What changed in this filing

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Item 1A. Risk Factors

2022-04-15 compared with 2021-03-31 · 61 added, 36 removed, 140 unchanged (41% of the section changed)

ITEM 1 A - RISK FACTORS

Once new products reach the market, they may have defects, or may be met by unanticipated new competitive products, which could adversely affect market acceptance of these products and our reputation.

If we are not able to manage and minimize such potential difficulties, our business and results of operations could be negatively affected.

We depend on an outsourced manufacturing strategy, and any disruption in outsourced services could negatively impact our product availability and revenues.

We outsource the manufacturing of all of our products to electronics manufacturing services (“EMS”) providers located outside the U.S.

If any of these EMS providers experience ( i ) difficulties in obtaining sufficient supplies of components, (ii) component prices significantly exceeding anticipated costs, (iii) an interruption in their operations, or (iv) otherwise suffers capacity constraints, we could experience a delay in production and shipping of these products, which would have a negative impact on our revenue.

Should there be any disruption in services due to natural disaster, economic or political difficulties, transportation restrictions, acts of terror, quarantines or other restrictions associated with infectious diseases, or other similar events, or any other reason, such disruption could have a material adverse effect on our business.

Operating in the international outsourcing environment exposes us to certain inherent risks, including unexpected changes in regulatory requirements and tariffs, and potentially adverse tax consequences, which could materially affect our results of operations.

Currently, we have no second source of manufacturing for a large portion of our products.

Switching from one EMS provider to another is an expensive, difficult and a time-consuming process, with serious risks to our ability to successfully transfer our manufacturing operations.

Our operations, and consequently our revenues and profitability, could be materially adversely affected if we are forced to switch from any of our EMS providers to another EMS provider due to any of a number of factors, including financial difficulties faced by the manufacturer, disagreements in pricing negotiations between us and the manufacturer or organizational changes in the manufacturer.

The cost of delivered product from our EMS providers is a direct function of their ability to buy components at a competitive price and to realize efficiencies and economies of scale within their overall business structures.

If they are unsuccessful in driving efficient cost models, our delivered costs could rise, affecting our profitability and ability to compete.

In addition, if the EMS providers are unable to achieve greater operational efficiencies, delivery schedules for new product development and current product delivery could be negatively impacted.

EMS providers often require long range forecasts to help them plan their operations as well as to allocate their resources.

We are tied to these forecasts through contracts as well as to maintain harmony in business relationships.

Our ability to react to actual demand from our customers and order optimum levels of inventory is severely limited due to these forecasts provided to the EMS providers.

Our inability to accurately forecast our future demands could lead to either excess inventory causing potential inventory obsolescence and cashflow problems or shortage in inventory causing potential loss of revenue.

Additionally, the sourcing and availability of raw materials necessary for our EMS providers to manufacture certain of our products, including "conflict minerals" has been and could continue to be significantly constrained, which is likely to result in continued elevated price levels.

Furthermore, compliance with SEC disclosure and reporting requirements in the future regarding the use of "conflict minerals" mined from the Democratic Republic of Congo and adjoining countries could adversely affect the sourcing, supply and pricing of materials used in our products.

As a result, we may not be able to obtain the materials necessary to manufacture our products, which could force us to cease production or search for alternative supply sources, possibly at a higher cost.

Such disruptions may have a material adverse effect on our business, financial condition, results of operations and cash flows.

COVID-19 has caused and may continue to cause unanticipated fluctuations in our gross margins, which can result in unanticipated fluctuations in our operating results.

Our gross ma rgins can vary due to customer demand, competition, product pricing, product lifecycle, product mix, new product introductions, unit volumes, acquisitions and divestitures, commodity, supply chain and logistics costs, capacity utilization, geographic sales mix, currency exchange rates, trade policy and tariffs, and the complexity and functionality of new product innovations and other factors.

If we are not able to introduce new products in a timely manner at the product cost we expect, or if customer demand for our products is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react or that are initiated by us to drive sales that lower our margins, then our overall gross margin will be less than we project.

Moreover, growth in the hybrid work environment is likely to create greater pressures on us and our suppliers to accurately project overall and specific product categories of component and product demand and to establish optimal levels and manufacturing capacity.

If we are unable to secure enough components and/or finished products at reasonable prices or of acceptable quality to build new products in a timely manner in the quantities or configurations needed, our revenue and gross margins could suffer until other sources can be developed.

In addition, our gross margins vary significantly by product line, sales geography and customer type, as well as within product lines.

When the mix of products sold shifts from higher margin product lines to lower margin product lines, to lower margin sales geographies, or to lower margin products within product lines, our overall gross margins and our profitability may be adversely affected.

Moreover, as we expand within and into new product categories, our products in those categories may have lower gross margins than in our traditional product categories.

If we are unable to offset these potentially lower margins by enhancing the margins in our more traditional product categories, our profitability may be adversely affected.

As our global manufacturing partners and a significant number of distributors are located outside of the United States, we rely upon logistics providers to transport goods around the world.

As supply chains have become more constrained, the need to expedite shipments to manufacturing facilities and customers has increased.

Further, we continue to experience higher transportation and fuel costs which has resulted in decreased margins and may result in the future in increased inventory and further margin decline, which would adversely affect our results of operations and financial condition.

Changes in trade policy, including tariffs and the tariffs focused on China in particular, and currency exchange rates also have adverse impacts on our gross margins.

The COVID-19 pandemic is putting pressure on our gross margins as well as causing us to face uncertain product demand and incur increased air freight and other costs to fulfill sell through demand, replenish channel inventory, and maintain market share.

The impact of these factors on gross margins can create unanticipated fluctuations in our operating results, which may cause volatility in the price of our stock.

Global economic conditions have adversely affected our business in the past and could adversely affect our revenues and harm our business in the future.

Adverse economic conditions worldwide have contributed to slowdowns in the communications industry and have caused a negative impact on the specific segments and markets in which we operate.

A dverse economic conditions worldwide have contributed to slowdowns in the communications industry and have caused a negative impact on the specific segments and markets in which we operate.

Adverse changes in general global economic conditions can result in reductions in capital expenditures by end-user customers for our products, longer sales cycles, the deferral or delay of purchase commitments for our products and increased competition.

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Further, global economic conditions may result in a tightening in the credit markets, low liquidity levels in many financial markets, decrease in customer demand and ability to pay obligations, and extreme volatility in credit, equity, foreign currency and fixed income markets.

ITEM 1 A - RISK FACTORS

Such adverse economic conditions could negatively impact our business, particularly our revenue potential, potentially causing losses on investments and the collectability of our accounts receivable.

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Inventory levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have an adverse effect on the image and reputation of our brands and negatively impact profitability.

Conditions in China, India, Spain and United Arab Emirates may affect our operations.

Conditions in China, India, Russia, Spain, United Arab Emirates and Vietnam may affect our operations.

We have different teams working outside the U.S.

in China, India, Spain and United Arab Emirates offering various services including research and development, sales and marketing, and manufacturing operations support.

in China, India, Russia, Spain, United Arab Emirates and Vietnam offering various services.

Our ability to operate the Company smoothly may be affected significantly if either one or more of these countries are adversely impacted by political, economic, security and military conditions in these countries.

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immigration laws, we may not be able attract highly-skilled technical employees from abroad.

We are dependent on our key personnel whose continued service is not guaranteed.

We are dependent upon key personnel for the execution of our business strategies, including our chief executive officer and chief financial officer, neither of whom is subject to an employment agreement with us and we do not have key man life insurance for any of our executive officers.

Accordingly, the loss of services of our executive officers could have a material adverse effect on our financial condition and results of operations.

W e rely on third-party technology and license agreements, the loss of any of which could negatively impact our business.

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Risks Relating to Share Ownership

Our common stock trades at prices less than $1.00 which is the minimum bid price requirement under Nasdaq’s continued listing standards, as such our common stock may be subject to delisting from the Nasdaq Capital Market.

On March 22, 2022, we received a letter (the “Notice”) from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) informing us that because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, we are not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Marketplace Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

The last reported closing price of our common stock on the Nasdaq Capital Market on March 30, 2022 was $0.89 per share and has been below the $1.00 closing bid price since February 7, 2022.

In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), we have a period of 180 calendar days from March 22, 2022, or until September 19, 2022, to regain compliance with the Minimum Bid Price Requirement.

If at any time before September 19, 2022, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive trading days (which number days may be extended by Nasdaq), Nasdaq will provide written notification that we have achieved compliance with the Minimum Bid Price Requirement, and the matter would be resolved.

If compliance is not achieved within the 180-day period, Nasdaq would provide written notification to us that our common stock is subject to delisting.

In the event that we fail to regain compliance with Nasdaq continued listing standards by the expiration of the applicable cure period or any extension period, Nasdaq will commence suspension and delisting procedures with respect to our common stock, which could impair the value of your investment.

If our common stock is delisted from Nasdaq Capital Market in the future, such securities may be traded on the over-the-counter markets.

Such alternative markets, however, are generally considered to be less efficient than, and not as broad as, Nasdaq.

Accordingly, delisting of our common stock from Nasdaq could have a significant negative effect on the trading volume, liquidity and market price of our common stock.

In addition, the delisting of our common stock could adversely affect our ability to raise capital on terms acceptable to us or at all and could reduce the number of investors willing to hold or acquire our common stock.

As a result of Edward D.

Bagley’s significant share ownership position in the Company, he is able to influence corporate matters.

Based solely on filings by Edward D.

Bagley under Regulation 13D and Section 16 of the Exchange Act, Mr.

Bagley beneficially owns approximately 45.5% of our issued and outstanding shares of common stock.

Pursuant to the Note Purchase Agreement, dated December 8, 2019, by and between Mr.

Bagley and the Company, Mr.

Bagley has a security interest in substantially all of the assets of the Company as well as certain observer rights with respect to meetings of our board of directors, and the Company is restricted from issuing shares of common stock at a purchase price less than $2.11 per share except in certain limited, extraordinary transactions.

In addition, Mr.

Bagley’s daughter, Lisa Higley, is a member of our board of directors.

Bagley’s significant share ownership, as well as his security interests in substantially all of our assets, Mr.

Bagley will be able to significantly influence who serves on our board of directors and the outcome of matters required to be submitted to our stockholders for approval, including, without limitation, decisions relating to the outcome of any proposed merger or consolidation of our company and Mr.

Bagley’s significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our common stock.

In addition, based solely on filings by other members of Mr.

Bagley’s family and their family trusts under Regulation 13D and Section 16 of the Exchange Act, such family members and their family trusts collectively beneficially own an additional 15.6% of our outstanding shares of common stock, however, Mr.

Bagley asserts he does not have control over and disclaims beneficial ownership of such shares.

Bagley’s interests and the interests of his family and their family trusts may not be consistent with those of our other stockholders.

ITEM 1 A - RISK FACTORS

Global Financial, Economic and Social Conditions Could Deteriorate.

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The market price of our common stock may be significantly affected by a variety of factors, including the following:

ITEM 1 A - RISK FACTORS

statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the market in which we do business or relating to us specifically;

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our ability to successfully utilize our cash reserves resulting from the settlement of litigation and arbitration matters.

Our stock price may in the future not meet the minimum bid price for continued listing on the Nasdaq Capital Market.

Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from The Nasdaq Capital Market.

Nasdaq Listing Rule 5450 (a)( 1 ) provides that the closing bid price for our common stock may not be below $ 1.00 per share for any period of 30 consecutive trading days to maintain our continued listing on The Nasdaq Capital Market ("Minimum Bid Price Rule").

Although we are currently in compliance with the Minimum Bid Price Rule, there can be no assurance that our common stock will continue to satisfy this rule.

If we were to fail to comply with the Minimum Bid Price Rule in the future and became subject to delisting, such delisting from Nasdaq would adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock.

Delisting also could have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

Rights to acquire our common stock could result in dilution to other holders of our common stock.

As of December 31, 2021, there were outstanding options to acquire approximately 831,071 shares of our common stock at a weighted average exercise price of $ 6.47 per share.

During the terms of these options, the holders thereof will have the opportunity to profit from an increase in the market price of the common stock.

The existence of these options may adversely affect the terms on which we can obtain additional financing, and the holders of these options can be expected to exercise such options at a time when we, in all likelihood, would be able to obtain additional capital by offering shares of our common stock on terms more favorable to us than those provided by the exercise of these options.

In addition, as of December 31, 2021 there were outstanding warrants and convertible instruments to acquire approximately 6,273,308 shares at weighted average exercise price of $2.52.

During the terms of these options, warrants and convertibles the holders thereof will have the opportunity to profit from an increase in the market price of the common stock.

The existence of these derivatives may adversely affect the terms on which we can obtain additional financing, and the holders of these derivatives can be expected to exercise such options at a time when we, in all likelihood, would be able to obtain additional capital by offering shares of our common stock on terms more favorable to us than those provided by the exercise of these derivatives.

ITEM 1 A - RISK FACTORS

The sale of additional shares of our common stock could have a negative effect on the market price of our common stock.

The sale of substantial amounts of our common stock in the public market, such as the Rights Offering that we completed in December 2018 and the Notes and Warrants that we issued in December 2019 , could adversely affect prevailing market prices and could impair our ability to raise capital through the sale of our equity securities.

The sale of substantial amounts of our common stock in the public market, such as the Rights Offering that we completed in December 2018, Notes and Warrants that we issued in December 2019 , and Common Stock and Warrants that we issued in 2020 and 2021 could adversely affect prevailing market prices and could impair our ability to raise capital through the sale of our equity securities.

Most shares of common stock currently outstanding are eligible for sale in the public market, subject in certain cases to compliance with the requirements of Rule 144 under the securities laws.

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The issuance of such shares could dilute the voting power of the currently outstanding shares of our common stock and could dilute earnings per share.

ITEM 1 A - RISK FACTORS

Because we do not intend to pay dividends on our common stock, stockholders will benefit from an investment in our stock only if it appreciates in value.

We currently intend to retain all future earnings, if any, for use in the operations and expansion of the business.

As a result, we do not anticipate paying cash dividends in the foreseeable future.

Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend on factors the board of directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our secured convertible notes and other financing arrangements.

Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock.

There is no guarantee that our stock will appreciate in value.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors