As used in this report on Form 10-Q, "we", "us", "our", and the "Company" refer to Fuse Medical, Inc, a Delaware corporation.
This discussion and analysis should be read in conjunction with the interim unaudited condensed consolidated financial statements of our Company and the related notes included in this report for the periods presented (our "Financial Statements"), the audited consolidated financial statements of our Company and the related notes thereto and the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (our "2021 Annual Report"), filed with the Securities and Exchange Commission (the "SEC") pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on March 31, 2022.
We are a manufacturer and national distributor of medical devices. We provide a broad portfolio of orthopedic implants including:
We also provide a wide array of osteo-biologics and regenerative products, which include human allografts, tendons, synthetic skin and bone substitute materials, and regenerative tissues, which we refer to as ("Biologics").
All of our medical devices are cleared by the U.S. Food and Drug Administration ("FDA") for sale in the United States, and all of our Biologics suppliers are licensed tissue banks accredited by the American Association of Tissue Banks. Additionally, we are licensed by the FDA for storage and distribution of human cells, tissues and cellular and bone-based products (HCT/Ps), and we are an FDA-registered medical device specification developer and repackager/relabeler, and manufacturer of record, (a "Manufacturer"). We are seeking to grow our manufacturing operations, both by internal product development and by acquiring existing FDA approved devices and related intellectual property.
As an emerging manufacturer of medical device implants, we are continuing to expand our Fuse branded portfolio of orthopedic implants and biologics. During the first and second quarter of 2022, we emphasized the sale of manufactured products within our Fuse portfolio. Due to the reduced costs of goods sold associated with our manufactured products within the Fuse portfolio, we are able to maximize our competitive advantage as a manufacturer and distributor of orthopedic implants and biologics. With additional launches of innovative Fuse products planned for this year, we anticipate a continued emphasis on the commercialization of these products through our Retail Model.
During the first quarter of 2022, we established a new Scientific Advisory Board, ("SAB"), for Sports Medicine and Extremities to further expand our efforts to manufacture Fuse branded products. This new SAB was created for the internal design and development of new products utilizing novel materials with osseointegration capabilities and anti-bacterial properties.
This new SAB complements our existing Spine and Orthopedic SAB's which have been instrumental in our design and launch of multiple Fuse product lines within our portfolio.
Currently, the future trajectory of the COVID-19 pandemic remains uncertain, both in the U.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 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.
COVID-19 has also continued to present uncertainties and delays in our local and national supply chain, for both raw materials and finished goods. This disruption in our supply chain has adversely impacted lead times to; manufacture products, launch product lines, and commercialize our products in the marketplace. As a result, we are continuing to source alternate suppliers to help mitigate the impact to our supply chain.
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.
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.
Retail. Under our retail distribution model, ("Retail Model"), we sell directly to our end customers, which consist of hospitals and medical facilities, utilizing (i) our full-time sales representatives whom we employ or engage as independent contractors and (ii) independent sales representatives who work on a non-exclusive basis. In both instances, we pay the sales representative a commission with respect to sales made by the representative. We refer to sales through our Retail Model as Retail Cases.
Wholesale. Under our wholesale distribution model, ("Wholesale Model"), we sell our products directly to independent distributors rather than to hospitals and medical facilities who are the ultimate end customer. We do not pay or receive commissions from any sales by the independent distributor to the end customer. We refer to sales through our Wholesale Model as Wholesale Cases.
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.
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 have increased in our industry due to (i) continuous consolidation among healthcare providers, (ii) trends toward managed care, (iii) increased government oversight of healthcare costs, and (iv) new laws and regulations that address healthcare reimbursement and pricing. Pricing pressures, reductions in reimbursement levels or coverage, or other cost containment measures can significantly impact our business, future operating results and financial condition. For the three months ended June 30, 2022 and 2021, our average revenues per Case were $4,335 and $4,991, respectively. For the six months ended June 30, 2022 and 2021, our average revenues per Case were $4,484 and $5,013, respectively.
To offset pricing pressures we employ strategies which include locating and retaining new customers, increasing volume with existing customers, and continued emphasis on promoting sales through our Retail Model. Our strategy to emphasize our Retail Model proved successful as Retail Cases represented approximately 96% of revenue for the second quarter of 2022, which is an approximate 5% increase over the same quarter of 2021.
To further offset the impact of pricing pressures, the Company employs strategies to reduce the cost of revenues by increasing contract manufacturing of Fuse branded product lines. For the three months ended June 30, 2022 and 2021, our average cost of revenues per Case was $1,600 and $1,956, respectively. For the six months ended June 30, 2022 and 2021, our average cost of revenues per Case was $1,628 and $2,021, respectively. Our strategy to employ increased contract manufactured products proved successful as the revenues produced by these products increased to approximately 13% of revenue for the six months ended June 30, 2022, which is an approximate 5% increase over the same period of 2021.
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 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 accompanying interim unaudited condensed consolidated notes to our Financial Statements beginning on page F-1 and found elsewhere in this report and in our 2021 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.
We describe recent accounting pronouncements in Note 2, "Significant Accounting Policies" of our accompanying interim unaudited condensed consolidated notes to our Financial Statements beginning on page F-1.
The following table sets forth certain financial information from our interim unaudited condensed consolidated statements of operations along with a percentage of net revenue and should be read in conjunction with our Financial Statements and related notes included in this report.
Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021
For the three months ended June 30, 2022, net revenues were $4,668,290 compared to $5,665,015 for the three months ended June 30, 2021, which is a decrease of $996,725 or approximately 18%. This decrease was primarily attributable to the impact of pricing pressures within certain facilities, as well as the mix of products used in Cases.
For the three months ended June 30, 2022, the percent of Retail Cases increased 10% compared to the three months ended June 30, 2021. Revenues from Retail Cases as a percent of revenues for the three months ended June 30, 2022, increased by 5% compared to revenues from Retail Cases as a percent of revenues for the three months ended June 30, 2021. Although the volume and percent of revenues increased, it was an insufficient increase in volume to offset the reduction in revenue per case.
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 Cases to maintain revenue and gross profit levels. For the two remaining quarters of 2022, we will seek to increase our Retail Cases with our existing retail customer base and continue to add additional retail customers.
For the three months ended June 30, 2022, our cost of revenues was $1,723,642, compared to $2,219,608 for the three months ended June 30, 2021, representing a decrease of $495,966, or approximately 22%.
As a percentage of revenues, cost of revenues decreased by 2% to 37% for the three months ended June 30, 2022, compared to approximately 39% for the three months ended June 30, 2021. The 2% reduction in cost of revenues, as a percentage of revenues, is due to the difference of methodology on how medical instruments are expensed.
For the three months ended June 30, 2022, we generated a gross profit of $2,944,648, compared to $3,445,407 for the three months ended June 30, 2021, representing a decrease of $500,759, or approximately 15%. The reduction in gross profit is due to the reduction in net revenues offset in part by the reduction in cost of revenues as discussed above.
As a percentage of revenues, gross profit increased by 2% to 63% for the three months ended June 30, 2022, compared to approximately 61% for the three months ended June 30, 2021. This increase in gross profit as a percentage of revenues was primarily caused by the decrease in cost of revenues as a percentage of net revenues, as discussed above.
Selling, General, Administrative, and Other Expenses
For the three months ended June 30, 2022, selling, general, administrative, and other expenses decreased to $1,422,768 from $2,021,576 for the three months ended June 30, 2021, representing a decrease of $598,808, or approximately 30%.
As a percentage of net revenues, selling, general, administrative and other expenses accounted for approximately 30% and 36% for the three months ended June 30, 2022 and June 30, 2021, respectively. As a percentage of net revenue, the decrease of approximately 6% primarily resulted from (a)(i) an approximate 12% reduction in provision for bad debt, (ii) an approximate 1% decline in stock-based compensation offset, in part, by (b)(i) an approximate 4% increase in leased staffing costs, and (ii) an approximate 3% increase in professional expenses.
For the three months ended June 30, 2022 and June 30, 2021, commission expense was $1,463,859 and $1,834,372, respectively, representing a decrease of $370,513, or approximately 20%.
As a percentage of net revenues, commission expense accounted for approximately 31% for the three months ended June 30, 2022, and 32% for the three months ended June 30, 2021. The overall reduction of commissions expense is directly due to the reduction of average commission rates associated with total revenues.
For the three months ended June 30, 2022, our depreciation and amortization expense increased to $109,642 from $15,465 for the three months ended June 30, 2021, representing an increase of $94,177. This increase was primarily due to the amortization of the fees associated with obtaining the Credit Agreement.
Beginning in 2022, we changed our estimated useful life for its investment in medical instruments from 0 to 3 years based upon an analysis of our inventory and actual utilization of non-sterile medical instruments. For the three months ended June 30, 2022, our management increased property and equipment by $284,088 and recorded depreciation expense of $54,521 which is reflected on our June 30, 2022 unaudited condensed consolidated balance sheet and statements of operations.
For the three months ended June 30, 2022, interest expense increased to $36,527 from $16,048 for the three months ended June 30, 2021, which is an increase of $20,479, or approximately 128%. The increase of $20,479 was primarily driven by (a)(i) an approximate $9,202 increase in interest costs caused by an increase in LIBOR market interest rates, (ii) an approximate $9,106 increase in interest related to increased borrowings on our Credit Agreement in comparison to our RLOC, (iii) an approximate $3,631 increase related to accrued interest on our PPP Loan, offset, in part, by (b) an approximate $1,460 decrease related to interest on our EIDL Loan.
For the three months ended June 30, 2022, we recorded an income tax expense of approximately $5,171, compared to $4,826, for the three months ended June 30, 2021. For additional information, please see Note 10, "Income Taxes," of our accompanying Financial Statements, beginning on page F-1.
Payroll Protection Program Loan Forgiveness
For the three months ended June 30, 2022, we recorded a gain on the Payroll Protection Program Loan extinguishment of zero, compared to $361,400, for the three months ended June 30, 2021. For additional information, please see Note 7, "Payroll Protection Program," of our accompanying Financial Statements, beginning on page F-1.
For the three months ended June 30, 2022, we had a net loss of $93,319 compared to a net loss of $85,480 for the three months ended June 30, 2021, respectively, representing an increase in net loss of $7,839 or approximately 9%. The drivers for our increase in net loss for the three months ended June 30, 2022 were (a)(i) a decrease of $996,725 in net revenues, (ii) a decrease of $361,400 in gains from the Payroll' Protection Program extinguishment, (iii) a $20,479 increase in interest expense, (iv) an increase of $94,177 in depreciation and amortization, and (v) an increase in tax expense of $345 , offset, in part, by (b)(i) a decrease of $598,808 in SG&A and other expense, (ii) a $500,759 reduction in cost of revenue, and (iii) a $370,513 decrease in commissions.
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
The following table sets forth certain financial information from our unaudited condensed consolidated statements of operations along with a percentage of net revenue and should be read in conjunction with our Financial Statements and related notes included in this report.
For the six months ended June 30, 2022, net revenues were $9,222,628 compared to $10,105,774 for the six months ended June 30, 2021, a decrease of $883,146 or approximately 9%. This decrease was primarily attributable to the impact of pricing pressures within certain facilities, as well as the mix of products used in cases.
For the six months ended June 30, 2022, the percent of Retail Cases increased 10% compared to the six months ended June 30, 2021. Revenues from Retail Cases as a percent of revenues for the six months ended June 30, 2022, increased by 4% compared to revenues from Retail Cases as a percent of revenues for the six months ended June 30, 2021. Although the volume and percent of revenues increased, it was an insufficient increase in volume to offset the reduction in revenue per case.
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 Cases to maintain revenue and gross profit levels. For the two remaining quarters of 2022, we will seek to increase our Retail Cases with our existing retail customer base and continue to add additional retail customers.
For the six months ended June 30, 2022, our cost of revenues was $3,348,833, compared to $4,073,473 for the six months ended June 30, 2021, representing a decrease of $724,640, or approximately 18%.
As a percentage of revenues, cost of revenues decreased approximately 4% to approximately 36% for the six months ended June 30, 2022, compared to approximately 40% for the six months ended June 30, 2021. The decrease as a percentage of net revenues resulted from (a)(i) an approximate 14% decrease in medical instrument expense, and (ii) 1% reduction in cost of revenues product mix offset, in part, by (b)(i) an approximate 11% increase in inventory shrink and inventory loss provision.
For the six months ended June 30, 2022, we generated a gross profit of $5,873,795, compared to $6,032,301 for the six months ended June 30, 2021, representing a decrease of $158,506, or approximately 3%. The reduction in gross profit is due to the reduction in net revenues offset in part by the reduction in cost of revenues as discussed above.
As a percentage of net revenue, gross profit increased by approximately 4% to 64% for the six months ended June 30, 2022, compared to 60% for the six months ended June 30, 2021. This increase in gross profit as a percentage of revenues was primarily caused by the decrease in cost of revenues as a percentage of net revenues, as discussed above.
Selling, General, Administrative, and Other Expenses
For the six months ended June 30, 2022, selling, general, administrative, and other expenses decreased to $3,132,309 from $3,456,887 for the six months ended June 30, 2021, representing a decrease of $324,578, or approximately 9%.
As a percentage of net revenues, selling, general, administrative and other expenses accounted for approximately 34% for the six months ended June 30, 2022 and June 30, 2021. As a percentage of net revenue, the consistent percentage of net revenues included (a)(i) an approximate 3% increase in leased staffing costs, (ii) an approximate 1% increase in professional expense, (iii) a 1% increase for employee expense reimbursements related to business development and travel costs offset, in part, by (b)(i) an approximate 3% decline in the provision for bad debt and (ii) an approximate 2% decline in stock based compensation.
For the six months ended June 30, 2022 and June 30, 2021, commissions expense was $2,969,530 and $3,399,125, respectively, representing a decrease of $429,595, or approximately 13%.
As a percentage of net revenues, commissions expenses accounted for approximately 32% for the six months ended June 30, 2022, and 34% for the six months ended June 30, 2021. The overall reduction of commissions expense is directly due to the reduction of average commission rates associated with total revenues.
For the six months ended June 30, 2022, our depreciation expense increased to $144,044 from $32,258 for the six months ended June 30, 2021, representing an increase of $111,786. This increase was primarily due to the amortization of the fees associated with obtaining the Credit Agreement.
Beginning in 2022, we changed our estimated useful life for its investment in medical instruments from 0 to 3 years based upon an analysis of our inventory and actual utilization of non-sterile medical instruments. For the six months ended June 30, 2022, our management increased property and equipment by $422,973 and recorded a depreciation expense of $75,238 which is reflected on our June 30, 2022 unaudited condensed consolidated balance sheet and statements of operations.
For the six months ended June 30, 2022, interest expense increased to $69,485 from $35,048 for the six months ended June 30, 2021, which is an increase of $34,437, or approximately 98%. The increase of $34,437 was primarily driven by (a)(i) an approximate $18,602 increase in interest related to increased borrowings on our Credit Agreement in comparison to our RLOC, (ii) an approximate
$16,019 increase in interest costs caused by an increase in the LIBOR market interest rates, and (iii) an approximate $2,720 increase related to accrued interest on our PPP Loan, offset, in part, by (b)(i) an approximate $2,906 decrease related to accrued interest on our EIDL Loan.
For the six months ended June 30, 2022, we recorded an income tax expense of approximately $10,027 compared to $9,186, for the six months ended June 30, 2021. For additional information, please see Note 10, "Income Taxes," of our accompanying interim unaudited condensed consolidated notes to our Financial Statements, beginning on page F-1.
Payroll Protection Program Loan Forgiveness
For the six months ended June 30, 2022, we recorded a gain on the Payroll Protection Program Loan extinguishment of zero, compared to $361,400, for the six months ended June 30, 2021. For additional information, please see Note 7, "Payroll Protection Program," of our accompanying interim unaudited condensed consolidated notes to our Financial Statements, beginning on page F-1.
For the six months ended June 30, 2022, we had a net loss of $451,600 compared to a net loss $538,803 for the six months ended June 30, 2021, respectively, representing a decrease in net loss of $87,203, or approximately 16%. The drivers for our reduction in net loss for the six months ended June 30, 2022 were (a)(i) a $724,640 reduction in cost of revenue, (ii) a decrease of $324,578 in SG&A and other expense, (iii) a $429,595 decrease in commissions, offset, in part, by (b)(i) a decrease of $883,146 in net revenues, (ii) a decrease of $361,400 in gains from the Payroll Protection Program extinguishment, (iii) an increase of $111,786 in depreciation and amortization, (iv) a $34,437 increase in interest expense, and (v) an increase in tax expense of $841.
A summary of our cash flows is as follows:
Net cash provided by operating activities $ 670,878 $ 169,418 Net cash used in investing activities
Net increase in cash and cash equivalents $ 50,806 $ 169,418
Net Cash Provided by Operating Activities
During the six months ended June 30, 2022, net cash provided by operating activities was $670,878 compared to $169,418 for the six months ended June 30, 2021, representing an increase of $501,460.
The increase provided by operating activities of $501,460 primarily resulted from: (a)(i) a $820,730 increase in cash provided by accrued expenses; (ii) a $448,626 increase in cash provided by long term accounts receivable, (iii) a $371,580 increase in cash provided by inventories; (iv) a $216,868 increase in cash provided by the net loss adjusted for non-cash items; offset, in part, by (b)(i) a $748,228 increase in cash used for accounts payable; (ii) a $555,601 decrease in cash provided by accounts receivable; and (iii) a $52,515 increase in cash used for prepaid expenses and other current assets.
Net Cash Used in Investing Activities
During the six months ended June 30, 2022, net cash used in investing activities was $422,973 compared to zero for the six months ended June 30, 2021, representing an increase of $422,973.
The increase of $422,973 used in investing activities was for the purchase of medical instruments. Beginning in 2022, we changed our estimated useful life for its investment in medical instruments from 0 to 3 years based upon an analysis of our inventory and actual utilization of non-sterile medical instruments.
Net Cash Used in Financing Activities
For the six months ended June 30, 2022, net cash used in financing activities was $197,099, compared to zero cash used in financing activities for the six months ended June 30, 2021.
The increase of $197,099 used in financing activities was from the net activity on our credit facility.
Our primary sources of liquidity are cash from our operations and the Credit and Security Agreement (the "Credit Agreement") with CNH Finance Fund I, L.P., a Delaware limited partnership ("CNH") described below. On June 30, 2022, our current assets exceeded our current liabilities by $1,695,883 (our "Working Capital"), which included $603,996 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 ourselves solely from the cash provided by operations.
On December 14, 2021, we entered into the Credit Agreement with CNH. The Credit Agreement provides for a secured revolving credit facility maturing on January 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, dated December 31, 2017, among ZB, N.A. (d/b/a Amegy Bank) as amended (the "RLOC"), and (ii) the U.S. Small Business Administration Loan Authorization and Agreement, dated May 12, 2020, with the U.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 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 our 2021 Annual Report.
We rely on the Credit Agreement for capital expenditures and day-to-day Working Capital needs. As of June 30, 2022, we had approximately $603,996 in available cash, and had reached the borrowing limit based on our borrowing base limitations. Borrowings on our Credit Agreement are repaid from cash generated from our operations.
On April 11, 2020, we received approval from the SBA to fund our request for a loan under the Payroll Protection Program created as part of the recently enacted 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. The PPP Loan was scheduled to mature on April 11, 2022, had a 1.00% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the PPP. We applied for and received forgiveness for the total amount of the PPP Loan during the second quarter of 2021.
On May 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).
On September 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 accrued at the rate of 3.75% per annum. Installment payments, including principal and interest, were due monthly beginning May 12, 2022 (twenty-four months from the date of the
Original Note) in the amount of $2,515. The balance of principal and interest was 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.
For the six months ended June 30, 2022, we had no material commitments for capital expenditures.
For the six months ended June 30, 2022, we had no off-balance sheet arrangements.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements including statements regarding liquidity.
The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect", and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs.
The results anticipated by any of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include; the conditions of the capital markets, particularly for smaller companies; the willingness of doctors and facilities to purchase the products that we sell; certain regulatory issues adversely affecting our margins; insurance companies denying reimbursement to facilities who use the products that we sell; and our ability to sell products. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events, or otherwise.
PRUCO LIFE INSURANCE OF NEW JERSEY – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
US ALLIANCE CORP – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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