Notes
to Consolidated Financial Statements
(Unaudited)
|
|
(1)
|
NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
|
Minim,
Inc., formerly known as Zoom Telephonics, Inc., and its wholly owned subsidiaries, Zoom Connectivity, Inc. and MTRLC LLC, are herein
collectively referred to as the “Company”. We deliver innovative Internet access products that reliably and securely connect
homes and offices around the world. We are the exclusive global license holder to the Motorola brand for home networking hardware.
The Company designs and manufactures products including cable modems, cable modem/routers, mobile broadband modems, wireless routers,
Multimedia over Coax (“MoCA”) adapters and mesh home networking devices. Our AI-driven cloud software platform and applications
make network management and security simple for home and business users, as well as the service providers that assist them— leading
to higher customer satisfaction and decreased support burden.
On
June 3, 2021, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Certificate
of Incorporation to change its legal corporate name from “Zoom Telephonics, Inc.” to “Minim, Inc.”,
effective as of June 3, 2021.
On
July 7, 2021, the Company’s common stock, $0.01 par value per share (the “Common Stock”), ceased trading on the OTCQB
and commenced trading on The Nasdaq Capital Market under the ticker symbol “MINM.”
Basis
of Presentation
The
accompanying unaudited consolidated financial statements, including the accounts of Minim, Inc. and its wholly-owned subsidiaries, have
been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting.
As permitted under those rules, certain footnotes or other financial information that are 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, 2020.
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
prior year amounts have been reclassified to conform to the current year presentation. None of the reclassifications impacted the consolidated
statements of operations for the period ended June 30, 2020.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those
estimates. Significant estimates made by the Company include: 1) allowance for doubtful accounts for accounts receivable (collectability);
2) contract liabilities (sales returns, and other variable considerations); 3) asset valuation allowance for deferred income tax assets;
4) write-downs of inventory for slow-moving and obsolete items, and market valuations; and 5) stock-based compensation.
Zoom
Connectivity Merger
On
November 12, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Zoom Connectivity,
Inc., (“Zoom Connectivity”), a Delaware corporation, that designs, develops, sells and supports an IoT security platform
that enables and secures a better connected home. Under the Merger Agreement, Elm Acquisition Sub, Inc., a wholly-owned subsidiary of
the Company, was merged with and into Zoom Connectivity in exchange for 10,784,534 shares of Common Stock of the Company. As a result
of the merger, effected December 4, 2020, Zoom Connectivity was the surviving entity and became a wholly-owned subsidiary of the Company.
Immediately
prior to closing of the Merger Agreement, the majority stockholder of the Company was also the majority stockholder of Zoom Connectivity.
As a result of the common ownership upon closing of the transaction, the merger was considered a common-control transaction and was outside
the scope of the business combination guidance in ASC 805-50. The entities are deemed to be under common control as of October 9, 2020,
which was the date that the majority stockholder acquired control of the Company and, therefore, held control over both companies. The
consolidated financial statements incorporate Zoom Connectivity’s financial results and financial information for the period beginning
October 9, 2020, and the comparative information of the prior period does not include the financial results of Zoom Connectivity prior
to October 9, 2020. The merger of the Company with Zoom Connectivity is referred to as the “Zoom Connectivity Merger” within
these financial statements.
|
(2)
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The
Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020.
The Company’s significant accounting policies did not change during the six months ended June 30, 2021.
Recently
Adopted Accounting Standards
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU
2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to improve consistent
application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principals in Topic 740
and clarifies and amends existing guidance. The Company adopted the new standard effective January 1, 2021. The adoption had no impact
on the Company’s financial condition, results of operations or cash flows.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments Credit Losses —Measurement of Credit Losses on Financial
Instruments.” ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be
presented at the net amount expected to be collected, which includes the Company’s accounts receivable. This ASU is effective for
the Company for reporting periods beginning after December 15, 2022. The Company is currently assessing the potential impact that the
adoption of this ASU will have on its consolidated financial statements.
With
the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or
potential significance, to the Company’s financial condition, results of operations and cash flows.
The
Company primarily sells hardware products to its customers. The hardware products include cable modems and gateways, mobile broadband
modems, wireless routers, MoCA adapters and mesh home networking devices. The Company derives its net sales primarily from the sales
of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel
partners via the Internet. The Company accounts for point-of-sale taxes on a net basis.
The
Company also sells and earns revenues from software as a service (“SaaS”), including software service that enables and secures
a better-connected home with the AI-driven smart home WiFi management and security platform. Customers do not have the contractual right
or ability to take possession of the hosted software.
The
Company has concluded that transfer of control of its hardware products transfers to the customer upon shipment or delivery, depending
on the delivery terms of the purchase agreement. Revenues from sales of hardware products are recognized at a point in time upon transfer
of control.
The
Company sells software as a SaaS offering. The SaaS agreements are offered over a defined contract period, generally one year, and are
sold to Internet service providers, who then promote the services to their subscribers. These services are available as an on-demand
application over the defined term. The agreements include service offerings, which deliver applications and technologies via cloud-based
deployment models that the Company develops functionality for, provides unspecified updates and enhancements for, and hosts, manages,
provides upgrade and support for the customers access by entering into solution agreements for a stated period. The monthly fees charged
to the customers are based on the number of subscribers utilizing the services each month, and the revenue recognized generally corresponds
to the monthly billing amounts as the services are delivered.
Multiple
Performance Obligations
During
the six months ended June 30, 2021, the Company introduced new hardware products that include SaaS software services as a bundled product
to its customers. The Company accounts for these sales in accordance with the multiple performance obligation guidance of ASC Topic 606.
For multiple performance obligation contracts, the Company accounts for the promises separately as individual performance obligations
if they are distinct. Performance obligations are determined to be distinct if they are both capable of being distinct and distinct within
the context of the contract. In determining whether performance obligations meet the criteria of being distinct, the Company considers
a number of factors, such as degree of interrelation and interdependence between obligations, and whether or not the good or service
significantly modifies or transforms another good or service in the contract. SaaS included with certain hardware products is considered
distinct from the hardware, and therefore the hardware and SaaS software services offerings are treated as separate performance obligations.
After
identifying the separate performance obligations, the transaction price is allocated to the separate obligations on a relative standalone
selling price basis (“SSP”). SSP’s are generally determined based on the prices charged to customers when the performance
obligation is sold separately or using an adjusted market assessment. The estimated SSP of the hardware and SaaS offerings are directly
observable from the sales of those products and software based on a range of prices.
Revenue
is recognized for each distinct performance obligation as control is transferred to the customer. In general, control of the hardware
transfers to the customer at time of shipment or delivery while the SaaS offering is delivered over the service period. Revenue attributable
to hardware products bundled with SaaS offerings are recognized at the time control of the product transfers to the customer. The 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.
The
following table includes estimated revenue expected to be recognized in the future related to performance obligations for the SaaS offering
that are unsatisfied or (partially unsatisfied) as of June 30, 2021:
SCHEDULE
OF PERFORMANCE OBLIGATIONS
|
|
|
1 year
|
|
|
2 years
|
|
|
Greater than 2 years
|
|
|
Total
|
|
|
Performance obligations
|
|
$
|
349,961
|
|
|
$
|
330,391
|
|
|
$
|
322,508
|
|
|
$
|
1,002,860
|
|
Other
considerations of ASC 606 include the following:
●
Warranties - the Company does not provide separate warranty for purchase to customers. Therefore, there is not a separate performance
obligation. The Company does account for assurance-type warranties as a cost accrual and the warranties do not include any additional
distinct services other than the assurance that the goods comply with agreed-upon specifications. The warranty reserve was not material
at June 30, 2021 and December 31, 2020.
●
Returned Goods - analyses of actual returned products are compared to the product return estimates and historically have
resulted in immaterial differences. The Company has concluded that the current process of estimating the return reserve represents a
fair measure to adjust revenue. Returned goods are a form of variable consideration and under Topic 606 are estimated and recognized
as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). The sales returns accrual was $1.3
million and $775 thousand at June 30, 2021 and December 31, 2020, respectively.
●
Price protection - price protection provides that if the Company reduces the price on any products sold to the customer, the Company
will guarantee an account credit for the price difference for all quantities of that product that the customer still holds. Price protection
is variable and under Topic 606 is estimated and recognized as a reduction of revenue as performance obligations are satisfied
(e.g., upon shipment of goods). The price protection accrual was not material.
●
Volume Rebates and Promotion Programs - volume rebates are variable dependent upon the volume of goods sold-through the Company’s
customers to end-users and under Topic 606 are estimated and recognized as a reduction of revenue as performance obligations are satisfied
(e.g., upon shipment of goods). The rebate and promotion accrual was $113 thousand and $384 thousand at June 30, 2021 and December 31,
2020, respectively.
Contract
Balances
The
Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash
payments are received or due in advance of performance. Contract liabilities consist of deferred revenue, where the Company has unsatisfied
performance obligations.
The
following table reflects the contract balances as of periods ended:
SCHEDULE
OF CONTRACT BALANCES
|
|
|
Balance Sheet Location
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Accounts receivable, net
|
|
Accounts receivable, net
|
|
$
|
9,254,845
|
|
|
$
|
9,203,334
|
|
|
Contract liabilities - current
|
|
Deferred revenue, current
|
|
$
|
349,961
|
|
|
$
|
—
|
|
|
Contract liabilities – non-current
|
|
Deferred revenue, non-current
|
|
$
|
652,899
|
|
|
$
|
—
|
|
The
Company’s business is controlled as a single operating segment that consists of the manufacture and sale of cable modems and gateway,
and the majority of the Company’s customers are retailers and distributors.
Disaggregated
revenue by distribution channel for three and six months ended:
SCHEDULE
OF DISAGGREGATION OF REVENUE
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retailers
|
|
$
|
12,995,760
|
|
|
$
|
8,321,755
|
|
|
$
|
26,787,278
|
|
|
$
|
19,296,044
|
|
|
Distributors
|
|
|
1,872,934
|
|
|
|
1,587,617
|
|
|
|
2,786,084
|
|
|
|
2,185,146
|
|
|
Other
|
|
|
24,451
|
|
|
|
363,385
|
|
|
|
337,357
|
|
|
|
747,170
|
|
|
Total
|
|
$
|
14,893,145
|
|
|
$
|
10,272,757
|
|
|
$
|
29,910,719
|
|
|
$
|
22,228,360
|
|
Disaggregated
revenue by product for three and six months ended:
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable Modems & gateways
|
|
$
|
12,808,320
|
|
|
$
|
9,192,784
|
|
|
$
|
27,395,410
|
|
|
$
|
20,362,794
|
|
|
Software as a service
|
|
|
152,704
|
|
|
|
—
|
|
|
|
277,376
|
|
|
|
—
|
|
|
Other
|
|
|
1,932,121
|
|
|
|
1,079,973
|
|
|
|
2,237,933
|
|
|
|
1,865,566
|
|
|
Total
|
|
$
|
14,893,145
|
|
|
$
|
10,272,757
|
|
|
$
|
29,910,719
|
|
|
$
|
22,228,360
|
|
|
Revenues
|
|
$
|
14,893,145
|
|
|
$
|
10,272,757
|
|
|
$
|
29,910,719
|
|
|
$
|
22,228,360
|
|
SCHEDULE
OF INVENTORIES
|
Inventories consist of :
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
Raw materials
|
|
$
|
1,521,699
|
|
|
$
|
1,238,332
|
|
|
Work in process
|
|
|
7,414
|
|
|
|
84,203
|
|
|
Finished goods
|
|
|
18,049,917
|
|
|
|
15,182,305
|
|
|
Total
|
|
$
|
19,579,030
|
|
|
$
|
16,504,840
|
|
Finished
goods include consigned inventory held by our customers of approximately $3.4 million at June 30, 2021
and approximately $2.3 million at December 31, 2020 and in-transit inventory of $5.6 million and $6.2 million at June 30, 2021 and December
31, 2020, respectively. The Company reviews inventory for obsolete and slow-moving products each quarter and makes provisions
based on its estimate of the probability that the material will not be consumed or that it will be sold below cost. The provision for
inventory reserves was $214 thousand and $139 thousand for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.
Accrued
expenses consisted of the following:
SCHEDULE
OF ACCRUED EXPENSES
|
|
|
June
30, 2021
|
|
|
December 31, 2020
|
|
|
Inventory
|
|
$
|
280,408
|
|
|
$
|
1,458,850
|
|
|
Payroll & related compensation
|
|
|
149,100
|
|
|
|
853,402
|
|
|
Professional fees
|
|
|
588,156
|
|
|
|
618,308
|
|
|
Royalty costs
|
|
|
1,586,571
|
|
|
|
1,906,439
|
|
|
Sales allowances
|
|
|
1,714,068
|
|
|
|
1,559,847
|
|
|
Sales and use tax
|
|
|
70,528
|
|
|
|
183,264
|
|
|
Other
|
|
|
656,748
|
|
|
|
884,953
|
|
|
Total accrued other expenses
|
|
$
|
5,045,579
|
|
|
$
|
7,465,063
|
|
|
(6)
|
COMMITMENTS AND CONTINGENCIES
|
(a)
Lease Obligations
In
May 2020, the Company signed a two-year lease agreement for 3,218 square feet at 275 Turnpike Executive Park in Canton, MA. The agreement
includes a one-time option to cancel the second year of lease with three months advance notice. The location is currently being occupied
by the research and development group of the Company. Rent expense was $13 thousand and $4 thousand for the three months ended June 30,
2021 and 2020, respectively. Rent expense was $27 thousand and $4 thousand for the six months ended June 30, 2021 and 2020, respectively.
Upon
the completion of the Zoom Connectivity Merger, the Company assumed Zoom Connectivity’s office facility lease located at
the 848 Elm Street in Manchester, NH. The two-year facility lease agreement is effective from August 1, 2019 to July 31, 2021 and provides
for the lease of 2,656 square feet of office space. Rent expense was $8 thousand and $15 thousand for the three and six months ended
June 30, 2021, respectively.
In
June 2019, the Company signed a twelve-month lease agreement for offices at 225 Franklin Street, Boston, MA. The lease for this office
expired on June 30, 2020. The Company has elected to apply the short-term lease exception under ASC 842, which does not require the recognition
of an operating lease liability or right-of-use asset on the consolidated balance sheet in relation to the lease at 225 Franklin Street.
Rent expense was $134 thousand and $261 thousand for the three and six months ended June 30, 2020, respectively.
The
Company performs most of the final assembly, testing, packaging, warehousing and distribution at an approximately 24,000 square foot
production and warehouse facility in Tijuana, Mexico. On April 16, 2021, the Company signed a lease extension to November 30, 2021. Rent
expense was $22 thousand and $49 thousand for the three and six months ended June 30, 2021, respectively.
The
Company also had a lease for approximately 1,550 square feet in Boston, MA that expired on October 31, 2019 and was terminated effective
June 30, 2020. The Company had another lease for approximately 1,500 square feet in Boston that was terminated effective July 31, 2020.
The Company has elected to apply the short-term lease exception for both of these leases under ASC 842. Rent expense for these
leases was $35 thousand and $71 thousand for the three and six months ended June 30, 2020, respectively.
At
inception of a lease the Company determines whether that lease meets the classification criteria of a finance or operating lease. Some
of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance,
labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component.
As
of June 30, 2021, the Company’s estimated future minimum committed rental payments, excluding executory costs, under the operating
leases described above to their expiration or the earliest possible termination date, whichever is sooner. There is no future minimum
committed rental payment that extend beyond 2022.
Operating
leases are included in operating lease right-of-use assets, operating lease liabilities, and long-term operating lease liabilities on
the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining
lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable.
Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
Lease
expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is included in general and administrative
expenses on the consolidated statements of operations.
The
following table presents information about the amount and timing of the Company’s operating leases as of June 30, 2021.
SCHEDULE
OF LEASE MATURITY
|
|
|
June 30, 2021
|
|
|
Maturity of Lease Liabilities
|
|
|
Lease Payments
|
|
|
2021 (remaining)
|
|
$
|
72,741
|
|
|
2022
|
|
|
22,794
|
|
|
Less: Imputed interest
|
|
|
(2,881
|
)
|
|
Present value of operating lease liabilities
|
|
$
|
92,654
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
|
|
Current maturities of operating lease liabilities
|
|
$
|
92,654
|
|
|
Operating lease liabilities, less current maturities
|
|
|
—
|
|
|
Total operating lease liabilities
|
|
$
|
92,654
|
|
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
|
Weighted-average remaining lease term for operating leases
|
|
|
0.7
|
|
|
Weighted-average discount rate for operating leases
|
|
|
7.1
|
%
|
Cash
Flows
During
the three months ended June 30, 2021 and 2020, the Company recorded an additional lease liability and corresponding right-of-use asset
of $59 thousand and $96 thousand, respectively. During the six months ended June 30, 2021 and 2020, the operating lease liability was
reduced by $58 thousand and $55 thousand, respectively, and amortization expense of the right-of-use assets was $55 thousand and $55
thousand, respectively.
Supplemental
cash flow information and non-cash activity related to our operating leases are as follows:
SCHEDULE
OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES
|
|
|
2021
|
|
|
2020
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Operating cash flow information:
|
|
|
|
|
|
|
|
|
|
Amounts included in measurement of lease liabilities
|
|
$
|
59,202
|
|
|
$
|
57,404
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
$
|
59,202
|
|
|
$
|
96,199
|
|
(b)
Commitments
The
Company is party to a license agreement with Motorola Mobility LLC pursuant to which the Company has an exclusive license to use certain
trademarks owned by Motorola Trademark Holdings, LLC for the manufacture, sale and marketing of consumer cable modem products, consumer
routers, WiFi range extenders, MoCa adapters, cellular sensors, home powerline network adapters, and access points worldwide through
a wide range of authorized sales channels. The license agreement, has a term ending December 31, 2025.
In
connection with the License Agreement, the Company has committed to reserve a certain percentage of wholesale prices for use in advertising,
merchandising and promotion of the related products. Additionally, the Company is required to make quarterly royalty payments equal to
a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments as follows:
SCHEDULE
OF MINIMUM ANNUAL ROYALTY PAYMENTS
|
Years ending December 31,
|
|
|
|
|
2021 (remaining)
|
|
$
|
3,175,000
|
|
|
2022
|
|
|
6,600,000
|
|
|
2023
|
|
|
6,850,000
|
|
|
2024
|
|
|
7,100,000
|
|
|
2025
|
|
|
7,100,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,825,000
|
|
|
Total minimum royalty payments
|
|
$
|
30,825,000
|
|
Royalty
expense under the license agreement was $1.6 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively,
and $3.2 million and $2.5 million for the six months ended June 30, 2021 and 2020, respectively. The royalty expense is included in selling
and marketing expenses on the accompanying consolidated statements of operations.
(c)
Contingencies
The
Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates
such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are
without merit.
On
February 16, 2021, the Company received a letter from a law firm representing a purported stockholder of the Company requesting the opportunity
to review certain books and records of the Company to investigate the possibility of breaches of fiduciary duty by current and former
members of the Board of Directors and the Company’s controlling stockholder in connection with his and his affiliates’ acquisition
of majority control of the Company without compensating the Company’s minority stockholders and the acquisition by merger of Zoom
Connectivity in which he held a substantial equity stake. The parties have been in negotiations with the counsel for the purported stockholder
to resolve this matter. The Company believes that the resolution of this matter is likely to include the imposition of certain corporate
governance restrictions, which would expand on current practices of the Company over a longer period of time than the standstill agreement
currently in effect with the Company’s controlling stockholder, on the Company and the controlling stockholder and his affiliates
and the payment of legal expenses. The matter is under negotiation and is subject to change based upon the negotiations and any other
factors that may arise. There can be no assurance that this matter will be resolved on satisfactory terms.
On
June 29, 2021, the Company received a letter from a law firm representing a purported stockholder of the Company making a litigation
demand on behalf of the Company and its stockholders to address certain alleged misconduct by the Company’s Board of Directors
in connection with the implementation of an amendment to the Company’s Amended and Restated Certificate of Incorporation without
having received proper stockholder approval thereof as required under Delaware corporation law. The letter demanded that the Board of
Directors take immediate action to: deem the amendment ineffective and make appropriate disclosure of that fact and seek a valid stockholder
approval of the amendment; and adopt and implement adequate internal controls and systems at the Company designed to prohibit and prevent
a recurrence of the circumstances. The letter requested a response or contact with the law firm on or before July 16, 2021. On June 30,
2021, the Company filed with the Delaware Secretary of State a Certificate of Correction to void the previously filed amendment to the
Company’s Amended and Restated Certificate of Incorporation. The Company filed an amendment to a Current Report on Form 8-K to
disclose these matters. The Company held a special meeting of stockholders on July 22, 2021 and received the requisite stockholder approval
of the amendment. On July 23, 2021, the Company filed with the Delaware Secretary of State an amendment to the Company’s Amended
and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock to 62,000,000 shares, consisting
of 60,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock. The Company filed a Current Report on Form 8-K to disclose
these matters. It is also expected that the Nominating and Governance Committee of the Board of Directors will review the Company’s
internal controls and systems and the circumstances described in the demand letter to determine if any additional actions are necessary
to prevent the recurrence of the circumstances relating to the foregoing events. The Company anticipates that the law firm that sent
the demand letter will seek recovery of attorneys’ fees relating to this matter. The ultimate amount of any such recovery could
be material but is not presently ascertainable. The Company intends vigorously to defend against any such claim for recovery of legal
fees. There can be no assurance that this matter will be resolved on satisfactory terms.
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 of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility
that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses
the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of the loss cannot be
made. Except for the matter disclosed above, at June 30, 2021, the Company is not currently a party to any legal proceedings that, if
determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a
material adverse effect on the Company’s business, operating results or financial condition taken as a whole. The Company expenses
its legal fees as incurred.
In
the ordinary course of its business, in addition to the matters described above, the Company is subject to lawsuits, arbitrations,
claims, and other legal proceedings in connection with their business. Some of such additional proceedings include claims
for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of
such matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash
flows. Management believes that the Company has adequate legal defenses with respect to such additional legal proceedings to which
it is a defendant or respondent and that the outcome of such proceedings is not likely to have a material adverse effect on the
financial condition, results of operations, or cash flows of the Company. However, the Company is unable to predict the outcome of these
matters.
|
(7)
|
BANK CREDIT LINES AND GOVERNMENT LOANS
|
Bank
Credit Line
On
December 18, 2012 and as amended, the Company entered into a Financing Agreement with Rosenthal & Rosenthal, Inc. (the “Financing
Agreement”). The Financing Agreement provided for up to $4.0 million of revolving credit, subject to a borrowing base formula and
other terms and conditions as specified in the Financing Agreement. Borrowings are secured by all of the Company assets including intellectual
property. The Company entered into an amendment on February 4, 2021 that increased the revolving credit line to $5.0 million.
On
March 12, 2021, the Company terminated its Financing Agreement with Rosenthal & Rosenthal, Inc. and entered into a new loan and security
agreement with Silicon Valley Bank (the “SVB Loan Agreement”). The SVB Loan Agreement provides for a revolving facility up
to a principal amount of $12.0 million. The SVB Loan Agreement matures, and all outstanding amounts become due and payable on March 12,
2023. The SVB Loan Agreement is secured by substantially all of the Company’s assets but excludes the Company’s intellectual
property. Loans under the credit facility bear interest at a rate per annum equal to (i) at all times when a streamline period is in
effect, the greater of (a) one-half of one percent (0.50%) above the Prime Rate or (b) three and three-quarters of one percent (3.75%)
and (ii) at all times when a streamline period is not effect, the greater of (a) one percent (1.0%) above the Prime Rate and (b) four
and one-quarter of one percent (4.25%). Interest is payable monthly. The availability of borrowings under the SVB Loan Agreement are
subject to certain conditions and requirements, and the borrowing base amount is up to (a) 85% of eligible accounts receivable balances
plus (b) the least of (i) 60% of eligible inventory, (ii) 85% of net orderly liquidation value, and (iii) $4.8 million. In conjunction
with the SVB Loan Agreement, the Company secured a $1.0 million commercial credit card line.
The
Company incurred $93 thousand in origination costs in connection with entering into the SVB Loan Agreement. These origination costs were
recorded as a debt discount and are being expensed over the remaining term of the facility. Interest expense was $78 thousand and $3
thousand for the three months ended June 30, 2021 and 2020, respectively. Interest expense was $106 thousand and $8 thousand for the
six months ended June 30, 2021 and 2020, respectively.
As
of June 30, 2021, the Company had $7.3 million outstanding, net of origination costs of $79 thousand, on the SVB Loan Agreement, and
this credit line had availability of $2.8 million. The interest rate was 4.25% as of June 30, 2021.
Government
Loans
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted to provide financial
aid to family and businesses impacted by the COVID-19 pandemic. The Company participated in the CARES Act, and 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. This note payable matures on March 15, 2022 with a fixed interest rate of 1% per annum with interest
deferred for six months. The PPP loan has an initial term of two years, is unsecured and guaranteed by the SBA. Under the terms of the
PPP note, the Company was able to apply and receive forgiveness in November 2020 of $513 thousand of the original principal balance.
The Company used the proceeds from the PPP loan for qualifying expenses as defined in the PPP.
On
April 11, 2020, Zoom Connectivity entered into a note payable with Primary Bank and received $545 thousand under the PPP. This note payable
matures on March 11, 2022 with a fixed interest rate of 1% per annum with interest deferred for six months. The PPP loan has an initial
term of two years, is unsecured and guaranteed by the SBA. Under the terms of the PPP note, the Company was able to apply for forgiveness
of the amount due on the PPP loan. The Company submitted an application for forgiveness of this loan and received forgiveness of $535
thousand in principal and $3 thousand in accrued interest from the SBA in November 2020. The Company used the proceeds from the PPP loan
for qualifying expenses as defined in the PPP.
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.
For
the period ended June 30, 2021, the Company has recorded $61 thousand of the PPP loans in current maturities of long-term debt in the
balance sheet. For the fiscal year ended December 31, 2020, the Company had recorded $65 thousand of the PPP loans in current maturities
of long-term debt and $15 thousand in long-term debt in the consolidated balance sheets.
|
(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 June 30, 2021, three companies
accounted for 10% or greater individually and 93% in the aggregate of the Company’s total net sales. At June 30, 2021, two companies
with an accounts receivable balance of 10% or greater individually accounted for a combined 78% of the Company’s accounts receivable.
In the three months ended June 30, 2020, three companies accounted for 10% or greater individually and 88% in the aggregate of the Company’s
total net sales. At June 30, 2020, four companies with an accounts receivable balance of 10% or greater individually accounted for a
combined 89% of the Company’s accounts receivable. In the six months ended June 30, 2021, two companies accounted for 10% or greater
individually and 85% in the aggregate of the Company’s total net sales. In the six months ended June 30, 2020, three companies
accounted for 10% or greater individually and 89% in the aggregate of the Company’s total net sales.
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
June 30, 2021, the Company had one supplier that provided 99% of the Company’s purchased inventory. During the three months ended
June 30, 2020, the Company had one supplier that provided 98% of the Company’s purchased inventory.
During
the six months ended June 30, 2021 and 2020, 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 June 30, 2021 and December 31, 2020, we
recorded a full valuation allowance against our net deferred tax assets.
As
of June 30, 2021 and December 31, 2020, the Company had federal net operating loss carry-forwards of approximately $64 million and $61.8
million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts starting in 2021.
Federal net operating losses occurring after December 31, 2017, of approximated $15.9 million may be carried forward indefinitely. As
of June 30, 2021 and December 31, 2020, the Company had state net operating loss carry-forwards of approximately $21 million and $19.2
million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts from 2032 through
2040. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it
is more-likely than-not that the benefits from such assets will not be realized. We recorded minimum state income taxes and tax related
to our operations in Mexico. For the three and six months ended June 30, 2021 income tax expense was $31 thousand and $33 thousand, respectively,
compared to prior year periods of $6 thousand and $ thousand.
|
(10)
|
EARNINGS (LOSS) PER SHARE
|
Basic
earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number
of common shares. 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.
Net
loss per share for the three and six months ended June 30, 2021 and 2020, respectively, are as follows:
SCHEDULE
OF NET LOSS PER SHARE
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,553,911
|
)
|
|
$
|
(1,527,985
|
)
|
|
$
|
(2,099,431
|
)
|
|
$
|
(2,279,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
35,482,181
|
|
|
|
22,275,441
|
|
|
|
35,368,931
|
|
|
|
21,776,101
|
|
|
Potentially dilutive common share equivalent
|
|
|
1,511,030
|
|
|
|
314,493
|
|
|
|
1.511,030
|
|
|
|
314,493
|
|
|
Weighted average common shares - dilutive
|
|
$
|
36,993,211
|
|
|
$
|
22,589,934
|
|
|
|
36,879,961
|
|
|
|
22,090,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.10
|
)
|
|
Diluted net loss per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.10
|
)
|
Diluted
loss per common share excludes the effects of 1,511,030 and 314,493 common share equivalents for the three-month period ended June 30,
2021 and 2020, respectively, since such inclusion would be anti-dilutive. Diluted loss per common share excludes the effects of 1,511,030
and 314,493 common share equivalents for the six-month period ended June 30, 2021 and 2020, respectively, since such inclusion would
be anti-dilutive.
|
(11)
|
RELATED PARTY TRANSACTIONS
|
Zoom
Connectivity
On
November 12, 2020, the Company entered into the Merger Agreement pursuant to which the Company and Zoom Connectivity merged and combined
their businesses. Zoom Connectivity offers a cloud WiFi management platform that enables and secures a better-connected home by providing
AI-driven WiFi management and IoT security platform for homes, SMBs, and broadband service providers. Mr. Jeremy Hitchcock was Chairman
and, together with Ms. Elizabeth Hitchcock, a controlling stockholder of Zoom Connectivity. Prior to the Zoom Connectivity Merger, the
Company had licensed Zoom Connectivity software products and, upon completion of the Zoom Connectivity Merger, the Company expected to
integrate not only the Zoom Connectivity software with the Company’s hardware products but also to combine Zoom Connectivity’s
business-to-business sales channels with the Company’s retail channels. Immediately prior to execution of the Merger Agreement,
Mr. Hitchcock, the Company’s Chairman of the Board of Directors, and Ms. Hitchcock, his spouse and a director of the Company, were,
through investment vehicles jointly beneficially owned by them, the majority stockholders of both the Company and Zoom Connectivity.
Zoom
Connectivity Relationship
On
July 25, 2019, the Company entered into a Master Partnership Agreement with Zoom Connectivity together with a related Statement of Work,
License, Collaborative Agreement, Software/Service Availability Agreement and Software/Service Support Level Agreement (collectively,
the “Partnership Agreement”). Mr. Hitchcock was the Chairman of Zoom Connectivity. Under the Partnership Agreement, the Company
would integrate software and services into certain hardware products distributed by the Company, and Zoom Connectivity would be entitled
to certain fees and a portion of revenue received from the end users of such services and software. The Company and Zoom Connectivity
entered into an additional Statement of Work on December 31, 2019 providing for further integration of Zoom Connectivity services, with
a monthly minimum payment of $5 thousand payable by the Company to Zoom Connectivity starting in January 2020 for a period of 36 months
and a requirement for Zoom Connectivity to purchase at least $90 thousand of the Company’s hardware by December 2022. Minimum monthly
payments under this agreement increased to $15 thousand in July 2020. During the six months ended June 30, 2020, $45 thousand of payments
were made by the Company to Zoom Connectivity under the Partnership Agreement. The Company recorded $45 thousand of expenses for the
six months ended June 30, 2020. The Partnership Agreement terminated upon completion of the Zoom Connectivity Merger. During the six
months ended June 30, 2020, $45 thousand of payments were made by the Company to Zoom Connectivity under the Partnership Agreement. As
of June 30, 2021, no amounts were due from or to the Company under the former Partnership Agreement.
Zoom
Connectivity leases office space located at the 848 Elm Street, Manchester, NH. The landlord is an affiliate entity owned by Mr. Hitchcock.
The two-year facility lease agreement is effective from August 1, 2019 to July 31, 2021 and provides for 2,656 square feet at an aggregate
annual rental price of $30 thousand. For the three-month period and six-month period ended June 30, 2021, the rent expense was $8 thousand
and $15 thousand, respectively.
On
July 7, 2021, the Company’s Common Stock ceased trading on the OTCQB and commenced trading on The Nasdaq Capital Market under the
ticker symbol “MINM.”
On
July 20, 2021, the Company renewed its Manchester, New Hampshire headquarter offices with an effective term from August 1, 2021 to July
31, 2022. During the annual term, the rent expense is $30,000.
A
proposal on the amendment to our Amended and Restated Certificate of Incorporation was considered but not approved by the stockholders
of the Company at its 2021 Annual Meeting of Stockholders held on June 2, 2021. The voting results of this proposal reflected a tabulation
report that treated the proposal as “routine”; however, the Company’s proxy materials for the 2021 Annual Meeting of
Stockholders described the proposal as “non-routine.” When tabulated as a non-routine matter, this proposal was not approved
by the Company’s stockholders. Certain shares of Common Stock beneficially owned by executive officers and directors of the Company
who had been stockholders of Zoom Connectivity, inadvertently were not voted at the meeting. If those votes had been cast at the meeting
and were voted for the proposal, the proposal would have been approved by the requisite vote of the Company’s stockholders. See
Note (6), Commitments and Contingencies in these Notes to Consolidated Financial Statements (Unaudited). On June 30, 2021, the Company
filed with the Secretary of State of the State of Delaware a Certificate of Correction to void the previously filed amendment to the
Company’s Certificate of Incorporation. The Company held a special meeting of stockholders on July 22, 2021 and received the requisite
stockholder approval of the amendment. On July 23, 2021, the Company filed with the Delaware Secretary of State an amendment to the Company’s
Amended and Restated Certificate of Incorporation to increase the number of authorized shares of capital stock to 62,000,000 shares,
consisting of 60,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, $0.001 par value per share (the “Preferred
Stock”).
On
July 28, 2021, the Company entered into an underwriting agreement with B. Riley Securities,
Inc., as representative (the “Representative”) of the several underwriters named therein (collectively, the “Underwriters”),
pursuant to which the Company agreed to issue and sell an aggregate of 10,000,000 shares of the Company’s
Common Stock, to the Underwriters (the “Public Offering”). The shares of Common Stock were sold to the public at an offering
price of $2.50 per share and were purchased by the Underwriters from the Company at a price of $2.32715 per share. The Company also granted
the Underwriters a 30-day option to purchase up to an additional 1,500,000 shares of Common Stock.
On August 2, 2021, the Company received $22.7 million in aggregate net proceeds after deducting Underwriters’ discounts, commissions,
and other offering expenses after issuing 10,000,000 shares of the Company’s Common Stock through the Public Offering.
One
August 12, 2021, the Company entered into an agreement with Zoom Video Communications, Inc. (“Zoom Video”) 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 million.
The
Company has evaluated subsequent events from June 30, 2021 through the date of this filing and has determined that there are no additional
events requiring recognition or disclosure in the financial statements.
