(Address, including
zip code, and telephone number, including area code, of registrant’s principal
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copies of communications, including communications
sent to agent for service, should be sent to:
If the only securities being registered
on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.
¨
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or reinvestment plans, please check the following box.
x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number
of the earlier effective registration statement for the same offering.
¨
If this Form is a registration statement
pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission
pursuant to Rule 462(e) under the Securities Act, check the following box
¨
If this Form is a post-effective amendment
to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes
of securities pursuant to Rule 413(b) under the Securities Act, check the following box.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2
of the Exchange Act.
RISK FACTORS
Our business faces many risks and an
investment in our securities involves significant risks. Prospective investors are strongly encouraged to consider carefully the
risks described below, as well as other information contained herein, before investing in our securities. Investors are further
advised that the risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that
we currently think are immaterial, may also negatively impact our business operations or financial results. If any of the events
or circumstances described in this section occurs, our business, financial condition or results of operations could suffer. Prospective
investors in our securities should consider the following risks before deciding whether to purchase our securities.
Risks Relating to our Securities
Our stockholders may experience significant
dilution.
The issuance of material amounts of Common
Stock by us might cause our existing stockholders to experience significant dilution in their investment in our company. In addition,
if we obtain additional financing involving the issuance of equity securities or securities convertible into equity securities,
our existing stockholders’ investment would be further diluted. Such dilution could cause the market price of our Common
Stock to decline, which could impair our ability to raise additional financing.
In addition, pursuant to the Asset Purchase
Modification Agreement, the Company is required to issue Series D Shares to IMT on an on-going basis until IMT realizes cash proceeds
of at least $2,500,000. If by December 31, 2016, IMT does not realize cash proceeds of at least $2,500,000, the Company will be
required to either issue additional shares of the Company’s common stock to IMT, or otherwise raise additional funds to cover
the shortfall. Until IMT has been paid in full, there will be significant additional dilution to the Company, which cannot be quantified
at this time.
Sales of a significant number of
shares of our common stock in the public markets or significant short sales of our common stock, or the perception that such sales
could occur, could depress the market price of our common stock and impair our ability to raise capital.
Sales of a substantial number of shares
of our common stock or other equity-related securities in the public markets, including any shares of Common Stock issued upon
conversion of the Series D Shares, could depress the market price of our Common Stock. If there are significant short sales of
our common stock, the price decline that could result from this activity may cause the share price to decline more so, which, in
turn, may cause long holders of the common stock to sell their shares, thereby contributing to further sales of common stock in
the market. Such sales also may impair our ability to raise capital through the sale of additional equity securities in the future
at a time and price that our management deems acceptable, if at all.
We may not be able to maintain effectiveness
of the registration statement of which this prospectus forms a part, which could impact the liquidity of our Common Stock.
If this registration statement is not effective,
the selling stockholder’s ability to sell the shares of Common Stock underlying the Series D Shares may be limited, which
would have a material adverse effect on the liquidity of our Common Stock.
If we are not able to comply with
the applicable continued listing requirements or standards of the NASDAQ Capital Market, NASDAQ could delist our common stock.
Our common stock is currently listed on
the NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements
and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity,
minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with
the applicable listing standards.
On September 29, 2015, we received
written notice from NASDAQ notifying us that we were not in compliance with the minimum bid price requirement set forth
in NASDAQ Listing Rule 5550(a)(2) for continued listing on the NASDAQ, as the closing bid price for our common stock was below
$1.00 per share for the last thirty (30) consecutive business days. In accordance with NASDAQ listing rules, we were afforded 180
calendar days, or until March 28, 2016, to regain compliance with NASDAQ Listing Rule 5550(a)(2). We were unable to regain compliance
with the bid price requirement by March 28, 2016.
On March 29, 2016, we received written
notice (the “Notice”) from NASDAQ that it had granted the Company an additional 180 calendar days, or until September
26, 2016, to regain compliance with the minimum bid price requirement of $1.00 per share for continued listing on NASDAQ, pursuant
to NASDAQ Listing Rule 5810(c)(3)(A)(ii).
The NASDAQ determination to grant the second
compliance period was based on our meeting the continued listing requirement for market value of publicly held shares and all other
applicable requirements for initial listing on the NASDAQ, with the exception of the bid price requirement, and our written notice
of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
To regain compliance, the bid price of
our common stock must have a closing bid price of at least $1.00 per share for a minimum of ten (10) consecutive business days
at any time during the second 180-day compliance period. On June 20, 2016, we effected a 1-for-12 reverse stock split of our outstanding
common stock as a measure to regain compliance. On August 19, 2016, we filed a Definitive Proxy for a special shareholders meeting
to be held on September 22, 2016, asking for the shareholders to grant the Board of Directors approval to execute another reverse
stock split, if necessary. The meeting was adjourned to October 3, 2016 to allow additional time for the stockholders to vote
on the proposal.
On September 27, 2016, we received a determination letter
(the “Letter”) from the staff of NASDAQ stating that the Company has not regained compliance with the NASDAQ minimum
bid price of $1.00 requirement for continued listing set forth in NASDAQ Listing Rule 5550(a)(2). Pursuant to the Letter, unless
the Company requests a hearing to appeal this determination by October 4, 2016, the Company’s common stock will be delisted
from The Nasdaq Capital Market, trading of the Company’s common stock will be suspended at the opening of business on October
6, 2016, and a Form 25-NSE will be filed with the Securities and Exchange Commission, which will remove the Company’s common
stock from listing and registration on Nasdaq.
The
Company has requested a hearing before a Nasdaq Hearing Panel (the “Panel”). The Company will be asked to
provide the Panel with a plan to regain compliance with the minimum bid price requirement of Listing Rule 5550(a)(2). The
Company’s plan will need to include a discussion of the events that the Company believes will enable it to timely
regain compliance with such requirement. The Company intends to submit a plan that it believes will be sufficient to permit
the Company to regain compliance with the minimum bid price requirement. While the appeal process is pending, the suspension
of trading of the Company’s common stock is stayed, and the Company’s common stock will continue to trade on
Nasdaq until the hearing process concludes and the Panel issues a written decision.
There can be no assurance that the Panel
will grant the Company’s request for a suspension of delisting or continued listing on Nasdaq. If the Company’s common
stock ceases to be listed for trading on The Nasdaq Capital Market, the Company would expect that its common stock would be traded
on one of the three tiered marketplaces of the OTC Markets Group.
In the event that our common stock is delisted
from the NASDAQ, and is not eligible for quotation on another market or exchange, trading of our common stock could be conducted
in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheet or
the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our
common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could
cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are
not listed on a major exchange.
In the event that our common stock
is delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because
they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted a number of rules to
regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks”
generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our shares of common stock have in the past constituted, and may again
in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure
requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common
stock, which could severely limit the market liquidity of such shares of common stock and impede their sale in the secondary market.
A U.S. broker-dealer selling penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess
of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales
persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping
of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor
losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
An active, liquid trading market
for our common stock may not continue, which may cause our common stock to trade at a discount from the initial offering price
and make it difficult for you to sell the common stock you purchase.
Our common stock is currently listed on
the NASDAQ Capital Market. However, there can be no assurance that an active liquid trading market for our common stock will continue.
If an active and liquid trading market does not continue, you may have difficulty selling any of our common stock that you purchase.
The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares
of our common stock at or above the price you paid, or at all.
If and when a larger trading market
for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the price at which you acquired them.
The market price of our common stock is
likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control,
including, but not limited to:
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Variations in our revenues and operating expenses;
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Actual or anticipated changes in the estimates of our operating results or changes in stock market
analyst recommendations regarding our common stock, other comparable companies or our industry generally;
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Market conditions in our industry, the industries of our customers and the economy as a whole;
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Actual or expected changes in our growth rates or our competitors’ growth rates;
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Developments in the financial markets and worldwide or regional economies;
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Announcements of innovations or new products or services by us or our competitors;
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Announcements by the government relating to regulations that govern our industry;
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Sales of our common stock or other securities by us or in the open market; and
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Changes in the market valuations of other comparable companies.
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In addition, if the market for technology
stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline
for reasons unrelated to our business, financial condition or operating results. The trading price of our shares of common stock
might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect
us. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention
and resources, which could materially and adversely affect our business, operating results and financial condition.
Exercise of options or warrants or
conversion of convertible securities may have a dilutive effect on your percentage ownership and may result in a dilution of your
voting power and an increase in the number of shares of common stock eligible for future resale in the public market, which may
negatively impact the trading price of our shares of common stock.
The exercise or conversion of some or all
of our outstanding options, warrants, or convertible securities could result in significant dilution in the percentage ownership
interest of investors in this offering and in the percentage ownership interest of our existing common stockholders and in a significant
dilution of voting rights and earnings per share.
As of September 27, 2016, we have outstanding
options to purchase an aggregate of up to 1,191 shares of our common stock outside of the incentive plans at an exercise price
of $1,050 per share granted to MBTH; and outstanding warrants to purchase up to 1,416,238 shares of common stock, including (i)
the warrants to subscribe up to 358 shares of our common stock at a subscription price of $42.00 per share granted to MBTH, (ii)
the warrant to purchase 72 shares of our common stock issued to Secure Strategy Group exercisable at $4,200.00 per share (iii)
6,412 shares of common stock issuable upon the exercise of warrants sold to investors as part of our initial public offering completed
on July 24, 2013, including those issued as part of the over-allotment, which are exercisable at $824.40 per share, (iv) the warrants
to purchase 335 shares of common stock at an exercise price of $824.40 per share granted to the underwriters pursuant to our initial
public offering, (v) the warrants to purchase 11,364 shares of common stock at an exercise price of $824.40 per share issued pursuant
to a onetime agreement approved on September 30, 2013, (vi) the warrants to purchase 9,115 shares of common stock at an exercise
price of $824.40 per share granted pursuant to the conversion of the bridge loan and outstanding securities convertible into 477
shares of our common stock issuable to Treco at a conversion price of $4,200 per share, (vii) 235 shares of common stock issuable
upon exercise of the rights granted to investors as part of the bridge loan, which are exercisable at $42.00 share, (viii) the
warrants to purchase 1,429 shares of common stock at an exercise price of $262.50 per share granted to the underwriters pursuant
to our public offering completed on November 18, 2013, (ix) the warrants to purchase 3,125 shares of common stock at an exercise
price of $138 per share granted to the investors in the December 30, 2014 private placement, (x) the warrants to purchase 1,459
shares of common stock at an exercise price of $138 per share granted to the investors in the February 11, 2015 private placement,
(xi) the warrants to purchase 3,521 shares of common stock at an exercise price of $240.00 per share granted to the investors in
the February 23, 2015 private placement, (xii) the warrants to purchase 7,500 shares of common stock at an exercise price of $138
per share granted to the investors in the February 24, 2015 private placement; (xiii) the warrants to purchase 204,168 shares of
common stock at an exercise price of $9.00 per share issued to certain holders of our pre-funded Series B Warrants to settle certain
claims on November 2, 2015, (xiv) the warrants to purchase 1,166,668 shares of our common stock at an exercise price of $1.3788
per share sold to investors as part of our offering completed on May 16, 2016, and (xv) the warrants to purchase 10,493,750 shares
of our common stock at an exercise price of $0.685 per share sold to investors as part of our offering completed on July 20, 2016.
Additionally, the issuance of up to 18,126
shares of common stock upon exercise of stock options outstanding under our stock incentive plans will further dilute our stockholders’
voting interests. To the extent options and/or warrants and/or conversion rights are exercised, additional shares of common stock
will be issued, and such issuance will dilute stockholders.
As of September 27, 2016, 1,666,672 shares of
our common stock may be issued upon conversion of 2,000,000 Series D Convertible Preferred Stock based on a conversion price of
$1.20, which shares are being registered pursuant to the registration statement of which this prospectus forms a part.
In addition to the dilutive effects described
above, the exercise of those securities would lead to an increase in the number of shares of common stock eligible for resale in
the public market. Sales of substantial numbers of such shares of common stock in the public market could adversely affect the
market price of our shares of common stock. Substantial dilution and/or a substantial increase in the number of shares of common
stock available for future resale may negatively impact the trading price of our shares of common stock.
We may seek to raise additional funds,
finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the
terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares
of common stock.
We have financed our operations, and we
expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity
and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further,
any additional financing that we secure may require the granting of rights, preferences or privileges senior to, or
pari
passu
with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market
price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market
price of our common stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale
of other securities or instruments senior to our shares of common stock. The holders of any securities or instruments we may issue
may have rights superior to the rights of our common stockholders. If we experience dilution from the issuance of additional securities
and we grant superior rights to new securities over common stockholders, it may negatively impact the trading price of our shares
of common stock and you may lose all or part of your investment.
The market price of our shares of
common stock is particularly volatile given our status as a relatively unknown company with a generally small and thinly traded
public float and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your shares
of common stock at or above your purchase price, which may result in substantial losses to you.
The market for our shares of common stock
is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on
a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile
than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable
to a number of factors. First, as noted above, our shares of common stock are, compared to the shares of such larger, more established
companies, sporadically and thinly traded. The price for our shares of common stock could, for example, decline precipitously in
the event that a large number of our shares of common stock are sold on the market without commensurate demand. Secondly, we are
a speculative or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more
risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress,
be more inclined to sell their shares of common stock on the market more quickly and at greater discounts than would be the case
with the stock of a larger, more established company that trades on a national securities exchange and has a large public float.
Many of these factors are beyond our control and may decrease the market price of our shares of common stock, regardless of our
operating performance.
Our charter documents and Delaware
law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our common stock.
Our amended and restated certificate of
incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our Company.
These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These
provisions include:
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authorizing the Board of Directors to issue, without stockholder approval, preferred stock with
rights senior to those of our common stock;
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limiting the persons who may call special meetings of stockholders; and
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requiring advance notification of stockholder nominations and proposals.
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In addition, the provisions of Section
203 of the Delaware General Corporation Law govern us. These provisions may prohibit large stockholders, in particular those owning
15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent
of our Board of Directors.
These and other provisions in our amended
and restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential
takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result
in the market price of our common stock being lower than it would be without these provisions.
We have not paid dividends in the
past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future
appreciation in the value of our common stock.
We currently intend to retain any future
earnings to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of
common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors
after taking into account various factors, including without limitation, our financial condition, operating results, cash needs,
growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends,
our shares of common stock may be less valuable because a return on investment will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as
the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return
on investment. Investors seeking cash dividends should not purchase our common stock.
Non-U.S. investors may have difficulty
effecting service of process against us or enforcing judgments against us in courts of non-U.S. jurisdictions.
We are incorporated under the laws of the
state of Delaware. All of our directors and officers reside in the United States. It may not be possible for non-U.S. investors
to effect service of process within their own jurisdictions upon our company and our directors and officers. In addition, it may
not be possible for non-U.S. investors to collect from our company and our directors and officers judgments obtained in courts
in such non-U.S. jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock adversely, our share price and trading volume could decline.
The trading market for our shares of common
stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our
market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely,
or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in
the financial markets, which in turn could cause our common stock price or trading volume to decline.
The requirements of being a U.S.
public company may strain our resources and divert management’s attention.
As a U.S. public company, we are subject
to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of NASDAQ,
and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and
financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems
and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business
and operating results.
As a result of disclosure of information
in this prospectus and in filings required of a public company, our business and financial condition is more visible, which we
believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful,
our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business
and operating results.
We acknowledge material weaknesses
in the controls and procedures of our financial reporting and may identify additional material weaknesses in the future that may
cause us to fail to meet our reporting obligations, including timeliness, or result in material misstatements of our financial
statements. If we continue to fail to remediate our material weaknesses or if we fail to implement effective controls and procedures
for our financial reporting, our ability to accurately and timely report our financial results could be adversely affected, which
likely would adversely affect the value of our common stock.
Our management has previously identified
a material weakness regarding inadequate accounting resources to maintain adequate segregation of duties due to the need to hire
accounting personnel with the requisite knowledge of U.S. GAAP. Additionally, management has not performed on effective risk assessment
of, or monitored internal controls over, financial reporting. Due to these material weaknesses as well as the recent loss of accounting
personnel through cost cutting measures and the need to deal with complex accounting transactions, we believe that our disclosure
controls and internal controls over financial reporting are not yet effective.
A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further,
the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected. Failure of our internal control systems to
prevent error or fraud could materially adversely impact us, could lead to restatements of our financial statements and investors
not being able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC, and
could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.
Any such failure could also cause investors to lose confidence in our reported financial information or our ongoing ability to
meet SEC filing deadlines, which likely would adversely affect the value of our common stock and severely limit or even eliminate
the prospects for our success in obtaining new capital.
Risks Related to Our Business
We have a history of operating losses
and we expect to continue to realize net losses for at least the next 12 months.
We have recorded a net loss in each reporting
period since our inception. Our net loss for the year ended December 31, 2015, and the six months ended June 30, 2016 was approximately
$17,857,000 and $8,645,000, respectively. Our accumulated deficit at June 30, 2016 was approximately $197,042,000. We began our
research and development activities in 2002, and we have had significant net losses and will likely continue to incur net losses
until we can successfully commercialize our products and technology. Our independent registered public accounting firm has expressed
substantial doubt concerning our ability to continue as a going concern. Our ability to continue as a going concern is dependent
upon our ability to raise additional capital, obtain other financing and/or close on our potential revenue producing opportunities.
We expect to continue to have development costs as we develop the next generation of products. In addition, at this stage of our
development we are subject to the following risks:
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our results of operations may fluctuate significantly, which may adversely affect the value of
an investment in our common stock;
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we may be unable to develop and commercialize our products; and
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it may be difficult to forecast accurately our key operating and performance metrics because of
our limited operating history.
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We are uncertain of our ability to
continue as a going concern, indicating the possibility that we may not be able to operate in the future.
To date, we have completed only the initial
stages of our business plan and we can provide no assurance that we will be able to generate a sufficient amount of revenue, if
at all, from our business in order to achieve profitability. It is not possible for us to predict at this time the potential
success of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we
cannot continue as a viable entity, you may lose some or all of your investment in our company.
We are an early stage entity and have incurred
net losses since inception. Our ability to continue as a going concern is contingent upon, among other factors, our ability to
raise additional cash from equity financings, secure debt financing, and/or generate revenue from the sales of our products. We
cannot provide any assurance that we will be able to raise additional capital. If we are unable to secure additional capital,
we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to
conserve our cash in amounts sufficient to sustain operations and meet our obligations.
We may require additional capital
in the future to develop new products. If we do not obtain any such additional financing, if required, our business prospects,
financial condition and results of operations will be adversely affected.
We may require additional capital in the
future to develop new products. We may not be able to secure adequate additional financing when needed on acceptable terms, or
at all. To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially
at a price lower than the public offering price in this offering or the market price of our common stock at the time of such issuance.
If we cannot secure sufficient additional funding we may be forced to forego strategic opportunities or delay, scale back and eliminate
future product development.
Defects or errors in our products
and services or in products made by our suppliers could harm our brand and relations with our customers and expose us to liability.
If we experience product recalls, we may incur significant expenses and experience decreased demand for our products.
Our products are inherently complex and
may contain defects and errors that are only detectable when the products are in use. Because our products are used for both personal
and business purposes, such defects or errors could have a serious impact on our end customers, which could damage our reputation,
harm our customer relationships and expose us to liability. Defects or impurities in our components, materials or software, equipment
failures or other difficulties could adversely affect our ability, and that of our customers, to ship products on a timely basis
as well as customer or licensee demand for our products. Any such shipment delays or declines in demand could reduce our revenues
and harm our ability to achieve or sustain desired levels of profitability. We and our customers may also experience component
or software failures or defects that could require significant product recalls, rework and/or repairs that are not covered by warranty
reserves.
Our recognition of deferred revenue
is subject to future performance obligations and may not be representative of revenues for future periods.
As of June 30, 2016, we had $182,000 of
deferred revenue recorded as a liability on our condensed balance sheet. This deferred revenue was recorded based on engineering
design and installation services that have yet to be performed. In accordance with the Financial Accounting Standards Board (“FASB”),
United States generally accepted accounting principles (“U.S. GAAP”), and Securities and Exchange Commission (“SEC”)
Staff accounting guidance on revenue recognition, the Company considers revenue earned and realizable when: (a) persuasive evidence
of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred,
(d) customer acceptance has been received, if contractually required, and (e) collectability of the arrangement fee is probable.
Due to potential future changes in customer
preferences, or delays in customer development or implementation schedules or budgets, and the need for us to satisfactorily perform
product support and other services, deferred revenue and backlog amounts at any particular date may not be representative of actual
revenue for any current or future period.
We may not fully realize anticipated
benefits from our recent acquisitions.
On January 29, 2016, we completed the acquisition
of certain assets and liabilities that constitute the business of IMT. Although we expect to realize strategic, operational and
financial benefits as a result of the acquisition, we cannot predict whether and to what extent such benefits will be achieved,
or that any operational or financial benefits will be achieved. The success of the acquisition will depend upon, among other things,
our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain
and motivate key personnel of IMT and to retain their customers. Any acquisition may result in diversion of management’s
attention from other business concerns, and may result in unanticipated costs and operational challenges.
Although certain technical problems
experienced by users may not be caused by our products, our business and reputation may be harmed if users perceive our solutions
as the cause of a slow or unreliable network connection, or a high profile network failure.
We expect that our products will be in
many different locations and user environments and will be capable of providing mobile broadband connectivity and interference
mitigation, among other applications. The ability of our products to operate effectively can be negatively impacted by many different
elements unrelated to our products. Although certain technical problems experienced by users may not be caused by our products,
users often may perceive the underlying cause to be a result of poor performance of our technology. This perception, even if incorrect,
could harm our business and reputation. Similarly, a high profile network failure may be caused by improper operation of the network
or failure of a network component that we did not supply, but other service providers may perceive that our products were implicated,
which, even if incorrect, could harm our business, operating results and financial condition.
Our ability to sell our products
will be highly dependent on the quality of our support and services offerings, and our failure to offer high-quality support and
services would have a material adverse effect on our sales and results of operations.
Once our products are deployed, our channel
partners and end-customers will depend on our support organization to resolve any issues relating to our products. A high level
of support will be important for the successful marketing and sale of our products. In many cases, our channel partners will likely
provide support directly to our end-customers. We will not have complete control over the level or quality of support provided
by our channel partners. These channel partners may also provide support for other third-party products, which may potentially
distract resources from support for our products. If we and our channel partners do not effectively assist our end-customers in
deploying our products, succeed in helping our end-customers quickly resolve post-deployment issues or provide effective ongoing
support, our ability to sell our products to existing end-customers could be adversely affected and our reputation with potential
end-customers could be harmed. In some cases, we guarantee a certain level of performance to our channel partners and end-customers,
which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems were to arise.
We may fail to recruit and retain
qualified personnel.
We expect to rapidly expand our operations
and grow our sales, development and administrative operations. This expansion is expected to place a significant strain on our
management and will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel
in the future will be critical to our success. There is intense competition from other companies for qualified personnel in the
areas of our activities. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable
to continue our marketing and development activities, and this could have a material adverse effect on our business, financial
condition, results of operations and future prospects.
We rely on key executive officers,
and their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our executive
officers because of their expertise and experience in the telecommunications industry. We have agreements with our executive officers
containing customary non-disclosure, non-compete, confidentiality and assignment of inventions provisions. We do not have “key
person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry
expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion
of management resources, which could adversely affect our operating results.
We purchase some components, subassemblies
and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain
orders and fulfill sales as we design and qualify new components.
We rely on third party components and technology
to build and operate our products, and, until full integration with IMT, we rely on our contract manufacturers to obtain the components,
subassemblies and products necessary for the manufacture of our products. Shortages in components that we use in our products are
possible, and our ability to predict the availability of such components is limited. While components and supplies are generally
available from a variety of sources, we and our contract manufacturers currently depend on a single or limited number of suppliers
for several components for our products. If our suppliers of these components or technology were to enter into exclusive relationships
with other providers of wireless networking equipment or were to discontinue providing such components and technology to us and
we were unable to replace them cost effectively, or at all, our ability to provide our products would be impaired. We and our contract
manufacturers generally rely on purchase orders rather than long-term contracts with these suppliers. As a result, even if available,
we and our contract manufacturers may not be able to secure sufficient components at reasonable prices or of acceptable quality
to build our products in a timely manner. Therefore, we may be unable to meet customer demand for our products, which would have
a material adverse effect on our business, operating results and financial condition.
We do not have long-term contracts
with our existing contract manufacturers. The loss of any of our existing contract manufacturers could have a material adverse
effect on our business, operating results and financial condition.
We do not have long-term contracts with
our existing contract manufacturers. If any of our existing contract manufacturers are unable or unwilling to manufacture our products
in the future, the loss of such contract manufacturers could have a material adverse effect on our business, operating results
and financial condition.
Our intellectual property protections
may be insufficient to properly safeguard our technology.
Our success and ability to compete effectively
are, in large part, dependent upon proprietary technology that we have developed internally. Given the rapid pace of innovation
and technological change within the wireless and broadband industries, the technological and creative skill of our personnel, consultants
and contractors and their ability to develop, enhance and market new products and upgrades to existing products are critical to
our continued success. We rely primarily on patent laws to protect our proprietary rights. As of September 27, 2016, in the United
States, we have 59 patents granted and 1 patent application pending. Internationally, we have 53 patents granted and 31 patent
applications pending. There can be no assurance that patents pending or future patent applications will be issued, or that if issued,
we would have the resources to protect any such issued patent from infringement. Further, we cannot patent much of the technology
that is important to our business. To date, we have relied on copyright, trademark and trade secret laws, as well as confidentiality
procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with our employees, consultants,
contractors, customers and vendors, to establish and protect our rights to this technology and, to the best extent possible, control
the access to and distribution of our technology, software, documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized
use of this technology is difficult. There can be no assurance that the steps we take or will take will prevent misappropriation
of, or prevent an unauthorized third party from obtaining or using, the technology we rely on. In addition, effective protection
may be unavailable or limited in some jurisdictions. Litigation may be necessary in the future to enforce or protect our rights.
We may be subject to claims of intellectual
property infringement or invalidity. Expenses incurred with respect to monitoring, protecting, and defending our intellectual property
rights could adversely affect our business.
Competitors and others may infringe on
our intellectual property rights, or may allege that we have infringed on theirs. Monitoring infringement and misappropriation
of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our
proprietary rights. We may also incur significant litigation expenses in protecting our intellectual property or defending our
use of intellectual property, reducing our ability to fund product initiatives. These expenses could have an adverse effect on
our future cash flows and results of operations. If we are found to infringe on the rights of others we could be required to discontinue
offering certain products or systems, to pay damages, or purchase a license to use the intellectual property in question from its
owner. Litigation can also distract management from the day-to-day operations of the business.
Enforcement of our intellectual property
rights abroad, particularly in China, is limited and it is often difficult to protect and enforce such rights.
Patent protection outside the United States
is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where
our products are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement
in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries
where we sell, or intend to sell, products or have our products manufactured.
In particular, the legal regime relating
to intellectual property rights in China is limited and it is often difficult to protect and enforce such rights. The regulatory
scheme for enforcing China’s intellectual property laws may not be as developed as regulatory schemes in other countries.
Any advancement of an intellectual property enforcement claim through China’s regulatory scheme may require an extensive
amount of time, allowing intellectual property infringers to continue largely unimpeded, to our commercial detriment in the Chinese
and other export markets. In addition, rules of evidence may be unclear, inconsistent or difficult to comply with, making it difficult
to prove infringement of our intellectual property rights. As a result, enforcement cases involving technology, such as copyright
infringement of software code, or unauthorized manufacture or sale of products containing patented inventions, may be difficult
or not possible to sustain.
These factors may make it increasingly
complicated for us to enforce our intellectual property rights against parties misappropriating or copying our technology or products
without our authorization, allowing competing enterprises to harm our business in the Chinese or other export markets by affecting
the pricing for our products, reducing our own sales and diluting our brand or product quality reputation.
The intellectual property rights
of others may prevent us from developing new products or entering new markets.
The telecommunications industry is characterized
by the rapid development of new technologies, which requires us to continuously introduce new products and expand into new markets
that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to incorporate
new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual
property rights of others, including our competitors, we may be prevented from introducing new products or expanding into new markets
created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies,
our financial condition, operating results or prospects may be harmed.
Further impairment charges could
have a material adverse effect on our financial condition and results of operations.
We are required to test our finite-lived
intangible assets for impairment if events occur or circumstances change that would indicate the remaining net book value of the
finite-lived intangible assets might not be recoverable. These events or circumstances could include a significant change in the
business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance
indicators, competition, sale or disposition of a significant portion of our business, potential government actions and other factors.
If the fair value of our finite-lived intangible assets is less than their book value in the future, we could be required to record
impairment charges. During 2015, we recognized an impairment charge of $2.1 million on software development costs due to our analysis
of the net realizable value of our capitalized software costs. The amount of any further impairment could be significant and could
have a material adverse effect on our reported financial results for the period in which the charge is taken.
We rely on the availability of third-party
licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and operating
results would be harmed.
We have incorporated third-party licensed
technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products
or to seek additional licenses for existing or new products. There can be no assurance that the necessary licenses will be available
on acceptable terms or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights
on favorable terms, or the need to engage in litigation regarding these matters, could result in delays in product releases until
such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products and might
have a material adverse effect on our business, operating results and financial condition. Moreover, the inclusion in our products
of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary
rights in our products.
Our customers could also become the
target of litigation relating to the patent and other intellectual property rights of others.
Any litigation relating to the intellectual
property rights of others could trigger technical support and indemnification obligations in licenses or customer agreements that
we may enter into. These obligations could result in substantial expenses, including the payment by us of costs and damages relating
to claims of intellectual property infringement. In addition to the time and expense required for us to provide support or indemnification
to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relationships
with such customers and cause the sale of our products to decrease. No assurance can be given that claims for indemnification will
not be made, or that if made, such claims would not have a material adverse effect on our business, operating results or financial
conditions.
We expect to base our inventory purchasing
decisions on our forecasts of customers’ demand, and if our forecasts are inaccurate, our operating results could be materially
harmed.
As our customer base increases, we expect
to place orders with our contract manufacturers based on our forecasts of our customers’ demand. Our forecasts will be based
on multiple assumptions, each of which may cause our estimates to be inaccurate, affecting our ability to provide products to our
customers. When demand for our products increases significantly, we may not be able to meet demand on a timely basis, and we may
need to expend a significant amount of time working with our customers to allocate limited supply and maintain positive customer
relations, or we may incur additional costs in order to rush the manufacture and delivery of additional products. If we underestimate
customers’ demand, we may forego revenue opportunities, lose market share and damage our customer relationships. Conversely,
if we overestimate customer demand, we may purchase more inventory than we are able to sell at any given time or at all. In addition,
we grant our distributors stock rotation rights, which require us to accept stock back from a distributor’s inventory, including
obsolete inventory. As a result of our failure to properly estimate demand for our products, we could have excess or obsolete inventory,
resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our
failure to accurately manage inventory relative to demand would adversely affect our operating results. We have not yet fully integrated
IMT into our organization and are therefore not able to determine whether we can meet such demand.
If our technology does not work as
well as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business and
operating results would suffer.
Our success and ability to compete are
dependent on technology which we have developed or may develop in the future. There is a risk that the technology that we have
developed or may develop may not work as intended, or that the marketing of the technology may not be as successful as anticipated.
Further, the markets in which we and our customers compete or plan to compete are characterized by constantly and rapidly changing
technologies and technological obsolescence. Our ability to compete successfully depends on our ability to design, develop, manufacture,
assemble, test, market and support new products and enhancements on a timely and cost effective basis to keep pace with market
needs and satisfy the demands of customers. A fundamental shift in technologies in any of our target markets could harm our competitive
position within these markets. Our failure to anticipate these shifts, to develop new technologies or to react to changes in existing
technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenue
and a loss of customer wins to our competitors. The development of new technologies and products generally require substantial
investment and can require long development and testing periods before they are commercially viable. We intend to continue to make
substantial investments in developing new technologies and products and it is possible that that we may not successfully be able
to develop or acquire new products or product enhancements that compete effectively within our target markets or differentiate
our products based on functionality, performance or cost and that our new technologies and products will not result in meaningful
revenue. Any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and customers.
Any technical flaws in product releases could diminish the innovative impact of our products and have a negative effect on customer
adoption and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do
not achieve market acceptance, or if we fail to penetrate new markets, our revenue will not increase over time and our operating
results and competitive position would suffer.
Computer malware, viruses, hacking
and phishing attacks could harm our business and results of operations.
Computer malware, viruses, and computer
hacking and phishing attacks have become more prevalent in our industry and may occur on our systems in the future. Though it is
difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain
performance, reliability, security, and availability of our products and technical infrastructure to the satisfaction of our users
may harm our reputation and our ability to attract and retain customers.
Our operating expenses will increase
as we make further expenditures to enhance and expand our operations in order to support additional growth in our business.
Historically, we limited our investment
in infrastructure; however, in the future we expect our infrastructure investments to increase substantially to support our anticipated
growth. We intend to make additional investments in systems and personnel in order to expand our business and continue to expand
our operations to support anticipated growth in our business. In addition, we may determine the need in the future to make changes
to our sales model, which changes may result in higher selling, general and administrative expenses as a percentage of our revenues.
As a result of these factors, we expect our operating expenses to increase.
If we do not effectively manage changes
in our business, these changes could place a significant strain on our management and operations.
Our ability to grow successfully requires
an effective planning and management process. The expansion and growth of our business could place a significant strain on our
management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand
our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources may not be adequate
to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business,
including acquisitions, this could have a material adverse effect on our business, financial condition, results of operations and
future prospects.
Our sales cycle is unpredictable,
and a failure to generate consistent sales of our products could materially affect our financial position and operating results.
To date, we have not yet established a
consistent sales cycle for our products. In addition, in our industry it is customary for potential customers to request a trial
of products prior to making a purchase. There can be no assurance that such trials of our products will produce sales. If we cannot
generate consistent sales of our products, our financial position and operating results could be materially affected.
If we are unable to expand our sales
and marketing capabilities or enter into more agreements with third parties to sell and market any products we may develop, we
may be unable to generate product revenue.
We are currently building our internal
sales organization for the sales, marketing and distribution of our products. In order to commercialize xMax® or any of our
other products, we must build our sales, marketing, distribution, managerial and other non-technical capabilities or make arrangements
with other parties to perform these services. The expansion of our own sales force to market any products we may develop will increase
our operating costs and be time consuming. We cannot be certain that we would be able to successfully develop this capacity. If
we are unable to expand our sales and marketing capability or any other non-technical capabilities necessary to commercialize any
product we may develop, we will need to contract with other parties to market and sell any products we may develop. If we are unable
to establish adequate sales, marketing and distribution capabilities, whether independently or with other parties, we may not be
able to generate product revenue and may not become profitable. Further, we have not yet fully integrated IMT into our model.
If our estimates relating to our
critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results
could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements
in conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported
in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results
may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock
price. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability
of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative
instruments, and debt discounts and the valuation of the assets and liabilities acquired in the transaction.
Our exposure to the credit risks
of our customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial
condition.
In the course of our sales to customers,
we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts
receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. While we will attempt
to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have
written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable
write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating
results for the period in which they occur.
Demand for our defense-related products
and products for emergency response services and rural telecommunications depends on government spending.
The U.S. military market is largely dependent
upon government budgets, particularly the defense budget. The funding of government programs is subject to Congressional appropriation.
Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on
a fiscal year basis even though a program may be expected to continue for several years. Consequently, programs are often only
partially funded and additional funds are committed only as Congress makes further appropriations. No assurance can be given that
an increase in defense spending will be allocated to programs that would benefit our business. A decrease in levels of defense
spending or the government’s termination of, or failure to fully fund, one or more of the contracts for which our products
may be utilized could have a material adverse effect on our financial position and results of operations.
In addition, the sale of our products to
local municipalities for emergency response services and to rural telecommunication companies depends on government spending allocated
to such areas. There can be no assurance that government spending will be allocated to emergency response services or to rural
telecommunications companies at a level that would benefit our business. A decrease in levels of government spending for emergency
response services or rural telecommunications, or the government’s termination of, or failure to fully fund, one or more
of the contracts for which our products may be utilized with respect to emergency response services or rural telecommunications,
could have a material adverse effect on our financial position and results of operations.
Our failure to obtain and maintain
required certifications could impair our ability to bid on defense contracts.
In order for us to participate in certain
government programs we could be required to obtain and maintain quality certification and certain standards for Department of Defense
wireless security such as certification by the Joint Interoperability and Test Command (JITC) and to meet production standards
in order to be eligible to bid on government contracts. If we fail to maintain these certifications or any additional certification
which may be required, we will be ineligible to bid for contracts which may impair our financial operations and consequently, our
ability to continue in business.
Regulation of the telecommunications
industry could harm our operating results and future prospects.
The traditional telecommunications industry
is highly regulated, and our business and financial condition could be adversely affected by changes in regulations relating to
the Internet telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or commerce
on IP networks, but future regulations could include sales taxes and tariffs in previously unregulated areas and provider access
charges. We could be adversely affected by regulation of IP networks and commerce in any country where we market equipment and
services to service or content providers. Regulations governing the range of services and business models that can be offered by
service providers or content providers could adversely affect those customers’ needs for products designed to enable a wide
range of such services or business models. For instance, the U.S. Federal Communications Commission has issued regulations governing
aspects of fixed broadband networks and wireless networks. These regulations might impact service provider and content provider
business models and as such, providers’ needs for Internet telecommunications equipment and services. In addition, many jurisdictions
are evaluating or implementing regulations relating to cyber security, privacy and data protection, which could affect the market
and requirements for networking and security equipment.
In addition, environmental regulations
relevant to electronic equipment manufacturing or operations may impact our business and financial condition adversely. For instance,
the European Union has adopted regulations on Electronic waste, e-waste, e-scrap, or waste electrical and electronic equipment
(“WEEE”), Restriction of the Use of Certain Hazardous Substances (“ROHS”) and Registration, Evaluation,
Authorisation and Restriction of Chemical substances (“REACH”). Furthermore, some governments have regulations prohibiting
government entities from purchasing security products that do not meet specified indigenous certification criteria even though
those criteria may be in conflict with accepted international standards. Similar regulations are in effect or under consideration
in several jurisdictions where we do business.
The adoption and implementation of such
regulations could decrease demand for our products, increase the cost of building and selling our products and impact our ability
to ship products into affected areas and recognize revenue in a timely manner. Any of these impacts could have a material adverse
effect on our business, financial condition, and results of operations.
As an emerging growth company as
defined in the JOBS Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements
will make our common stock less attractive to investors.
We are an emerging growth company as defined
in the JOBS Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified
disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and
omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on
executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including
the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal
control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this
extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards as they become applicable to public companies. We cannot predict if investors will find our
common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We could remain an emerging growth company
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds
$1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three-year period.
We have not engaged our independent registered
public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for
any period reported in our financial statements. Had our independent registered public accounting firm performed an audit of our
internal control over financial reporting, additional material weaknesses may have been identified. For so long as we qualify as
an emerging growth company under the JOBS Act, which may be up to five years following this offering, we will not have to provide
an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section
404(b) of the Sarbanes-Oxley Act. During the course of the evaluation, documentation or attestation, we or our independent registered
public accounting firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner or at all
as a result of the deferred implementation of this additional level of review.
Risks Relating to Our Industry
Our industry is subject to rapid
technological change, and we must make substantial investments in new products, services and technologies to compete successfully.
New technological innovations generally
require a substantial investment before they are commercially viable. We intend to continue to make substantial investments in
developing new products and technologies, and it is possible that our development efforts will not be successful and that our new
technologies will not result in meaningful revenues. Our future success will depend on our ability to continue to develop and introduce
new products, technologies and enhancements on a timely basis. Our future success will also depend on our ability to keep pace
with technological developments, protect our intellectual property, satisfy customer requirements, meet customer expectations,
price our products and services competitively and achieve market acceptance. The introduction of products embodying new technologies
and the emergence of new industry standards could render our existing products and technologies, and products and technologies
currently under development, obsolete and unmarketable. If we fail to anticipate or respond adequately to technological developments
or customer requirements, or experience any significant delays in development, introduction or shipment of our products and technologies
in commercial quantities, demand for our products and our customers’ and licensees’ products that use our technologies
could decrease, and our competitive position could be damaged.
We may be subject to infringement
claims in the future.
We may be unaware of filed patent applications
and issued patents that could include claims covering our products. Parties making claims of infringement may be able to obtain
injunctive or other equitable relief that could effectively block our ability to sell or supply our products or license our technology
and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could divert management’s
efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the
merits of such claims. These outcomes may (i) require us to stop selling products or using technology that contains the allegedly
infringing intellectual property; (ii) require us to redesign those products that contain the allegedly infringing intellectual
property; (iii) require us to pay substantial damages to the party whose intellectual property rights we may be found to be infringing;
(iv) result in the loss of existing customers or prohibit the acquisition of new customers; (v) cause us to attempt to obtain a
license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all; (vi)
materially and adversely affect our brand in the market place and cause a substantial loss of goodwill; (vii) cause our stock price
to decline significantly; (viii) materially and adversely affect our liquidity, including our ability to pay debts and other obligations
as they become due; or (ix) lead to our bankruptcy or liquidation.
Our industry is highly competitive
and we may not be able to compete effectively.
The communications industry is highly competitive,
rapidly evolving, and subject to constant technological change. We expect that new competitors are likely to join existing competitors.
Many of our competitors may be larger and have greater financial, technical, operational, marketing and other resources and
experience than we do. In the event that a competitor expends significant resources we may not be able to successfully compete.
In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using
different technologies to provide products. If our competitors were to provide better and more cost effective products than our
products we may not be able to capture any significant market share.
Regulation of Voice over Internet
Protocol (“VoIP”) services is developing and therefore uncertain and future legislative, regulatory or judicial actions
could adversely affect our business.
VoIP services have developed in an environment
largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority
over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us
and our prospective customers and the effects of future regulatory developments are uncertain. Future legislative, judicial or
other regulatory actions could have a negative effect on our business. In addition, future regulatory developments could increase
our cost of doing business and limit our growth.
Changes in current laws or regulations
or the imposition of new laws or regulations could impede the sale of our products or otherwise harm our business.
Although our technology is designed to
be frequency agnostic (i.e., capable of operating at any frequency) our current range of products is being designed to be optimized
for operation in the 902 – 928 MHz band, which is presently a spectrum that is not licensed in the United States.
Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding
the usage of unlicensed spectrum may materially and adversely impact our future prospects, the viability of our current business
model, our expectations for future sales of our products and our business, financial condition and results of operations.
New regulations or standards or changes
in existing regulations or standards in the United States or internationally related to our products may result in unanticipated
costs or liabilities, which could have a material adverse effect on our business, results of operations and future sales, and could
place additional burdens on the operations of our business.
Our products may be subject to governmental
regulations in a variety of jurisdictions. In order to achieve and maintain market acceptance, our technology and products will
have to comply with these regulations as well as a significant number of industry standards. In the United States, our technology
and products will have to comply with various regulations defined by the Federal Communications Commission, or FCC, and others.
We may also have to comply with similar international regulations. For example, our wireless communication products operate through
the transmission of radio signals, and radio emissions are subject to regulation in the United States and in other countries in
which we intend to do business. In the United States, various federal agencies including the Center for Devices and Radiological
Health of the Food and Drug Administration, the FCC, the Occupational Safety and Health Administration and various state agencies
have promulgated regulations that concern the use of radio/electromagnetic emissions standards. Member countries of the European
Union have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions, and chemical
substances and use standards.
As these regulations and standards evolve,
and if new regulations or standards are implemented, we may be required to modify our technology or products or develop and support
new versions of our technology or products, and our compliance with these regulations and standards may become more burdensome.
The failure of technology or our products to comply, or delays in compliance, with the various existing and evolving industry regulations
and standards could prevent or delay introduction of our technology or products, which could harm our business. End-customer uncertainty
regarding future policies may also affect demand for communications products, including our products. Moreover, channel partners
or end-customers may require us, or we may otherwise deem it necessary or advisable, to alter our technology or products to address
actual or anticipated changes in the regulatory environment. Our inability to alter our technology or products to address these
requirements and any regulatory changes may have a material adverse effect on our business, operating results and financial condition.
Compliance with environmental, health
and safety laws and regulations, including new regulations requiring higher standards, may increase our costs, limit our ability
to utilize supply chains, and force design changes to our products.
Our operations are subject to a variety
of environmental, health and safety laws and regulations and equivalent local, state, and regulatory agencies in each of the jurisdictions
in which we currently operate or may operate in the future. The manufacturing of our products uses substances regulated under various
federal, state, local laws and regulations governing the environment and worker health and safety. If we, including any contract
manufacturers that we may employ, do not comply with these laws including any new regulations, such non-compliance could reduce
the net realizable value of our products, which would result in an immediate charge to our income statements. Our non-compliance
with such laws could also negatively impact our operations and financial position as a result of fines, penalties that may be imposed
on us, and increase the cost of mandated remediation or delays to any contract manufacturers we may utilize, thus we may suffer
a loss of revenues, be unable to sell our products in certain markets and/or countries, be subject to penalties and enforced fees
and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations and/or similar future laws and regulations,
if applicable, could include costs associated with modifying our products, recycling and other waste processing costs, legal and
regulatory costs and insurance costs. We cannot assure you that the costs to comply with these new laws or with current and future
environmental and worker health and safety laws will not have a material adverse effect on our business, operating results and
financial condition.
Governmental regulations affecting
the import or export of products or affecting products containing encryption capabilities could negatively affect our revenues.
The United States and various foreign governments
have imposed controls, export license requirements, and restrictions on the import or export of some technologies, especially encryption
technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology,
such as requiring certification, notifications, review of source code, or the escrow and governmental recovery of private encryption
keys. For example, Russia and China recently have implemented new requirements relating to products containing encryption and India
has imposed special warranty and other obligations associated with technology deemed critical. Governmental regulation of encryption
or IP networking technology and regulation of imports or exports, or our failure to obtain required import or export approval for
our products, could harm our international and domestic sales prospects and adversely affect our revenue expectation. In addition,
failure to comply with such regulations could result in penalties, costs, and restrictions on import or export privileges or adversely
affect sales to government agencies or government funded projects.
If wireless devices pose safety risks,
we may be subject to new regulations, and demand for our products and those of our licensees and customers may decrease.
Concerns over the effects of radio frequency
emissions, even if unfounded, may have the effect of discouraging the use of wireless devices, which may decrease demand for our
products and those of our licensees and customers. In recent years, the FCC and foreign regulatory agencies have updated the guidelines
and methods they use for evaluating radio frequency emissions from radio equipment, including wireless phones and other wireless
devices. In addition, interest groups have requested that the FCC investigate claims that wireless communication technologies pose
health concerns and cause interference with airbags, hearing aids and medical devices. Concerns have also been expressed over the
possibility of safety risks due to a lack of attention associated with the use of wireless devices while driving. Any legislation
that may be adopted in response to these expressions of concern could reduce demand for our products and those of our licensees
and customers in the United States as well as foreign countries.