What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-25 compared with 2020-03-24 · 186 added, 187 removed, 229 unchanged (62% of the section changed)

Risks Associated with Our Business

The recent corona virus outbreak could have an adverse effect on our business.

Concerns are rapidly growing about the global outbreak of a novel strain of corona-virus (COVID-19).

The virus has spread rapidly across the globe, including the U.S.

The pandemic is having an unprecedented impact on the U.S.

economy as federal, state and local governments react to this public health crisis, which has created significant uncertainties.

These uncertainties include, but are not limited to, the potential adverse effect of the pandemic on the economy, our supply chain partners, transportation and logistics providers, our employees and customers.

As the pandemic continues to grow, fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine may continue to increase, which has already affected, and may continue to affect our supply chain as well as our customer base.

Continued impacts of the pandemic could materially adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows, and may require significant actions in response, including but not limited to, employee furloughs, plant and operational shut-downs in Ohio and Nevada (third-party warehouse), expense reductions or discounting of pricing of our products, all in an effort to mitigate such impacts.

The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

The COVID-19 pandemic could continue to have an adverse effect on our business.

The COVID-19 pandemic continues to have an unprecedented impact on the U.S.

economy as federal, state and local governments react to this public health crisis, which continues to create significant uncertainties.

These uncertainties include, but are not limited to, the adverse effect of the pandemic on the economy, our supply chain partners, transportation and logistics providers, our employees and customers.

As the pandemic continues and infection rates oscillate, fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine may recur or continue to increase, which has already affected, and may continue to affect our supply chain, as well as our customer base.

Continued impacts of the pandemic could materially adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows, and may require significant actions in response, including, but not limited to, employee furloughs, workforce reductions, plant and operational shut-downs in Ohio, expense reductions or discounting of pricing of our products, all in an effort to mitigate such impacts.

The extent of the ongoing impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the United States, the timing and success of vaccine programs, the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.

1 unchanged sentence

For the year ended December 31, 2020, we reported a net loss of $6.0 million and are dependent upon the availability of financing in order to continue our business.

As of December 31, 2019 , we had cash of approximately $0.4 million and had a balance of $0.7 million under our $5.0 million revolving line of credit (the “Credit Facility”) with Austin Financial Services (“Austin”).

As of March 5, 2020, our cash was approximately $2.6 million and our outstanding balance under the Credit Facility was approximately $0.8 million.

Our ability to draw on the Credit Facility is limited based on the amount of qualified accounts receivable, plus a portion of the net realizable value of our eligible inventory.

The repayment of outstanding advances and interest under the Credit Facility may be accelerated upon an event of default including, but not limited to, failure to make timely payments or breach of any terms set forth in the loan agreement.

The Credit Facility is secured by our assets and is subject to customary affirmative and negative operating covenants and defaults and restricting indebtedness, liens, corporate transactions, dividends, and affiliate transactions, among others.

Austin has the ability to terminate the Credit Facility with 90-days’ notice.

The maturity date of the Credit Facility is December 11, 2021.

On November 25, 2019, we entered into a Note Purchase Agreement (the “Iliad Note Purchase Agreement”) with Iliad Research and Trading, L.P.

(“Iliad”) pursuant to which the Company sold and issued to Iliad a promissory note in the principal amount of $1,257,000 (the “Iliad Note”).

The Iliad Note has a maturity date of November 24, 2021 and accrues interest at 8% per annum, compounded daily, on the outstanding balance.

The Company may prepay the amounts outstanding under the Iliad Note at a premium, which is 15% during the first year and 10% during the second year.

Beginning in May 2020, Iliad may require the Company to redeem up to $150,000 of the Iliad Note in any calendar month, subject to certain limited deferral rights.

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and capital resources-Iliad Note.”

Even with the Credit Facility, we may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.

On August 11, 2020, we entered into $3,000,000 and $2,500,000 revolving lines of credit with Crossroads Financial Group, LLC (the “Inventory Facility”) and Factors Southwest L.L.C.

(d/b/a FSW Funding) (the “Receivables Facility” and, together with the Inventory Facility, the “Credit Facilities”), respectively, which replaced our former revolving line of credit with Austin Financial Services, Inc.

(the “Austin Facility”).

As of December 31, 2020, we had cash of approximately $1.8 million and had debt balances of $1.3 million and $1.0 million under the Inventory Facility and the Receivables Facility, respectively.

In addition, our accounts receivable balance was $2.0 million and our gross inventory balance was $5.6 million on December 31, 2020.

As of February 28, 2021, our cash was approximately $0.8 million and our total outstanding net balance under the Credit Facilities was approximately $2.6 million in the aggregate.

Also, our accounts receivable balance was $1.4 million and our gross inventory balance was $7.3 million on February 28, 2021.

Our ability to draw on the Receivables Facility is limited based on the amount of eligible accounts receivable, and our ability to draw on the Inventory Facility is limited based on the value of our eligible inventory.

The repayment of outstanding advances and interest under the Credit Facilities may be accelerated upon an event of default, including, but not limited to, failure to make timely payments or breach of any terms set forth in the loan agreements.

The Credit Facilities are secured by our assets and are subject to customary affirmative and negative operating covenants and defaults, restricting indebtedness, liens, corporate transactions, dividends, and affiliate transactions, among others.

The maturity date of the Credit Facilities is August 11, 2022.

Even with access to borrowings under the Credit Facilities, we may not generate sufficient cash flows from our operations or be able to borrow sufficient funds to sustain our operations.

As such, we will likely need additional external financing during 2021 and will continue to review and pursue external funding sources including, but not limited to, the following:

5 unchanged sentences

• additional equity financing may not be available to us on satisfactory terms and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock;

loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our board of directors;

the current environment in capital markets, as well as global health risks, combined with our capital constraints may prevent us from being able to obtain adequate debt financing.

• loans or other debt instruments may have terms and/or conditions, such as interest rates, restrictive covenants and control or revocation provisions, which are not acceptable to management or our board of directors;

• the current environment in the capital markets, as well as global health risks, combined with our capital constraints may prevent us from being able to obtain adequate debt financing.

If we fail to obtain required additional financing to sustain our business before we are able to produce levels of revenue to meet our financial needs, we will need to delay, scale back or eliminate our business plan and further reduce our operating costs and headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition.

A lack of additional financing could also result in our inability to continue as a going concern and force us to sell certain assets or discontinue or curtail our operations and, as a result, investors in the Company could lose their entire investment.

Our independent registered public accounting firm’s opinion on our audited financial statements for the fiscal year ended December 31, 2019, included in this annual report on Form 10-K, contains a modification relating to our ability to continue as a going concern.

Our independent registered public accounting firm’s opinion on our audited financial statements for the fiscal year ended December 31, 2020, included in this Annual Report, contains a modification relating to our ability to continue as a going concern.

Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2020 includes a modification stating that our losses and negative cash flows from operations and uncertainty in generating sufficient cash to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.

In addition, Note 3 to our financial statements for the year ended December 31, 2019 includes disclosure describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.

In addition, Note 3 “Restructuring”, to our financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data,” of this Annual Report includes disclosure describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.

While we continue to pursue funding sources and transactions that could raise capital, there can be no assurances that we will be successful in these efforts or will be able to resolve our liquidity issues or eliminate our operating losses.

If we are unable to generate enough cash or obtain additional sufficient funding, we would need to scale back or eliminate our business plan, further reduce our operating costs and headcount, or discontinue or curtail our operations.

If we are unable to generate enough cash or obtain sufficient additional funding, we would need to scale back or significantly adjust our business plan, further reduce our operating costs and headcount, or discontinue or curtail our operations.

Accordingly, our business, prospects, financial condition and results of operations could be materially and adversely affected, and we may be unable to continue as a going concern.

2 unchanged sentences

We have a history of operating losses and will incur losses in the future as we continue our efforts to grow sales and streamline our operations at a profitable level.

We have incurred substantial losses in the past and reported net losses from operations of $7.4 million , $9.1 million and $11.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

As of December 31, 2019 , we had an accumulated deficit of $124.9 million and cash of approximately $0.4 million .

In order for us to operate our business profitably, we need to grow our sales, maintain cost control discipline while balancing development of our new product pipeline and potential long-term revenue growth, continue our efforts to reduce product cost, drive further operating efficiencies and develop and execute a strategic product pipeline for profitable and compelling energy-efficient and smart LED lighting and control products.

There is a risk that our strategy to return to profitability may not be as successful as we envision.

We have incurred substantial losses in the past and reported net losses from operations of $6.0 million and $7.4 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, we had an accumulated deficit of $130.9 million and cash of approximately $1.8 million, compared to an accumulated deficit of $124.9 million and cash of approximately $0.4 million as of December 31, 2019.

There is a risk that our strategy to return to profitability may not be as successful as we envision, or occur as quickly as we expect.

We might require additional financing in the near-term and, if our operations do not achieve, or we experience an unanticipated delay in achieving, our intended level and pace of profitability, we will continue to need additional funding, none of which may be available on favorable terms or at all and could require us to sell certain assets or discontinue or curtail our operations.

We derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their demand for our products, could adversely affect our business, financial condition, results of operations, and prospects.

While we are attempting to diversify our customer base, we have historically derived a significant portion of our revenue from a few customers, and the loss of one of these customers, or a reduction in their demand for our products, could adversely affect our business, financial condition, results of operations, and prospects.

Historically our customer base has been highly concentrated and one or a few customers have represented a substantial portion of our net sales.

In 2020, two customers accounted for 62% of net sales.

Total sales to our primary distributor to the U.S.

Navy, and a primary shipbuilder for the U.S.

Navy represented 53% of net sales.

In 2019, two customers accounted for 45% of net sales and total sales to distributors to the U.S.

Navy represented 23% of net sales.

In 2018, one customer, a distributor for the U.S.

Navy, accounted for 42% of net sales.

In 2017, two commercial customers, a major northeastern Ohio hospital system and a large regional retrofit company located in Texas, accounted for 18% and 13% of net sales, respectively, while sales to a distributor to the U.S.

Navy accounted for 17% of net sales.

Total sales to distributors to the U.S.

Navy represented 22% of net sales in 2017.

We generally do not have long-term contracts with our customers that commit them to purchase any minimum amount of our products or require them to continue to do business with us.

We could lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including, changes in levels of government funding and rebate programs, our inability to comply with government contracting laws and regulations, changes in customers’ procurement strategies or their lighting retrofit plans, changes in product specifications, additional competitors entering particular markets, our failure to keep pace with technological advances and cost reductions, and damage to our professional reputation, among others.

We are attempting to expand and diversify our customer base and reduce the dependence on one or a few customers, through the addition of our direct to customer sales strategy but we cannot provide any assurance that our efforts will be successful.

We could lose business from any one of our significant customers for a variety of reasons, many of which are outside of our control, including changes in levels of government funding and rebate

programs, our inability to comply with government contracting laws and regulations, changes in customers’ procurement strategies or their lighting retrofit plans, changes in product specifications, additional competitors entering particular markets, our failure to keep pace with technological advances and cost reductions, and damage to our professional reputation, among others.

We are attempting to expand and diversify our customer base and reduce the dependence on one or a few customers, through the addition of sales representatives and other potential marketing partnerships and our direct-to-customer sales strategy, as well as expanding our product offerings in the UVCD-space, but we cannot provide any assurance that our efforts will be successful.

We anticipate that a limited number of customers could continue to comprise a substantial portion of our revenue for the foreseeable future.

If we continue to do business with our significant customers, our concentration can cause variability in our results because we cannot control the timing or amounts of their purchases.

If a significant customer ceases to do or drastically reduces its business with us, these events can occur with little or no notice and could adversely affect our results of operations and cash flows in particular periods.

A significant customer could cease to do or drastically reduce its business with us with little or no notice, which could adversely affect our results of operations and cash flows in particular periods.

Historically, we have experienced long sales-cycles, as well as slow ramp-up by new customers to purchase large amounts of LED products from us.

2 unchanged sentences

As we continue to develop more customer-centric new products such as EnFocus™, we hope to both add new customers more quickly and have our customers scale their purchasing levels more quickly.

However this is no guarantee of faster customer acceptance or performance of this new product or any other that has been or is being developed.

Our UVCD portfolio of products also expands our traditional government and commercial markets to include the consumer market and a potential services offering for the commercial market, increasing the scope and expense of our marketing efforts.

However, there is no guarantee of faster customer acceptance or performance of these new products or any other that has been or is being developed.

If we are unable to implement plans to increase sales and control expenses to manage future growth effectively, our profitability goals and liquidity will be adversely affected.

Our ability to achieve our desired growth depends on the adoption of LEDs and related controls within the general lighting market and our ability to affect and adapt to this rate of adoption.

The pace of continued growth in this market is uncertain, and in order to grow our sales, we may need to:

manage organizational complexity and communication;

expand the skills and capabilities of our current management and sales team;

Our ability to achieve our desired growth depends on the adoption of LEDs and related controls within the general lighting market, the adoption of our UVCD products within the healthy home and workspace markets, and our ability to affect and adapt to these rates of adoption.

The pace of continued growth in these markets is uncertain, and in order to grow our sales, we may need to:

• manage organizational complexity and ensure effective and timely communication;

• expand the skills and capabilities of our current management, engineering and sales teams;

• add experienced senior level managers;

1 unchanged sentence

• adequately maintain and adjust the operational and financial controls that support our business;

expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;

maintain or establish additional manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to adequately meet customer demand;

manage an increasingly complex supply chain that has the ability to maintain a sufficient supply of materials and deliver on time to our manufacturing facilities.

• expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions and capabilities;

• maintain or establish additional manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to adequately meet customer demand and/or lower manufacturing costs;

• manage an increasingly complex supply chain to maintain a sufficient supply of materials and deliver on time to our manufacturing facilities.

These efforts to grow our business, both in terms of size and in diversity of customer bases served, may put a significant strain on our resources.

During 2017, 2018 and 2019, we implemented comprehensive cost-saving initiatives to reduce our net loss and mitigate doubt about our ability to continue as a going concern.

These initiatives have improved efficiency and streamlined our operations, but we may need additional funding and further cost-cutting may be needed to manage liquidity and future growth may exceed our current capacity and require rapid expansion in certain functional areas.

Over the past few years, we have implemented comprehensive cost-saving initiatives to reduce our net loss and mitigate doubt about our ability to continue as a going concern.

These initiatives have improved efficiency and streamlined our operations, but we may need additional funding, further cost-cutting may be needed to manage liquidity and future growth may exceed our current capacity and require rapid expansion in certain functional areas.

We may lack sufficient funding to appropriately expand or incur significant expenses as we attempt to scale our resources and make investments in our business that we believe are necessary to achieve short-term and long-term growth goals.

2 unchanged sentences

There are also inherent execution risks in expanding product lines and production capacity, whether through our facilities or that of a third-party manufacturer, that could increase costs and reduce our operating results, including design and construction cost overruns, poor production process yields and reduced quality control.

If we are unable to fund any necessary expansion or manage our growth effectively, we may not be able to adequately meet demand, our expenses could increase without a proportionate increase in revenue, our margins could decrease, and our business and results of operations could be adversely affected.

If we are unable to fund any necessary expansion or manage our growth effectively, we may not be able to

adequately meet demand, our expenses could increase without a proportionate increase in revenue, our margins could decrease, and our business and results of operations could be adversely affected.

Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.

As customer demand for our products changes, we must be able to adjust our production capacity to meet demand.

As customer demand for our products changes and as we launch new products, we must be able to adjust our production capacity to meet demand.

We are continually taking steps to address our manufacturing capacity needs for our products.

If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels or there are unanticipated interruptions in our supply chain from such possibilities as the corona-virus outbreak, we may not be able to achieve our financial targets.

In addition, as we introduce new products and further develop product generations, we must balance the production and inventory of prior generation products with the production and inventory of new generation products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.

If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels or there are unanticipated interruptions in our supply chain from such possibilities as the COVID-19 pandemic, we may not be able to achieve our financial targets.

In addition, as we introduce new products and further refine existing products, we must balance the production and inventory of prior generation products with the production and inventory of new products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.

If customer demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs to correspond to the demand.

3 unchanged sentences

A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net sales and operating results.

If we are not able to compete effectively against companies with lower cost structures or greater resources, and new competitors who enter our target markets, our sales will be adversely affected.

If we are not able to compete effectively against companies with lower cost structures or greater resources, or new competitors who enter our target markets, our sales will be adversely affected.

The lighting industry is highly competitive.

In the high-performance lighting markets in which we sell our advanced lighting systems, our products compete with lighting products utilizing traditional lighting technology provided by many vendors.

For sales of military maritime markets (“MMM”) products, we compete with a small number of qualified military lighting lamp and fixture suppliers.

For sales of MMM products, we compete with a small number of qualified military lighting lamp and fixture suppliers.

In certain commercial applications, we typically compete with LED systems produced by large lighting companies.

2 unchanged sentences

Many of our competitors are larger, more established companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand recognition.

In addition, larger competitors who purchase greater unit volumes from component suppliers may be able to negotiate lower bill of material costs, thereby enabling them to offer lower pricing to end customers.

In addition, larger competitors who purchase greater unit volumes from component suppliers may be able to negotiate lower costs, thereby enabling them to offer lower pricing to end customers.

Moreover, the relatively low barriers to entry into the lighting industry and the limited proprietary nature of many lighting products also permit new competitors to enter the industry easily and with lower costs.

In each of our markets, we also anticipate the possibility that LED manufacturers, including those that currently supply us with LEDs, may seek to compete with us.

In each of our markets, we also anticipate the possibility that LED component manufacturers, including those that currently supply us with LEDs, may seek to compete with us.

Our competitors’ lighting technologies and products may be more readily accepted by customers than our products will be.

6 unchanged sentences

In addition, these parties provide technical sales support to end-users.

The current agreements with our agents are generally non-exclusive, meaning they can sell products of our competitors.

The current agreements with our agents are generally non-exclusive on the agents’ product portfolio, meaning they can sell our competitors’ products.

Any such agreements we enter into in the future may be on similar terms.

1 unchanged sentence

If our agents do not achieve our sales objectives or these relationships take significant time to develop, our revenue may decline, fail to grow or not increase as rapidly as we intend in order to achieve profitability and grow our business.

During 2019 we significantly reduced our reliance on agencies for a substantial portion of our sales, and instead paired down our agency relationships to focus only on those relationships that were both mutually beneficial and strategically important.

Meanwhile, during 2019 we began to rely much

more significantly on a direct sales go-to-market strategy using internal sales personnel and select channel partners to drive a substantial portion of our sales.

However, we remain reliant on independent agents and sales representatives for a portion of our sales.

During 2019 and 2020,

we significantly reduced our reliance on agencies for a substantial portion of our sales, and refocused and expanded our agency relationships on those that were both mutually beneficial and strategically important.

Thus far, direct sales using internal sales personnel still account for a substantial portion of our sales, although we believe that our agency expansion strategy will increase the role of independent agents and sales representatives over time.

Furthermore, our agency agreements are generally short-term and can be cancelled by either party without significant financial consequence.

2 unchanged sentences

If these agents significantly change their terms with us, or change their end-user relationships, there could be an impact on our net sales and profits.

If LED lighting technology fails to gain widespread market acceptance or we are unable to respond effectively as new lighting technologies and market trends emerge, our competitive position and our ability to generate revenue, and profits may be harmed.

To be successful, we depend on continued market acceptance of our existing LED technology.

Although adoption of LED lighting continues to grow, the use of LED lighting products for general illumination is in its early stages, is still limited, and faces significant challenges.

Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology because of its higher initial cost or perceived risks relating to its novelty, reliability, usefulness, light quality and cost-effectiveness when compared to other established lighting sources available in the market.

Changes in economic and market conditions may also make traditional lighting technologies more appealing.

If our LED lighting and control technology or UVCD products fail to gain widespread market acceptance or we are unable to respond effectively as new technologies and market trends emerge, our competitive position and our ability to generate revenue, and profits may be harmed.

To be successful in our LED lighting and control technology markets and with the introduction of our UVCD products, we depend on continued market acceptance of our existing LED lighting and control technology and our new UVCD products, including in the consumer and commercial markets.

Although adoption of LED lighting and air and surface sanitation products continues to grow, including in response to the COVID-19 pandemic and increased awareness of sanitation, the use of LED lighting products for general illumination and the use of UVCD products for air and surface sanitation are in their early stages, are still limited, and face significant challenges.

Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology or UVCD products as an alternative to traditional chemical-based sanitation because of their higher initial costs or perceived risks relating to their novelty, reliability, usefulness, quality and cost-effectiveness when compared to other established lighting sources and sanitation processes available in the market.

Changes in economic and market conditions may also make traditional lighting and sanitation technologies more appealing.

For example, declining energy prices in certain regions or countries may favor existing lighting technologies that are less energy-efficient, reducing the rate of adoption for LED lighting products in those areas.

Notwithstanding continued performance improvements and cost reductions of LED lighting, limited customer awareness of the benefits of LED lighting products, lack of widely accepted standards governing LED lighting products and customer unwillingness to adopt LED lighting products could significantly limit the demand for LED lighting products.

Even potential customers that are inclined to adopt energy-efficient lighting technology may defer investment as LED lighting products continue to experience rapid technological advances.

Notwithstanding continued performance improvements and cost reductions of LED lighting and UVCD technologies, limited customer awareness of the benefits of LED lighting and UVCD products, lack of widely accepted standards governing LED lighting and UVCD products and customer unwillingness to adopt LED lighting and UVCD products could significantly limit the demand for LED lighting and UVCD products.

Even potential customers that are inclined to adopt energy-efficient lighting technology or new or increased sanitation technologies may defer investment as LED lighting and UVCD products continue to experience rapid technological advances.

Any of the foregoing could adversely impact our results of operations and limit our market opportunities.

In addition, we will need to keep pace with rapid changes in LED technology, changing customer requirements, new product introductions and cost reductions by competitors and evolving industry standards, any of which could render our existing products obsolete if we fail to respond in a timely manner.

In addition, we will need to keep pace with rapid changes in LED lighting and control technology and UVCD air and surface sanitation technology, changing customer requirements, new product introductions and cost reductions by competitors and evolving industry standards, any of which could render our existing products obsolete if we fail to respond in a timely manner.

The development, introduction, and acceptance of new, re-designed or reduced cost products incorporating advanced technology is a complex process subject to numerous uncertainties, including:

13 unchanged sentences

We could also devote substantial resources to the development of new technologies or products that are ultimately not successful.

If effective new sources of light other than LEDs are discovered and commercialized, our current products and technologies could become less competitive or obsolete.

If others develop innovative proprietary lighting technology that is superior to ours, or if we fail to accurately anticipate technology, pricing and market trends, respond on a timely basis with our own development of new and reliable products and enhancements to existing products, and achieve broad market acceptance of these products and enhancements, our competitive position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.

If effective new sources of light, other than LEDs, or effective new sanitation technologies, other than UVCD, are discovered and commercialized, our current products and technologies could become less competitive or obsolete.

If others develop innovative proprietary lighting or sanitation technology that is superior to ours, or if we fail to accurately anticipate technology, pricing and market trends, address market saturation and customer confusion, respond on a timely basis with our own development of new and reliable products and enhancements to existing products, and achieve broad market acceptance of these products and enhancements, our competitive position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.

If we are unable to attract or retain qualified personnel, our business and product development efforts could be harmed.

4 unchanged sentences

We also do not maintain “key person” insurance policies on any of our officers or our other employees.

We may be subject to legal claims against us or claims by us which could have a significant impact on our resulting financial performance.

At any given time, we may be subject to litigation or claims related to our products, intellectual property, suppliers, customers, employees, stockholders, distributors, sales representatives, intellectual property, and sales of our assets, among other things, the disposition of which may have an adverse effect upon our business, financial condition, or results of operation.

The outcome of litigation is difficult to assess or quantify.

Lawsuits can result in the payment of substantial damages by defendants.

If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits, our business and results of operations would be adversely affected.

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations.

Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.

A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.

Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.

7 unchanged sentences

• our ability to generate increased demand in our current and targeted markets, particularly those in which we have limited experience;

our ability to satisfy consumer demands in a timely and cost-effective manner;

• our ability to satisfy customer demands in a timely and cost-effective manner;

• pricing and availability of labor and materials;

1 unchanged sentence

• our inability to adjust certain fixed costs and expenses for changes in demand and the timing and significance of expenditures that may be incurred to facilitate our growth;

macroeconomic, geopolitical and health concerns, including the corona-virus outbreak;

• macroeconomic, geopolitical and health concerns, including the COVID-19 pandemic;

• seasonal fluctuations in demand and our revenue;

4 unchanged sentences

LED lighting retrofit projects, in particular, tend to require a significant capital commitment, which is offset by cost savings achieved over time.

As such, a lack of available capital, whether due to economic factors or conditions in the capital or debt markets, could have the effect of reducing demand for our products.

As such, a lack of available capital, whether due to economic factors or conditions in the equity or debt markets, could have the effect of reducing demand for our products.

A decrease in demand could adversely affect our ability to meet our working capital requirements and growth objectives, or could otherwise adversely affect our business, financial condition, and results of operations.

Customers may be unable to obtain financing to make purchases from us.

Some of our customers require financing in order to purchase our products and the initial investment is higher than is required with traditional lighting products.

Some of our customers require financing in order to purchase our products, and the initial investment is higher than that which is required with traditional lighting products.

The potential inability of these customers to access the capital needed to finance purchases of our products and meet their payment obligations to us could adversely impact the appeal of our products relative to those with lower upfront costs and have a negative impact on our financial condition and results of operations.

1 unchanged sentence

A significant portion of our business is dependent upon the existence of government funding, which may not be available into the future and could result in a reduction in sales and harm to our business.

Some of our customers are dependent on governmental funding, including foreign allied navies and U.S.

Some of our customers are dependent on governmental funding, including U.S.

and foreign allied navies and U.S.

military bases.

If any of these other target customers abandon, curtail, or delay planned LED lighting retrofit projects as a result of the levels of funding available to them or changes in budget priorities, it would adversely affect our opportunities to generate product sales.

If critical components and finished products that we currently purchase from a small number of third-party suppliers become unavailable or increase in price, or if our suppliers or delivery channels fail to meet our requirements for quality, quantity, and timeliness, our revenue and reputation in the marketplace could be harmed, which would damage our business.

In an effort to reduce manufacturing costs, we have outsourced the production of certain parts and components, as well as finished goods in our product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan and China.

If any of these customers or potential customers abandon, curtail, or delay planned LED lighting retrofit projects as a result of the levels of funding available to them or changes in budget priorities, it would adversely affect our opportunities to generate product sales.

If critical components and finished products that we currently research and develop with and purchase from a small number of third-party development partners and suppliers become unavailable or increase in price, or if our development partners, suppliers or delivery channels fail to meet our requirements for quality, quantity, and timeliness, our revenue and reputation in the marketplace could be harmed, which would damage our busine ss.

In an effort to reduce research and development and manufacturing costs, we have outsourced the research, development and production of certain parts and components, as well as finished goods in our product lines, to a small number of vendors in various locations throughout the world, primarily in the United States, Malaysia, Taiwan and China.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers.

While we believe alternative sources for these components and products are available, we have selected these particular suppliers based on their ability to consistently provide the best quality product at the most cost-effective price, to meet our specifications, and to deliver within scheduled time frames.

While we believe alternative sources for these components and products are available, we have selected these particular suppliers based on their ability to provide quality products at a cost-effective price, to meet our specifications, and to deliver within scheduled time frames.

We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us.

If our suppliers fail to perform their obligations in a timely manner or at satisfactory quality levels, we may suffer lost sales, reductions in revenue and damage to our reputation in the market, all of which would adversely affect our business.

We are monitoring the potential impact of the corona-virus outbreak.

This includes evaluating the impact on our customers, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus.

The significance of the impact on us is yet uncertain;

however, a material adverse effect on our customers, suppliers, or logistics providers could significantly impact our operating results.

As our demand for our products fluctuates and can be hard to predict, we may not need a sustained level of inventory, which may cause financial hardship for our suppliers or they may need to divert production capacity elsewhere.

If our ability to manage third-party product development efforts are unsuccessful or our suppliers fail to perform their obligations in a timely manner or at satisfactory quality levels, we may suffer lost or delayed sales, increased costs of goods sold, reductions in revenue or margin, and damage to our reputation in the market, all of which would adversely affect our business.

As demand for our products fluctuates, which fluctuations can be hard to predict, we may not need a sustained level of inventory, which may cause financial hardship for our suppliers or they may need to divert production capacity elsewhere.

In the past, we have had to purchase quantities of certain components that are critical to our product manufacturing and were in excess of our estimated near-term requirements as a result of supplier delivery constraints and concerns over component availability, and we may need to do so in the future.

As a result, we have had, and may need to continue, to devote additional working capital to support a large amount of component and raw material inventory that may not be used over a reasonable period to produce saleable products, and we may be required to increase our excess and obsolete inventory reserves to provide for these excess quantities, particularly if demand for our products does not meet our expectations.

We may be vulnerable to unanticipated price increases and payment term changes.

We may be vulnerable to unanticipated product development delays, price increases and payment term changes.

Significant increases in the prices of sourced components and products could cause our product prices to increase, which may reduce demand for our products or make us more susceptible to competition.

2 unchanged sentences

Additionally, consolidation in the lighting industry could result in one or more current suppliers being acquired by a competitor, rendering us unable to continue purchasing key components and products at competitive prices.

We may be subject to various import duties and tariffs applicable to materials manufactured in foreign countries and may be affected by various other import and export restrictions, as well as other considerations or developments impacting upon international trade, including economic or political instability, tariffs, shipping delays and product quotas.

We also may be subject to various import duties and tariffs applicable to materials manufactured in foreign countries and may be affected by various other import and export restrictions, as well as other considerations or developments impacting upon international trade, including economic or political instability, tariffs, shipping delays and product quotas.

These international trade factors will, under certain circumstances, have an impact on the cost of components, which will have an impact on the cost to us of the manufactured product and the wholesale and retail prices of our products.

4 unchanged sentences

Despite product testing, defects may be found in our existing or future products.

This could result in, among other things, a delay in the recognition or loss of net sales, the write-down or destruction of existing inventory, insurance recoveries that fail to cover the full costs associated with product recalls, significant warranty, support, and repair costs, diversion of the attention of our engineering personnel from our product development efforts, and damage to our relationships with our customers.

This could result in, among other things, a delay in the recognition or loss of net sales, the write-down or destruction of existing inventory, insurance recoveries that fail to

cover the full costs associated with product recalls, significant warranty, support, and repair costs, diversion of the attention of our engineering personnel from our product development efforts, and damage to our relationships with our customers.

The occurrence of these problems could also result in reputational and brand damage or the delay or loss of market acceptance of our lighting products and would likely harm our business.

3 unchanged sentences

Even if our products meet standard specifications, our customers may attempt to use our products in applications for which they were not designed or in products that were not designed or manufactured properly, resulting in product failures and creating customer satisfaction issues.

Some of our products use line voltages (such as 120 or 240 AC), which involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other malfunction.

Some of our products use line voltages (such as 120 or 240 volts AC), which involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other malfunction.

Defects, integration issues or other performance problems in our lighting products could result in personal injury or financial or other damages to end-users or could damage market acceptance of our products.

2 unchanged sentences

We provide warranty periods generally ranging from one to ten years on our products.

The standard warranty on nearly all of our new LED lighting products, which now represent the majority of our revenue, is ten years.

The standard warranty on nearly all of our new LED lighting products, which now represent the majority of our revenue, is either five or ten years.

Although we believe our reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims.

Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.

If we are unable to obtain and adequately protect our intellectual property rights or are subject to claims that our products infringe on the intellectual property rights of others, our ability to commercialize our products could be substantially limited.

We consider our technology and processes proprietary.

If we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors may utilize our proprietary technology.

As a result, our business, financial condition, and results of operations could be adversely affected.

We protect our technology through a combination of patent, copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements, and similar means.

Despite our efforts, other parties may attempt to disclose, obtain, or use our technologies.

Our competitors may also be able to independently develop products that are substantially equivalent or superior to our products or slightly modify our products.

In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States.

As a result, we may not be able to protect our proprietary rights adequately in the United States or abroad.

Furthermore, there can be no assurance that we will be issued patents for which we have applied or obtain additional patents, or that we will be able to obtain licenses to patents or other intellectual property rights of third parties that we may need to support our business in the future.

The inability to obtain certain patents or rights to third-party patents and other intellectual property rights in the future could have a material adverse effect on our business.

Our industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which may result in protracted and expensive litigation.

9 unchanged sentences

We may be forced to acquire rights to such third-party intellectual property on unfavorable terms (if rights are made available at all), pay damages, modify accused products to be non-infringing, or stop selling the applicable product altogether.

We may be subject to confidential information theft or misuse, which could harm our business and results of operations.

We may be subject to confidential information theft or misuse, which could harm our business and results of operation s.

We face attempts by others to gain unauthorized access to our information technology systems on which we maintain proprietary and other confidential information.

Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to our systems.

In addition, these same risks to our information technology systems also apply to the third-party service providers’ information technology systems utilized by the Company.

Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information.

3 unchanged sentences

Our business could be subject to significant disruption, widespread negative publicity and a loss of customers, and we could suffer legal liabilities and monetary or other losses.

We have international operations and are subject to risks associated with operating in international markets.

We outsource the production of certain parts and components, as well as finished goods in certain product lines, to a small number of vendors in various locations outside of the United States, including Malaysia, Taiwan and China.

Although we do not currently generate significant sales from customers outside the United States, we are targeting foreign allied navies as a potential opportunity to generate additional sales of our MMM products as well as a limited number of foreign geographic markets which we expect to expand over time.

International business operations are subject to inherent risks, including, among others:

• difficulty in enforcing agreements and collecting receivables through foreign legal systems;

• unexpected changes in regulatory requirements, tariffs, and other trade barriers, restrictions or disruptions;

• potentially adverse tax consequences;

• localized impacts of epidemics, pandemics or other contagious outbreaks, such as the COVID-19 pandemic;

• the burdens of compliance with the U.S.

Foreign Corrupt Practices Act, similar anti-bribery laws in other countries, and a wide variety of other laws;

• import and export license requirements and restrictions of the United States and each other country in which we operate;

• exposure to different legal standards and reduced protection for intellectual property rights in some countries;

• currency fluctuations and restrictions;

• political, social, and economic instability, including war and the threat of war, acts of terrorism, pandemics, boycotts, curtailment of trade, or other business restrictions.

If we do not anticipate and effectively manage these risks, these factors may have a material adverse impact on our business operations.

Risks Associated with Legal and Regulatory Matters

We may be subject to legal claims against us or claims by us that could have a significant impact on our resulting financial performance.

At any given time, we may be subject to litigation or claims related to our products, intellectual property, suppliers, customers, employees, stockholders, distributors, sales representatives and sales of our assets, among other things, the disposition of which may have an adverse effect upon our business, financial condition, or results of operations.

The outcome of litigation is difficult to assess or quantify.

Lawsuits can result in the payment of substantial damages by defendants.

If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits, our business and results of operations would be adversely affected.

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations.

Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.

A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.

Our business may suffer if we fail to comply with government contracting laws and regulations.

We derive a significant portion of our revenues from direct and indirect sales to U.S., state, local and foreign governments and their respective agencies.

Contracts with government customers are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property process, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts.

Contracts with government customers are subject to various procurement laws and regulations, business prerequisites to qualify for such contracts, accounting procedures, intellectual property processes, and contract provisions relating to their formation, administration and performance, which may provide for various rights and remedies in favor of the governments that are not typically applicable to or found in commercial contracts.

Failure to comply with these laws, regulations, or provisions in our government contracts could result in litigation, the imposition of various civil and criminal penalties, termination of contracts, forfeiture of profits, suspension of payments, or suspension from future government contracting.

If our government contracts are terminated, if we are suspended from government work, or if our ability to compete for new contracts is adversely affected, our business could suffer due to, among other factors, lost sales, the costs of any government action or penalties, damages to our reputation and the inability to recover our investment in developing and marketing products for MMM use.