The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties including those discussed under Part I, Item 1A, "Risk Factors." These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements. Overview We deliver a comprehensive WiFi as a Service platform to make everyone's connected home safe and supportive for life and work. We believe the home router must go the way of the mobile phone. Today's routers are simple, single-purpose devices that rarely receive firmware updates and have underdeveloped management applications, making them the #1 target in residential cybersecurity attacks. It can be so much more. The router must offer frequent security updates, helpful apps, extensive personalization options and a delightful interface. That is what Minim delivers- not just the router or just an app, but WiFi as a Service. Technically, it's composed of an intelligent router managed by a smart operating system that leverages cloud computing and AI to analyze and optimize the smart home, combined with intuitive applications to engage with it. We continually seek to improve our product designs and manufacturing approach to elevate product performance and reduce our costs. We pursue a strategy of outsourcing rather than internally developing our hardware product chipsets, which are application-specific integrated circuits that form the technology base for our modems. By outsourcing the chipset technology, we are able to concentrate our research and development resources on modem system design, leverage the extensive research and development capabilities of our chipset suppliers, and reduce our development time and associated costs and risks. As a result of this approach, we are able to quickly develop new products while maintaining a relatively low level of research and development expense as a percentage of net sales. We also outsource aspects of our manufacturing to contract manufacturers as a means of reducing our costs of production, and to provide us with greater flexibility in our production capacity. Generally, our gross margin for a given product depends on a number of factors, including the type of customer to whom we are selling. The gross margin for products sold to retailers tends to be higher than for some of our other customers; but the sales, support, returns, and overhead costs associated with products sold to retailers also tend to be higher. Minim's sales to certain countries are currently handled by a single master distributor for each country that handles the support and marketing costs within the country. Gross margin for sales to these master distributors tends to be low, since lower pricing to these distributors helps them to cover the support and marketing costs for
their country. Our cash and cash equivalents balance onDecember 31, 2021 was$12.6 million compared to$772 thousand onDecember 31, 2020 . OnDecember 31, 2021 , we had$5.1 million of outstanding borrowings on our asset-based credit line with availability of$445 thousand and working capital of$27.8 million . InAugust 2021 , we completed a public offering raise of$22.7 million and issued an aggregate of 10,000,000 shares at a purchase price of$2.50 per share. Other major changes in cash and cash equivalents during fiscal 2021 was a decrease of approximately$4.3 million in accounts receivable, an increase of$16.1 million in inventories, an increase of$862 thousand in accounts payable and a decrease of$2.3 million in accrued expenses. In fiscal 2021, the Company also had a net loss of$3.6 million , which contributed to a decrease in cash and cash equivalents. 25 The Company's ability to maintain adequate levels of liquidity depends in part on our ability to sell inventory on hand, increasing SaaS sales, and collect related receivables. Prior toJuly 2020 , almost all of our products were produced inChina and were subject to a tariff on our cost of goods at the time of entry into theU.S. Beginning inJuly 2020 , a majority of our products were produced inVietnam while a small portion of our products continued to be produced inChina . TheChina related tariff is 25%. These tariffs have a significant impact on our cost of inventory and profitability. These tariffs may not be reduced and may even be increased. Although we have significantly reduced tariff costs with the transition toVietnam production, it is not possible to predict the impact of tariffs in the future, which could have a material adverse impact on our net income and cash position and we may continue to experience losses.
Although the Company has recently experienced losses, it has continued to
experience sales growth. We have experienced six consecutive years with
double-digit sales growth. In the years ended
generated net sales of
COVID-19 Pandemic We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue to spread around the world. InMarch 2020 , we instituted office closures, travel restrictions and a work-from-anywhere policy for substantially all our employees due to shelter-in-place mandates. InJune 2021 , we opened ourU.S. offices to employees, who choose to work in the office, and we lifted certain travel restrictions. The COVID-19 pandemic has had a prolonged impact on our supply chain operations due to restrictions, reduced capacity, and limited availability from suppliers on whom we rely for sourcing components and materials and from third-party partners on whom we rely for manufacturing, warehousing and logistics services. Although demand for our products has increased relative to pre-pandemic levels as consumers and businesses seek flexible networking solution for their day-to-day needs, customers' purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact our revenue and results of operations. Furthermore, our supply chain continues to face constraints primarily due to challenges in sourcing components and materials and managing global logistics and transport services for our products due to shortages and delays. The prolonged impact of COVID-19 could exacerbate these constraints or cause further supply chain disruptions. In 2021, we experienced increases in costs of materials and components for our products. We expect these costs to remain elevated for the foreseeable future.
Recent Accounting Standards
Please refer to Note 2 of the Notes to the Consolidated Financial Statements,
which is incorporated herein by reference.
Critical Accounting Policies and Estimates
Following is a discussion of what we view as our more significant accounting
policies and estimates. As described below, management judgments and estimates
must be made and used in connection with the preparation of our consolidated
financial statements. We have identified areas where material differences could
result in the amount and timing of our net sales, costs, and expenses for any
period if we had made different judgments or used different estimates.
Revenue Recognition. We primarily sell hardware products to computer peripherals
retailers, computer product distributors, OEMs, and direct to consumers and
other channel partners via the Internet. The hardware products include cable
modems and gateways, mobile broadband modems, wireless routers, MoCA adapters
and mesh home networking devices. We also sell the Minim subscription service
that enables and secures a better connected home using the Minim AI-driven smart
home WiFi management and security platform.
The SaaS is offered over a defined contract period, generally one year, and are
sold to ISPs, who then promote the services to their subscribers. These services
are available as an on-demand application over the defined term. The agreements
include service offerings, which deliver applications and technologies via
cloud-based deployment models that we develop functionality for, provide
unspecified updates and enhancements for, and host, manage, provide upgrades and
support for the customers' access by entering into solution agreements for a
stated period. The monthly fees charged to the customers are based on the number
of subscribers utilizing the services each month, and the revenue recognized
generally corresponds to the monthly billing amounts as the services are
delivered. Customers do not have the contractual right or ability to take
possession of the hosted software.
We consider each product and each service contract to be a distinct performance
obligation. Revenue is recognized when a performance obligation is satisfied,
which occurs when control of the promised products or services is transferred to
the customer in an amount that reflects the consideration we expect to receive
in exchange for those products or services. Revenue from product sales is
recognized at a point in time when management has determined that control has
transferred to the customer, which is generally when legal title has transferred
to the customer. Revenue from SaaS contracts is recognized as the output of the
service is transferred to the customer over time, typically evenly over the
contract term. Revenue is recognized net of allowances for returns and any taxes
collected from customers, which are subsequently remitted to governmental
authorities.
Our contracts with customers often include promises to transfer multiple
products and services to a customer. Determining whether products and services
are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment. Judgment is also
required to determine the stand-alone selling price ("SSP") for each distinct
performance obligation. We use an observable price to estimate SSP for items
that are sold separately. In instances where SSP is not directly observable,
such as when we do not sell the product or service separately, we determine the
SSP using information that may include market conditions and other observable
inputs.
26
Product Returns. Products are returned by retail stores and distributors for
inventory balancing, contractual stock rotation privileges, and warranty repair
or replacements. Analyses of actual returned product are compared to analyses of
the product return estimates. We have concluded that the current process of
estimating the return reserve represents a fair measure with which to adjust
revenue. Returned goods are variable and under ASC Topic 606, Revenue from
Contracts with Customers, are estimated and recognized as a reduction of revenue
as performance obligations are satisfied (e.g., upon shipment of goods). Under
ASC Topic 606, the Company monitors pending authorized returns of goods and, if
deemed appropriate, record the right of return asset accordingly.
Inventory Valuation and Cost of Goods Sold. Inventory is valued at the lower of
cost, determined by the first-in, first-out method, or its net realizable value.
We review inventories for obsolete and slow-moving products each quarter and
make provisions based on our estimate of the probability that the material will
not be consumed or that it will be sold below cost. Additionally, material
product certification costs on new products are capitalized and amortized over
the expected period of value of the respective products.
Valuation of Deferred Tax Assets. As part of the process of preparing our
financial statements, we estimate our income tax expense and deferred income tax
position. This process involves the estimation of our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included in our balance sheet. We
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income. To the extent we believe that recovery is not likely, we
establish a valuation allowance. Changes in the valuation allowance are
reflected in the statement of operations.
Significant management judgment is required in determining our provision for
income taxes and any valuation allowances. We have recorded a 100% valuation
allowance against our deferred income tax assets. It is management's estimate
that, after considering all available objective evidence, historical and
prospective, with greater weight given to historical evidence, it is more likely
than not that these assets will not be realized. If we establish a record of
continuing profitability, at some point we will be required to reduce the
valuation allowance and recognize an equal income tax benefit which will
increase net income in that period(s).
27
Results of Operations
The following table sets forth certain financial data derived from our
consolidated statements of operations for the years ended
2020 presented in absolute dollars and as a percentage of net sales, with
dollars and percentage change year over year.
Years ended December 31, Change
2021 2020 $ %
Net sales $ 55,422,526 100.0 % $ 47,988,549 100.0 % $ 7,433,977 15.5 %
Cost of goods sold 37,892,947 68.4 34,382,314 71.6 3,510,633 10.2
Gross profit 17,529,579 31.6 13,606,235 28.4 3,923,344 28.8
Operating expenses:
Selling and marketing 13,747,959 24.8 9,154,685 19.1 4,593,274 50.2
General and administrative 4,889,702 8.8 5,443,529 11.3 (553,827 ) (10.2 )
Research and development 6,164,362 11.1 3,828,223 8.0 2,336,139 61.0
Sale of Trademark, net (3,955,626 ) (7.1 ) - - (3,955,626 ) NA
Total operating expenses 20,846,397 37.6 18,426,437 38.4 2,419,960 13.1
Operating loss (3,316,818 ) (6.0 ) (4,820,202 ) (10.0 ) 1,503,384 (31.2 )
Total other income (expense) (206,149 ) (0.4 )
988,503 2.1 (1,194,652 ) (120.9 )
Loss before income taxes (3,522,967 ) (6.4 )
(3,831,699 ) (7.9 ) 308,732 (8.1 )
Income tax provision 63,773 0.1 26,716 0.1 37,057 138.7 Net loss$ (3,586,740 ) (6.5 )%$ (3,858,415 ) (8.0 )%$ 271,675 (7.0 )% 28
Comparison of Fiscal Years 2021 and 2020
The following table sets forth our revenues by product and the changes in revenues for fiscal year endedDecember 31, 2021 , as compared to fiscal year endedDecember 31, 2020 : Years ended December 31, 2021 2020 Change $ Change % Cable Modems & gateways$ 53,751,499 $ 44,473,601 $ 9,277,898 20.9 % Other networking products 1,145,670 3,514,948 (2,369,278 ) (67.4 ) Software as a Service 525,357 - 525,357 NA Total$ 55,422,526 $ 47,988,549 $ 7,433,977 15.5 % The following table sets forth our revenues by geographic area and the changes in revenues for fiscal year endedDecember 31, 2021 , as compared to fiscal year endedDecember 31, 2020 : Years ended December 31, 2021 2020 Change $ Change % North America$ 55,190,373 $ 47,116,632 $ 8,073,741 17.1 % Outside North America 232,153 871,917 (639,764 ) (73.4 ) Total$ 55,422,526 $ 47,988,549 $ 7,433,977 15.5 %
(1) Revenues are attributed to geographies based on the location of the customer.
Net Sales Our total net sales increased year-over-year by$7.4 million or 15.5%. The growth in net sales is directly attributable to increased sales of Motorola branded cable modems and gateways, including intelligent networking products that include the Minim software. In both 2021 and 2020, we primarily generated our sales by selling cable modems and gateways. Sales related to SaaS offerings were$525 thousand and$0 in the years endedDecember 31, 2021 and 2020, respectively. The decrease in other category of$2.4 million in 2021 compared to 2020 is primarily due to a reduction in DSL products and a refocus on new products with growth potential outsideNorth America as well as within new product introductions. Generally, our lower sales outsideNorth America reflect the fact that cable modems are sold successfully through retailers in theU.S. but not in most countries outside theU.S. , due primarily to variations in government regulations.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of the following: the cost of finished products from our third-party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; import duties/tariffs; warranty costs associated with returned goods; write-downs for excess and obsolete inventory; amortization of certain acquired intangibles and software development costs; and costs attributable to the provision of service offerings. The increase in gross profit was attributable to sales growth of Motorola branded cable modems and gateways. We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods sold due to fluctuations and increases in prices paid for components, overhead costs, inbound freight and duty/tariffs, conversion costs, and charges for excess
or
obsolete inventory.
29
The following table presents net sales and gross margin, for the periods
indicated:
Years ended December 31,
2021 2020 $ Change % Change
Net sales $ 55,422,526 $ 47,988,549 $ 7,433,977 15.5 %
Gross margin 31.6 % 28.4 %
Gross profit and gross margin increased in fiscal 2021 compared to the prior
fiscal year, primarily due to higher net sales and reductions in tariffs and air
freight expense of approximately $4.2 million .
We expect fiscal 2022 gross margin to be subject to similar variabilities
experienced in fiscal 2021. In 2021, we experienced meaningful increase in costs
for sea freight transportation as well as costs of materials and components for
our products. We expect these costs to remain elevated for the foreseeable
future. We continue to experience disruptions from the pandemic, with
manufacturing partners being affected by factory uptime, scarcity of materials
and components and limited capacity to transport cargo via sea and air. These
disruptions have increased the length of time taken between order to production
and transportation of inventory. If such disruptions become more widespread,
they could significantly affect our ability to fulfill the demand for our
products. Forecasting gross margin percentages is difficult, and there are
several risks related to our ability to maintain or improve our current gross
margin levels. Our cost of goods sold as a percentage of net sales can vary
significantly based upon factors such as: uncertainties surrounding revenue
volumes, including future pricing and/or potential discounts as a result of the
economy, competition, the timing of sales, and related production level
variances; import customs duties and imposed tariffs; changes in technology;
changes in product mix; expenses associated with writing off excessive or
obsolete inventory; fluctuations in freight costs; manufacturing and purchase
price variances; and changes in prices on commodity components.
Selling and Marketing
Selling and marketing expenses consist primarily of advertising, trade shows,
corporate communications and other marketing expenses, product marketing
expenses, outbound freight costs, amortization of certain intangibles, personnel
expenses for sales and marketing staff, technical support expenses, and facility
allocations. The following table presents sales and marketing expenses, for
the
periods indicated:
Years ended December 31,
2021 2020 $ Change % Change
Selling and marketing $ 13,747,959 $ 9,154,685 $ 4,593,274 50.2 %
Sales and marketing expenses increased in fiscal 2021, as compared to the prior
year, primarily due to an increase in Motorola royalty fees of $1.2 million ,
personnel expenses of $2.0 million and marketing program campaigns of $1.4
million .
We expect our selling and marketing expenses as a percentage of net sales in
fiscal 2022 to be similar to fiscal 2021 levels. Expenses may fluctuate
depending on sales levels achieved as certain expenses, such as commissions, are
determined based upon the net sales achieved. Forecasting selling and marketing
expenses is highly dependent on expected net sales levels and could vary
significantly depending on actual net sales achieved in any given quarter.
Marketing expenses may also fluctuate depending upon the timing, extent and
nature of marketing programs.
General and Administrative
General and administrative expenses consist of salaries and related expenses for
executives, finance and accounting, human resources, information technology,
professional fees, including legal costs associated with defending claims
against us, allowance for doubtful accounts, facility allocations, and other
general corporate expenses. The following table presents general and
administrative expenses, for the periods indicated:
Years ended December 31,
2021 2020 $ Change % Change
General and administrative$ 4,889,702 $ 5,443,529 $ (553,827 )
(10.2 )% 30
General and administrative expenses decreased$0.6 million primarily due to a$0.9 million reduction in professional services, of which$1.6 million was attributable to the professional services related to the merger with Zoom Connectivity incurred in 2020, and a$0.4 million reduction in personnel expenses, partially offset by$0.4 million in legal settlements, and an increase of$0.2 million in provisions for bad debt. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, and other factors. Research and Development
Research and development expenses consist primarily of personnel expenses,
payments to suppliers for design services, safety and regulatory testing,
product certification expenditures to qualify our products for sale into
specific markets, prototypes, IT, and other consulting fees. Research and
development expenses are recognized as they are incurred. Our research and
development organization is focused on enhancing our ability to introduce
innovative and easy-to-use products and services. The following table presents
research and development expenses, for the periods indicated:
Years ended December 31,
2021 2020 $ Change % Change
Research and development $ 6,164,362 $ 3,828,223 $ 2,336,139 61.0 %
The increase of
million
certification and software development costs of
We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We continue to invest in research and development to expand our hardware product offerings focused on premium WiFi 6E, WiFi 6, and software solutions. We expect research and development expenses as a percentage of net sales in fiscal 2022 to be in line with or slightly above fiscal 2021 levels. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net sales, depending on actual net sales achieved in any given year. Trademark sale. OnAugust 12, 2021 , the Company entered into an agreement with Zoom Video Communications, Inc. to sell all of the Company's right, title and interest in the ZOOM® trademark for cash consideration in the amount of$4.0 million , net of legal costs incurred of$44 thousand . The Company did not have a carrying basis in the trademark that was subject to the agreement and recorded income of approximately$4.0 million , which is recorded in income from continuing operations pursuant to ASC 360-10, Impairment or Disposal of Long-Lived Assets. Other Income (Expense) Years ended December 31, 2021 2020 $ Change % Change
Other income (expense)
NA
Other income (expense), net was an expense of$206 thousand in fiscal 2021 and income of$1.0 million in fiscal 2020, primarily due to a$1.1 million forgiveness in 2020 on loans received under the Paycheck Protection Plan of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). Of the$1.1 million forgiveness,$545 thousand related to loan proceeds received by Zoom Connectivity prior to the Zoom Connectivity merger but forgiven after the Zoom Connectivity merger. Refer to Note 4 of the Consolidated Financial Statements. Income Tax Expense (Benefit). We recorded minimum state income tax for a few states and tax related to our operations inMexico , which was$64 thousand and$27 thousand in fiscal 2021 and fiscal 2020, respectively. Years ended December 31, 2021 2020 $ Change % Change Income taxes$ 63,773 $ 26,716 $ 37,057 58.1 % 31
Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company andZoom Connectivity, Inc. as if the merger ofZoom Connectivity, Inc. had been completed onJanuary 1, 2020 . The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the net sales or results of operations would have been had the merger been completed onJanuary 1, 2020 . In addition, these results are not intended to be a projection of future operating results. The unaudited pro forma information includes adjustments to eliminate intercompany transactions and align accounting policies. The pro forma results for the year endedDecember 31, 2020 also includes the non-recurring transaction costs totaling$1.6 million . Year Ended December 31, 2020 Pro forma revenue$ 48,426,339 Pro forma net loss$ (6,582,873 ) Pro forma net loss per share, basic and diluted $ (0.20 )
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents and borrowings under our SVB line-of-credit. As ofDecember 31, 2021 , we had cash and cash equivalents of$12.6 million as compared to$772 thousand onDecember 31, 2020 . OnDecember 31, 2021 , we had$5.1 million of borrowings outstanding and$445 thousand available on our$25.0 million SVB line-of-credit and working capital of$27.8 million . We have funded our operations and investing activities primarily through borrowings on our line of credit, the sale of assets and
the sale of our common stock.
Our historical cash outflows have primarily been associated with: (1) cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing and research and development infrastructure and other working capital needs; (2) expenditures related to increasing our manufacturing capacity and improving our manufacturing efficiency; (3) capital expenditures related to the acquisition of equipment; (4) cash used to repay our debt obligations and related interest expense; and (5) cash used for acquisitions. Fluctuations in our working capital due to timing differences of our cash receipts and cash disbursements also impact our cash inflows and outflows. OnAugust 12, 2021 , we entered into an agreement with Zoom Video Communications, Inc. to sell, and sold, all of our rights, title and interest in the ZOOM® trademark for cash consideration in the amount of$4.0 million , net of legal costs incurred of$44 thousand . OnAugust 2, 2021 , we completed a public offering of 10 million shares of our common stock for$22.7 million in net proceeds after deducting underwriter's discounts and commissions and other offering expenses. 32 Cash Flows
The following table presents our cash flows for the periods presented:
Years ended December 31,
2021 2020
Cash used in operating activities $ (14,272,267 ) $ (7,093,874 )
Cash used in investing activities (681,828 ) (578,089 )
Cash provided by financing activities 26,452,783 7,876,827
Net increase in cash and cash equivalents
Cash Flows from Operating Activities.
Cash used in operating activities of$14.3 million for 2021 reflected our net loss of$3.6 million , adjusted for non-cash expenses, consisting primarily of$1.0 million of depreciation and amortization and$1.0 million of stock-based compensation expense. Uses of cash include an increase in inventories ($16.1 million ) and a decrease in accrued expenses ($2.3 million ). Sources of cash included a decrease of accounts receivable of$4.3 million and increases in accounts payable of$862 thousand and deferred revenue of$662 thousand . Cash used in operating activities of$7.1 million for 2020 reflected our net loss of$3.9 million , adjusted for non-cash expenses, consisting primarily of loan forgiveness of$1.1 million . Uses of cash included an increase in accounts receivable of$5.0 million due to increased sales and increased inventories of$8.9 million . Sources of cash include increases in accounts payable of$6.7 million and accrued expenses of$4.7 million .
Cash Flows from Investing Activities. In 2021,
purchase equipment and
In 2020, cash acquired in merger was a source of cash of$502 thousand . Cash was used for certification costs ($461 thousand ), capitalized software costs ($317 thousand ), and the purchase of equipment ($303 thousand ). Cash Flows from Financing Activities. Cash provided by financing activities in 2021 consisted of a source of cash of$22.7 million from a public offering,$5.2 million from borrowings under our SVB line-of-credit, and$1.2 million in proceeds from the exercises of common stock options. Uses of cash include the repayment of theRosenthal & Rosenthal, Inc. line-of-credit of$2.4 million .
Cash provided by financing activities in 2020 consisted primarily of net
proceeds from a private placement offering of
borrowings under our line-of-credit with
million
Future Liquidity Needs
Our primary short-term needs for capital, which are subject to change, include
expenditures related to:
? the acquisition of equipment and other fixed assets for use in our current and
future manufacturing and research and development facilities;
? upgrades to our information technology infrastructure to enhance our
capabilities and improve overall productivity;
? support of our commercialization efforts related to our current and future
products, including expansion of our direct sales force and field support
resources; ? the continued advancement of research and development activities.
Our capital expenditures are largely discretionary and within our control. We expect that our product sales and the resulting operating loss as well as the status of each of our product development programs, will significantly impact our cash management decisions. AtDecember 31, 2021 , we believe our current cash and cash equivalents will be sufficient to fund working capital requirements, capital expenditures and operations during the next twelve months. We intend to retain any future earnings to support operations and to finance the growth and development of our business, and we do not anticipate paying any dividends in the foreseeable future. Our future liquidity and capital requirements will be influenced by numerous factors, including the extent and duration of any future operating losses, the level and timing of future sales and expenditures, the results and scope of ongoing research and product development programs, working capital required to support our sales growth, funds required to service our debt, the receipt of and time required to obtain regulatory clearances and approvals, our sales and marketing programs, our need for infrastructure to support our sales growth, the continuing acceptance of our products in the marketplace, competing technologies and changes in the market and regulatory environment and cash that may be required to settle our foreign currency hedges. 33
Our ability to fund our longer-term cash needs is subject to various risks, many of which are beyond our control-See "Risk Factors-We may require significant additional capital to pursue our growth strategy, and our failure to raise capital when needed could prevent us from executing our growth strategy." Should we require additional funding, such as additional capital investments, we may need to raise the required additional funds through bank borrowings or public or private sales of debt or equity securities. We cannot assure that such funding will be available in needed quantities or on terms favorable to us, if at all. AtDecember 31, 2021 , we have Federal and state net operating loss carry forwards of approximately$65.0 million and$22.1 million , respectively, available to reduce future taxable income. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized. Contractual Obligations For a description of our bank credit line, refer to Note 8 and for a description of our operating leases, license agreement and purchase commitments, refer to Note 9 in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
In 2006, the Company entered into a maquiladora agreement withNorth American Production Sharing, Inc. ("NAPS"). This agreement provides that NAPS provide certain personnel and other services for a production facility inMexico on our behalf. Although the maquiladora agreement expired onSeptember 25, 2019 , the agreement automatically renews annually unless otherwise cancelled per provisions in the agreement. Any related assets, liabilities, or expenses are reported in the accompanying financial statements. Additionally, the Company is obligated to pay future minimum required royalty payments associated with certain licensing agreements which are not included in our consolidated balance sheet.
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