FiEE, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS MINIM, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets March 31, 2024 (Unaudited) December 31, 2023 ASSETS Current assets Cash and cash equivalents $ 1,027,057 $ 709,322 Accounts receivable, net of allowance of doubtful accounts of $ 283,242 and $ 312,983 as of March 31, 2024 and December 31, 2023, respectively 21,735 701,377 Inventories, net - 9,952,647 Prepaid expenses and other current assets 28,832 35,768 Total current assets 1,077,624 11,399,114 Equipment, net 346,729 432,505 Operating lease right-of-use assets, net 9,061 22,512 Intangible assets, net 28,910 33,247 Other assets 40,445 472,587 Total assets $ 1,502,769 $ 12,359,965 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 398,786 $ 11,143,693 Current maturities of operating lease liabilities 9,061 22,512 Accrued expenses 1,011,679 1,077,843 Total current liabilities 1,419,526 12,244,048 Total liabilities 1,419,526 12,244,048 Commitments and Contingencies (Note 7) Stockholders’ equity Preferred Stock, authorized: 10,000,000 shares at $ 0.001 par value; 2,000,000 shares issued and outstanding 1,358,573 - Common Stock, authorized: 60,000,000 shares at $ 0.01 par value; issued and outstanding: 2,809,689 shares at March 31, 2024 and 2,632,809 shares at December 31, 2023 respectively 481,104 479,335 Additional paid-in capital 93,971,299 92,105,360 Accumulated deficit ( 95,727,733 ) ( 92,468,778 ) Total stockholders’ equity 83,243 115,917 Total liabilities and stockholders’ equity $ 1,502,769 $ 12,359,965 See accompanying notes to condensed consolidated financial statements. 1 MINIM, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2024 2023 Net sales $ 639,893 $ 10,751,785 Cost of goods sold 432,634 8,142,580 Gross profit 207,259 2,609,205 Operating expenses: Selling and marketing 21,037 3,723,812 General and administrative 1,018,516 1,326,464 Research and development 72,430 1,484,399 Vendor liability forgiveness, net of asset transfers (Note 7) 2,364,955 - Total operating expenses 3,476,938 6,534,675 Operating loss ( 3,269,679 ) ( 3,925,470 ) Other expense: Interest income (expense), net 62 ( 144,987 ) Total other income (expense) 62 ( 144,987 ) Loss before income taxes ( 3,269,617 ) ( 4,070,457 ) Income tax benefit 10,662 - Net loss $ ( 3,258,955 ) $ ( 4,070,457 ) Basic and diluted net loss per share $ ( 1.18 ) $ ( 2.16 ) Weighted average common and common equivalent shares: Basic and diluted 2,770,382 1,880,185 See accompanying notes to condensed consolidated financial statements. 2 MINIM, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) For the three months ended March 31, 2024 Preferred Stock Common Stock Additional Paid In Accumulated Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2023 - $ - 2,632,809 $ 479,335 $ 92,105,360 $ ( 92,468,778 ) $ 115,917 Net loss - - - - - ( 3,258,955 ) ( 3,258,955 ) Preferred stock issuance 2,000,000 1,358,573 - - - - 1,358,573 Issuance of warrants - - - - 1,441,427 - 1,441,427 Stock-based compensation - - 176,880 1,769 424,512 - 426,281 Balance at March 31, 2024 2,000,000 $ 1,358,573 2,809,689 $ 481,104 $ 93,971,299 $ ( 95,727,733 ) $ 83,243 For the three months ended March 31, 2023 Preferred Stock Common Stock Additional Paid In Accumulated Shares Amount Shares Amount Capital Deficit Total Balance at December 31, 2022 - $ - 1,877,970 $ 469,492 $ 90,710,030 $ ( 74,834,854 ) $ 16,344,668 Net loss - - - - - ( 4,070,457 ) ( 4,070,457 ) Common stock issued for vested restricted units - - 9,565 2,391 ( 2,391 ) - - Stock-based compensation - - - - 123,500 - 123,500 Balance at March 31, 2023 - $ - 1,887,535 $ 471,883 $ 90,831,139 $ ( 78,905,311 ) $ 12,397,711 See accompanying notes to condensed consolidated financial statements. 3 MINIM, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows used in operating activities: Net loss $ ( 3,258,955 ) $ ( 4,070,457 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 103,545 229,423 Amortization of right-of-use assets 13,451 39,409 Amortization of debt issuance costs - 15,188 Stock based compensation 426,281 123,500 Provision for accounts receivable allowances ( 29,741 ) 71,379 Vendor liability forgiveness, net of asset transfers 2,364,954 - Changes in operating assets and liabilities: Accounts receivable 709,383 ( 507,733 ) Inventories 404,299 2,648,710 Prepaid expenses and other current assets 6,936 ( 81,248 ) Other assets 15,184 8,410 Accounts payable ( 3,157,987 ) 2,498,991 Accrued expenses ( 66,164 ) 288,307 Deferred revenue - 121,401 Operating lease liabilities ( 13,451 ) ( 39,409 ) Net cash provided by (used in) operating activities ( 2,482,265 ) 1,345,871 Cash flows from investing activities: Purchases of equipment - ( 6,330 ) Certification costs capitalized - ( 122,120 ) Net cash used in investing activities - ( 128,450 ) Cash flows from financing activities: Net proceeds from the bank credit line - ( 945,441 ) Proceeds from preferred stock issuance 2,800,000 - Net cash provided by financing activities 2,800,000 ( 945,441 ) Net increase in cash and cash equivalents 317,735 271,980 Cash and cash equivalents - Beginning 709,322 1,030,110 Cash and cash equivalents - Ending $ 1,027,057 $ 1,302,090 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ - $ 103,950 Income taxes $ - $ - Cash is reported on the condensed consolidated statements of cash flows as follows: Cash and cash equivalents $ 1,027,057 $ 802,090 Restricted cash - 500,000 Total cash, cash equivalents and restricted cash $ 1,027,057 $ 1,302,090 See accompanying notes to condensed consolidated financial statements. 4 MINIM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION Minim, Inc. and its wholly owned subsidiaries, MME Sub 1 LLC, Cadence Connectivity, Inc., MTRLC LLC, and Minim Asia Private Limited, are herein collectively referred to as “Minim” or the “Company”. The Company delivers intelligent networking products that reliably and securely connect homes and offices around the world. We were the exclusive global license holder to the Motorola brand for home networking hardware until 2023. The Company designs and manufactures products including cable modems, cable modem/routers, mobile broadband modems, wireless routers, Multimedia over Coax (“MoCA”) adapters and mesh home networking devices. Our AI-driven cloud software platform and applications make network management and security simple for home and business users, as well as the service providers that assist them— leading to higher customer satisfaction and decreased support burden. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. All intercompany balances and transactions have been eliminated in consolidation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of the Company’s operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods. On April 17, 2023, the Company effected a 25:1 reverse stock split for each share of common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the stock split. Liquidity The Company’s operations have historically been financed through the issuance of common stock and borrowings. Since inception, the Company has incurred significant losses and negative cash flows from operations. During the three months ended March 31, 2024, the Company incurred a net loss of $3.3 3,258,955 million, and used cash from operations of $2.5 2,482,265 million, which was offset by $2.8 2,800,000 million in cash provided from financing activities. As of March 31, 2024, the Company had an accumulated deficit of $95.7 95,727,733 million and cash and cash equivalents of $1.0 1,027,057 million. The Company will continue to monitor its costs in relation to its sales and adjust its cost structure accordingly. Management of the Company believes it will not have sufficient resources to continue as a going concern through at least one year from the issuance of these financial statements. 5 Merger Agreement with e2 Companies, LLC On March 12, 2024, the “Company”, and its wholly owned subsidiary, MME Sub 1 LLC, a Florida limited liability company (“Merger Sub”), formed in March 2024, entered into an Agreement and Plan of Merger (“Merger Agreement”) with e2Companies LLC, a Florida limited liability company (“e2Companies”). Pursuant to the Merger Agreement, Merger Sub will merge with and into e2Companies, with e2Companies remaining as the surviving entity (the “Merger”). Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), holders of the outstanding common units of e2Companies (“e2 Shares”) will receive such number of shares of common stock, par value $0.01 per share, of the Company (“Company Shares”) representing 97% of the issued and outstanding Company Shares (on a fully-diluted basis). Pursuant to the terms of the Merger Agreement, the Company has agreed to appoint, upon the Effective Time, two individuals selected by the Company to the Company’s board of directors. The Merger Agreement contains representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Merger is conditioned upon, among other things, (i) the Company Shares to be issued in the Merger (“Merger Consideration”) being approved for listing on the Nasdaq Capital Market (“Nasdaq”), (ii) the effectiveness of a registration statement on Form S-4 registering the Merger Consideration; (iii) any waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will have expired or been terminated; and (iv) the consent or approval of the Company’s stockholders, as applicable, of (a) the Merger, (b) the issuance of the Merger Consideration, and (c) an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to among other things, change the Company’s name to e2Companies, Inc. following the Merger (the “Stockholder Approvals”). The Merger Agreement may be terminated under certain customary and limited circumstances prior to the closing including by the mutual consent of the Company and e2Companies if the closing has not occurred by June 15, 2024. The Merger Agreement is subject to the right of either party to obtain a 30 day extension, and including, but not limited to, Stockholder Approvals having not been obtained, Company Shares being delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), upon uncured breaches of representations, warranties and covenants or if a court of competent jurisdiction permanently restrains the Merger from occurring. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023. The Company’s significant accounting policies did not change during the three months ended March 31, 2024. Recently Issued Accounting Standards There have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows . (3) REVENUE AND OTHER CONTRACTS WITH CUSTOMERS Revenue recognized for each distinct performance obligation as control is transferred to the customer. Revenue attributable to hardware products bundled with Software-as-a-Service (“SaaS”) offerings are recognized at the time control of the product transfers to the customer. The transaction price allocated to the SaaS offering is recognized ratably beginning when the customer is expected to activate their account and over a three-year period that the Company has estimated based on the expected replacement of the hardware. 6 Transaction Price Allocated to the Remaining Performance Obligations The remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced. Contract costs The Company recognizes the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company has determined that certain sales commissions meet the requirements to be capitalized, and the Company amortizes these costs on a consistent basis with the pattern of transfer of the goods and services in the contract. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets on our condensed consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is one year or less. These costs include sales commissions on SaaS contracts with a contract period of one year or less as sales commissions on contract renewals are commensurate with those paid on the initial contract. Contract Balances The Company records accounts receivable when it has an unconditional right to the consideration. The Company did no t have contract liabilities at March 31, 2024 and December 31, 2023. Disaggregation of Revenue The following table sets forth our revenues by distribution channel: Schedule of disaggregation of revenue by distribution channel Three Months Ended March 31, 2024 2023 Retailers $ 638,904 $ 10,281,349 Distributors - 44,964 Other 989 425,472 $ 639,893 $ 10,751,785 The following table sets forth our revenues by product: Three Months Ended March 31, 2024 2023 Cable modems & gateways $ 638,804 $ 10,574,055 Other networking products 1,089 91,631 SaaS - 86,099 $ 639,893 $ 10,751,785 7 (4) BALANCE SHEET COMPONENTS Inventories Inventories, net consists of the following: Schedule of inventories March 31, 2024 December 31, 2023 Materials $ - $ 210,318 Work in process - 1,640,347 Finished goods - 8,101,982 Total $ - $ 9,952,647 The Company did no t have consigned inventory held by our customers or in-transit inventory at March 31, 2024 and December 31, 2023. The Company reviews inventory for obsolete and slow-moving products each quarter and makes provisions based on its estimate of the probability that the material will not be consumed or that it will be sold below cost. The inventory reserves were $ 0 million and $ 1.7 million as of March 31, 2024 and December 31, 2023, respectively. Accrued expenses Accrued expenses consist of the following: Schedule of accrued expenses March 31, 2024 December 31, 2023 Payroll & related benefits $ 141,559 $ - Professional fees 104,947 229,950 Board of director fees 173,000 - Sales allowances 26,905 697,884 Sales and use tax 150,009 150,009 Vendor contingent payments (Note 7) 415,259 - Total accrued other expenses $ 1,011,679 $ 1,077,843 (5) BANK CREDIT LINES AND GOVERNMENT LOANS Bank Credit Line On March 12, 2021, the Company terminated its Financing Agreement and entered into a loan and security agreement with Silicon Valley Bank (the “SVB Loan Agreement”). On November 1, 2021, the Company entered into the first amendment to the SVB Loan Agreement (the “First Amendment”). The SVB Loan Agreement, as amended, provides for a revolving facility up to a principal amount of $ 25.0 million. The borrowing base equals the sum of (a) 85.0 percent of eligible customer receivables, plus (b) the least of (i) 60 percent of the value of eligible inventory (valued at cost), (ii) 85% of the net orderly liquidation value of inventory, and (iii) $6.2 million in each, as determined by SVB from the Company’s most recent borrowing base statement; provided that SVB has the right to decrease the foregoing percentages in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the collateral or its value. The SVB Loan Agreement is secured by substantially all of the Company’s assets but excludes the Company’s intellectual property. Loans under the credit facility bear interest at a rate per annum equal to (i) at all times when a streamline period is in effect, the greater of (a) one-half of one percent (0.50%) above the Prime Rate or (b) three and three-quarters of one percent (3.75%) and (ii) at all times when a streamline period is not effect, the greater of (a) one percent (1.0%) above the Prime Rate and (b) four and one-quarter of one percent (4.25%). 8 On December 12, 2022, the Company entered into its second Amendment to the SVB Loan Agreement (the “Second Amendment”). The Second Amendment (i) reduced the aggregate amount available under the revolving credit line from $ 25 million to $ 10 million, (ii) extends maturity to January 15, 2024, and (iii) provides a waiver for an existing default under the SVB Loan Agreement by virtue of the Company having entered into a Bridge Loan and Security Agreement dated as of November 23, 2022 by and among Borrower and Slingshot Capital, LLC, under which Borrower incurred certain Indebtedness and granted a Lien to Slingshot Capital. The Company incurred $ 143 thousand in origination costs in connection with entering into the SVB Loan Agreement. These origination costs were recorded as a debt discount and are being expensed over the remaining term of the facility. Amortization of debt issuance costs was $ 0 thousand and $ 15 thousand for the three months ended March 31, 2024 and 2023, respectively. On October 18, 2023, the Company paid in full the outstanding balance and immediately terminated the SVB Loan Agreement. As of March 31, 2024 and December 31, 2023, the Company had $ 0 outstanding under the SVB Loan Agreement. Covenants The SVB Loan Agreement included a minimum interest expense of $ 20 thousand per month. The First Amendment required the Company to maintain certain levels of minimum adjusted EBITDA, which were tested on the last day of each calendar quarter and measured for the trailing 3-month period ending on the last day of each quarter. The Second Amendment removed the minimum EBITDA covenants. In addition, pursuant to the SVB Loan Agreement, the Company cannot pay any dividends without the prior written consent of SVB. Bridge Loan On November 30, 2022 (the “Effective Date”), the Company and Slingshot Capital, LLC (“Slingshot Capital”) entered into a Bridge Loan Agreement (the “Bridge Loan Agreement”) pursuant to which Slingshot Capital agreed to make available a bridge loan in the principal amount up of up to $ 1,500,000 . In conjunction with the Bridge Loan Agreement, the Company executed a bridge term note (the “Bridge Term Note”) in favor of Slingshot Capital. The Company has drawn down $ 1,000,000 under the Bridge Loan Agreement. Subject to Slingshot Capital’s sole discretion, the other $ 500,000 may be drawn by the Company. Principal amounts borrowed under the Bridge Loan Agreement bear interest of 8.00% per annum for the period from the Effective Date until February 28, 2023. Unpaid principal after February 28, 2023 bear an interest of 14.00 % per annum until paid in full. In the event of default, all outstanding principal and interest shall bear interest at an annual rate of 18 % . In connection with the Bridge Loan Agreement, the Company, Slingshot Capital, and Silicon Valley Bank (the “Senior Lender”) executed a subordination agreement (the “Subordination Agreement”) on November 30, 2022. The Loan Agreement is subordinated to the outstanding indebtedness and obligations under the Company’s senior credit facility. Subject to the Senior Lender’s written consent, the Company shall grant Slingshot Capital a second-priority security interest in all of the Company’s collateral, which shall be subordinated to any and all security interests granted to the Senior Lender and at all times shall be limited to the same collateral granted to the Senior Lender under the senior credit facility. Principal and interest are not due and payable until the maturity date, which is January 15, 2024, unless the Company’s senior credit facility with the Senior Lender is paid in full in cash on an earlier date. The Company reimbursed Slingshot Capital $ 20,000 for its reasonable and documented expenses and fees related to the negotiations, documentation, and execution of the Bridge Loan Agreement, Subordination Agreement, and Bridge Term Note. 9 On December 6, 2023, the Company and Slingshot Capital entered into a Debt Conversion Agreement (“Conversion Agreement”) pursuant to which the Company agreed to issue 734,343 shares of the Company’s common stock (based on $ 1.533 per share) (the “Shares”) in exchange for the cancellation of a total principal amount of $ 1,000,000 (“Principal Amount”) outstanding under the Bridge Loan Agreement and Bridge Term Note (collectively, the “Loan Agreements”), with Slingshot Capital, plus $ 125,778 in accrued and unpaid interest on such Principal Amount as of December 6, 2023. The price per share used in the exchanged was determined by the weighted average price per share and trade volume on September 13, 2023 and November 28, 2023. Slingshot Capital is owned by the Company’s former Chairperson of the Board and a former Board of Director, Jeremy Hitchcock and Elizabeth Hitchcock, respectively. (6) Leases The Company has entered into agreements to lease certain office space as well as its former warehouses and distribution centers under operating leases. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Right-of-use (“ROU”) assets and lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less. The components of lease costs were as follows: Schedule of components of lease costs Three Months Ended March 31, 2024 2023 Operating lease costs $ 13,451 $ 40,253 Short-term lease costs 14,050 8,900 Total lease costs $ 27,501 $ 49,153 The weighted-average remaining lease term and discount rate were as follows: Schedule of weighted average remaining lease term and discount rate Three Months Ended March 31, 2024 2023 Operating leases: Weighted average remaining lease term (years) 0.2 0.9 Weighted average discount rate 5.0 % 3.8 % Supplemental cash flow information and non-cash activity related to our operating leases are as follows: Schedule of supplemental cash flow information related to operating leases Three Months Ended March 31, 2024 2023 Operating cash flow information: Amounts included in measurement of lease liabilities $ 13,676 $ 41,132 Non-cash activities: ROU asset obtained in exchange for lease liability $ - $ - 10 The maturity of the Company’s operating lease liabilities as of March 31, 2024 were as follows: Schedule of maturity of operating lease liabilities Years ended December 31, 2024 (remainder) $ 9,118 Total lease payments $ 9,118 Less: imputed interest ( 57 ) Present value of operating lease liabilities $ 9,061 Operating lease liabilities, current $ 9,061 Operating lease liabilities, noncurrent $ - ( 7) COMMITMENTS AND CONTINGENCIES (a) Commitments The Company was a party to a license agreement with Motorola Mobility LLC pursuant to which the Company has an exclusive license to use certain trademarks owned by Motorola Trademark Holdings, LLC for the manufacture, sale and marketing of consumer cable modem products, consumer routers, WiFi range extenders, MoCa adapters, cellular sensors, home powerline network adapters, and access points worldwide through a wide range of authorized sales channels. The license agreement had a term ending December 31, 2025 prior to its cancellation in 2023. In connection with the license agreement, the Company had committed to reserve a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. Additionally, the Company was required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments. Following the Company’s agreement with Motorola Mobility LLC on January 22, 2024, the Company’s quarterly royalty payments, in addition to current and future obligations, were satisfied in exchange for certain assets of the Company. Royalty expense under the License Agreement amounted to $ 0 and $ 1.7 million for the three months ended March 31, 2024 and 2023, respectively, and is reported in selling and marketing expense on the accompanying condensed consolidated statements of operations. On January 22, 2024, the Company, entered into a Letter Agreement re Product Purchase (the “Letter Agreement”) and a Debt Settlement Agreement (the “Settlement Agreement,” and the Letter Agreement, the “Agreements”) with Motorola Mobility, LLC (“Motorola”). Pursuant to the Letter Agreement, the Company (A) initially transferred a portion of its inventory to Motorola and (B) agreed to transfer the reminder of such inventory upon receipt of certain funding in order to satisfy liabilities owed to Motorola, while agreeing to continue to provide certain customer and technical support. Pursuant to the Settlement Agreement, the Company agreed (i) to pay Motorola a settlement amount of $1,167,071 and (ii) to transfer additional funds as collected from the Company’s customers in an amount up to $263,752. The Company believes that the Agreements, together with arrangements it has finalized with other major vendors, will allow the Company to streamline its operations while reducing its current liabilities. (b) Vendor Obligation Releases In its efforts to manage its liquidity and cash-flow position, the Company negotiated and executed liability release agreements with certain vendors in Q4 2023 who comprised $ 5.0 million of outstanding accounts payable as of December 31, 2023. In aggregate, the executed release agreements resulted in a reduction of outstanding accounts payable obligations by $3.6 million from $5.0 million to $1.4 million. The executed release agreements became effective and are contingent upon payment of the $ 1.4 million negotiated amounts received during the period of Q1 2024. In addition, the Company agreed to pay certain vendors an additional $ 0.4 million contingent upon successful collection of customer receivables. As of March 31, 2024, the contingent amount has not been paid and is accounted in accrued expenses on the accompanying condensed consolidated balance sheets. 11 (c) Contingencies The Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are without merit. The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If both criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses - that the amount is not material, or that an estimate of the loss cannot be made. At March 31, 2023, the Company is not currently a party to any legal proceedings that, if determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole. The Company expenses its legal fees as incurred. In the ordinary course of its business, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings in connection with their business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. Management believes that the Company has adequate legal defenses with respect to the legal proceedings to which it is a defendant or respondent, and that the outcome of these pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, the Company is unable to predict the outcome of these matters. (8) SIGNIFICANT CUSTOMER AND DEPENDENCY ON KEY SUPPLIERS Relatively few companies account for a substantial portion of the Company’s revenues. In the three months ended March 31, 2024, two companies, including a marketplace facilitator, accounted for 10% or greater individually and 100 % in the aggregate of the Company’s total net sales. At March 31, 2024, one company with an accounts receivable balance of 10% or greater individually accounted for 100 % of the Company’s accounts receivable. In the three months ended March 31, 2023, two companies, including a marketplace facilitator, accounted for 10% or greater individually and 88 % in the aggregate of the Company’s total net sales. At March 31, 2023, two companies with an accounts receivable balance of 10% or greater individually accounted for a combined 84 % of the Company’s accounts receivable. The Company’s customers generally do not enter into long-term agreements obligating them to purchase products. The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in orders from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company’s significant customers. The Company participates in the PC peripherals industry, which is characterized by aggressive pricing practices, continually changing customer demand patterns and rapid technological developments. The Company’s operating results could be adversely affected should the Company be unable to successfully anticipate customer demand accurately; manage its product transitions, inventory levels and manufacturing process efficiently; distribute its products quickly in response to customer demand; differentiate its products from those of its competitors or compete successfully in the markets for its new products. The Company depends on many third-party suppliers for key components contained in its product offerings. For some of these components, the Company may only use a single source supplier, in part due to the lack of alternative sources of supply. During the three months ended March 31, 2024, the Company did not have any concentration of suppliers. During the three months ended March 31, 2023, the Company had one supplier that provided 90 % of the Company’s purchased inventory. 12 (9) INCOME TAXES During the three months ended March 31, 2024, we recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated due to the uncertainty of realizing a benefit from those items. We have evaluated the positive and negative evidence bearing upon the Company’s ability to realize its deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We considered the history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and we have concluded that it is more likely than not that we will not realize the benefits of our deferred tax assets. As a result, as of March 31, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets. As of March 31, 2024 and December 31, 2023, the Company had federal net operating loss carry forwards of approximately $ 79.1 million and $ 76.9 million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts from 2025 to 2042. Federal net operating losses occurring after December 31, 2018, of approximated $ 38.5 million may be carried forward indefinitely. As of March 31, 2024 and December 31, 2023, the Company had state net operating loss carry forwards of approximately $ 47.9 million and $ 44.9 million, respectively, which are available to offset future taxable income. They are due to expire in varying amounts from 2033 through 2041. We recorded minimum state income taxes and taxes related to our operations in Mexico. For the three months ended March 31, 2024 and 2023, income tax expense (benefit) was $(11) 10,662 thousand and $ 0 thousand, respectively. (10) RELATED PARTY TRANSACTIONS The Company leases office space located at 848 Elm Street, Manchester, NH. The landlord is an affiliate entity owned by Mr. Hitchcock. The two-year facility lease agreement was effective from August 1, 2019, to July 31, 2021 and was extended to July 31, 2022. On July 18, 2022, the lease agreement was amended to a month-to-month lease arrangement and may be terminated by either party with a 60-day notice. The facility lease agreement provides for 2,656 square feet. For the three-months period ended March 31, 2024 and 2023, the rent expense was $ 14 thousand and $ 9 thousand, respectively. On November 30, 2022, the Company and Slingshot Capital, LLC (“Slingshot Capital”) entered into a Bridge Loan Agreement (the “Bridge Loan Agreement”) pursuant to which Slingshot Capital agreed to make available a bridge loan in the principal amount up of up to $ 1,500,000 . The Company has drawn down $ 1,000,000 under the Bridge Loan Agreement. Subject to Slingshot Capital’s sole discretion, the other $ 500,000 may be drawn by the Company. On December 6, 2023, the Company and Slingshot Capital entered into a Debt Conversion Agreement (“Conversion Agreement”) pursuant to which the Company agreed to issue 734,343 shares of the Company’s common stock (based on $ 1.533 per share) (the “Shares”) in exchange for the cancellation of a total principal amount of $ 1,000,000 (“Principal Amount”) outstanding under the Bridge Loan Agreement and Bridge Term Note (collectively, the “Loan Agreements”), with Slingshot Capital, plus $ 125,778 in accrued and unpaid interest on such Principal Amount as of December 6, 2023. The price per share used in the exchanged was determined by the weighted average price per share and trade volume on September 13, 2023 and November 28, 2023. Slingshot Capital is owned by the Company’s former Chairperson of the Board and a former Board Member, Jeremy Hitchcock and Elizabeth Hitchcock, respectively. 13 (11) EARNINGS (LOSS) PER SHARE Net loss per share for the three months ended March 31, 2024 and 2023, respectively, are as follows: Schedule of net income (loss) per share Three Months Ended March 31, 2024 2023 Numerator: Net loss $ ( 3,258,955 ) $ ( 4,070,457 ) Denominator: Weighted average common shares – basic 2,770,382 1,880,185 Effect of dilutive common share equivalents - - Weighted average common shares – dilutive 2,770,382 1,880,185 Basic and diluted net loss per share $ ( 1.18 ) $ ( 2.16 ) Diluted loss per common share for the three months ended March 31, 2024 and 2023 excludes the effects of 5,230,769 and 49,402 common share equivalents, respectively, since such inclusion would be anti-dilutive. The common share equivalents consist of shares of common stock issuable upon exercise of outstanding preferred stock, warrants, restricted stock units, and stock options. (12) EQUITY Preferred Stock and Warrants On January 23, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with David Lazar (“Lazar”), a member of our Board of Directors, whereby, at the closing of the transactions contemplated by the Purchase Agreement (the “Closing”), the Company sold and Lazar (or to any transferee of Lazar’s which acquires the Securities Purchase Rights, as defined below, hereinafter a “Lazar Transferee”) purchased two million 2,000,000 shares of the Company’s preferred stock, $ 0.001 par value per share (the “Preferred Stock”), at a price per share of $ 1.40 , for an aggregate purchase price of $ 2,800,000 , subject to the conditions described below, pursuant to the exemptions afforded by the Securities Act of 1933, as amended, and Regulation S thereunder. Under the Purchase Agreement, the Company agreed to designate 2,000,000 of the Preferred Stock as Series A Preferred Stock (the “Series A Preferred Stock”) for the sale to Lazar (or a Lazar Transferee). Each share of Series A Preferred Stock shall be convertible, at the option of the holder, into 1.4 shares of common stock of the Company, $.01 par value per share (the “Common Stock”), and vote on an “as-if-converted” basis and shall have full ratchet protection in any subsequent offerings. Pursuant to the Purchase Agreement, the Company shall also issue Lazar (or a Lazar Transferee) warrants to purchase up to an additional 2,800,000 shares of Common Stock, with an exercise price equal to $1.00 per share, subject to adjustment therein (the “Warrants”, and together with the Series A Preferred Stock, the “Purchased Securities”). The Company evaluated the Series A Preferred Stock and Warrants for liability or equity classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity , and determined that equity treatment was appropriate because neither the Series A Preferred Stock nor the Warrants met the definition of liability instruments. The Warrants are classified as component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holder to receive a fixed number of shares of common stock upon exercise. In addition, the Warrants do not provide any guarantee of value or return. The Company valued the Warrants at issuance using the Black-Scholes option pricing model and determined the fair value of the Warrants to purchase 2,800,000 shares of the Company’s common stock at $ 4.7 million. The key inputs to the valuation model included a weighted average volatility of 162.0 % and an expected term of 3 .0 years. 14 The proceeds from the issuance of the Series A Preferred Stock to the Company were allocated based on the relative fair value of the Warrants as compared to the fair value of the Series A Preferred Stock. The fair value of the Warrants incorporates assumptions regarding our common stock price, dividend yield, stock price volatility, as well as assumptions regarding the risk-free interest rate. Using this model, the Warrants was valued at $ 1.4 million at January 23, 2024 and was included in additional paid in capital on our condensed consolidated balance sheet. The fair value of the Series A Preferred Stock was determined based on assumptions that incorporated our common stock price and dividend rate. The Company valued the Series A Preferred Stock at $ 4.5 million. Based on the fair value model to allocate the Series A Preferred Stock proceeds, the Series A Preferred Stock was valued at $ 1.4 million at January 23, 2024 and was included in Series A Preferred Stock on our condensed consolidated balance sheet. On February 26, 2024, the Company held a special meeting of stockholders, who voted and approved (i) the issuance of shares of our common stock, par value $0.01 per share (“Common Stock”) upon conversion of Series A Preferred Stock or exercise of the Warrants to be issued at Closing of the Purchase Agreement, which conversions or exercise would result in a “change of control” of the Company under the applicable rules of Nasdaq and (ii) an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect the increase in authorized shares of Preferred Stock to 10,000,000 (13) SUBSEQUENT EVENTS The Company has evaluated subsequent events from March 31, 2024, through the date of this filing and has determined that there are no such events, other than those noted above, requiring recognition or disclosure in the financial statements. 15