Attached files
Exhibit 99.1
Minim Inc.
Financial
Statements
As of
and for the Years Ended
December
31, 2019 and 2018
and
Independent Auditors’ Report
Minim
Inc.
FINANCIAL STATEMENTS
Years
Ended December 31, 2019 and 2018
C O N T E N T S
|
Page
|
Independent
Auditors’ Report
|
1
|
Financial
Statements:
|
|
Balance
Sheets
|
2
|
Statements of
Operations
|
3
|
Statements of
Stockholders’ Equity
|
4
|
Statements of Cash
Flows
|
5
|
Notes to the
Financial Statements
|
6-23
|
INDEPENDENT AUDITORS’ REPORT
Board of Directors
Minim Inc.
We have audited the accompanying financial statements of Minim Inc.
(the Company), which comprise the balance sheets as of
December 31, 2019 and 2018, the related statements of
operations, changes in stockholders’ equity and cash flows
for the years then ended, and the related notes to the financial
statements.
Management’s Responsibility for the Financial
Statements
Management is responsible for the preparation and fair presentation
of these financial statements in accordance with accounting
principles generally accepted in the United States of America; this
includes the design, implementation and maintenance of internal
control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of
the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Minim
Inc. as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for the years then ended in
accordance with accounting principles generally accepted in the
United States of America.
/s/ Baker Newman & Noyes LLC
Manchester, New Hampshire
February 17, 2021
1
MINIM INC.
BALANCE SHEETS
AS OF DECEMBER 31,
2019 AND 2018
|
2019
|
2018
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
Cash
|
$1,146,940
|
$484,872
|
Investment
securities, at fair value
|
-
|
100,585
|
Accounts
receivable, net
|
36,361
|
89
|
Inventory
|
52,644
|
30,442
|
Prepaid and other
current assets
|
-
|
32,824
|
Total current
assets
|
1,235,945
|
648,812
|
|
|
|
PROPERTY AND
EQUIPMENT, NET
|
6,852
|
10,745
|
OPERATING LEASE
RIGHT-OF-USE ASSET
|
45,577
|
39,604
|
GOODWILL
|
58,872
|
58,872
|
INTANGIBLE ASSETS,
NET
|
107,412
|
219,917
|
TOTAL
ASSETS
|
$1,454,658
|
$977,950
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||
|
|
|
CURRENT
LIABILITIES:
|
|
|
Accounts
payable
|
$35,510
|
$138,230
|
Accrued
expenses
|
76,793
|
123,102
|
Operating lease
liabilities
|
28,365
|
23,366
|
Accrued contingent
acquisition consideration, current portion
|
50,000
|
-
|
Total current
liabilities
|
190,668
|
284,698
|
|
|
|
OPERATING LEASE
LIABILITIES, NET OF CURRENT PORTION
|
17,212
|
16,238
|
CONVERTIBLE
PROMISSORY NOTES
|
269,692
|
257,192
|
ACCRUED CONTINGENT
ACQUISITION CONSIDERATION, NON-CURRENT PORTION
|
-
|
50,000
|
Total
liabilities
|
477,572
|
608,128
|
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
Non-redeemable
preferred stock $0.0001 par value; authorized 7,331,490 and
4,604,902 shares, issued and outstanding
7,271,409 and 4,604,902 as of December
31, 2019 and 2018, respectively (liquidation preference of
$9,409,992 and $4,749,999 at December 31, 2019 and 2018,
respectively)
|
9,409,992
|
4,749,999
|
Common
stock $0.0001 par value; authorized 14,000,000 and 12,000,000
shares,
|
|
|
2,637,670
and 1,071,568 issued and outstanding as of December 31, 2019 and
2018, respectively
|
-
|
-
|
Additional
paid-in capital
|
1,487,664
|
635,895
|
Accumulated
deficit
|
(9,920,570)
|
(5,016,072)
|
Total
stockholders' equity
|
977,086
|
369,822
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$1,454,658
|
$977,950
|
The
accompanying notes are an integral part of the financial
statements.
|
2
MINIM INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
|
|
|
REVENUE:
|
|
|
Software as a
service
|
$93,547
|
$852
|
Hardware
|
53,084
|
-
|
Engineering
services
|
105,000
|
-
|
Total
revenue
|
251,631
|
852
|
|
|
|
COST OF
REVENUE:
|
|
|
Cost of
revenue
|
251,905
|
19,586
|
Total cost of
revenue
|
251,905
|
19,586
|
|
|
|
GROSS PROFIT
(LOSS)
|
(274)
|
(18,734)
|
|
|
|
OPERATING
EXPENSES:
|
|
|
Sales and
marketing
|
544,507
|
478,400
|
Research and
development
|
1,709,944
|
962,220
|
General and
administrative
|
2,640,560
|
1,858,226
|
Total operating
expenses
|
4,895,011
|
3,298,846
|
|
|
|
LOSS FROM
OPERATIONS
|
(4,895,285)
|
(3,317,580)
|
|
|
|
INTEREST (EXPENSE)
INCOME, NET
|
(9,213)
|
1,529
|
|
|
|
NET
LOSS
|
$(4,904,498)
|
$(3,316,051)
|
The
accompanying notes are an integral part of the financial
statements.
|
3
MINIM INC.
STATEMENTS
OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 2019 AND 2018
|
Founder
|
Series
Seed
|
Series Seed
Plus
|
|
|
|
|
|
|||
|
Convertible
Preferred stock
|
Convertible
Preferred Stock
|
Convertible
Preferred Stock
|
Common
Stock
|
|
|
|
||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-In-Capital
|
Accumulated
Deficit
|
Total
Shareholders' Equity
|
Balance at December 31,
2017
|
1,890,770
|
$1,750,000
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$-
|
$(1,700,021)
|
$49,979
|
Issuance of restricted shares in
connection with acquisition
|
-
|
-
|
-
|
-
|
-
|
-
|
177,108
|
-
|
72,614
|
-
|
72,614
|
Issuance of convertible preferred
stock
|
540,220
|
500,000
|
2,173,912
|
2,499,999
|
-
|
-
|
-
|
-
|
-
|
-
|
2,999,999
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
894,460
|
-
|
563,281
|
-
|
563,281
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,316,051)
|
(3,316,051)
|
Balance at December 31,
2018
|
2,430,990
|
2,250,000
|
2,173,912
|
2,499,999
|
-
|
-
|
1,071,568
|
-
|
635,895
|
(5,016,072)
|
369,822
|
Exercise of common stock
options
|
-
|
-
|
-
|
-
|
-
|
-
|
227,854
|
-
|
99,256
|
-
|
99,256
|
Issuance of convertible preferred
stock
|
-
|
-
|
-
|
-
|
2,666,507
|
4,659,993
|
-
|
-
|
-
|
-
|
4,659,993
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,338,248
|
-
|
752,513
|
-
|
752,513
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,904,498)
|
(4,904,498)
|
Balance at December 31,
2019
|
2,430,990
|
$2,250,000
|
2,173,912
|
$2,499,999
|
2,666,507
|
$4,659,993
|
2,637,670
|
$-
|
$1,487,664
|
$(9,920,570)
|
$977,086
|
The
accompanying notes are an integral part of the financial
statements
4
MINIM INC.
STATEMENTS
OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2019 AND 2018
|
2019
|
2018
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
Net
loss
|
$(4,904,498)
|
$(3,316,051)
|
Reconciliation of
net loss to cash used by operating activities:
|
|
|
Depreciation
|
3,893
|
4,911
|
Amortization of
intangible assets
|
112,505
|
24,367
|
Amortization of
right-of-use assets
|
24,895
|
22,227
|
Stock-based
compensation
|
752,513
|
563,281
|
Non-cash interest
expense
|
12,500
|
7,192
|
Changes in
operating assets and liabilities:
|
|
|
Accounts
receivable
|
(36,272)
|
(89)
|
Inventory
|
(22,202)
|
(30,442)
|
Prepaid and other
current assets
|
32,824
|
(32,824)
|
Accounts
payable
|
(102,720)
|
2,302
|
Accrued
expenses
|
(46,309)
|
122,039
|
Operating lease
liabilities
|
(24,895)
|
(22,227)
|
Cash
used by operating activities
|
(4,197,766)
|
(2,655,314)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
Purchase of
investment securities
|
100,585
|
(100,585)
|
Acquisitions, net
of cash acquired
|
-
|
(187,263)
|
Purchase of
property and equipment
|
-
|
(3,308)
|
Cash
provided by (used in) investing activities
|
100,585
|
(291,156)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Borrowings under
convertible promissory notes
|
-
|
250,000
|
Proceeds from the
issuance of common stock
|
99,256
|
-
|
Proceeds from the
issuance of preferred stock
|
4,659,993
|
2,999,999
|
Cash
provided by financing activities
|
4,759,249
|
3,249,999
|
|
|
|
NET INCREASE IN
CASH
|
662,068
|
303,529
|
|
|
|
Cash:
|
|
|
Beginning of
Year
|
484,872
|
181,343
|
End of
Year
|
$1,146,940
|
$484,872
|
The
accompanying notes are an integral part of the financial
statements
|
5
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of
Business — Minim Inc. (“Minim”
or the “Company”), a Delaware corporation,
designs, develops, sells and supports an IoT security platform that
enables and secures a better connected home. The Company’s
useable web and mobile apps, built on proprietary IoT
fingerprinting technology, also empowers distributed businesses to
secure and manage the new corporate environment (i.e. the remote
employee home). Already integrated with 5G enabled hardware and
offering a full API suite, the Minim platform has been designed for
ultra-extensibility as wireless technology advances. In a world
where connected devices have outnumbered people, Minim’s
self-learning platform employs proprietary fingerprinting and
behavioral models to detect threats before they become problems.
The Company is headquartered in Manchester, New Hampshire and
provides services world-wide.
The
Company was formed in January 2017 as Minim LLC. On March 5, 2018,
the Company converted from an LLC legal entity to a C-Corporation,
Minim Inc. As condition to the conversion, the assets and
liabilities of Minim LLC transferred to Minim Inc. The Company
reflected this transaction retrospectively for all periods
presented.
Risks and Uncertainties
–
Emerging Growth Company - The Company is subject to a
number of risks similar to those of other companies of similar size
in its industry, including, but not limited to, the need for
successful development of products, the need for additional capital
(or financing) to fund operating losses (see below), competition
from substitute products and services from larger companies,
protection of proprietary technology, patent litigation, dependence
on key individuals, and risks associated with changes in
information technology.
The
Company has incurred net losses, utilized cash in operations since
inception, and has an accumulated deficit as of December 31, 2019,
of $9,920,570, as well as expects to incur future additional
losses. The Company has cash available on hand and believes that
this cash will not be sufficient, without additional financing, to
fund current levels of operations and meet its obligations as they
come due within one year from the date these financial statements
are issued. In the event that the Company does not achieve revenue
anticipated in its current operating plan, management has the
ability and commitment to reduce operating expenses as necessary.
The Company’s long-term success is dependent upon its ability
to successfully raise additional capital, market its existing
services, increase revenues, and, ultimately, to achieve profitable
operations.
On
November 12, 2020, the Company entered into an Agreement and Plan
of Merger with Zoom Telephonics, Inc. The merger transaction was
completed and effective December 4, 2020. Refer to Note 15,
Subsequent Events, in Notes
to the Financial Statements.
The
Company’s financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business.
Impacts of the COVID-19 Pandemic on the
Company – A novel strain of coronavirus (COVID-19) was
first identified in late calendar year 2019 and subsequently
declared a pandemic by the World Health Organization in March 2020.
The long-term impacts, if any, of the global COVID-19 pandemic on
the Company are currently unknown. The Company is conducting
business as usual with modifications to employee travel, employee
work locations, and cancellation of certain marketing events, among
other modifications. The Company will continue to actively monitor
the pandemic and may take further actions that alter the business
operations as may be required by federal, state or local
authorities or that the Company determines are in the best
interests of its employees, customers, partners, suppliers and
stockholders. It is not clear what the potential long-term effects
of any such alterations or modifications may have on the
Company’s business operations.
The
Company observed customers and vendors take precautionary and
preemptive actions to address the COVID-19 pandemic. Customers and
vendors may take further actions that alter their normal business
operations if there are future spikes of COVID-19 infections
resulting in additional government mandated shutdowns. The
conditions caused by the COVID-19 pandemic have adversely affected
our customers’ willingness to purchase our products and
delayed prospective customers’ purchasing decisions. The
impacts of the global COVID-19 pandemic on the broader global
economy have been swift, dramatic, and unpredictable. The latency
and duration of these impacts are diverse across geographies and
jurisdictions in which we market, sell, and develop our offerings.
The depth and duration of the current economic declines
attributable to the COVID-19 pandemic, and any potential economic
recoveries, are not currently known. The Company experienced
revenue declines in 2020 related to Engineering Services. The
Company transitioned from Engineering Services with its prospective
customers to its recurring service, Software as a Service. The
effect of the pandemic for the year end December 31, 2021 and
future periods is unknown. If we are not able to respond to and
manage the impact of the COVID-19 pandemic effectively, our
business will be harmed.
6
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
The
Company applied for and received approval for a Small Business
Administration (“SBA”) Paycheck Protection Plan Loan
with Primary Bank under the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”). The loan from the US
government in the amount of $554,500 was approved and funded in
April 2020 (Note 15).
Basis of Presentation — The
accompanying financial statements have been prepared in accordance
with generally accepted accounting principles in the United States
of America (“GAAP”).
Use of Estimates — The
preparation of financial statements in conformity with 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 financial
statements and the reported amounts of revenues and expenses during
the reporting period. Changes in estimates are recorded in the
period in which they become known. The Company bases its estimates
on historical experience and various other assumptions that it
believes to be reasonable under the circumstances. Actual results
may differ from management’s estimates if past experience or
other assumptions do not turn out to be substantially accurate,
even if such assumptions are reasonable when made. Estimates and
assumptions are used in determining revenue recognition, allowance
for doubtful accounts and sales returns, accounting for
internal-use software, the valuation of goodwill and intangible
assets, accounting for business combinations, including any
contingent considerations, accounting for stock-based compensation,
accounting for income taxes and related valuation
allowances.
Revenue Recognition —
The Company applies the provisions of Accounting
Standards Codification (ASC) 606, Revenue from Contracts with
Customers (“ASC
606”) as a single standard for revenue recognition that
applies to all of the Company’s Software as a Service,
hardware sales, and engineering service arrangements and generally
requires revenues to be recognized upon the transfer of control of
promised goods or services provided to customers, reflecting the
amount of consideration expected to be received for those goods or
services. Pursuant to ASC 606, revenues are recognized upon the
application of the following steps:
1.
Identification
of the contract, or contracts, with a customer;
2.
Identification
of the performance obligations in the contract;
3.
Determination of the transaction
price;
4.
Allocation
of the transaction price to the performance obligations in the
contract; and
5.
Recognition
of revenue when, or as, the Company satisfies a performance
obligation.
The
Company derives revenue from the following sources:
(1) Software as a Service (“SaaS”), (2) Hardware
sales, and (3) Engineering services.
Software as a Service – The
Company’s 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 SaaS agreements include Minim service offerings,
which deliver applications and technologies via cloud-based
deployment models that Minim develops functionality for, provides
unspecified updates and enhancements for, host, manage, upgrade and
support and that the customers access by entering into solution
agreements for a stated period, generally a one-year term. The
monthly fees charged to the customer 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.
Hardware sales — The
Company’s hardware revenue consists of routers, which are
supplied by third-party manufacturers and distributors. Although
the hardware is interrelated with the use of the SaaS services, the
customers may purchase the hardware from other vendors. The
revenues for the hardware are generally recognized at the point in
time that the hardware is delivered to the customer and ownership
is transferred to the customer.
Engineering services – The
Company provides proof of concept and customer-branded
customization of its application. These services are generally
performed over a period less than 1 to 4 months. The revenues for
the services are generally recognized upon the delivery of the
completed services to the customer.
The
Company executes arrangements through internet service providers
and partners (collectively, “channel partners”), in
which the channel partners act as the principals in the
transactions with the end users of the Company’s products and
services.
Revenues are
recorded net of any sales and other taxes collected from
customers.
7
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
Business Combinations — The
Company recognizes assets acquired and liabilities assumed at fair
value on the acquisition date. Significant estimates and
assumptions, including fair value estimates, are used as of the
acquisition date; during the measurement period, those estimates
that are provisional are adjusted as necessary. The measurement
period is the period after the acquisition date, not to exceed one
year, in which new information about facts and circumstances that
existed as of the acquisition date are used to adjust the
provisional amounts recognized. Measurement period adjustments are
applied retrospectively. All other adjustments are recorded to the
statements of operations. Costs to effect an acquisition are
recorded in general and administrative expenses in the statements
of operations as the expenses are incurred.
Cash and Cash Equivalents – The
Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the time of purchase
to be cash equivalents.
Investment Securities – In
accordance with ASC 320, Investments – Debt and Equity
Securities, and based on the Company’s intentions
regarding these instruments, the Company classifies its investment
securities as trading. The Company carries these securities at fair
value and reports the unrealized gains and losses and interest
income as interest income in the statements of operations. The
Company periodically evaluates its investments to determine if
impairment charges are required. Substantially all investments are
classified as current based on the nature of the investments and
their availability for use in current operations.
Allowances for Doubtful Accounts –
The Company records allowances for doubtful accounts based upon a
specific review of all significant outstanding invoices. For those
invoices not specifically reviewed, provisions are provided at
differing rates, based upon the age of the receivable, the
collection history associated with the customer, and current
economic trends. The Company writes-off a receivable and charges it
against its recorded allowance when the Company has exhausted its
collection efforts without success. Management estimated that there
was no allowance for doubtful accounts to be recorded at December
31, 2019 or 2018.
Concentrations of Credit
Risk — Financial instruments that potentially
subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and trade receivables. The
Company’s cash investment policy limits investments to
investment-grade securities. Cash and cash equivalents are held on
deposit with financial institutions that are believed to be of high
credit quality which is monitored by the Company. Balances in such
accounts may at times exceed federally insured limits. Customer
credit risk is routinely monitored by the Company. The Company had
two customers that represented approximately 64% of accounts
receivables as of December 31, 2019 and no concentration of
customers as of December 31, 2018. Two customers represented 30% of
total revenues for the year ended December 31, 2019, and no material
concentrations existed as of December 31, 2018.
Inventory – Inventory consists
primarily of finished good routers. Inventory is stated at the
lower of cost or net realizable value. Cost is computed using
standard cost, which approximates actual cost, on a first-in,
first-out basis. The Company evaluates ending inventories for
estimated excess quantities and obsolescence. This evaluation
includes analysis of sales levels by product and projections of
future demand. Inventories in excess of future demand are written
down and charged to cost of revenue. In addition, the Company
assesses the impact of changing technology to the inventory and
writes down inventory that is considered obsolete. At the point of
loss recognition, a new, lower-cost basis for that inventory is
established, and subsequent changes in facts and circumstances do
not result in the restoration or increase in that newly established
cost basis.
Deferred Sales Commissions – The
Company defers sales commission earned by the sales force that are
incremental and recoverable costs of obtaining SaaS contracts.
Initial sales commissions for the SaaS agreements are generally
deferred and amortized on a straight-line basis over a period of
benefit that the Company receives. The Company has determined the
period of benefit by taking into consideration the historical and
expected durations of customer agreements, the expected useful
lives of the Company’s technologies, and other factors.
Amortization of deferred sales commission is included as a
component of sales and marketing expenses in the statements of
operations. The Company has no deferred sales commissions as of
December 31, 2019 and 2018.
8
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
Goodwill, Intangible Assets, and Impairment
Assessments – Goodwill represents the excess of the
purchase price in a business combination over the fair value of net
tangible and intangible assets acquired. Intangible assets that are
not considered to have an indefinite useful life are amortized over
their useful lives, which are generally 1 to 10 years. Each period,
the Company evaluates the carrying amounts of goodwill and
intangible assets for recoverability and reviews the estimated
remaining useful lives of purchased intangible assets and whether
events or changes in circumstances warrant a revision to the
remaining periods of amortization. The Company performs a
qualitative assessment for an impairment prior to necessitating a
quantitative impairment test. If the Company determines in the
qualitative assessment that it is more likely than not that the
fair value of the asset is less than its carrying value, a
quantitative test is then performed. Otherwise, no further testing
is required. The Company did not record any impairment for the
years ending December 31, 2019 and 2018.
Deferred Revenue — Deferred
revenue consists of billings or payments received in advance of
revenue recognition. The Company initially records the amounts paid
in advance as deferred revenue and recognizes these amounts over
the term of the agreement. Deferred revenue that will be recognized
during the succeeding twelve month period is recorded as current
deferred revenue and the remaining portion is recorded as long-term
deferred revenue. The Company has no deferred revenue as of
December 31, 2019 and 2018.
Leases – The Company applies ASC
842, Leases, to account for
its operating leases, which include facility leases. Operating
lease liabilities are recognized at the lease commencement date
based on the present value of lease payments over the lease term.
The Company uses its incremental borrowing rate based on the
information available at the lease commencement date in determining
the present value of future payments because the implicit rate of
the lease is generally not known. Right of Use (“ROU”)
assets related to the operating lease liabilities are measured at
lease inception based on the initial measurement of the lease
liability, plus any prepaid lease payments and less any lease
incentives. The ROU asset is amortized as operating lease expense
generally on a straight-line basis over the lease term and classify
both the lease amortization and imputed interest as operating
expenses.
Contingent Consideration —
Contingent consideration, which includes earnout payments in
connection with the Company’s acquisitions, is recognized at
fair value on the acquisition date and remeasured each reporting
period with subsequent adjustments recognized in the statements of
operations. The Company estimates the fair value of contingent
consideration based on certain milestones of the acquired companies
and estimated probabilities of achievement and discounts the
liabilities to present value. Contingent consideration is valued
using significant inputs that are not observable in the market,
which are defined as Level 3 inputs. Changes in the fair value
of contingent consideration liabilities may result from changes in
discount periods, changes in the timing and amount of sales and/or
other specific milestone estimates and changes in probability
assumptions with respect to the likelihood of achieving the various
earnout criteria.
The
Company reflects changes in fair value of contingent consideration
within operating expenses in the statements of operations. These
changes could cause a material impact to, and volatility in,
operating results. Earnout payments are reflected in cash flows
from financing activities in the statements of cash
flows.
Cost of Revenue — The
Company’s product and service costs include compensation and
benefit costs for service personnel, contractor and consulting
cost, cloud hosting services costs, depreciation and amortization,
travel expenses and related overhead costs. When revenue is
recognized over multiple periods in accordance with the
Company’s revenue recognition policies, the Company has made
an accounting policy election whereby the direct cost for
installation and other service costs are expensed as
incurred.
Advertising Costs —
Advertising costs are expensed as incurred and were approximately
$4,000 and $3,600 for the years
ended December 31, 2019 and 2018, respectively, and are recorded in
sales and marketing expense in the statements of
operations.
Research and Development Costs and Software
Development Costs — Research and development
expense primarily consists of personnel costs involved in product
development as well as third-party development costs. Software
development costs required to be capitalized software development
costs under ASC 985-20, Costs of
Software to be Sold, Leased or Marketed, and under ASC
350-40, Internal-Use
Software, were not material for the years ended December 31,
2019 and 2018.
9
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
Stock-Based Compensation —
Stock-based compensation expense reflects the fair value of
stock-based awards measured at the grant date and recognized over
the relevant service period. The Company estimates the fair value
of each stock-based award on the measurement date using either the
current market price of the stock or the Black-Scholes option
valuation model, depending on the type of award. The Black-Scholes
option valuation model incorporates assumptions as to stock price
volatility, the expected life of options, a risk-free interest rate
and dividend yield. Stock-based compensation expense is recognized
on a straight-line basis over the service period of the award,
which is generally 4 years for options. The options have a
10 year contractual term. Forfeitures are accounted for as
they occur.
Income Taxes — The Company
provides for deferred income taxes resulting from temporary
differences between the bases of its assets and liabilities for
financial reporting and tax purposes using enacted rates expected
to be in effect when such differences reverse. The Company records
valuation allowances to reduce deferred tax assets to the amount
that is more likely than not to be realized.
The
Company follows the authoritative guidance on accounting for and
disclosure of uncertainty in tax positions which requires the
Company to determine whether a tax position of the Company is more
likely than not to be sustained upon examination, including
resolution of any related appeals of litigation processes, based on
the technical merits of the position. For tax positions meeting the
more likely than not threshold, the tax amount recognized in the
financial statements is reduced to the largest benefit that has a
greater than fifty percent likelihood of being realized upon the
ultimate settlement with the relevant taxing
authority.
Recent Accounting Pronouncements
–
Financial Instruments – In June
2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (ASU 2016-13) and
also issued subsequent amendments to the initial guidance: ASU
2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326).
Topic 326 requires measurement and recognition of expected credit
losses for financial assets held, including accounts receivables.
Topic 326 is effective in 2023, and earlier adoption is permitted
beginning in the first quarter of fiscal 2020. The Company is
currently evaluating the impact of the pending adoption of Topic
326 on the financial statements.
Income Taxes – In December 2019,
the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes (ASU 2019-12), which is intended
to simplify various areas related to the accounting for income
taxes and improve consistent application of Topic 740. ASU 2019-12
is effective beginning in 2022, and earlier adoption is permitted.
The Company is currently evaluating the impact of the pending
adoption of ASU 2019-12 on the financial statements.
Acquisition of MCP Networks Inc. assets
– On December 27, 2018, the Company acquired the net
assets of MCP Networks Inc. (“MCP”). MCP, headquartered
in Fargo, North Dakota, is a cloud based platform that allows
subscribers of internet service providers the ability to manage
their home network through a smartphone app. The acquisition
expands and provides a customer base to which the Company will be
able to sell its services.
The
purchase price was $309,877 in cash and deferred purchase price as
follows:
Net cash
paid
|
$187,263
|
Company’s
restricted stock (177,108 shares)
|
72,614
|
Deferred purchase
price
|
50,000
|
Total
consideration
|
$309,877
|
The
purchase agreement includes a provision for an indemnification
payment of $50,000. The payment is deferred until January 2020, and
the amount payable is net of any indemnification claims. This
payment is treated as deferred purchase price. As of December 31,
2019 and 2018, the deferred purchase price is included within
accrued contingent consideration, current portion and accrued
contingent consideration, non-current portion, respectively, on the
accompanying balance sheet.
10
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
The
following table summarizes the estimated fair value of the assets
acquired and liabilities assumed as of December 27,
2018:
Property and
equipment
|
$6,721
|
Developed
technology
|
101,541
|
Customer
relationships
|
122,435
|
Tradename
|
20,308
|
Goodwill
|
58,872
|
Total
allocation
|
$309,877
|
Developed
technology represents proprietary know-how that is technologically
feasible as of the valuation date. The Company estimated the fair
value of the developed technology using an income approach based on
projected cash flows and assumed a license royalty rate as if it
were negotiated in an arm’s-length transaction. Given that
the developed technology is comparable to the technology of the
Company, the Company intentionally elected not to use the MCP
technology. Pursuant to ASC 350-30, Intangibles – Goodwill and Other,
the Company is required to recognize the fair value identifiable of
acquired intangible assets and then amortize the intangible assets
over the expected remaining useful life to the Company, which was
approximately 6 months.
The
fair value of customer relationships was also estimated using an
income approach using discounted cash flow estimates derived from
the acquired customer base. This intangible asset will be amortized
over the estimated useful life using a method that is based on
estimated future cash flows, as the Company believes this will
approximate the pattern in which the economic benefits of the asset
will be utilized (approximately 9 years).
As of
the acquisition date, MCP generated revenue under the trade name
“Aerez.” Similar to the developed technology intangible
asset, the Company intentionally elected not to use the tradename.
The Company recognized the fair value of the tradename and
amortized the fair value over the expected remaining useful life to
the Company, which was approximately 6 months.
The
purchase agreement includes a $50,000 employment sign-on bonus to
three key employees of MCP. The employment bonuses are contingent
and are payable upon employment with the Company. The three MCP
employees became employees of the Company in December 2018 and were
paid the bonus. This bonus is considered as compensation and is
recorded in the operating expenses in the statements of operations
as of the year ended December 31, 2018
The
Company incurred transaction costs of approximately $6,542 related
to this acquisition which were expensed as incurred and are
included in general and administrative expenses in the
Company’s statements of operations for the year ended
December 31, 2018.
3.
PROPERTY
AND EQUIPMENT
The
Company records property and equipment at cost. Property and
equipment purchased in business combinations are recorded at fair
values, which are then treated as the cost. Depreciation is
computed using the straight-line method over the shorter of the
estimated useful lives of the assets, generally two to five years
based on asset classification, or the lease term, if applicable.
Costs for replacements and improvements are capitalized, while the
costs of maintenance and repairs are charged against earnings as
incurred.
Property and
equipment for the years ended December 31, 2019 and 2018 consisted
of the following:
|
Useful life
(yrs.)
|
2019
|
2018
|
|
|
|
|
Computer and office
equipment
|
2-3
|
$14,551
|
$14,551
|
Furniture and
fixtures
|
3-5
|
5,303
|
5,303
|
Total
|
|
19,854
|
19,854
|
|
|
|
|
Less: Accumulated
depreciation
|
|
(13,002)
|
(9,109)
|
|
|
|
|
Property and
equipment, net
|
|
$6,852
|
$10,745
|
Total
depreciation expense related to property and equipment was $3,893
and $4,911 for the years ended December 31, 2019 and 2018,
respectively.
11
MINIM
INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
4.
GOODWILL,
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
The
following table reflects the changes in goodwill for the years
ended December 31, 2019 and 2018:
Balance as of
December 31, 2017
|
$-
|
Acquisition
of MCP
|
58,872
|
Balance as of
December 31, 2018
|
$58,872
|
As of
December 31, 2019, the goodwill balance remains
unchanged.
Intangible Assets —
Intangible assets are recorded at the estimated fair value of
acquired technology, customer relationships, trademarks and trade
names, acquired and amortized over the respective estimated useful
life using a method that is based on estimated future cash flows,
as the Company believes this will approximate the pattern in which
the economic benefits of the asset will be utilized.
Intangible assets
consisted of the following at December 31, 2019 and
2018:
|
|
As of
December 31, 2019
|
As of
December 31, 2018
|
||||
|
Est.
Useful Life (yrs)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
|
Developed
technology
|
0.5
|
$-
|
$-
|
$-
|
$101,541
|
$(19,211)
|
$82,330
|
Customer
relationships
|
9
|
122,435
|
(15,023)
|
107,412
|
122,435
|
(1,314)
|
121,121
|
Tradename
|
0.5
|
-
|
-
|
-
|
20,308
|
(3,842)
|
16,466
|
Totals
|
|
$122,435
|
$(15,023)
|
$107,412
|
$244,284
|
$(24,367)
|
$219,917
|
The
Company wrote off fully amortized intangible assets of $121,849
during the year ended December 31, 2019. Amortization expense was
$112,505 and $24,367 for the years ended December 31, 2019 and
2018, respectively.
The
estimated annual amortization expense for each of the five
succeeding years and thereafter is as follows:
Years
Ended December 31,
|
|
2020
|
$13,746
|
2021
|
13,708
|
2022
|
13,708
|
2023
|
13,708
|
2024
|
13,746
|
Thereafter
|
38,796
|
|
|
Total
|
$107,412
|
12
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
5.
ACCRUED
EXPENSES
Accrued
expenses for the years ended December 31, 2019 and 2018 consisted
of the following:
|
2019
|
2018
|
Compensation &
benefits
|
$22,715
|
$55,741
|
Indirect
taxes
|
18,921
|
-
|
Other
|
35,157
|
67,361
|
Total
|
$76,793
|
$123,102
|
6.
FAIR
VALUE
Fair
value is defined as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date.
Fair
values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access. Fair values determined
by Level 2 inputs utilize data points that are observable such
as quoted prices, interest rates, and yield curves for similar
investments. Fair values determined by Level 3 inputs utilize
unobservable data points for the asset or liability.
In
certain instances, the Company may utilize financial models to
measure fair value. Generally, the Company uses inputs that include
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in
markets that are not active, other observable inputs for the asset
or liability, and inputs derived principally from, or corroborated
by, observable market data by correlation or other
means.
Financial Assets and Liabilities Recorded at
Fair Value —The Company’s investment
securities are classified within Level 1 of the fair value
hierarchy because they are valued based on quoted market prices in
active markets.
Financial Assets and Liabilities Not Recorded
at Fair Value — The fair value of the
Company’s cash, accounts receivable, accounts payable and
other current and non-current liabilities approximate their
carrying amounts due to the relatively short maturity of these
items. Based on the terms of the Company’s convertible
promissory notes, the Company believes the carrying value of the
long-term debt approximates fair value. The inputs into the
determination of fair value require significant management judgment
or estimation.
13
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
7.
LEASES
In
September 2017, the Company executed a non-cancelable operating
lease for its Manchester, NH office facility. The lease term is 3
years and expires in August 2020. The lease provides for constant
monthly payments of $2,068. The operating lease is included in
operating lease right-of-use assets, operating lease liabilities,
and long-term operating lease liabilities on the accompanying
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, which is approximately
5%.
The
lease was modified in August 2019, whereby the Company relocated to
another unit within the same building. The modified lease was with
the same lessor, extended the lease term to July 2021, and resulted
in a change to a monthly constant lease rate of $2,500. The
modified lease resulted in the remeasure of the operating lease
right-of-use assets, operating lease liabilities, and long-term
operating lease liabilities. The remeasurement increased the
carrying value of the right-of-use assets and the total operating
lease liabilities by $30,869.
The
following table presents information about the amount and timing of
the Company’s operating leases as of December 31,
2019:
Maturity of lease liabilities
|
Lease
Payments
|
2020
|
$30,000
|
2021
|
17,500
|
Total
undiscounted operating lease payments
|
47,500
|
Less:
Imputed interest
|
(1,923)
|
Present value of operating lease liabilities
|
$45,577
|
|
|
Balance Sheet Classification
|
|
Operating
lease liabilities, current
|
$28,365
|
Operating
lease liabilities, net of current portion
|
17,212
|
Total
operating lease liabilities
|
$45,577
|
|
|
Remaining
term in years
|
1.6
|
Discount
rate for operating leases
|
5%
|
In
addition to its Manchester, NH lease, the Company entered into two
facility leases that have terms of less than 12 months. One of the
facility leases terminated in August 2019 while the other
terminates in March 2020.
The
operating cash outflows and expense from operating leases was
$50,376 and $24,816 during the years ended December 31, 2019 and
2018, respectively.
14
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
8.
CONVERTIBLE
PROMISSORY NOTES
On June
4, 2018, the Company executed two convertible promissory note
purchase agreements (the “Notes”) with an aggregate
principal value of $250,000. The maturity date is December 31,
2019, at which point the Notes become payable on demand and accrued
interest of 5% per annum. The Notes become due and payable upon the
closing of a change of control event of the Company. If the Company
has a qualified financing prior to the maturity date, the Notes
shall automatically convert into shares of the Company’s
non-redeemable convertible preferred stock. The conversion shall
equal to the quotient obtained by dividing (i) the amount due on
the date of conversion by (ii) 80% of the per share price of the
preferred stock sold in qualified financing. A qualified financing
constitutes a sale or series of related sales by the Company of its
non-redeemable convertible preferred stock resulting in aggregate
proceeds of at least $10,000,000. The conversion feature is deemed
a derivative because the convertible promissory notes embed a
conditional obligation that the Company must or may settle by
issuing a variable number of its equity shares and at the inception
of the convertible promissory note purchase agreements a fixed
monetary amount is known. The Company determined that the fair
value of this embedded derivative is insignificant.
As of
December 31, 2019 and 2018, the Company had an aggregate of
$250,000 in convertible promissory notes in addition to $19,692 and
$7,192 in accrued interest, respectively. The Company recorded
$12,500 and $7,192 in interest expense for the years ending
December 31, 2019 and 2018, respectively.
9.
NON-REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
In
March 2018, upon the conversion of the Company from an LLC to a
C-Corporation, the Company authorized 12,000,000 shares of common
stock, par value $0.0001 per share (the “Common
Stock”). In April 2019 and September 2019, the Company
amended the authorized Common Stock shares to 13,500,000 and
14,000,000, respectively. During the years ended December 31, 2019
and 2018, the Company issued 227,854 shares totaling $99,256 and
218,392 shares totaling $90,781, respectively.
In
March 2018, the Company had authorized 4,604,902 shares of
non-redeemable convertible preferred stock, par value $0.0001 per
share (the “Preferred Stock”), of which 2,430,990
shares were designated Founder Preferred Stock and
2,173,912 shares were designated Series Seed Preferred
Stock. In April 2019 and September 2019, the Company amended the
authorized shares to 6,759,278 and 7,331,490, respectively, where
the increase of 2,154,376 and 572,212, respectively, of new shares
is designated Series Seed Plus Preferred Stock.
The
Preferred Stock at December 31, 2019 includes the
following:
Class of
Preferred Stock
|
Shares Authorized
and Designated
|
Shares Issued and
Outstanding
|
Carrying
value
|
|
|
|
|
Founder
|
2,430,990
|
2,430,990
|
$2,250,000
|
Series
Seed
|
2,173,912
|
2,173,912
|
2,499,999
|
Series Seed
Plus
|
2,726,588
|
2,666,507
|
4,659,993
|
Total
|
7,331,490
|
7,271,409
|
$9,409,992
|
The
Preferred Stock at December 31, 2018 includes the
following:
Class of
Preferred Stock
|
Shares Authorized
and Designated
|
Shares Issued and
Outstanding
|
Carrying
value
|
|
|
|
|
Founder
|
2,430,990
|
2,430,990
|
$2,250,000
|
Series
Seed
|
2,173,912
|
2,173,912
|
2,499,999
|
Total
|
4,604,902
|
4,604,902
|
$4,749,999
|
15
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
The
following provides a description of the Company’s equity
financings and the rights and preferences associated with the
classes of stock:
Founder Preferred Stock — On
March 5, 2018 upon the Company’s conversion from an LLC to a
C-Corporation, the Company exchanged 2,250,000 Class Voting
Units of the LLC to 2,430,990 shares of Founder Preferred Stock at
$0.0001 par value per share (“Founder Preferred
Stock”). The $2,250,000 capital value of the LLC’s
Class Voting Units at the time of conversion was carried over as
capital basis for the Founder Preferred Stock. The stated value
used for conversion and other purposes (the “Founder Stated
Value”) is $0.925549 per share of Founder Preferred Stock.
Prior to the conversion, an investor purchased an equivalent
540,220 shares of Founder Preferred Stock in exchange for $500,000.
These 540,220 shares are represented in the 2,430,990 shares
exchanged upon conversion.
As of
December 31, 2019 and 2018, Founder Preferred Stock issued and
outstanding shares is 2,430,990.
Series Seed Preferred
Stock — On March 8, 2018, the Company sold
2,086,956 shares of Series Seed Preferred Stock, $0.0001 par value
per share (“Series Seed Preferred Stock”) for gross
proceeds of $2,399,999. From May to October 2018, the Company sold
an additional 86,956 shares of Series Seed Preferred Stock for
aggregate proceeds of $100,000. The stated value used for
conversion and other is $1.150 per share of Series Seed
Preferred Stock. As of December 31, 2019 and 2018, Series Seed
Preferred Stock issued and outstanding shares is
2,173,912.
Series Seed Plus Preferred
Stock — On April 11, 2019, the Company sold
2,666,507 shares of Series Seed Plus Preferred Stock, $0.0001 par
value per share (“Series Seed Plus Preferred Stock”)
for gross proceeds of $4,659,993. The stated value used for
conversion and other purposes (the “Series Seed Plus
Stated Value”) is $1.7476 per share of Series Seed Plus
Preferred Stock. As of December 31, 2019, Series Seed Plus
Preferred Stock issued and outstanding shares is
2,666,507.
The
rights and privileges of the Company’s non-redeemable
convertible preferred stock are as follows:
Voting: Preferred stockholders are entitled to vote on all
matters and to the number of votes equal to the number of shares of
common stock into which each share of Preferred Stock is then
convertible. Holders of Preferred Stock vote together with the
holders of Common Stock as a single class.
Dividends: Stockholders
are entitled to dividends when and as declared by the Board of
Directors.
Conversion Rights: Each share of
Preferred Stock may be converted at any time, at the option of the
holder, into the number of fully-paid and non-assessable shares of
Common Stock obtained by dividing the Preferred Stock Stated Value
by the conversion price (the “Stock Conversion Price”),
as defined. The Founders Preferred Stock Conversion Price is
$0.925549 per share. The Series Seed Preferred Stock
Conversion Price is $1.150, and the Series Seed Plus Stock
Conversion Price is $1.7476 per share. Any accrued but unpaid
dividends through the date of any conversion shall be paid in
cash.
Each
share of Preferred Stock will automatically be converted into
shares of Common Stock at its then effective Conversion Price upon
(a) an underwritten public offering pursuant to an effective
registration statement or (b) upon a vote of the holders of at
least 60% of the shares of Preferred Stock then outstanding. Upon a
qualified public offering, Preferred Stock holders would receive
Common Stock at the effective conversion rate.
Liquidation Preference: In the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Company each
outstanding share of Preferred Stock shall be entitled to receive
out of assets of the Company available for distribution to
stockholders, and before any payments to holders
of Common Stock, an amount in cash equal to the respective original
issuance price plus any accrued but unpaid dividends. The
liquidation preference is as follows:
●
Founder Preferred
Stock $0.925549 per share
●
Series Seed
Preferred Stock $1.150 per share
●
Series Seed
Plus Preferred Stock, $1.7476 per share
In
the event of the merger or consolidation of the Company or the
sale, conveyance, or lease of all or substantially all of the
assets of the Company (referred to collectively as a “Deemed
Liquidation”) each holder of Preferred Stock shall have the
right to a distribution in an amount determined equal to the
original issuance price plus any accrued but unpaid
dividends.
Dividend Declared— The
Company’s Board of Directors has not declared any dividends
as of December 31, 2019
or 2018.
16
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
10.
STOCK
COMPENSATION
Stock Options — In March
2018, the Company’s Board of Directors adopted the 2018 Stock
Option and Grant Plan (“Plan”). The Plan provides for
the discretionary grant of incentive stock options, non-qualified
stock options, restricted stock awards, restricted stock unit
awards, stock appreciation rights, and other forms of equity
compensation (collectively, the “stock
awards”).
The
Plan, as amended, permits the granting of stock awards up to
3,702,424 shares of common stock. As of December 31,
2019, 727,085 shares were
available for future issuance.
Under
the Plan, equity awards generally vest over a four year period,
having a 25% one year cliff vest, with the remaining shares vesting
monthly over a three year period, provided the employee remains
continuously employed. The options generally have a term of ten
years.
Stock-based
compensation expense reflects the fair value of stock-based awards
measured at the grant date. Options granted under the Plan are
exercisable at a price per share not less than the fair market
value of the underlying common stock on the date of grant. The
estimated fair value of options, including the effect of estimated
forfeitures, is recognized on a straight-line basis over the
vesting period of the options.
The
fair value of the Company’s stock is determined by the
Company’s management and approved by the Board of Directors.
In the absence of a public trading market for the Company’s
stock, the Company’s management and Board of Directors
consider objective and subjective factors in determining the fair
value of the Company’s stock, including a fair value analysis
prepared by an independent third-party valuation firm, dividend
rights, and voting control attributable to the Company’s
then-outstanding stock, primarily, and the likelihood of achieving
a liquidity event such as an initial public offering or sale of the
Company.
The
fair value of the stock options granted is estimated using a
Black-Scholes option valuation model, which incorporates
assumptions as to stock price volatility, the expected life of
options, a risk-free interest rate, and dividend yield. The
following weighted average assumptions were used in determining the
fair value of stock options granted during the years ended December
31, 2019 and 2018:
|
2019
|
2018
|
Expected
volatility
|
36.4%-38.4%
|
38.1%-39.8%
|
Risk-free interest
rate
|
1.5%-2.6%
|
2.6%-3.0%
|
Expected life (in
years)
|
6.25
|
6.25
|
Expected dividend
yield
|
0%
|
0%
|
Weighted average
grant date fair value per share
|
$0.40-$0.44
|
$0.40
|
For
each stock option award, the expected life in years is based on the
midpoint of the term of the award and the vesting period of the
award as the Company lacks any historical Company specific
activity. Expected volatility is based on historical volatility of
the common stock of comparable companies, and the risk-free
interest rate is based on the U.S. Treasury yield curve for the
period that is commensurate with the expected life at the time of
grant. The Company does not pay cash dividends regularly on
its common stock and does not anticipate doing so for the
foreseeable future. Accordingly, the expected dividend yield is
zero.
17
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
A
summary of stock option activity under the plan, for the years
ended December 31, 2019 and 2018 is as follows:
|
Number of
Options
|
Weighted Average
Exercise Price
|
Options
Outstanding, December 31, 2017
|
-
|
$-
|
|
|
|
Options
Granted
|
1,334,235
|
0.40
|
Options
Canceled/Forfeited
|
(8,750)
|
0.40
|
Options
Exercised
|
-
|
0.40
|
Options Exercised
in exchange for non-recourse promissory notes
|
(300,000)
|
0.40
|
Options
Outstanding, December 31, 2018
|
1,025,485
|
$0.40
|
|
|
|
Options
Granted
|
1,856,854
|
0.44
|
Options
Canceled/Forfeited
|
(207,000)
|
0.40
|
Options
Exercised
|
(227,854)
|
0.42
|
Options Exercised
in exchange for non-recourse promissory notes
|
(1,016,554)
|
0.42
|
Options
Outstanding, December 31, 2019
|
1,430,931
|
$0.43
|
|
|
|
Options exercisable
at December 31, 2019
|
1,055,053
|
$0.40
|
Options exercisable
at December 31, 2018
|
516,360
|
$0.40
|
The
weighted-average fair value of options granted during the years
ended December 31, 2019 and 2018 was $0.18 and $0.17,
respectively.
The
following table summarizes information about stock options
outstanding at December 31, 2019:
Options Vested and Expected to Vest
|
Options Exercisable
|
|||||
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Weighted
|
Average
|
|
Weighted
|
Average
|
Range
of
|
Number
of
|
Average
|
Remaining
|
Number
of
|
Average
|
Remaining
|
Exercise
|
Options
|
Exercise
|
Contractual
|
Options
|
Exercise
|
Contractual
|
Price
|
Outstanding
|
Price
|
Life
(Years)
|
Exercisable
|
Price
|
Life
(Years)
|
$0.40
|
439,931
|
$0.40
|
8.36
|
1,045,804
|
$0.40
|
8.20
|
$0.44
|
991,000
|
$0.44
|
9.51
|
9,249
|
$0.44
|
9.10
|
|
1,430,931
|
$0.43
|
9.16
|
1,055,053
|
$0.40
|
8.21
|
Total
unrecognized stock-based compensation expense, related to unvested
stock options amounted to approximately $187,762 at
December 31, 2019. The cost is expected to be recognized over
a weighted average period of 2.64 years. The total intrinsic value of
options exercised in 2019 and 2018 totaled approximately $313,912
and $66,000, respectively.
18
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
On
December 28, 2018, an employee exercised 300,000 shares of stock
options for a fair value of $120,000. The Company received a
promissory note from the employee for $120,000 in relation to the
issuance of the shares. Interest accrues annually on the note at
4.0%. The Company determined that this promissory note represented
a non-recourse note and as such, the associated note balance and
shares were not considered outstanding and are treated as stock
options for accounting purposes. Because the employee is not
required to provide future service, whereby the employee can repay
the note at any time and keep the shares, the Company recognized
the full value of the option as compensation cost on the issuance
date. As of December 31, 2019, the principal value and accrued
interest remains unpaid.
In
April 2019, two employees exercised an aggregate of 416,554 shares
of stock options for a fair value of $166,622. The Company received
promissory notes from the employees for that aggregated $166,622 in
relation to the issuance of the shares. Interest accrues annually
on the note at 4.0%. The Company determined that this promissory
note represented a non-recourse note and as such, the associated
note balance and shares were not considered outstanding and are
treated as stock options for accounting purposes. Because the
employees are not required to provide future service, whereby the
employees can repay the note at any time and keep the shares, the
Company recognized the full value of the option as compensation
cost on the issuance date. As of December 31, 2019, the principal
value and accrued interest remains unpaid.
On
December 20, 2019, an employee exercised 600,000 shares of stock
options for a fair value of $264,000. The Company received a
promissory note from the employee for $264,000 in relation to the
issuance of the shares. Interest accrues annually on the note at
4.0%. The Company determined that this promissory note represented
a non-recourse note and as such, the associated note balance and
shares were not considered outstanding and are treated as stock
options for accounting purposes. Because the employee is not
required to provide future service, whereby the employee can repay
the note at any time and keep the shares, the Company recognized
the full value of the option as compensation cost on the issuance
date. As of December 31, 2019, the principal value and accrued
interest remains unpaid.
Restricted Stock — On March 5,
2018 upon the conversion from an LLC to a C-Corporation, the
Company granted 2,598,997 shares of restricted common stock to
seven employees in exchange for their 2,405,500 of Class Custodian
Units in the LLC. On the date of grant, the fair value was
approximately $1,065,089. Under the terms of the grant, the shares,
which are subject to forfeiture, began vesting as of March 5, 2018.
For six of the employees, vesting is 33% upon the first-year
anniversary date and then ratable monthly vesting for the remaining
two years. The seventh employee has vesting monthly over 30 months.
During the years ended December 31, 2019 and 2018,
1,045,139 and 678,177
shares, respectively, with a total fair value of approximately
$428,507 and $278,053, respectively, had vested.
On
March 8, 2018 and August 1, 2018, the Company granted 700,000 and
41,284 shares, respectively, of restricted stock to two consultants
with a grant date fair value of approximately $303,926. Under the
terms of the grant, the shares, which are subject to forfeiture,
begin vesting on their grant dates. The 700,000 share grant vests
over 30 months, and the 41,284 share grant vests immediately.
During the years ended December 31, 2019 and 2018,
243,209 and 216,283
shares, respectively, with a total fair value of approximately
$99,716 and $88,676, respectively, had vested. During the year
ended December 31, 2019, 84,274 shares were forfeited and had a
fair value of $34,552.
On
December 27, 2018, the Company granted 536,692 shares to the
sellers of MCP Networks (Note 2). Of the 536,692 shares, 359,584
shares were considered compensation related to their employment
with the Company while 177,108 shares were deemed purchase price
consideration for the acquisition of MCP Networks. The shares vest
33% upon the grant date and 67% vests ratably over four years.
During the year ended December 31, 2019 of the 359,584 shares,
134,174 shares with a total fair value of approximately $55,011 had
vested. During the year ended December 31, 2018 of the 359,584
shares, no shares vested.
19
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
A
summary of restricted stock award activity for the years ended
December 31, 2019 and 2018 is as follows:
|
Number of Shares
Underlying Restricted Stock
|
Weighted Average
Grant Date
Fair
Value
|
Nonvested at
December 31, 2017
|
-
|
$-
|
Granted
|
3,876,973
|
0.41
|
Vested
|
(1,071,568)
|
0.41
|
Forfeited
|
-
|
-
|
Nonvested at
December 31, 2018
|
2,805,405
|
$0.41
|
Granted
|
|
|
Vested
|
(1,422,522)
|
0.41
|
Forfeited
|
(84,274)
|
0.41
|
Nonvested at
December 31, 2019
|
1,298,609
|
$0.41
|
Total
unrecognized stock-based compensation expense, related to unvested
restricted stock amounted to approximately $521,744 at
December 31, 2019. The cost is expected to be recognized over
a weighted average period of 1.07 years.
The
following table summarizes stock-based compensation expense in
costs of revenue and expenses for the years ended December 31, 2019
and 2018:
|
2019
|
2018
|
|
|
|
Cost of
revenue
|
$16,616
|
$6,184
|
Sales and
marketing
|
43,420
|
78,473
|
Research and
development
|
81,666
|
93,729
|
General &
administrative
|
610,811
|
384,895
|
Total
|
$752,513
|
$563,281
|
|
|
|
20
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
11.
INCOME
TAXES
The
Company did not record an income tax provision or benefit due to
operating losses incurred for the years ended December 31, 2019 and
2018.
The
components of the Company’s deferred income taxes as of
December 31, 2019 and 2018 are as follows:
|
2019
|
2018
|
|
|
|
Net
operating loss carryforwards
|
$1,488,909
|
$579,782
|
Research
and development tax credit carryforwards
|
248,676
|
87,542
|
|
|
|
Stock-based
compensation
|
261,364
|
131,652
|
Other
temporary differences
|
41,688
|
13,592
|
|
|
|
Gross
deferred tax assets
|
2,040,637
|
812,568
|
Valuation
allowance
|
(2,040,637)
|
(812,568)
|
Net
deferred tax assets (non-current)
|
$-
|
$-
|
At December 31, 2019, the Company had federal net
operating loss carry forwards of approximately $6,278,000, which
may be carried forward indefinitely and state net operating loss
carryforwards of approximately $4,294,000, which will begin to
expire in 2028. In addition, the Company has federal tax
credit carryforwards of approximately $248,000, which will begin to
expire in 2038. The use of the Company’s net operating loss
and tax credit carryforwards may be restricted in the future due to
changes in company ownership.
At December 31, 2019, the Company
maintained a full valuation allowance against its deferred tax
asset as a result of the
evidence associated with historical operating losses and
uncertainty surrounding future income. The valuation allowance
maintained against the Company’s deferred tax assets
increased by $1.2 million and $812,000 during the years ended
December 31, 2019 and 2018,
respectively. The increase is primarily attributable to the
operating loss incurred and tax credits generated during the
year.
The Company accounts for uncertain tax positions
recognized in the financial statements in accordance
with the provisions of ASC Topic
740, Income
Taxes, by prescribing a
more-likely-than-not threshold for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. When
uncertain tax positions exist, the Company recognizes the tax
benefit of tax positions to the extent that the benefit will more
likely than not be realized. As of January 31, 2020,
the Company has not identified any uncertain tax positions for
which reserves would be required. The Company includes interest and
penalties related to uncertain tax positions as a component of its
provision for taxes. As of December 31, 2019 and 2018, the Company
had no accrued interest and penalties recorded in its balance
sheets.
The Company files
a U.S. federal income tax return and various state returns.
The Company’s income tax returns are
open for review by taxing authorities back to its year ending
December 31, 2017. The U.S. federal returns have been audited
through 2017. State returns are generally open for tax years 2017
to 2019. The Company was under audit by the U.S. Internal Revenue
Service for federal returns filed for the year 2017. On December
15, 2020, the Company received a confirmatory letter stating that
the audit was closed with no adjustments required to the federal
returns.
12.
COMMITMENTS
AND CONTINGENCIES
Litigations and other legal matters --
From time to time, the Company may become involved in various legal
matters arising in the ordinary course of business. Management does
not believe that any claims exist as of December 31, 2019 which
will have a material adverse effect on the financial condition of
the Company based on the nature and status of
proceedings.
21
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
13.
EMPLOYEE
BENEFIT PLAN
The
Company participates in a multi-employer, qualified contributory
retirement plan established to qualify as a deferred salary
arrangement under Section 401(k) of the Internal Revenue
Code (the “Code”). The Plan covers all Company
employees who are at least 21 years of age and located within
the United States. Employees may elect to contribute a portion of
their total eligible compensation, subject to the Code’s
limitations. The Company does not provide for matching
contributions.
On
January 1, 2020, the Company established its own qualified
contributory retirement plan with deferred salary arrangement under
Section 401(k) of the Code.
14.
RELATED
PARTY TRANSACTIONS
The
Company’s operating lease for its Manchester, NH office as
described in Note 7 is leased from an affiliate entity that is
owned by the Company’s executive chairman. The Company made
payments of $26,976 and $24,816 during the years ended December 31,
2019 and 2018, respectively, under this agreement.
The
Company’s executive chairman’s management firm employed
a workforce, negotiated contracts and maintained relationships with
vendors, and administered vendor payments on behalf of the Company.
The Company made payments of $54,766 and $619,204 during the years
ended December 31, 2019 and 2018, respectively.
On July
25, 2019, the Company entered into an agreement with Zoom
Telephonics, Inc. (“Zoom”), together with a related
Statement of Work, License, Collaborative Agreement,
Software/Service Availability Agreement and Software/Service
Support Level Agreement (collectively, the
“Agreement”). Under the Agreement, Zoom will integrate
the Company’s software and services into certain hardware
products distributed by Zoom, and the Company will be entitled to
certain fees and a portion of revenue received from the end users
of such services and software. The Company and Zoom entered into an
additional Statement of Work on December 31, 2019 providing for
further integration of the Company’s services, with a monthly
minimum payable by Zoom to the Company starting January 2020 for a
period of thirty-six months and a requirement for the Company to
purchase at least $90,000 of Zoom’s hardware by December
2022. See Note 15.
Jeremy
Hitchcock, who serves as Chairman of the Company’s Board of
Directors and is co-founder of the Company, is a shareholder of
Zoom and subsequently in February 2020 is the Chairman of
Zoom’s Board of Directors. During the year ended December 31,
2019, no payments were made by either the Company or Zoom under the
Agreement other than nominal payments, and no services were
provided or expenses incurred in connection with the Agreement. As
of December 31, 2019, no amounts were due from or to the Company
under the Agreement.
22
MINIM INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND
2018
15.
SUBSEQUENT
EVENTS
For
purposes of recognition and disclosure in these financial
statements, Management of the Company has evaluated subsequent
events through February 17, 2021, which is the date these financial
statements were issued.
In
January 2020, the Company paid $50,000 of the deferred purchase
price of MCP Networks. During the deferral period, no
indemnification claims arose that warranted reducing the deferred
purchase price.
On
March 18, 2020, the Company amended its Certificate of
Incorporation (the “Amendment”) by increasing the
authorized shares of Preferred Stock and Common Stock to 8,046,756
and 15,000,000, respectively. The increase of authorized Preferred
Stock is designated to the Series Seed Plus Preferred, which has
3,441,854 of shares under the Amendment.
On
March 18, 2020, the Company sold 715,266 shares of Series Seed Plus
Preferred Stock to an investor for exchange of $1,249,999 in cash
proceeds.
On
April 21, 2020, the Company amended its 2018 Stock Option and Grant
Plan, whereby reserved shares were increased from
3,702,424 shares to 4,484,204 shares. For the year ended
December 31, 2020, the Company had the following stock option
activity:
●
Stock option grants
of 985,608 with a weighted average exercise price of
$0.45
●
Stock option
exercises of 210,767 shares for net settlement proceeds of
$48,674
●
Stock option
forfeitures of 114,273 shares
The
Company applied for and received approval for a Small Business
Administration (“SBA”) Paycheck Protection Plan Loan
with Primary Bank under the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”). The loan from the US
government in the amount of $554,500 was approved and funded in
April 2020 and has a 1% interest rate. The Company submitted an
application for forgiveness of this loan in September 2020 and
received forgiveness in November 2020 on the total outstanding
principal and accrued interest, which was $3,311.
On
November 12, 2020, the Company executed an Agreement and Plan of
Merger (the “Merger Agreement”) with Zoom, a public
company and registrant of the U.S. Securities and Exchanges
Commission. Upon closing of the Merger Agreement, Minim merged into
Elm Acquisition Sub, Inc., which is a wholly owned subsidiary of
Zoom. Minim is the surviving entity of the merger between Minim and
Elm Acquisition Sub, Inc. Upon the merger, all property, assets,
other legal rights, debts, obligations, and all other liabilities
of Minim transferred. The Agreement is structured as a non-cash,
stock transaction. The shareholders of Minim received shares of
Zoom, at a value of $30 million. On December 4, 2020, the Merger
Agreement was effective.
On
November 20, 2020, the Company repurchased 33,809 shares of common
stock for $14,876 from a shareholder who is an immediate family
member to the Company’s executive chairman of the
Board.
In
connection with the Merger Agreement, the Convertible Promissory
Notes were converted on December 3, 2020 to 148,006 shares of the
Company’s Common Stock.
In
connection with the Merger Agreement, the $550,622 of the aggregate
promissory notes issued to employees during 2019 and 2018 in
exchange for common stock shares were repaid in full. Of the
$550,622, the Company net settled $234,622, which represented
103,842 common stock shares.
On the
effective date of the Merger Agreement, the Company had 7,986,675
and 5,476,171 shares of Preferred Stock and Common Stock,
respectively, outstanding. The 7,986,675 shares of Preferred Stock
were converted into the Company’s Common Stock at an exchange
ratio of 1:1, or 7,986,675 shares of Common Stock. The aggregate
13,462,846 shares of Common Stock were converted into Zoom common
stock at an exchange ratio of 0.80106, or 10,784,534
shares.
In
addition, the holders of Minim stock options were similarly
converted to Zoom’s stock options at an exchange ratio of
0.80106. As of December 4, 2020, the Company had 2,091,499 options
outstanding and were converted into 1,675,416 stock options of
Zoom.
23