FUSE MEDICAL, INC. The following discussion highlights our results of operations and the principal factors that have affected our consolidated financial condition, our liquidity and our capital resources for the periods described. The discussion also provides information that our management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on our Financial Statements contained in this Annual Report, which have been prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). The discussion and analysis should be read in conjunction with our Financial Statements and the related notes therein.
Explanatory Note
As described in "Item 1. Business, Corporate and Available Information," and elsewhere in this Annual Report, our Financial Statements include the accounts of our Company and our wholly-owned subsidiaries, CPM and, prior to its dissolution, Maxim. Intercompany transactions have been eliminated in consolidation.
Overview
We are a Manufacturer, distributor, and wholesaler of medical devices offering a broad portfolio of Orthopedic Implants, Biologics, and other medical devices. A more detailed description of our business operation can be found in "Item 1. Business" within this Annual Report. We believe 2021 proved pivotal for our growth as a Manufacturer and innovative product developer. Our focus to shift our business model from a sole distributor to an integrated Manufacturer and distributor has seen successful results in 2021, with continued growth and success leading into 2022. Highlights of our 2021 strategic milestones include the following:
(i) On
Shareholders ("2021 Annual Meeting").
(ii) In
Telehealth to increase our wound care offerings.
(iii) In
novel OrbitumTM Compression Staple System which increases our Manufactured
product portfolio. In
Orbitum™ Compression Staple System.
(iv) In
expanding our offerings in our Spine division and Fuse branded products.
(v) In
fillers, expanding our osteobiologics portfolio.
(vi) In
which expanded our manufactured product portfolio and increases our
competitive advantage in the medical device industry.
(vii) In
Biologics USA, Inc. for the exclusiveTexas distribution of Urist NMP cortical fibers and particulates.
(viii) In
Extremities for the exclusive US national distribution of Silktoe®
metatarsophalangeal joint arthroplasty implant.
(ix) In
osteoconductive, osteoinductive & osteogenic DMSO-free bone void filler,
which further expands our product portfolio of osteobiologics.
Severe Weather Conditions
During February 2021 , the state of Texas experienced record-breaking winter
weather which resulted in dangerous road conditions, widespread power outages,
water outages and contamination of the water supply, causing significant
disruptions through-out Texas , including our corporate office and distribution
center for several days.
Our executive management team immediately focused on the health and wellbeing of
our employees, while also working to minimize the impact on our customers. We
resumed full operations on March 1, 2021 . (See Item 1A. "Risk Factors- Risks
Related to Our Business and Industry", for additional information).
23
--------------------------------------------------------------------------------Impact of COVID-19 to Fuse
Beginning in the first quarter of 2020, the novel coronavirus SARS-CoV-2 global
pandemic ("COVID-19") has significantly impacted Texas , the United States and
global economies. The COVID-19 pandemic has significantly affected our
customers, employees, and business operations. In Texas and in the United States
generally, the pandemic has led to the cancellation or deferral of elective
surgeries and procedures with certain hospitals, ambulatory surgery centers, and
other medical facilities; restrictions on travel; the implementation of physical
distancing measures; and the temporary or permanent closure of businesses. Since
the first quarter of 2020, in response to COVID-19, the Governor of Texas
declared several executive orders limiting elective surgeries based on hospital
facility capacity. During January 2021 , certain of our hospital facility
customers temporarily restricted elective surgeries. Generally, these surgical
cases were deferred and rescheduled to subsequent months.
In August 2021 , Texas Governor Gregg Abbott sent a letter to all hospitals in
Texas requesting that they voluntarily defer elective surgeries in connection
with the rise of COVID-19 cases due to the Delta variant.
In
At this time, the future trajectory of the COVID-19 pandemic remains uncertain, both in theU.S. and in other markets. Progress has been made on therapeutic treatments and the development and distribution of vaccines, though the efficacy, timing, and adoption of various treatments and vaccines is uncertain, particularly with respect to new variants of COVID-19 which have emerged and will likely continue to, emerge. Given these various uncertainties, it is unclear the extent to which lingering slowdowns in elective procedures will affect our business during 2022 and beyond. We expect that the effects of COVID-19 on our business will depend on various factors including (i) the magnitude and length of increased case waves in markets we serve, including from new variants of COVID-19, (ii) the comfort level of patients in returning to clinics and hospitals, (iii) the extent to which localized elective surgery shutdowns occur, (iv) the unemployment rate's effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the need to treat COVID-19 patients. Current Trends and Outlook Seasonality We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year. Historically, we have experienced greater revenue and greater sales volume, as a percentage of revenue, during the last two calendar quarters of our fiscal year compared to the first two calendar quarters of the year. We believe this revenue trend is primarily due to the increase in elective surgeries during the last two quarters of the calendar year, which are partially satisfied by patient annual healthcare deductibles being met in those two quarters. We use this seasonality trend to assist us in enterprise-wide resource planning, such as purchasing, product inventory logistics, and human capital demands.
For the years ended
Retail and Wholesale Cases
We believe our comprehensive selection of Orthopedic Implants and Biologics
products is pivotal to our ability to acquire new customers, increase sales to
existing customers and increase overall sales volume, revenues, and
profitability. We continue to review and evaluate our product lines, ensuring we
maintain a high-quality and cost-effective selection of Orthopedic Implants and
Biologics.
We measure sales volume based on medical procedures in which our products were
sold and used (each a Case). We consider Cases resulting from direct sales to
hospitals and medical facilities to be Retail Cases and Cases resulting from
sales to third-parties, such as distributors, or sub-distributors, to be
Wholesale Cases. Some of our sales for Wholesale Cases are on a consignment
basis with the third-party. (See "Item 1. Business" for additional information).
Retail Cases in our industry command higher revenue price points than Wholesale
Cases. Because Retail Cases involve direct sales to our end customers, we
typically receive a higher gross profit margin due to the absence of any third
party in the sales process. However, we may pay commissions to our full time or
independent sales representatives with respect to Retail Sales increasing our
commission expenses. Retail Cases generally generate substantially more gross
profit than Wholesale Case transactions but are subject to commission expenses
which we do not incur with respect to Wholesale Cases.
24
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Wholesale Cases in our industry command lower revenue price-points than Retail
Cases as the third-party reseller must build in its own profit margin. Because
Wholesale Cases involve sales to third parties who sell our products to end
customers, our profit margins are reduced for these Cases due to the lower sales
price. Consequently, our Wholesale Cases generate substantially lower gross
profit than our Retail Cases, which is offset in part by the fact that we do not
incur any commission costs on Wholesale Cases.
Pricing Pressures
Pricing pressure has increased in our industry due to (i) continuous consolidation among healthcare providers, (ii) trends toward managed care healthcare, (iii) increased government oversight of healthcare costs, and (iv) new laws and regulations that address healthcare reimbursement and pricing. Pricing pressure, reductions in reimbursement levels or coverage, or other cost containment measures can significantly impact our business, future operating results and financial condition. To offset pricing pressure, we employ strategies to optimize revenue per Case. During 2021, we believe we partially mitigated the impact of pricing pressures as reflected with average revenue per Case of$4,886 for 2021 and$5,583 for 2020, or an approximate 12.5% reduction. During 2021, our strategy to emphasize our Retail Model proved successful as Retail Cases represented approximately 92% of revenue, or an approximate 3% increase over 2020.
Compensation Initiatives
We expect to continue to offer compensation and other valuable long-term incentives, such as equity incentives, to key distributors, executives, and employees as a means to expand our strategic partnerships and industry relationships. During 2021, our Board granted equity incentives to our Board of Directors. (See "Item 1. Business" for additional information).
Results of Operations
Year Ended
The following table sets forth certain financial information from our
consolidated statements of operations along with a percentage of net revenue and
should be read in conjunction with the Financial Statements and related notes
included in this report.
For the For the
Year Ended % of Total Year Ended % of Total
December 31, Revenues December 31, Revenues
2021 2021 2020 2020
Net revenues $ 20,414,268 100% $ 21,398,936 100.0%Cost of revenues 8,478,561 42% 8,694,713 41% Gross profit 11,935,707 58% 12,704,223 59% Operating expenses Selling, general, administrative, and other 7,013,297 34% 6,541,659 31% Commissions 7,050,278 35% 7,086,335 33% Depreciation and amortization 67,638 0% 104,143 0% Total operating expenses 14,131,213 69% 13,732,137 64% Operating loss (2,195,506 ) -11% (1,027,914 ) -5% Other income (expense): 0% Change in fair value of contingent purchase consideration 342,168 2%
(290,635 ) -2%
Interest expense (78,230 ) 0% (94,953 ) 0% Gain on Payroll Protection Program Loan extinguishment 361,400 2%
- 0%
Total other income (expense) 625,338 3% (385,588 ) -2% Operating loss before income tax (1,570,168 ) -8% (1,413,502 ) -7% Income tax expense 17,723 0% 18,993 0% Net loss$ (1,587,891 ) -8%$ (1,432,495 ) -7% Net Revenues For the year endedDecember 31, 2021 , our net revenues were$20,414,268 compared to$21,398,936 for the year endedDecember 31, 2020 , a decrease of$984,668 , or approximately 4.6%. 25 -------------------------------------------------------------------------------- For the year endedDecember 31, 2021 , Retail Case volume increased approximately 11%, while the average revenue per Retail Case decreased approximately 11%, compared to the year endedDecember 31, 2020 , resulting in revenues from Retail Cases decreasing by approximately 2% compared to revenues from Retail Cases for the year endedDecember 31, 2020 . Revenues from Retail Cases as a percentage of total revenues increased to 92% of revenues for the year endedDecember 31, 2021 , from 89% of revenues for the year endedDecember 31, 2020 . We believe the increase in revenue from Retail Cases as a percent of total revenues reflects the execution of our strategies to shift more of our business to higher margin Retail Cases through improvement of our supply chain management. Consequently, wholesale revenue as a percent of total revenue has decreased. As discussed above in "Current Trends and Outlook", we believe that as our industry faces increased pricing pressures, we will need to focus on increased volume of Retail Cases to maintain gross profit levels. We intend to increase our Retail Case volume by increasing sales volumes with our existing retail customer base, as well as expanding our national distribution by on-boarding new medical facilities, surgeons, and distributors. The FDA issued guidance inNovember 2017 in connection with a comprehensive policy framework for the development and oversight of regenerative medicine products, including human cell and tissue products (HCT/P). Prior to this, it was believed that amniotic fluid was a HCT/P Regulated under 21 CFR 1271.3(d)(1) and Section 361 of the PHS Act. In this 2017 guidance, the FDA determined that amniotic fluid would be regulated as a Section 351 Biologic and require an approved Biologics License Application (BLA) for it to be commercialized. However, the FDA allowed a 36-month grace period, which was later extended toMay 31, 2021 , during which the FDA exercised enforcement discretion. InApril 2021 , the FDA announced no further extensions would be granted and we discontinued all sales of amniotic fluid as ofMay 31, 2021 . The loss of this product line in 2021 resulted in a decrease in revenues. Consequently, until either a BLA is granted, or regulations are reconsidered, we will explore alternative options to replace this revenue stream.
Cost of Revenues
For the year ended
As a percentage of revenues, cost of revenues was approximately 42% for the year endedDecember 31, 2021 , compared to 41% for the year endedDecember 31, 2020 . As a percentage of revenues, this increase was primarily driven by (a)(i) an approximate 3% increase in medical instruments purchased, for the launch of new product lines, (ii) an approximate 1% increase in cost of revenues primarily driven by product mix; offset in part by, an approximate 3% decline in the inventory loss provision for slow-moving and obsolescence and inventory shrink. The increase in medical instruments purchased is due to our investment into new product lines in 2021 that require instrumentation to sell to both retail and wholesale consumers. We expect investment into medical instruments to continue in 2022 and beyond, which could negatively impact gross profit. However, once the new product lines are commercialized, the medical instrument expense is expected to decline significantly and increase overall gross profit. Also due to the reduction in revenue trend we have experienced in 2020 and 2021, we have increased cost of revenues from expiring product that may have been utilized if revenues had remained consistent or had increased. If revenues increase in the future our costs associated with expired and obsolete inventory may be minimized and increase gross profit.
Gross Profit
For the year endedDecember 31, 2021 , our gross profit was$11,935,707 compared to$12,704,223 for the year endedDecember 31, 2020 , representing a decrease of$768,516 , or approximately 6.0%.
As a percentage of revenues, gross profit decreased 1% to approximately 58% from
approximately 59% for the years ended
Selling, General, Administrative and Other
For the year endedDecember 31, 2021 , our selling, general, administrative, and other expenses (SG&A) were$7,013,297 compared to SG&A of$6,541,659 for the year endedDecember 31, 2020 , representing an increase of$471,638 or 7.2%. As a percentage of net revenues, SG&A accounted for approximately 35% for the year endedDecember 31, 2021 , and 31% for the year endedDecember 31, 2020 . As a percentage of revenues, the increase of approximately 4% was primarily driven by: (a)(i) a$475,110 increase in leased staffing costs, (a)(ii) a$162,236 increase in other administrative expenses, (a)(iii) a$158,157 increase in travel, entertainment, and marketing, and (a)(iv) a$13,563 increase in professional fees; offset, in part by, (b)(i) a$295,271 reduction in stock based compensation, and (b)(ii) a$42,157 reduction in bad debt expense.
In 2020, to mitigate the negative impacts of COVID-19, the salaries of key employees were reduced. In 2021, the majority of the reduced salaries were reinstated, thus attributing to increased leased staffing costs. We also evaluated the competitiveness of our key employees' salaries in 2021. As increased information and technology emerged to address treatment and prevention of COVID-19, we were able to
26
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strengthen our workforce and resume business growth initiatives, reflected in
the increase in travel, entertainment, and marketing expenses. We believe that
our reinvestment in retaining key employees and growth initiatives as well as
marketing and commercializing the new product lines will drive sales in later
periods, as the adverse economic and social impacts of COVID-19 diminish.
Commissions
For the year endedDecember 31, 2021 , our commissions expense decreased to$7,050,278 from$7,086,335 for the year endedDecember 31, 2020 , a decrease of$36,057 , or approximately 0.5%. As a percentage of net revenues, commissions expense accounted for approximately 35% for the year endedDecember 31, 2021 , and 33% for the year endedDecember 31, 2020 . The overall reduction of commissions expense directly relates to the reduction of revenue for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , however the increase in commissions expense as a percent of revenue is a result of higher average commission rates of the total revenues.
Depreciation and Amortization
For the year endedDecember 31, 2021 , our depreciation and amortization expense decreased to$67,638 from$104,143 for the year endedDecember 31, 2020 , a decrease of$36,505 . The decrease is primarily the result of an approximate (a)(i)$11,440 reduction in amortization of intangible assets which were fully amortized, such as noncompete agreements and customer relationships, acquired pursuant to the Maxim Acquisition (see Note 4 of our accompanying consolidated Financial Statements, entitled "Goodwill and Intangible Assets"), and (a)(ii) an approximate$25,065 decrease in depreciation expense as a result of fully depreciated fixed assets.
Change in Fair Value of Contingent Purchase Consideration
For the year endedDecember 31, 2021 , we determined that the earnings thresholds, as detailed in the CPM Acquisition Agreement, were not met for payments under the earn-out ("Earn-Out"). Therefore, based on our 2021 financial performance, we will make no payments to NC 143 for either the base Earn-Out or the bonus Earn-Out for 2021. As ofDecember 31, 2021 , the fair value of the Earn-Out liability was re-measured to fair value under the probability weighted income approach, as further explained in Note 2 of our accompanying consolidated Financial Statements, entitled "Significant Accounting Policies, Fair Value Measurements." As a result, the current fair value of the Earn-Out liability was reduced by$342,168 , from$11,936,000 to$11,593,832 . For more information on the change in the fair value of contingent purchase consideration, please see Note 2 on our accompanying Financial Statements, entitled "Significant Accounting Policies, Fair Value Measurements." Interest For the year endedDecember 31, 2021 , our interest expense declined to$78,230 from$94,953 for the year endedDecember 31, 2020 , which is a reduction of$16,723 , or approximately 17.6%. The decline of$16,723 was primarily driven by (a)(i) an approximate$15,140 decrease in interest related to our Credit Agreement, (a)(ii) an approximate$5,439 decrease related to accrued interest on our PPP Loan; offset, in part by, (b)(i) an approximate$3,763 increase related to accrued interest on our EIDL Loan, and (b)(ii) an approximate$94 increase in interest expense related to the notes payable - related parties. The decrease of$15,140 in interest expense on our RLOC is primarily driven by (a)(i) an approximate$15,594 reduction in interest related to total borrowings, offset, in part, by (b)(i) an approximate$454 increase in interest related to interest rates Income Tax For the year endedDecember 31, 2021 , we recognized a tax expense of$17,723 , compared to$18,993 for the year endedDecember 31, 2020 . The reduction of$1,270 , or approximately 6.7%, is primarily attributable to the factors previously discussed that increase our operating loss before income taxes. For additional information, please see Note 11 of our accompanying consolidated Financial Statements, entitled "Income Taxes."
Net Loss
For the year endedDecember 31, 2021 , we had a net loss of$1,587,891 , compared to net loss of$1,432,495 for the year endedDecember 31, 2020 , reflecting an increase in our net loss of$155,396 , or approximately 10.8%, as a result of factors discussed previously. 27
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Liquidity and Capital Resources
Cash Flows
A summary of our cash flows is as follows:
Year Ended
December 31,
2021 2020
Net cash provided by/(used in) operating activities
- (20,757 )
Net cash (used in)/provided by financing activities 1,144,060 (127,749 )
Net increase (decrease) in cash and cash equivalents $ (634,268 ) $ 88,148 Net Cash Provided by/(Used In) Operating Activities
Our net cash used in operating activities was$1,778,328 for year endedDecember 31, 2021 , compared to net cash provided by operating activities of$236,654 for the year endedDecember 31, 2020 . The increase of cash used in operating activities of$2,014,982 primarily resulted from: (a)(i) an approximate$2,783,395 of cash used for non-cash adjustments, (a)(ii) an approximate$2,770,992 increase in cash used for inventories, (a)(iii) an approximate$155,396 decrease in cash provided by net loss, offset in part by, (b)(i) an approximate$1,380,212 increase in cash provided by long term accounts receivable, (b)(ii) an approximate$1,031,504 increase in cash provided by accrued expenses, (b)(iii) an approximate$741,311 increase in cash provided by accounts payable, (b)(iv) an approximate$539,139 increase in cash provided by account receivables, and (b)(v) an approximate$2,635 increase in cash provided by prepaid expenses and other current assets.
Our net cash used in investing activities for the year endedDecember 31, 2021 , was zero compared to$20,757 for the year endedDecember 31, 2020 . This decrease of$20,757 was primarily driven by previous year investment in information technology related to new and replacement user workstations.
Net Cash Provided by (Used In) Financing Activities
Our net cash provided by financing activities was$1,144,060 for the year endedDecember 31, 2021 , compared to net cash used in financing activities of$127,749 for the year endedDecember 31, 2020 . This decrease of$1,271,809 is primarily driven by (a)(i)$74,203 increase in cash used for paying Amegy RLOC; offset in part, by (b)(i)$361,400 reduction in proceeds from the PPP, (b)(ii)$200,000 reduction in proceeds from notes payable - related parties, and (b)(iii)$300,000 increase in cash used for payment of the EIDL Loan, (b)(iv)$11,000 increase in cash provided by stock option exercises, (b)(v) 2,432,770 increase in cash provided by new credit agreement, (b)(vi) 236,358 increase in cash used for obtaining new credit facility.
Liquidity
Our primary sources of liquidity are cash from our operations and the Credit and Security Agreement (the "Credit Agreement") withCNH Finance Fund I, L.P. , aDelaware limited partnership ("CNH") described below. OnDecember 31, 2021 , our current assets exceeded our current liabilities by$2,882,802 (our "Working Capital"), which included$553,190 in cash and cash equivalents. We believe cash from our operations and net borrowings on our Credit Agreement supports our Working Capital needs for 2022. Beyond 2022, we believe that we will be able to support itself through our Credit Agreement until the we are able to support ourself solely from the cash provided by operations. OnDecember 14, 2021 , we entered into the Credit Agreement with CNH. The Credit Agreement provides for a secured revolving credit facility maturing onJanuary 1, 2025 (the "Facility") with an initial maximum principal in the amount of$5,000,000 . Borrowings under the Facility are subject to a borrowing base as set forth in the Credit Agreement. We used borrowings under the Facility to repay in full (i) our Amended and Restated Business Loan Agreement, datedDecember 31, 2017 , amongZB, N.A. (d/b/aAmegy Bank ) as amended (the "RLOC"), and (ii) theU.S. Small Business Administration Loan Authorization and Agreement, datedMay 12, 2020 , with theU.S. Small Business Association , as amended. Borrowings under the Credit Agreement may be used for working capital and payment of fees, costs and expenses incurred in connection with the Credit Agreement. Borrowings under the Facility bear interest at a floating rate, which will be at the Prime Rate plus 1.75%. Under the Facility, we must pay certain fees as set forth in the Credit Agreement. Our obligations with respect to the Credit Agreement are secured by a pledge of 28
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substantially all of our assets, including accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment and equity interests in our subsidiaries.
The Credit Agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness and enter into affiliate transactions. In addition, the Credit Agreement contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of each calendar month (i) a current ratio of not less than 1.0 to 1.0, (ii) a fixed charge coverage ratio of not less than 1.0 to 1.0, (iii) a loan turnover rate of not greater than 60, and (iv) minimum liquidity of not less than$175,000 , provided that if we comply with the fixed charge coverage ratio for twelve consecutive months, the minimum liquidity covenant shall cease to be effective. The Credit Agreement also includes events of default customary for facilities of this type and upon the occurrence of any such event of default, all outstanding loans under the Facility may be accelerated and/or the lenders' commitments terminated. The foregoing description does not constitute a complete summary of the terms of the Credit Agreement and is qualified in its entirety by reference to the full text of the Credit Agreement, which is filed as Exhibit [10.45] to this Form 10-K. We rely on the Credit Agreement for capital expenditures and day-to-day Working Capital needs. As ofMarch 21, 2022 , we had approximately$530,544 in available cash, and$412,400 available on our Credit Agreement for borrowing (subject to certain borrowing base limitations). Borrowings on our Credit Agreement are repaid from cash generated from our operations.
Payroll Protection Program
OnApril 11, 2020 , we received approval from theU.S. Small Business Administration ("SBA") to fund our request for a PPP Loan created as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by the SBA. In connection with the PPP Loan, we entered into a promissory note in the principal amount of$361,400 . In accordance with the requirements of the CARES Act, we used the proceeds from the PPP Loan primarily for payroll costs. We applied for and received forgiveness for the total amount of the PPP Loan during the second quarter of 2021. (See Note 7, "Payroll Protection Program" of our accompanying consolidated notes to our Financial Statements, beginning on page F-1).
Economic Injury Disaster Loan
OnMay 12, 2020 , we executed the standard loan documents required for securing an EIDL Loan from the SBA in light of the impact of the COVID-19 pandemic on our business. Pursuant to that certain Loan Authorization and Agreement (the "SBA Loan Agreement"), the principal amount of the EIDL Loan was$150,000 , with proceeds to be used for working capital purposes. In connection therewith, we received a$10,000 advance, which does not have to be repaid and is reflected as an offset in Selling, General, Administrative and Other Expenses in our accompanying consolidated statements of operations in 2020. (See Note 8, "Economic Injury Disaster Loan" of our accompanying consolidated notes to our Financial Statements, beginning on page F-1). OnSeptember 24, 2021 , the Company executed the standard loan documents with the SBA for an amended and restated loan and authorization and agreement ("A&R SBA Loan Agreement") required for securing an increase in the Company's Original Note from the SBA EIDL Loan. Pursuant to the A&R SBA Loan Agreement, the principal amount for the EIDL Loan was increased by$350,000 to$500,000 , with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginningMay 12, 2022 (twenty-four months from the date of the Original Note) in the amount of$2,515 . The balance of principal and interest is payable thirty years from the date of the A&R SBA Loan Agreement.
The A&R SBA Loan Agreement was paid in full in conjunction with entering into the Credit Agreement.
Our strategic growth plan provides for capital investment for new product launches, private label branding, and the upgrade of our financial systems which support our infrastructure. We deem these investments essential to support our growth and expansion objectives. We estimate the range of this type of investment to be approximately$2 million to$3 million and anticipate these investments to occur primarily during the calendar year 2022. We expect sources of capital for these investments to be derived from cash from operations and utilizing the maximum limit with our new credit facility.
Impact of Inflation
We do not believe the effect of inflation, as measured by fluctuations in theU.S. Consumer Price Index, has had a material impact on our Financial Statements for the year endedDecember 31, 2021 .
Critical Accounting Policies and Estimates
The preparation of our Financial Statements and the related disclosures in
conformity with GAAP, requires our management to make judgments, assumptions,
and estimates that affect the amounts of revenue, expenses, income, assets, and
liabilities, reported in our
29
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Financial Statements and accompanying notes. Understanding our accounting
policies and the extent to which our management uses judgment, assumptions, and
estimates in applying these policies is integral to understanding our Financial
Statements.
We describe our most significant accounting policies in "Note 2, Significant
Accounting Policies" of our consolidated notes to our Financial Statements and
found elsewhere in this Annual Report. These policies are considered critical
because they may result in fluctuations in our reported results from period to
period due to the significant judgments, estimates, and assumptions about highly
complex and inherently uncertain matters. In addition, the use of different
judgments, assumptions, or estimates could have a material impact on our
financial condition or results of operations. We evaluate our critical
accounting estimates and judgments required by our policies on an ongoing basis
and update them as appropriate based on changing conditions.
There have been no material changes to our critical accounting policies during the period covered by this report.
Recent Accounting Pronouncements
We describe recent accounting pronouncements in Note 2, "Significant Accounting Policies" of our consolidated notes to our Financial Statements.
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