Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk is the risk
of economic losses due to adverse changes in financial market prices and rates. Our primary market risk has been interest rate, foreign
currency and inflation risk. We do not have material exposure to commodity risk.
Interest Rate Risk
We currently have no material
exposure to interest rate risk from investments. In the future, we intend to invest our excess cash primarily in money market funds,
debt instruments of the U.S. government and its agencies and in high quality corporate bonds and commercial paper. Due to the short-term
nature of these investments, we do not believe that there will be material exposure to interest rate risk arising from our investments.
Our operating results are
subject to risk from interest rate fluctuations on credit facilities which typically carry variable interest rates. As of December 31,
2020, we had less than $1 million of interest bearing debt outstanding. However, we expect to arrange credit facilities during 2021 and
such facilities are likely to carry variable interest rates.
Foreign Currency Risk
The functional currency of
our Eddi’s and Sunblaster operations is the Canadian dollar (“CAD”) and the functional currency for Eltac is the Euro.
For the purposes of presenting these consolidated financial statements, the assets and liabilities of subsidiaries with CAD or Euro functional
currencies are translated into USD using exchange rates prevailing at the end of each reporting period. Income and expense items are
translated at the average rate prevailing during the period with exchange differences impacting other comprehensive income (loss) in
equity. Currently a portion of our inventory purchases for Eddi’s and Sunblaster is in USD. However, Eddi’s sales will primarily
be in CAD while Sunblaster sales will be in both USD and CAD. Additionally, Eddi’s and Sunblaster settle their operating expenses
in CAD. Therefore, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates,
principally the CAD.
However, we believe that
the exposure to foreign currency fluctuation from product sales and operating expenses is not significant at this time as the related
product sales and costs do not constitute a significant portion of our total net sales and expenses. As we grow and expand the geographic
reach of our operations, our exposure to foreign currency risk could become more significant. To date, we have not entered into any foreign
currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative
purposes. However, we cannot provide assurances that our results of operations and financial condition will not be materially impacted
by foreign currency fluctuation in the future.
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