorporated by reference.
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 assets 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 financial 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, warrants, 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 for the year ended December 31, 2023. For the three months ended March 31, 2024, there have been no significant changes in our critical accounting policies and estimates.
Results of Operations
The following table sets forth certain financial data derived from our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, presented in absolute dollars and as a percentage of net sales, with dollars and percentage change period over period:
| Three Months Ended March 31, | Change | |||||||||||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||||||||||
| Net sales | $ | 640 | 100.0 | % | $ | 10,752 | 100 | % | $ | (10,112 | ) | (94.0 | )% | |||||||||||
| Cost of goods sold | 433 | 67.6 | 8,143 | 75.7 | (7,710 | ) | (94.7 | ) | ||||||||||||||||
| Gross profit | 207 | 32.4 | 2,609 | 24.3 | (2,402 | ) | (92.1 | ) | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling and marketing | 21 | 3.3 | 3,724 | 34.6 | (3,703 | ) | (99.4 | ) | ||||||||||||||||
| General and administrative | 1,019 | 159.2 | 1,326 | 12.3 | (307 | ) | (23.2 | ) | ||||||||||||||||
| Research and development | 72 | 11.3 | 1,484 | 13.8 | (1,412 | ) | (95.1 | ) | ||||||||||||||||
| Vendor liability forgiveness, net of asset transfers | 2,365 | 369.6 | - | - | 2,365 | 100 | ||||||||||||||||||
| Total operating expenses | 3,477 | 543.4 | 6,534 | 60.8 | (3,057 | ) | (46.8 | ) | ||||||||||||||||
| Operating loss | (3,270 | ) | (511.0 | ) | (3,925 | ) | (36.5 | ) | 655 | (16.7 | ) | |||||||||||||
| Total other expense | - | - | (145 | ) | (1.3 | ) | (145 | ) | (100 | ) | ||||||||||||||
| Loss before income taxes | (3,270 | ) | (511.0 | ) | (4,070 | ) | (37.9 | ) | (800 | ) | (19.7 | ) | ||||||||||||
| Income tax benefit | (11 | ) | - | - | - | (11 | ) | (100.0 | ) | |||||||||||||||
| Net loss | $ | (3,259 | ) | (509.3 | )% | $ | (4,070 | ) | (37.9 | )% | $ | (811 | ) | (19.9 | )% | |||||||||
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Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023
The following table sets forth our revenues by product and the changes in revenues for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023:
| Three Months Ended | ||||||||||||||||
| March 31, 2024 | March 31, 2023 | $ Change | % Change | |||||||||||||
| (In thousands, except percentage data) | ||||||||||||||||
| Cable modems & gateways | $ | 639 | $ | 10,574 | $ | (9,935 | ) | (94.0 | )% | |||||||
| Other networking products | 1 | 92 | (91 | ) | (98.9 | ) | ||||||||||
| SaaS | - | 86 | (86 | ) | (100 | ) | ||||||||||
| Total | $ | 640 | $ | 10,752 | $ | (10,112 | ) | (94.0 | )% | |||||||
The majority of the Company’s revenues by geographic area are earned in North America for the three months ended March 31, 2024 and 2023.
Net Sales
Our total net sales decreased year-over-year by $10.1 million or 94%. The decrease in net sales is directly attributable to decreased sales of Motorola branded cable modems and gateways. In both 2024 and 2023, we primarily generated our sales by selling cable modems and gateways. Sales related to SaaS offerings were $0 thousand and $86 in the three months ended March 31, 2024 and 2023, respectively. The decrease in other category of $91 thousand in 2024 compared to 2023 is primarily due to a reduction in DSL and MoCA products due to a refocus on new product introductions. Generally, our lower sales outside North America reflect the fact that cable modems are sold successfully through retailers in the U.S. but not in most countries outside the U.S., due primarily to variations in government regulations.
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 less sales, largely resulting from the Motorola license termination. 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 March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Net sales | $ | 640 | $ | 10,752 | $ | (10,112 | ) | (94.0 | )% | |||||||
| Gross margin | 32.4 | % | 24.3 | % | ||||||||||||
Gross profit decreased in the three months ended March 31, 2024, compared to the three months ended in the prior fiscal year period, primarily due to insufficient sales levels necessary to cover fixed costs and certain variable costs.
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For the remainder of fiscal 2024, we expect gross margin to be subject to similar variabilities experienced in the first quarter of 2024. 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.
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 March 31, | ||||||||||||||||
| 2024 | 2023 | Change | % Change | |||||||||||||
| Selling and marketing | $ | 21 | $ | 3,724 | $ | (3,703 | ) | (99.4 | )% | |||||||
Selling and marketing expenses decreased in the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to reductions in personnel expenses by $0.6 million, marketing campaigns by $1.4 million, Motorola royalty fees of $1.7 million, and other sales support costs of $0.3 million.
For the remainder of the fiscal year 2024, we expect our selling and marketing expenses to be comparable to fiscal Q1 2024. Expenses may fluctuate depending on sales levels achieved as certain expenses, such as commissions, and are determined based upon the net sales achieved. Forecasting both 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 March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| General and administrative | $ | 1,019 | $ | 1,326 | $ | (307 | ) | (23.2 | )% | |||||||
General and administrative expenses decreased $0.3 million primarily due to a decrease in personnel expenses of $0.5 million, software subscriptions of $0.1 million, professional fees of $0.1 million, and other administrative costs of $0.1 million, offset by an increase in board of director fees of $0.5 million.
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 March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Research and development | $ | 72 | $ | 1,484 | $ | (1,412 | ) | (95.1 | )% | |||||||
The decrease of $1.4 million was primarily due to decreases in personnel expenses of $1.0 million, contract labor of $0.1 million, software subscriptions of $0.1 million, and certification and other costs of $0.2 million. partially offset by an increase in certification costs of $95 thousand.
For the remainder of the fiscal year 2024, we expect research and development expenses to be comparable to fiscal Q1 2024. 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. As of March 31, 2024, we had cash and cash equivalents of $1.0 million as compared to $0.7 million on December 31, 2023. On March 31, 2024, we had no borrowings outstanding and working capital of negative $0.3 million. We have funded our operations and financing activities primarily through sale of preferred 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; (4) cash used to repay our debt obligations and related interest expense; and (5) cash used for acquisitions. Fluctuations in our working capital due to timing differences of our cash receipts and cash disbursements also impact our cash inflows and outflows.
Our consolidated financial statements, as of March 31, 2024, were prepared under the assumption that we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt exists about our ability to continue as a going concern, and we will require additional liquidity to continue operations beyond the next 12 months.
Our consolidated financial statements as of March 31, 2024, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment.
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Cash Flows
The following table presents our cash flows for the periods presented:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash provided by (used in) operating activities | $ | (2,482 | ) | $ | 1,346 | |||
| Cash used in investing activities | - | (129 | ) | |||||
| Cash provided by (used in) financing activities | 2,800 | (945 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | $ | 318 | $ | 272 | ||||
Cash Flows from Operating Activities. Cash used from operating activities of $2.5 million during the three months ended March 31, 2024 reflected our net loss of $3.3 million, adjusted for non-cash expenses, consisting primarily of $426 thousand of stock-based compensation expense, $104 thousand in depreciation and amortization expense, and $2.4 million in vendor forgiveness, net of asset transfers. Uses of cash included a decrease in accounts payable of $3.2 million and accrued expenses of $66 thousand. Sources of cash included primarily a decrease of accounts receivable of $709 thousand, and inventories of $404 thousand.
Cash provided by operating activities of $1.3 million, during the three months ended March 31, 2023, reflected our net loss of $4.0 million, adjusted for non-cash expenses, consisting primarily of $124 thousand of stock-based compensation expense, $229 thousand in depreciation and amortization expense, and $72 thousand in accounts receivable reserve allowance. Uses of cash included an increase in accounts receivable of $0.5 million and prepaid expenses of $81 thousand. Sources of cash included primarily a decrease of inventories of $2.6 million, increase in accounts payable of $2.5 million, increase in accrued expenses of $0.3 million, and increase in deferred revenue of $0.1 million.
Cash Flows from Investing Activities. During the three months ended March 31, 2024, the Company had no cash flows generated or used by investing activities.
During the three months ended March 31, 2023, $6 thousand was used to purchase equipment and $122 thousand was used for certification costs.
Cash Flows from Financing Activities. Cash provided from financing activities during the three months ended March 31, 2024 consisted of proceeds from issuance of preferred stock of $2.8 million.
Cash used in financing activities during the three months ended March 31, 2023 consisted of repayment of $945 thousand on the borrowings under our SVB line-of-credit.
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; |
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| ● | 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.
At March 31, 2024, we believe our current cash and cash equivalents may not be sufficient to fund working capital requirements, capital expenditures and operations during the next twelve months. Our ability to continue as a going concern will depend on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce or contain expenditures and increase revenues. Based on these factors, management determined that there is substantial doubt regarding our ability to continue as a going concern. The Company will continue to monitor its costs in relation to its sales and adjust accordingly.
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 sales growth, funds required to service our debt, the receipt of and time required to obtain regulatory clearances and approvals, our sales and marketing programs, our need for infrastructure to support our sales growth, the continuing acceptance of our products in the marketplace, competing technologies and changes in the market and regulatory environment.
Our ability to fund our longer-term cash needs is subject to various risks, many of 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 guarantee that such funding will be available in needed quantities or on terms favorable to us, if at all.
At March 31, 2024, we have Federal and state net operating loss carry forwards of approximately $79.1 million and $47.9 million, respectively, available to reduce future taxable income. 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 realize the benefits of our deferred tax assets. As a result, as of March 31, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.
Commitments and Contractual Obligations
During the three months ended March 31, 2024, 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, 2023.
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of March 31, 2024. See Note 6 to the accompanying 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 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 Officer and Chief Financial Officer of the Company, 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 Chief Financial Officer of the Company, 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 March 31, 2024. Based upon that evaluation and other than as disclosed herein, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no changes in our internal control over financial reporting during the three months ended March 31, 2024 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 |
None.
| ITEM 1A. | RISK FACTORS |
There have been no material changes to the risk factors set forth in our 2023 Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 12, 2024, 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-K for the fiscal year ended December 31, 2023, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our 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 | |
| 31.1 | CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.† | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Label Linkbase Document | |
| 101.PRE | 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 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: May 20, 2024 | By: | /s/ David Lazar |
|
David Lazar Chief Executive Officer and Chief Financial Officer of the Company |
||
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EXHIBIT 31.1
CERTIFICATIONS
I, David Lazar, Chief Executive Officer and Chief Financial Officer of Minim, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Minim, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 20, 2024 | By: | /s/ David Lazar |
|
David Lazar |
||
| Chief Executive Officer and Chief Financial Officer of the Company | ||
| (Principal Executive Officer) | ||
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Minim, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Lazar, Chief Executive Officer and Chief Financial Officer of Minim, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and | |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 20, 2024 | By: | /s/ David Lazar |
|
David Lazar |
||
| Chief Executive Officer and Chief Financial Officer of the Company | ||
| (Principal Executive Officer) | ||
| (Principal Financial Officer) |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.