MINIM INC

Previous wording

We deliver a comprehensive WiFi as a Service platform to make everyone’s connected home safe and supportive for life and work. We believe the home router must go the way of the mobile phone. Today’s routers are simple, single-purpose devices that rarely receive firmware updates and have underdeveloped management applications, making them the #1 target in residential cybersecurity attacks. It can be so much more. The router must offer frequent security updates, helpful apps, extensive personalization options and a delightful interface. That is what Minim delivers— not just the router or just an app, but WiFi as a Service. Technically, it’s composed of an intelligent router managed by a smart operating system that leverages cloud computing and AI to analyze and optimize the smart home, combined with intuitive applications to engage with it.

Current wording

We historically delivered comprehensive WiFi as a Service platform to make everyone’s connected home safe and supportive for life and work.

Previous wording

Generally, our gross margin for a given product depends on a number of factors, including the type of customer to whom we are selling. The gross margin for products sold to retailers tends to be higher than for some of our other customers; but the sales, support, returns, and overhead costs associated with products sold to retailers also tend to be higher. Minim’s sales to certain countries are currently handled by a single master distributor for each country that handles the support and marketing costs within the country. Gross margin for sales to these master distributors tends to be low, since lower pricing to these distributors helps them to cover the support and marketing costs for their country.

Current wording

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.

Previous wording

Our cash and cash equivalents balance on September 30, 2023 was $0.5 million compared to $0.5 million on December 31, 2022. On September 30, 2023, we had $0.9 million of outstanding borrowings on our asset-based credit line with availability of $0 thousand and working capital of $(0.3) million.

Current wording

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.

Previous wording

The Company’s ability to maintain adequate levels of liquidity depends in part on our ability to sell inventory on hand, increasing SaaS sales, and collect related receivables.

Current wording

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.

Previous wording

The Company continues to experience losses, which in part is due to declining revenues. In the three and nine months ended September 30, 2023 and 2022, we generated net sales of $6.7 million and $13.8 million, respectively, and $24.6 million and $40.0 million, respectively.

Current wording

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.

Previous wording

See Note 2 Summary of Significant Accounting Policies, in Notes to Unaudited Consolidated Financial Statements in Item 1 of Part 1 of this Report on 10-Q, for a full description of recent accounting standards, include the expected dates of adoption and estimated effects on the financial condition and results of operations, which are hereby incorporated by reference.

Current wording

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.

Previous wording

Our critical accounting policies and estimates, which are revenue recognition, product returns, inventory valuation and costs of goods sold, and valuation of deferred tax assets are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022. For the nine months ended September 30, 2023, there have been no significant changes in our critical accounting policies and estimates.

Current wording

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.

Previous wording

The following table sets forth certain financial data derived from our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 presented in absolute dollars and as a percentage of net sales, with dollars and percentage change period over period:

Current wording

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:

Previous wording

Comparison of the three months ended September 30, 2023 to the three months September 30, 2022

Current wording

Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023

Previous wording

The following table sets forth our revenues by product and the changes in revenues for the three and nine months ended September 30, 2023, as compared to the three months ended September 30, 2022:

Current wording

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:

Previous wording

The majority of the Company’s revenues by geographic area are earned in North America for the three and nine months ended September 30, 2023 and 2022.

Current wording

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.

Previous wording

Our total net sales decreased year-over-year by $7.1 million or 51.6% in the three months ended September 30, 2023 and by $15.4 million or 38.4% in the nine months ended September 30, 2023. The decrease in net sales is directly attributable to decreased sales of Motorola branded cable modems and gateways. In both 2023 and 2022, we primarily generated our sales by selling cable modems and gateways. Sales related to SaaS offerings decreased by $233 thousand or 98.4% in the three months ended September 30, 2023 and decreased by $361 thousand or 68.9% during the nine months ended September 30, 2023. The increase and decrease in the other category of $10 thousand and $441 thousand in the three and nine months ended 2023 compared to 2022 is primarily due to a reduction in DSL products 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.

Current wording

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.

Previous wording

The decrease in gross profit was attributable to sales growth of Motorola branded cable modems and gateways, including intelligent networking products that include Minim software. We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods sold due to fluctuations and increases in prices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess or obsolete inventory.

Current wording

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.

Previous wording

Gross profit and gross margin decreased in the three months ended September 30, 2023, 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.

Current wording

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.

Previous wording

For the remainder of fiscal 2023, we expect gross margin to be subject to similar variabilities experienced in the first half of 2023 and in 2022. We experienced meaningful increases in costs of freight, materials, and components for our products. Although freight and certain component costs have reduced, we will not realize improvements to margins until we are able to work through inventory obtained when freight and component costs were elevated. We may continue to experience disruptions from the pandemic, with manufacturing partners being affected by factory uptime and scarcity of materials and components. These disruptions could increase the length of time taken between order to production and transportation of inventory. If such disruptions become widespread, they could significantly affect our ability to fulfill the demand for our products. 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.

Current wording

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.

Previous wording

For the remainder of fiscal 2023, we expect our selling and marketing expenses as a percentage of net sales in fiscal 2023 to be similar to fiscal 2022 levels. Expenses may fluctuate depending on sales levels achieved as certain expenses, such as commissions, are determined based upon the net sales achieved. Forecasting selling and marketing expenses is highly dependent on expected net sales levels and could vary significantly depending on actual net sales achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs.

Current wording

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.

Previous wording

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We continue to invest in research and development to expand our hardware product offerings focused on premium WiFi 6E, WiFi 6, and software solutions. For the remainder of fiscal 2023, we expect research and development expenses as a percentage of net sales in fiscal 2023 to be in line with or slightly above fiscal 2022 levels. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net sales, depending on actual net sales achieved in any given year.

Current wording

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.

Previous wording

Our principal sources of liquidity are cash and cash equivalents and borrowings under our SVB line-of-credit. As of September 30, 2023, we had cash and cash equivalents of $0.5 million as compared to $0.5 million on December 31, 2022. On September 30, 2023, we had $0.9 million of borrowings outstanding and $0 thousand available on our $10.0 million SVB line-of-credit and working capital of $(0.3) million. We have funded our operations and investing activities primarily through borrowings on our line of credit, the sale of assets and the sale of our common stock.

Current wording

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.

Previous wording

Cash used in operating activities of $11.5 million for 2022 reflected our net loss of $11.0 million, adjusted for non-cash expenses, consisting primarily of $0.6 million of depreciation and amortization and $1.0 million of stock-based compensation expense. Uses of cash includes an increase of accounts receivables of $1.4 million and a decrease in accounts payable of $5.5 million. Sources of cash included a decrease of inventories of $2.7 million, decrease of other assets of $0.3 million, increase in accrued expenses of $0.3 million, and increases in deferred revenue of $0.5 thousand.

Current wording

***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.

Previous wording

***Cash Flows from Operating Activities.***Cash provided by operating activities of $3.7 million during the nine months ended September 30, 2023 reflected our net loss of $16.5 million, adjusted for non-cash expenses, consisting primarily of $0.3 million of stock-based compensation expense and $0.4 million in depreciation and amortization expense. Uses of cash included a decrease in accounts receivable of $0.1 million and accrued expenses of $3.0 million. Sources of cash included primarily a decrease of inventories of $14.9 million, increase in accounts payable of $7.4 million, increase in prepaid expenses of $0.2 million, and increase in deferred revenue of $0.2 million.

Current wording

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.

Previous wording

***Cash Flows from Investing Activities.***During the nine months ended September 30, 2023, $162 thousand was used to purchase equipment and $220 thousand was used for certification costs.

Current wording

During the three months ended March 31, 2023, $6 thousand was used to purchase equipment and $122 thousand was used for certification costs.

Previous wording

Cash Flows from Financing Activities. Cash used in financing activities during the nine months ended September 30, 2023 consisted of repayment of $3.9 million on the borrowings under our SVB line-of-credit.

Current wording

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.

Previous wording

At September 30, 2023, we believe our current cash and cash equivalents, other working capital and borrowings under our SVB line-of-credit will 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. During 2023, the Company has implemented cost reduction plans to align its cost structure to its sales and increase its liquidity. The Company will continue to monitor its costs in relation to its sales and adjust its cost structure accordingly.

Current wording

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.

Previous wording

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 assure that such funding will be available in needed quantities or on terms favorable to us, if at all.

Current wording

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.

Previous wording

At September 30, 2023, we have Federal and state net operating loss carry forwards of approximately $62.0 million and $37.3 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 September 30, 2023 and December 31, 2022, we recorded a full valuation allowance against our net deferred tax assets.

Current wording

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.

Previous wording

During the nine months ended September 30, 2023, 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, 2022.

Current wording

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.