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Item 1A. Risk Factors

2023-03-23 compared with 2022-03-17 · 78 added, 111 removed, 336 unchanged (36% of the section changed)

Risks Associated with Our Business

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.

The long-term impacts caused by the COVID-19 pandemic could continue to have an adverse effect on our business.

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

economy that continues to create significant business 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 with new variants, fear about becoming ill with the virus and recommendations 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.

As infection rates oscillate with new variants, widespread outbreaks, stay-at-home recommendations or mandates from federal, state and local authorities may recur, which may continue to affect our supply chain and 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 or other operational shut-downs, 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, including new variants, 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.

We depend on our executive leadership, management and key employees.

Our lead independent director is currently serving as Interim Chief Executive Officer while we search for a new Chief Executive Officer.

Delays or other challenges in identifying, attracting and retaining a new Chief Executive Officer could adversely impact our business.

In January 2022, our lead independent director assumed the title of Interim Chief Executive Officer, replacing our former Chief Executive Officer, while a search is conducted for a new long-term Chief Executive Officer.

It is very important that we are able to attract and retain a highly skilled Chief Executive Officer, in order to execute on the opportunities available to us.

Competition for qualified executives can be intense, and there are a limited number of people with the requisite knowledge and experience.

Under these conditions, we could be delayed in or otherwise unable to recruit and retain the right leader for our organization.

If we cannot attract and retain a qualified Chief Executive Officer, or fail to do so in a timely manner, it could have a material adverse impact on our operating results and stock price.

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.

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

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Our future success will depend on our ability to attract, retain, develop and motivate qualified executive, technical, sales, marketing, operating, financial and management personnel, for whom competition is very intense.

As we attempt to rapidly grow our business, it could be especially difficult to attract, retain and adequately compensate qualified personnel, especially in light of our lean cost structure and the tightening of the labor market due to the effects of the COVID-19 pandemic, which has led to increased competition for employees.

As we attempt to sustain and re-grow our business, it could be especially difficult to attract, retain and adequately compensate qualified personnel, especially in light of our lean cost structure and the tightening of the labor market, which has led to increased competition for employees.

The loss of, or failure to attract, hire, and retain any such persons could delay product development cycles, disrupt our operations, increase our costs, or otherwise harm our business or results of operations.

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For the year ended December 31, 2022, we reported a net loss of $10.3 million and are dependent upon the availability of financing in order to continue our business.

In December 2021, we completed the December 2021 Private Placement with certain institutional investors for the sale of 1,193,185 shares of our common stock at a purchase price of $3.52 per share.

We also sold to the same institutional investors the December 2021 Warrants, consisting of, (i) Pre-Funded Warrants to purchase 85,228 shares of common stock at an exercise price of $0.0001 per share and (ii) additional warrants to purchase up to an aggregate of 1,278,413 shares of common stock at an exercise price of $3.52 per share.

Net proceeds from the December 2021 Private Placement were approximately $4.0 million.

At December 31, 2021, December 2021 Warrants to purchase an aggregate of 1,363,641 shares remain outstanding with a weighted average exercise price of $3.30 per share.

None of the December 2021 Warrants were exercised as of December 31, 2021.

In January 2022, all of the Pre-Funded Warrants were exercised.

The exercise of the remaining December 2021 Warrants outstanding could provide us with cash proceeds of up to $4.5 million in the aggregate.

In June 2021, we completed the June 2021 Equity Offering, in which we issued and sold 990,100 shares of our common stock to certain institutional investors, at a purchase price of $5.05 per share.

Net proceeds to us from the June 2021 Equity Offering were approximately $4.5 million.

On August 11, 2020, we entered into 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”).

The Receivables Facility capacity is $2.5 million, and the Inventory Facility capacity was increased (from $3.0 million) to $3.5 million in April 2021.

In 2023 to date, financing activity to sustain ongoing losses has included transactions with a member of our Board of Directors as well as certain purchases associated with Sander Electronics, a strategic investor, converting approximately $1.5 million of outstanding bridge debt into common stock and also selling an aggregate of approximately $2.72 million in common stock.

In the year ended December 31, 2022, financing activity to sustain ongoing losses included converting approximately $303 thousand of outstanding bridge financing into common stock, the issue and sale of approximately $1.45 million of unsecured bridge financing from October to December 2022, the issue and sale of approximately $3.2 million of common stock and warrants to purchase common stock in June 2022, and the offer and sale of $2.0 million of unsecured bridge debt financing in April 2022.

In August, 2020, we entered into two Credit Facilities secured by our assets and are subject to customary affirmative and negative operating covenants and events of defaults that restrict indebtedness, liens, corporate transactions, dividends, and affiliate transactions, among others.

The Receivables Facility capacity was $2.5 million, and the Inventory Facility capacity was initially $3.0 million and increased to $3.5 million in April 2021.

As of December 31, 2022, we had cash of approximately $0.1 million and had debt balances of $1.4 million and $1.0 million under the Inventory Facility and the Receivables Facility, respectively.

In addition, our accounts receivable balance was $1.2 million and our gross inventory balance was $10.9 million on December 31, 2021.

As of February 28, 2022, our cash was approximately $0.3 million and our total outstanding net balance under the Credit Facilities was approximately $1.6 million in the aggregate.

Also, our accounts receivable balance was $0.7 million and our gross inventory balance was $10.6 million on February 28, 2022.

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.

There can be no assurance that this facility will be renewed or replaced on commercially reasonable terms or at all.

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 2022 and will continue to review and pursue external funding sources including, but not limited to, the following:

In January 2023, we amended the Inventory Facility, reducing the maximum availability to $500 thousand, reducing monthly fees and paying down an aggregate of $1 million in January and February 2023.

In February 2023, we agreed to terminate the Receivables Facility.

As a result, our availability under the Credit Facilities has been significantly reduced, and there can be no assurance that these lending facilities will be renewed or replaced on commercially reasonable terms or at all.

Even with access to borrowings under the Inventory Facility, 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

2023 and will continue to review and pursue external funding sources including, but not limited to, the following:

• obtaining financing from traditional or non-traditional investment capital organizations or individuals;

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• 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 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 “Board of Directors”);

• the current environment in the capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing.

Additionally, if we are unable to find a permanent Chief Executive Officer, it may be more difficult to obtain additional financing on satisfactory terms or at all.

If we fail to obtain the 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.

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Our independent registered public accounting firm’s opinion on our audited financial statements for the year ended December 31, 2022 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 “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.

In addition, Note 4 “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.

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As of December 31, 2022, we had an accumulated deficit of $149.0 million and cash of approximately $0.1 million, compared to an accumulated deficit of $138.7 million and cash of approximately $2.7 million as of December 31, 2021.

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 LED lighting and control and UVCD products.

In order for us to operate our business profitably, we need to grow our sales, maintain cost control discipline while balancing development of our 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 MMM and LED lighting and control products.

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.

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

Navy and a primary shipbuilder for the U.S.

Navy combined with sales to shipbuilders for the U.S.

Navy represented 30% of net sales in 2022.

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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 the impact of the COVID-19 pandemic, 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 consumer-focused product offerings, including our focus on the UVCD-space, 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 ongoing long-term impacts of the COVID-19 pandemic, 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 anticipate that a limited number of customers could continue to comprise a substantial portion of our revenue for the foreseeable future.

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Given the fiercely competitive lighting market in which we operate, we are constantly trying to balance pricing with the quality-premium our products command both in brand reputation and performance.

As a result, adding new

customers could generally be a slow process, and increasing new customers’ sales to more significant levels usually takes a long period of time.

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

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

As a result, adding new customers could generally be a slow process, and increasing new customers’ sales to more significant levels usually takes a long period of time.

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

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 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.

If critical components and finished products that we 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 provide quality products at a 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 select suppliers based on their expected 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.

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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 high quality LED lighting and 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.

Our ability to achieve our desired growth depends on the adoption of high quality LED lighting and controls within the general lighting market 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:

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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 global supply chain or logistics from such possibilities as the COVID-19 pandemic, shifting workforces or energy policies, we may not be able to achieve our financial targets.

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 global supply chain or logistics from such possibilities as long-term effects of the COVID-19 pandemic, shifting workforces, geopolitical tension or energy policies, 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.

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

Our primary competitors include Signify, Osram Sylvania, LED Smart, Revolution Lighting Technologies, Orion Energy Systems, Green Creative and Keystone Technologies.

Our primary competitors include Signify, Osram Sylvania, LED Smart, Revolution Lighting Technologies, Orion Energy Systems, and Keystone Technologies.

Some of these competitors offer products with performance characteristics similar to those of our products.

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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 2020 and 2021, we significantly reduced our reliance on agencies for a substantial portion of our sales, and refocused our agency relationships on those that were both mutually beneficial and strategically important.

Although we believe that our agency strategy will increase the role of independent agents and sales representatives over time, direct sales using internal sales personnel still account for a substantial portion of our sales, and our agency plans may take longer to contribute significantly to our operating results.

During 2022, we refocused our agency relationships on those that were both mutually beneficial and strategically important.

we believe that our agency strategy will increase the role of independent agents and sales representatives over time, direct sales using internal sales personnel still account for a substantial portion of our sales, and our agency plans may take longer to contribute significantly to our operating results.

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

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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 our LED lighting and control technology or our 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 respective markets for LED lighting and control technology and our UVCD products, we depend on continued market acceptance of our existing LED lighting and control technology establishing market acceptance for 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 of market adoption, 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.

If our LED lighting and control technology 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 respective markets for LED lighting and control technology products, we depend on continued market acceptance of our existing LED lighting and control technology, including in the consumer and commercial markets.

Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology 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 available in the market.

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

Notwithstanding continued performance improvements and cost reductions of LED lighting technologies, 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.

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 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.

In addition, we will need to keep pace with rapid changes in LED lighting and control 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:

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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, 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 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, 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.

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

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• 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 COVID-19 pandemic;

• macroeconomic, geopolitical and health concerns, including long-term effects of the COVID-19 pandemic;

• seasonal fluctuations in demand and our revenue;

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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.

The potential cost or 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.

There can be no assurance that third-party finance companies will provide capital to our customers.

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In some cases, our products may contain undetected defects or flaws that only become evident after shipment.

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.

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 volts AC), which involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other malfunction.

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A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend and the adverse publicity generated by such a claim against us or others in our industry could negatively impact our reputation.

We provide warranty periods generally ranging from one to ten years on our LED lighting products and one year for our UVCD products.

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

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.

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Accordingly, there could be a reasonable possibility that material weaknesses could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis, or cause us to fail to meet our obligations to file periodic financial reports on a timely basis.

possible defaults under our debt agreements, shareholder lawsuits, delisting of our stock, general damage to our reputation and the diversion of significant management and financial resources.

Any of these failures could result in adverse consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock, potential action by the SEC against us, possible defaults under our debt agreements, shareholder lawsuits, delisting of our stock, general damage to our reputation and the diversion of significant management and financial resources.

We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business, which could have a material adverse effect on our business, financial condition, and results of operations.

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Risks Associated with an Investment in Our Common Stock

Our failure to comply with the continued listing requirements of Nasdaq could adversely affect the price of our common stock and its liquidity.

On August 23, 2022, we received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying us that we are not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), because the closing bid price for our common stock was below the minimum $1.00 per share for 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until February 20, 2023, to regain compliance with the Bid Price Rule.

During the initial compliance period, our common stock continued to trade on the Nasdaq Capital Market, but did not satisfy the Bid Price Rule.

On February 21, 2023, we received written notification (the “Notification”) from the Staff stating that we had not regained compliance with the Bid Price Rule and were ineligible to obtain a second 180 calendar day period to regain compliance because we did not meet the Nasdaq Capital Market’s minimum $5 million Stockholders’ Equity initial listing requirement as of September 30, 2022.

Pursuant to the Notification, our common stock is subject to delisting from Nasdaq pending our opportunity to request a hearing before the Nasdaq Hearings Panel (the “Panel”).

The Company intends to diligently pursue an appeal of the Notification before the Panel and regain compliance with the Bid Price Rule.

Under Nasdaq rules, the delisting of our common stock will be stayed during the pendency of the appeal and during such time, our common stock will continue to be listed on Nasdaq.

On February 24, 2023, we submitted our request for an appeal before the Panel.

There can be no assurance that such appeal will be successful or that we will be able to regain compliance

with the Bid Price Rule or maintain compliance with other Nasdaq listing requirements.

If our appeal is denied or if we fail to regain compliance with Nasdaq’s continued listing standards during any period granted by the Panel, our common stock will be subject to delisting from Nasdaq.

On November 16, 2022, we received a letter from the Staff notifying us that we were again no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million if they do not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations (the “Minimum Stockholders’ Equity Rule”).

Our Form 10-Q for the quarterly period ended September 30, 2022 filed on November 10, 2022 reflected that our stockholders’ equity as of September 30, 2022 was $1.5 million.

Based on our timely submission of our plan to regain compliance, Nasdaq granted us an extension through May 15, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule.

If we do not regain and remain compliant with Nasdaq’s continued listing requirements, then we could be delisted from The Nasdaq Capital Market.

If we were delisted, it would likely have a negative impact on the price of our common stock and our liquidity.

If we are delisted from The Nasdaq Capital Market and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:

• increased borrowing costs under the terms of outstanding bridge financing;

• a limited availability of market quotations for our securities;

• a determination that our common stock is a “penny stock,” which would require broker-dealers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

• a limited amount of news and little or no analyst coverage of the Company;

• we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws;

• a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

As a “thinly-traded” stock with a relatively small public float, the market price of our common stock is highly volatile and may decline regardless of our operating performance.

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• sales of our common stock by us or our stockholders, including sales by our directors and officers.

Because our common stock is thinly-traded, investors seeking to buy or sell a certain quantity of our shares in the public market may be unable to do so within one or more trading days and it may be difficult for stockholders to sell all of their shares in the market at any given time at prevailing prices.

market at any given time at prevailing prices.

Any attempts to buy or sell a significant quantity of our shares could materially affect our share price.

In addition, because our common stock is thinly-traded and we have a relatively small public float, the

market price of our shares may be disproportionately affected by any news, commentary or rumors regarding us or our industry, regardless of the source or veracity, which could also result in increased volatility.

In addition, because our common stock is thinly-traded and we have a relatively small public float, the market price of our shares may be disproportionately affected by any news, commentary or rumors regarding us or our industry, regardless of the source or veracity, which could also result in increased volatility.

In addition, in the past, following periods of volatility in the market price of a company’s securities, securities litigation has often been instituted against these companies.

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These issuances could be dilutive to our existing stockholders and cause the market price of our common stock to decline.

The exercise of outstanding warrants to purchase our common stock or the conversion of shares of our Series A Convertible Preferred Stock into shares of common stock may dilute the ownership interest of our common stockholders.

The exercise of outstanding warrants to purchase our common stock or the conversion of shares of our Series A Preferred Stock (as defined below) into shares of common stock may dilute the ownership interest of our common stockholders.

In connection with past financing activity, we have issued convertible preferred stock and warrants to purchase our common stock.

The exercise of some or all of the outstanding warrants to purchase our common stock or the conversion of some or all of the outstanding Series A Convertible Preferred Stock may dilute the ownership interests of our stockholders.

The exercise of some or all of the outstanding warrants to purchase our common stock or the conversion of some or all of the outstanding Series A Preferred Stock may dilute the ownership interests of our stockholders.

Any sales of our common stock issuable upon the exercise of the warrants or conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock.

In addition, the anticipated exercise of the warrants or conversion of the Series A Convertible Preferred Stock could depress the price of our common stock.

Our failure to comply with the continued listing requirements of Nasdaq could adversely affect the price of our common stock and its liquidity.

Our common stock is currently listed on the Nasdaq Capital Market.

We must comply with Nasdaq’s continued listing requirements related to, among other things, stockholders’ equity, market value, minimum bid price, and corporate governance in order to remain so listed.

There can be no assurances that we will be able to comply with the applicable listing requirements.

We have in the past received notices from Nasdaq advising us that we were not in compliance with the continued listing requirements, although, in each case, we were able to subsequently regain compliance.

In January 2019, we received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying us that, for the prior 30 consecutive trading days, the closing bid price for our common stock was below the minimum $1.00 per share required pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), our common stock traded above $1.00 for the required number of days within the 180-calendar day period immediately following our receipt of the notice to regain compliance with the Bid Price Rule.

On May 15, 2019, we received a letter from the Staff notifying us that our common stock had again fallen out of compliance with the Bid Price Rule.

On October 15, 2019, the Company formally requested a 180-day extension beginning November 12, 2019 to regain compliance.

On April 16, 2020, Nasdaq announced that, in response to the COVID-19 pandemic and related extraordinary market conditions, it had provided temporary relief through June 30, 2020 from compliance with, among other rules, the Bid Price Rule.

As a result, we had until July 24, 2020 to regain compliance with the Bid Price Rule, which we accomplished by effecting a 1-for-5 reverse stock split on June 11, 2020, increasing the per share trading price of our common stock.

Our common stock began trading on Nasdaq on a split-adjusted basis at the opening of trading on June 12, 2020.

On August 17, 2020, we received a letter from the Staff notifying us that we were no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2,500,000 if they do not meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations (the “Minimum Stockholders’ Equity Rule”).

Our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, reflected that our stockholders’ equity as of June 30, 2020 was $1,714,000.

Based on our timely submission of our plan to regain compliance, Nasdaq granted us an extension through February 15, 2021 to regain compliance with the Minimum Stockholders’ Equity Rule.

In accordance with one part of the plan submitted to the Staff, we successfully modified our outstanding warrants and in December 2020, we reclassified $1.4 million from warrant liability into equity.

At December 31, 2020, our stockholders’ equity was $4,255,000.

On January 20, 2021,we received a letter from the Staff notifying us that, on a conditional basis, Nasdaq has determined that we have regained compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market.

At December 31, 2021, our stockholders’ equity was $6,209,000.

On December 21, 2021, we received a letter from the Staff notifying the Company that, as a result of the resignation of a director, as previously disclosed, from the Board of Directors and the Audit and Finance Committee, we are not in compliance with Nasdaq Listing Rule 5605, which requires that our Audit and Finance Committee be comprised of at least three directors, all of whom are independent pursuant to the rules of Nasdaq and applicable law.

The notification letter had no immediate effect on the Company’s listing on the Nasdaq Capital Market.

The letter further provided that, pursuant to Nasdaq Listing Rule 5605(c)(4), we are entitled to a cure period to regain compliance with Nasdaq Listing Rule 5605, which cure period will expire on the earlier of the date of our next annual shareholders’ meeting and November 11, 2022, or, if the next annual shareholders’ meeting is held before May 10, 2022, then the cure period will expire on May 10, 2022.

The Board of Directors has commenced a search for a new independent director, who would be expected to serve on our Audit and Finance Committee, or the Board of Directors will otherwise appoint a current independent director to fill the vacancy on the committee.

On February 24, 2022, the Company announced the appointment of two additional independent directors, one of which, was appointed to fill the vacancy on the Audit and Finance Committee, bringing us into compliance with Nasdaq Listing Rule 5605.

If we do not remain compliant with Nasdaq’s continued listing requirements, then we could be delisted from The Nasdaq Capital Market.

If we were delisted, it would likely have a negative impact on the price of our common stock and our liquidity.

• a limited availability of market quotations for our securities;

• a limited amount of news and little or no analyst coverage of the Company;

• we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws;

• a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

In addition, the anticipated exercise of the warrants or conversion of the Series A Preferred Stock could depress the price of our common stock.

As a result of these factors, the value of our common stock could decline significantly.

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UNRESOLVED STAFF COMMENTS

Our principal executive offices and our manufacturing facility are located in an approximately 62,000 square foot facility in Solon, Ohio, under a lease agreement expiring on June 30, 2027.

We believe this facility is adequate to support our current operations.

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