Item 1A: Risk Factors

Factors Affecting Future Results

This Annual Report on Form 10-K, including the discussion in this section, contains forward-looking statements that involve risks and uncertainties. Any statements herein that are not statements of historical fact may be forward-looking statements. When we use the words "anticipate," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend," "should," "could," "may," "will," and similar words or phrases, we are identifying forward-looking statements. Such forward-looking statements include, but are not limited to, statements regarding:

• statements with respect to management's strategy and planned initiatives, including anticipated growth;

• management's belief that it will have adequate resources to fund the Company's operations and capital expenditures for the year ending December 31, 2021 and through at least the end of the first quarter of 2022;

• future capital expenditures and spending on research and development;

• expected funding of future cash expenditures;

• our expectations with respect to pending legal proceedings;

• statements regarding the expected operations of EcoChain and the impact on our business, operating results, and financial condition as a result thereof;

• our expectations regarding increases in certain selling, general and administrative expenses;

• the expected timing of the completion of EcoChain's second cryptocurrency mining facility;

• statements regarding potential acquisitions;

• our expected use of proceeds from our anticipated common stock offering and the expected net proceeds therefrom;

• our expectations regarding the renewal of our contract with the U.S. Air Force that is set to expire on June 30, 2021;

• the expected impact of pending accounting updates; and

• the expected impact of our investments in Soluna.

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Forward-looking statements involve risks, uncertainties, estimates, and assumptions that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by forward-looking statements. Important factors that could cause these differences include the following:

• sales revenue growth may not be achieved or maintained;  

• the dependence of our business on a small number of customers and potential loss of government contracts - particularly in light of potential cuts that may be imposed as a result of U.S. government budget appropriations;
• our lack of long-term purchase commitments from our customers and the ability of our customers to cancel, reduce, or delay orders for our products;  

• our inability to build and maintain relationships with our customers;  
• our inability to develop and utilize new products and technologies that address the needs of our customers;  
• our inability to retain existing or obtain new credit facilities;
• the cyclical nature of the electronics and military industries;  
• the uncertainty of the U.S. and global economy;  
• the impact of future exchange rate fluctuations;  
• failure of our strategic alliances to achieve their objectives or perform as contemplated and the risk of cancellation or early termination of such alliance by either party;  
• the loss of services of one or more of our key employees or the inability to hire, train, and retain key personnel;

• risks related to protection and infringement of intellectual property;  
• our occasional dependence on sole suppliers or a limited group of suppliers;

• our ability to generate income to realize the tax benefit of our historical net operating losses;

• risks related to the limitation of the use, for tax purposes, of our net historical operating losses in the event of certain ownership changes;
• EcoChain's development efforts with respect to its current cryptocurrency mining facility may not lead to construction of additional operational cryptocurrency mines;
• even if EcoChain's development of an operational cryptocurrency mine is successful, it still may not achieve profitability in our expected timeframe or at all depending on numerous uncertainties, including the costs of operation, the future price of cryptocurrencies and fluctuations in such prices, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies;
• general economic conditions;
• risks related to scaling the EcoChain cryptocurrency mine to larger-scale cryptocurrency mining operations;
• the general risk that the EcoChain business may not be successful;
• uncertainty regarding EcoChain's ability to consistently monetize cryptocurrency;
• fluctuating valuations of cryptocurrency; and

• other risks discussed in this Annual Report on Form 10-K.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements and we assume no obligation to update any forward-looking statements contained in this registration statement. Thus, assumptions should not be made that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.

Risk Factors

You should consider carefully the following risks, along with other information contained in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones that may affect us. Additional risks and uncertainties also may adversely affect our business and operations including those discussed in the heading "Factors Affecting Future Results" above. Any of the following events, should they actually occur, could materially and adversely affect our business and financial results.

Adverse changes in economic or other market conditions in the United States and globally may have serious implications for the growth and stability of our business and could otherwise adversely affect our business, results of operations, and financial condition.

Our business is affected by general economic conditions, both inside and outside the U.S. Adverse changes to and uncertainty in the global economy may lead to decreased demand for our products, revenue fluctuations, and increased price competition for our products, and may increase the risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue. It could also result in a decline in business forecasts, which could adversely affect our sales in future periods. Additionally, the financial strength of our customers and suppliers and their ability to obtain and rely on credit financing may affect their ability to fulfill their obligations to us and have an adverse effect on our financial results.

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Revenue growth and continued profitability of our business will continue to depend significantly on the overall demand for test and measurement instrumentations in key markets including research and development, automotive, semiconductor, cryptocurrencies and electronics. If the global economy and financial markets continue to be unstable (including as a result of the COVID-19 pandemic) or significantly decline, it may cause consumers, businesses, and governments to defer purchases in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products could decrease and differ materially from their current expectations. Further, some of our customers may require substantial financing in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of our products and meet their payment obligations to us or possible insolvencies of our customers could result in decreased customer demand, an impaired ability for us to collect on outstanding receivables, significant delays in receivable payments, and significant write-offs of accounts receivable, any or all of which could adversely impact our business and financial results.

The long-term effects of the coronavirus pandemic, or the impacts of any future pandemics or other health crises, are unknown and may adversely affect our business, results of operations, financial condition, liquidity and cash flow.

Our overall performance generally depends upon domestic and worldwide economic and political conditions. The global spread of COVID-19 has created volatility, uncertainty, and economic disruption. The pandemic has caused and may continue to cause a slowdown in worldwide economic activity, decreased demand for products and services, and disruptions to global supply chains and financial markets.

While the COVID-19 pandemic, and the changes to our operations necessitated by governmental and societal actions to contain it, including social distancing and the closing and/or limits on the business operations, required us to make certain changes to the way we conduct our business and operations during the last 12 months, we have been fortunate that, to date, the pandemic has had a limited impact on our supply chains, distribution systems, and ability to continue to conduct our business and operations. We cannot, however, predict the longer-term impacts of the pandemic, or future health emergencies, on our business, operations, revenues, results of operations, or financial condition. The ultimate extent of the impact of the current coronavirus pandemic, or any future epidemic, pandemic, or other outbreak, will depend on future developments, including how fast effective (or with respect to the current pandemic, additional) vaccines and treatments are developed, the length of time before such vaccines are sufficiently distributed (both in the United States and worldwide), new or continued government actions in response, including with respect to successive waves or variants of the virus (as well as the extent to which such variants are more contagious and/or lethal), the extent to which then-current vaccines and treatments are less effective against any such variants, and whether delays in such vaccinations allow vaccine-resistant variants to develop and spread, all of which will impact the current or any future pandemic's or similar outbreak's ultimate duration and severity as well as and how fast the economy recovers afterwards. Actions we took to mitigate the impact of the current pandemic may not be successful if the pandemic continues for a longer period than expected or in future pandemics or similar emergencies. For example, beginning in March 2020 we replaced our in-person sales meetings with meetings held by videoconference, telephone calls, webinars, and additional informational website content geared towards addressing our customers' questions and concerns for both domestic and overseas customers. Nevertheless, we believe that our inability to hold in-person meetings, while not significant, did have a negative impact on our product sales over the last 12 months, and our efforts to mitigate the effects of the pandemic restrictions on our sales model may not be a viable alternative to in-person meetings on a longer-term basis or during any future health or other emergency that engender similar restrictions. 

Further, the long-term social and economic impact of the pandemic, or the acceleration of pre-existing trends as a result thereof, are still uncertain. It is also unknowable what impacts future pandemics or health emergencies may bring. In either case, any such developments could materially and adversely affect our customer base or the demand for our products, which would have a negative effect on our business, prospects, results of operations, and financial condition, all of which could have a negative effect on the market price of our common stock.

General Business Considerations

Our business depends on a small number of customers and the U.S. Air Force.

Historically, we have had a small number of customers representing a large percentage of our total revenue. Although we endeavor to maintain and further expand our customer base, we expect that sales to a limited number of customers will continue to account for a high percentage of our revenues in any given period for the foreseeable future, and the loss of even just a couple of customers, or a significant reduction in sales to our existing customer base, could have a material adverse effect on our business. In addition, our revenues are largely dependent upon the ability of our customers to continue to grow or need services or to develop and sell products that incorporate our services and products. We also depend on purchases by the U.S. Air Force for a significant portion of our revenues and the loss of the U.S. Air Force as a customer or a delay or decline in funding of our existing or future contracts with them, particularly in light of the potential for declines in military spending that may accompany the new Presidential administration, could decrease our backlog or adversely affect our business and prospects, sales, cash flows, and our ability to fund our continued product development and growth.

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We do not have long-term purchase commitments from our customers, and our customers are also able to cancel, reduce, or delay orders for our products.  

We generally do not obtain firm, long-term purchase commitments from our customers and frequently do not have visibility as to their future demand for our products and services. Customers also may cancel, change, or delay design, production or aftermarket service quantities and schedules, or fail to meet their forecasts for a number of reasons beyond our control. Customer expectations can also change rapidly, requiring us to take on additional commitments or risks, and requiring that we provide rapid product turnaround and respond to short lead times. A variety of conditions, both specific to individual customers and generally affecting the demand for OEMs' products, may cause customers to cancel, reduce, or delay orders. Conversely, if our customers unexpectedly and significantly increase product orders, we may be required to rapidly increase production, which could strain our resources and reduce our margins. We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, leading to excess inventory write-downs and resulting negative impacts on gross margin and net income. Additionally, and as a result, our revenues may be volatile from period to period, and we may not achieve the anticipated revenues or may incur non-recoverable costs as a result of the work we did to address our customers' anticipated or changed requirements.

Our annual and quarterly operating results may experience significant fluctuations, which could adversely impact our operations, financial results, and stock price.

In addition to the variability resulting from the short-term nature of our customers' commitments, other factors contribute to significant periodic fluctuations in our results of operations. These factors include:

• the cyclicality of the markets we serve;  
• the timing and size of orders and of recognizing revenue therefrom;  
• the volume of orders relative to our capacity;  
• product introductions and market acceptance of new products or new generations of products;  
• evolution in the life cycles of our customers' products;
• timing of expenses in anticipation of future orders;
• changes in product mix;
• availability of manufacturing and assembly services;
• changes in cost and availability of labor and components;  
• the timing of delivery of products to customers;
• pricing and availability of competitive products;
• fluctuations in foreign currency exchange rates;
• introduction of new technologies into the markets we serve;
• pressures on reducing selling prices;
• our success in serving new markets; and
• changes in economic conditions.

The price of our common stock could decline substantially in the event that any of these risks result in our financial performance being below the expectations of analysts and investors, which are based on historical and predictive models that are not necessarily accurate representations of the future.

We may not be able to keep pace with technological innovations or develop new product solutions in a timely manner.

The electronic, semiconductor, solar, automotive, and general industrial segments are subject to constant technological change. Our future success will depend on our ability to respond appropriately to changing technologies and changes in product function and quality. If we rely on products and technologies that are not attractive to end users, we may not be successful in capturing or retaining market share. Technological advances, the introduction of new products, and new design techniques could adversely affect our business prospects unless we are able to adapt to the changing conditions. Technological advances could render our products obsolete, and we may not be able to respond effectively to the technological requirements of evolving markets. As a result, we will be required to expend substantial funds for and commit significant resources to:

• continue research and development activities on all product lines;  
• hire additional engineering and other technical personnel; and  
• purchase advanced design tools and test equipment.

Our business could be harmed if we are unable to develop and utilize new technologies that address the needs of our customers, or our competitors do so more effectively than we do.

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Our efforts to continue to develop new products and technologies may not result in commercial success, which could cause a decline in our revenue and otherwise harm our business.

We regularly invest substantial amounts in research and development efforts that pursue advancements in our products and technologies. Our research and development efforts with respect to our products and technologies may not result in customer or market acceptance. Some or all of such products and technologies may not successfully make the transition from the research and development lab to cost-effective production as a result of technology problems, competitive cost issues, yield problems, and other factors. Even when we successfully complete a research and development effort with respect to a particular product or technology, our customers may decide not to introduce or may discontinue products utilizing the product or technology for a variety of reasons, including, but not limited to:

• difficulties with other suppliers of components for the products;  
• superior technologies developed by our competitors and unfavorable comparisons of our solutions with these technologies;  
• price considerations; and  
• lack of anticipated or actual market demand for the products.

The nature of our business will require us to make continuing investments to develop new products and technologies. Significant expenses relating to one or more new products or technologies that ultimately prove to be unsuccessful for any reason could have a material adverse effect on us. In addition, any investments or acquisitions made to enhance our products and technologies may prove to be unsuccessful. If our efforts are unsuccessful, our business could be harmed. Moreover, when we announce our development of new products, sales of current products may decrease as customers delay making purchases until such new products are available, which could adversely affect our business, revenues, and results of operations.

The cyclical nature of the industries of many of our existing and target customers may result in fluctuations in our operating results.

Demand for our products and services in our target markets is cyclical, and revenues from the sale of our products and services can vary significantly from one period to the next as a result. We may sell a significant amount of our products to one or a few customers for various short-term projects in one period and then have markedly decreased sales in following periods as these projects end or customers have the products they require for the foreseeable future.

The electronics and military industries have experienced significant economic downturns at various times. These downturns are characterized by diminished product demand, accelerated erosion of average selling prices, and production overcapacity. We may seek to reduce our exposure to industry downturns by providing design and production services for leading companies in rapidly expanding industry segments. We may, however, experience substantial period-to-period fluctuations in future operating results because of general industry conditions or events occurring in the general economy.

International sales risks could adversely affect our operating results. Furthermore, our operating results could be adversely affected by changes to U.S. policy and fluctuations in the value of the U.S. dollar against foreign currencies.

Sales outside of the United States accounted for approximately 25.9% of our total revenue in 2020 and 35.3% of our total revenue in 2019. Our international business may be adversely affected by changing political and economic conditions in foreign countries. Having a worldwide distribution network for our products exposes us to various economic, political, and other risks that could adversely affect our operations and operating results, including:

• export restrictions and controls relating to technology;
• the burdens and costs of compliance with a variety of existing and new foreign regulatory requirements and laws, including the General Data Protection Regulation (GDPR) in the European Union and similar laws in other jurisdictions, and unexpected changes in such regulatory requirements;
• laws and business practices favoring local companies, including tariffs imposed by other countries on U.S. goods;
• timing to meet regulatory requirements;  
• developments with respect to and any impact of tariffs and other trade barrier restrictions;  
• longer payment cycles and greater difficulty in enforcing agreements and collecting receivables through foreign legal systems;
• potentially reduced protection for, and difficulties in enforcing, intellectual property rights; and  
• political or economic instability in certain parts of the world.

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These risks or any combination of them could increase our costs, lengthen our sales cycle, and require significant management attention and could otherwise negatively affect our business, operating results, financial condition, and results of operations.

In addition, we transact our business in U.S. dollars and bill and collect our sales in U.S. dollars. Approximately 25.9% and 35.3% of our revenue was from customers located outside of the United States in 2020 and 2019, respectively. It is possible that U.S. policy changes and uncertainty about policy could increase market volatility and currency exchange rate fluctuations. Market volatility and currency exchange rate fluctuations could impact our results of operations and financial condition related to transactions denominated in a foreign currency. A weakening of the dollar could cause our overseas vendors to require renegotiation of either the prices or currency we pay for their goods and services. Similarly, a strengthening of the dollar could cause our products to be more expensive for our international customers, which could impact price and margins and/or cause the demand for our products, and thus our revenue, to decline.

In the future, customers may negotiate pricing and make payments in non-U.S. currencies. If our overseas vendors or customers require us to transact business in non-U.S. currencies, fluctuations in foreign currency exchange rates could affect our cost of goods, operating expenses, and operating margins and could result in exchange losses. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact that future exchange rate fluctuations may have on our operating results.

We rely on the ability to secure funding via our credit facility when accepting large orders from certain customers, and if we are not able to retain our existing credit facility or obtain new ones we may not be able to accept these large orders, and our business, revenues, and financial condition could suffer.

For some large customer orders, particularly if the customer requires unusually long payment terms, we may need to rely on funding from our credit facility to meet our ongoing funding needs because we may have to pay for the raw materials needed to manufacture the products for the customer before the customer pays us. While we had historically not needed to do this, the possibility following the placement of a large order in 2020 was the reason we arranged for a credit facility last year. If we are unable to maintain the credit facility or arrange a replacement facility on satisfactory terms and conditions, we may not be able to accept these types of customer orders, which could have a material adverse effect on our business, prospects, revenues, and results of operations, as well as our ability to continue to fund our operations including our product development and customer growth activities. We may also need to obtain a new credit facility to fund our planned expansion of EcoChain's business. Our ability to maintain or replace our existing credit facility or obtain new or additional financing will depend on a variety of factors, many of which are beyond our control, and there can be no assurance that we will be able to do so in needed quantities, on terms favorable to us, or at all.

Our confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information, which could limit our ability to compete.

We rely on trade secrets to protect our proprietary technology and processes. Despite such protection, it is possible that a third party could copy or otherwise obtain and use our proprietary information without our authorization; further, trade secrets can be difficult to protect. Policing unauthorized use of our intellectual property and trade secrets is difficult, particularly in light of the global nature of the Internet and because the laws of other countries may afford us little or no effective protection of our intellectual property. Potentially expensive litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.  Additionally, we enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties confidential information developed by the party under such agreements or made known to the party by us during the course of the party's relationship with us. Our employees, consultants, and other advisors, however, may not honor these agreements, and enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time-consuming, and the outcome is unpredictable. Our failure to obtain and maintain trade secret protection could adversely affect our competitive position.

We rely on highly-skilled personnel and the continuing efforts of our Chief Executive Officer and, if we are unable to retain, motivate, or hire qualified personnel, our business may be severely disrupted.

Our performance largely depends on the talents, knowledge, skills, know-how, and efforts of highly-skilled individuals, including our Chief Executive Officer, Michael Toporek. His absence, were it to occur, would materially and adversely impact the continued development of our businesses. Our future success further depends on our continuing ability to identify, hire, develop, motivate, and retain highly-skilled personnel for all areas of our organization. The competition for qualified management and key personnel, especially engineers, is intense. Our continued ability to compete effectively depends on our ability to motivate and retain our existing, and attract and hire new, engineers and certain other key employees, particularly technical support personnel and capable sales and customer-support employees. If Mr. Toporek or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. In such case, our business may be severely disrupted, we may incur additional expenses to recruit and retain new officers or other key personnel, and our financial condition and results of operations could be materially adversely affected.  We do not currently maintain key life insurance policies on Mr. Toporek or any key employees.  In addition, if any of our key sales personnel joins a competitor or forms a competing company, we may lose customers.

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We may not be successful in locating appropriate acquisition targets or in integrating any acquired companies into our businesses, which could materially and adversely affect our financial condition and operating results.

Part of our strategy to grow our businesses involves the acquisition of other entities or businesses in the future that complement our current products, enhance our market coverage or technical capabilities, or offer growth opportunities. We may not be able, however, to identify and successfully negotiate suitable acquisitions, obtain any financing necessary for such acquisitions on satisfactory terms, or otherwise complete any such acquisitions. Further, any acquisition may require a significant amount of management's time and financial resources to complete the acquisition and integrate the acquired business into our existing operations. Even with this investment of management time and financial resources, an acquisition may not produce the revenue, earnings, or business synergies anticipated. Acquisitions involve numerous other risks, including:

• potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration;
• loss of key employees or customers of acquired companies;
• difficulty of assimilating geographically dispersed operations and personnel of the acquired companies;
• potential disruption of our business or the acquired business;
• unanticipated expenses;
• unanticipated difficulties in conforming business practices, policies, procedures, internal controls, and financial records of acquisitions with our own;
• impairment of relationships with employees, customers, vendors, distributors, or business partners of either an acquired business or our own;
• inability to accurately forecast the performance of recently-acquired businesses, resulting in unforeseen adverse effects on our operating results;
• potential liabilities, including liabilities resulting from known or unknown compliance or legal issues, associated with an acquired business; and
• adverse accounting impact to our results of operations.

Any such effects from acquisitions could be costly and place a significant strain on our management systems and resources.

We cannot offer any assurance that we will be able to identify, complete, or successfully integrate any suitable acquisitions. Even if successfully negotiated and closed, any acquisitions may not yield expected synergies, may not advance our business strategy as expected, may fall short of expected return-on-investment targets, or may not prove successful. Companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our business, financial condition, and results of operations.

Brookstone's ownership of 38.2% of the outstanding shares of our common stock gives it a controlling interest in the Company.

Brookstone Partners Acquisition, XXIV, LLC ("Brookstone"), owns approximately 38.2% of the Company's outstanding shares of common stock and has designated two directors that sit on our eight-member Board. Accordingly, Brookstone has the ability to exert a significant degree of influence or actual control over our management and affairs and, as a practical matter, will continue to control corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including the election of directors, amendments to our Certificate of Incorporation and Bylaws, and the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets, and Brookstone may vote its shares in a manner that is adverse to the interests of our minority shareholders. This concentration of voting control could deprive our investors of an opportunity to receive a premium for their shares of our common stock as part of a sale of the Company. Further, Brookstone's control position might adversely affect the market price of our common stock to the extent investors perceive disadvantages in owning shares of a company with a controlling shareholder.

Brookstone and its director designees may acquire interests and positions that could present potential conflicts with our and our shareholders' interests.

Brookstone and its director designees may make investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Brookstone and its director designees may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities might not be available to us. As part of our sale of 3,750,000 shares of our common stock to Brookstone in October 2016 and as required by Brookstone as a condition to purchasing the shares, our Board of Directors renounced, to the extent permitted by New York law, the Company's expectancy with respect to being offered an opportunity to participate in any business opportunity that is discovered by or presented to a director designee (a "Business Opportunity"), whether in such director designee's capacity as a director of the Company or otherwise. Accordingly, the interests of Brookstone and the designated directors with respect to a Business Opportunity may supersede ours, and Brookstone or its affiliates or the Brookstone-designated directors may be involved with businesses that compete with us and may pursue opportunities for the sole benefit of Brookstone and its affiliates without our involvement, for which we have limited recourse. Such actions on the part of Brookstone or its director designees could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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In addition, Michael Toporek, our CEO, serves as the Managing General Partner of Brookstone. As a result of the potential conflicts inherent in his serving in both roles, it is possible that Mr. Toporek could make decisions that benefit Brookstone at the expense of the Company.

Insiders continue to have substantial control over the Company.

As of March 26, 2021, the Company's directors and executive officers hold the right to vote approximately 43.5% of the Company's outstanding voting stock, including the 38.2% of the outstanding common stock owned or controlled by Brookstone, for which Michael Toporek, the Company's CEO, serves as Managing General Partner. The Company's directors and executive officers have the right to acquire an aggregate of an additional 181,250 shares of our common stock by exercising outstanding stock options granted to them under our equity compensation plans. As a result, Mr. Toporek acting alone, and/or many of the Company's officers and directors acting together, may have the ability to exert significant control over the Company's decisions and control the management and affairs of the Company, and also to determine the outcome of matters submitted to shareholders for approval, including the election or removal of a director and any merger, consolidation, or sale of all or substantially all of the Company's assets. Accordingly, this concentration of ownership may harm the market price of our common stock by:

• Delaying, deferring, or preventing a change in control of the Company;
• Impeding a merger, consolidation, takeover, or other business combination involving the Company; or
• Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.

Our Rights Plan may limit the rights of our shareholders and decrease the trading price of our common stock; our CEO's role as Managing General Partner of Brookstone could provide Brookstone with further control in the event our Rights Plan is instituted.

We have adopted a Section 382 Rights Agreement, dated October 6, 2016, as amended ("Rights Plan"), that is intended to preserve the Company's net operating loss carryforwards and to act as a deterrent to any person (together with all affiliates and associates of such person) acquiring beneficial ownership of 4.99% or more of outstanding shares of our common stock without the approval of our Board of Directors. The Rights Plan, however, contains provisions and terms that may delay, defer, or prevent a tender offer or change in control of the Company that a shareholder might consider to be in his, her, or its best interests, including attempts that might result in a premium being paid over the market price for our shares of common stock. The Company expects that such provisions and terms will operate to discourage extraordinary corporate transactions with respect to the Company, such as takeover bids, and will instead encourage any potential acquiror of the Company to first correspond with the Board. Additionally, since our Chief Executive Officer is also the Managing General Partner of Brookstone, Brookstone could exert additional control over the Company, even with its minority equity interest held in the Company, in the event the rights to purchase common stock provided for in the Rights Plan become exercisable.

We may incur losses and liabilities in the course of business that could prove costly to defend or resolve.

We may become subject to a variety of claims and lawsuits in the ordinary course of business, including personal injury or property claims. Additionally, we are, at times, involved in commercial disputes with third parties, such as customers, distributors, vendors, and others. Any such litigation involving an adverse result could have a material adverse effect on our business and our financial condition. There is a risk of litigation generally in conducting a commercial business. These risks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. We may incur significant legal expenses in defending against litigation.

We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from selling our products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.

We may receive notices from third parties that the manufacture, use, or sale of any products we develop infringes upon one or more claims of their patents. Moreover, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents that materially and adversely affect our business. Third parties could also assert infringement or misappropriation claims against us with respect to our future product offerings, if any. We cannot be certain that we have not infringed the intellectual property rights of any third parties. Any infringement or misappropriation claim could result in significant costs, substantial damages, and our inability to manufacture, market, or sell any of our product offerings that are found to infringe another person's patent. Even if we were to prevail in any such action, the litigation could result in substantial cost and diversion of resources that could materially and adversely affect our business. If a court determined, or if we independently discovered, that our product offerings violated third-party proprietary rights, there can be no assurance that we would be able to re-engineer our product offerings to avoid those rights or obtain a license under those rights on commercially reasonable terms, if at all. As a result, we could be prohibited from selling products that are found to infringe upon the rights of others. Even if obtaining a license were feasible, it may be costly and time-consuming. A court could also enter orders that temporarily, preliminarily, or permanently enjoin us from making, using, selling, offering to sell, or importing our products that are found to infringe on third parties' intellectual property rights, or could enter orders mandating that we undertake certain remedial actions. Further, a court could order us to pay compensatory damages for any such infringement, plus prejudgment interest, and could in addition treble the compensatory damages and award attorneys' fees. Any such payments could materially and adversely affect our business and financial condition.

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If we are unable to protect our information systems against service interruption or failure, misappropriation of data, or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation, and our reputation may be damaged.

Our business involves the collection, storage, and transmission of personal, financial, or other information that is entrusted to us by our customers and employees. Our information systems also contain the Company's proprietary and other confidential information related to our business. Our efforts to protect such information may be unsuccessful due to the actions of third parties, computer viruses, physical or electronic break-ins, catastrophic events, employee error or malfeasance, or other attempts to harm our systems. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures in time. We could also experience a loss of critical data and delays or interruptions in our ability to manage inventories or process transactions. Some of our commercial partners, such as those that help us maintain our website, may receive or store information provided by us or our users through our website. If these third parties fail to adopt or adhere to adequate information security practices, or fail to comply with our policies in this regard, or in the event of a breach of their networks, our customers' information may be improperly accessed, used, or disclosed.

If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches. If we experience a significant security breach or fail to detect and appropriately respond to a significant security breach, we could be exposed to costly legal actions in connection with such incidents, which could result in orders or judgments forcing us to pay damages or fines or to take certain actions with respect to our information systems. Any incidents involving unauthorized access to or improper use of user information, or incidents that are a violation of our online privacy policies, could harm our brand reputation and diminish our competitive position. Any of these events could have a material and adverse effect on our business, reputation, or financial results. Our insurance policies carry coverage limits, which may not be adequate to reimburse us for losses caused by security breaches.

Our risk management process may not identify all risks that we are subject to and will not eliminate all risk.

Our Enterprise Risk Management ("ERM") process seeks to identify and address significant risks. Our ERM process uses the most recent integrated risk framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess, manage, and monitor risks. We believe that risk-taking is an inherent aspect of the pursuit of our growth and performance strategy. Our goals are to proactively manage risks in a structured approach in conjunction with strategic planning, with the intent to preserve and enhance shareowner value, and to manage prudently, rather than wholly avoiding, risks. We can mitigate risks and their impact on the Company, however, only to a limited extent, and no ERM process can identify all risks that we may face. Therefore, there may be risks that we are currently unaware of, that may develop in the future or that we currently consider immaterial. Further, our management of risks may prove inadequate. The emergence of risks of which we were unaware or are unable to manage could have a material adverse effect on our business, prospectus, financial condition and results of operations.

MTI Instruments' business operations and financial performance are occasionally reliant on a single supplier or vendor or a limited group of suppliers and vendors.

We depend on a limited number of suppliers and vendors for product and services relating to our MTI Instruments business. Specifically, for the year ended December 31, 2020, Spinnaker Contract Manufacturing, Inc. ("Spinnaker") supplied 15% of the PC boards used by almost all MTI Instrument products, and SYNNEX Corporation ("SYNNEX") supplied 26% of the military computers used by MTI Instruments. In the event it becomes necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement supplies or services on economically attractive terms, on a timely basis, or at all, which could increase costs or cause disruptions in the manufacturing of our products or delivery of our services.

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Changes in tariffs and other trade policies could increase the cost of our products sold to our international customers, which could negatively impact our sales and profitability.

Our international sales operations are subject to extensive laws, governmental regulations, and policies, including but not limited to tariffs and other trade policies, including those governing exports. Trade tensions between the United States and China, as well as those between the U.S. and Canada, Mexico, and other countries, have been escalating in recent years, and there have been significant changes to U.S. trade policies, legislation, treaties, and tariffs during this time. Trade tensions have led to a series of tariffs imposed by the U.S. on imports from China, as well as retaliatory tariffs imposed by China on imports from the U.S. Changes in export regulations could increase the cost of our products sold as exports to our international customers.

While the tariffs put in place in March 2018 did not have a material impact on our business or operating results, currently it is unclear how the recent change in Presidential administrations may impact these issues, if at all, or what actions the current administration may take in this regard. Any further changes in U.S. trade policies, tariffs, taxes, export restrictions, or other trade barriers may decrease our profit margins, reduce the competitiveness of our products in foreign markets, or inhibit our ability to sell products, any which could have a material adverse effect on our business, results of operations, and financial condition.

Risks Related to the EcoChain Business and Cryptocurrency

Security breaches could result in a loss of our cryptocurrencies.

Security breaches including computer hacking or computer malware have been a consistent concern in the cryptocurrency industry. This could involve hacking in which an unauthorized person obtains access to the systems or information and can cause harm by the transmission of virus or the corruption of data.  These breaches may occur due to an action by an outside party, or by the error and negligence of an employee. We primarily rely on the Luxor mining pool and EcoChain's cryptocurrencies are stored with exchanges such as Coinbase prior to selling them. If any breach were to occur of our security system, operations or third party platforms, the result could cause a loss of our cryptocurrencies, loss of confidential or proprietary information, force the Company to cease operations, or could cause damage to the reputation of the Company. If an actual or perceived attack were to occur, the market perception of the Company may be damaged, which could adversely affect potential and current investments in the Company and reduce demand for our Common Stock and cause a reduction in our share price. 

EcoChain has a limited operating history and we may not recognize income from the EcoChain line of business in the future.

EcoChain, though a wholly-owned subsidiary of MTI, remains responsible for its own financing and operations and therefore is subject to all the risks inherent in a newly-established business venture. EcoChain began operations in January 2020 and has a limited operating history. It has not yet been able to confirm that its business model can or will be successful over the long-term. Our projections for its growth have been developed internally and may not prove to be accurate. As such, given its start-up status with an unproven business model, there is a substantial uncertainty regarding EcoChain's ability to succeed.

Valuations of cryptocurrencies in U.S. dollars are extremely volatile, and if our mined cryptocurrencies are converted into dollars when such values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting.

The fluctuating values of cryptocurrencies represent significant uncertainties for the EcoChain business. The value in U.S. dollars of Bitcoin, Ether, and other cryptocurrencies have been, and continue to be, subject to dramatic fluctuations. A variety of factors, known and unknown, may affect price and valuation, including, but not limited to: (i) the supply of such cryptocurrencies; (ii) global blockchain asset demand, which can be influenced by the growth of retail merchants' and commercial businesses' acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and networks and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use; (iii) investors' expectations with respect to the rate of inflation; (iv) changes in the software, software requirements, or hardware requirements underlying a blockchain network; (v) changes in the rights, obligations, incentives, or rewards for the various participants in a blockchain network; (vi) currency exchange rates; (vii) fiat currency withdrawal and deposit policies of cryptocurrency exchanges and networks and liquidity on such exchanges and networks; (viii) interruptions in service from or failures of major cryptocurrency exchanges and networks; (ix) investment and trading activities of large subscribers, including private and registered investment funds, that may directly or indirectly invest in blockchain assets; (x) monetary policies of governments, trade restrictions, and currency devaluations and revaluations; (xi) regulatory measures, if any, that affect the use of blockchain assets; (xii) the maintenance and development of the open-source software protocol of the cryptocurrency networks; (xiii) global or regional political, economic, or financial events and situations; and (xiv) expectations among blockchain participants that the value of blockchain assets will soon change. If our mined cryptocurrencies are converted into dollars when their values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting. Further, the extreme swings in value can make it difficult for us to develop reasonable financial plans and projections with respect to EcoChain's business.

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EcoChain has an evolving business model that is subject to various uncertainties.

As cryptocurrency assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model may need to evolve as well. From time to time, we may modify aspects of the EcoChain business relating to its models and strategies. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to EcoChain's business. We may not be able to manage growth effectively, which could damage EcoChain's reputation, limit its growth, and negatively affect our operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector, and we may lose out on certain opportunities as a result. Such circumstances could have a material adverse effect on EcoChain's business, prospects, operations, or financial condition.

If EcoChain fails to keep pace with technological innovations it will be unable to continue operating its business.

The pace of development with respect to the computing power of miners has been extraordinary. Within the space of a few years, the small mining operations that were once common in the cryptocurrency mining industry have been replaced almost entirely by larger-scale operations that have the ability to scale and the resources to invest in the much more powerful mining equipment that is necessary to successfully operate in the industry today. We may not be able to compete successfully against present or future competitors, including the various high-profile and well-established operators that the industry has attracted, some of which have substantially greater liquidity and financial resources than we do. If we are not able to scale our operations and do not keep up with technological developments in the industry, we risk our miners becoming so far less powerful than our competitors' that they become obsolete. We do not have the resources to compete with the larger cryptocurrency mining operators at this time. With the limited resources we have available, we may experience great difficulties in expanding and improving our network of miners to remain competitive, and we may not be in a position to construct additional operational cryptocurrency mines. 

Competition from existing and future competitors, particularly the many other North American companies that have access to more competitively-priced energy, could result in our inability to secure acquisitions and partnerships that we may need to expand EcoChain's business in the future. This competition from other entities with greater resources, experience, and reputations may result in our failure to maintain or expand EcoChain's business, as we may never be able to successfully execute our business plan. If we are unable to expand and remain competitive, it could have a negative effect on our business, results of operations, and financial condition, which would have an adverse effect on the trading price of our common stock.

We may be unable to obtain additional funding to scale the EcoChain cryptocurrency business to a larger-scale cryptocurrency mining operations.

We are considering further increasing the processing power of our cryptocurrency mining operations as we seek to leverage our experience and expertise in this area of operations. To do so, however, we will need to raise additional financing, and these attempts may not be successful. Failure to generate adequate cash from our operations or find sources of funding would require us to scale back or curtail our operations or expansion efforts, including limiting our ability to expand the EcoChain cryptocurrency business to a larger-scale cryptocurrency mining operation, and would have an adverse impact on our business and financial condition.

Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects EcoChain's business, prospects, or operations.

As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies. Some governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., cryptocurrencies are subject to extensive, and in some cases overlapping, unclear, and evolving regulatory requirements. Governments may in the future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Even if EcoChain's development of an operational cryptocurrency mine is successful, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies, may result in EcoChain still not achieving profitability in our expected timeframe or at all. Ongoing and future regulatory actions may impact EcoChain's ability to continue to operate, which could affect our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.

Facebook's proposed development of a cryptocurrency, as well as the eventual likely development of government-backed digital currencies and the development of cryptocurrencies by other tech companies, may adversely affect the value of Bitcoin and other existing, or even future, cryptocurrencies.

In May 2019, Facebook announced its plans for a cryptocurrency then called Libra, now Diem, which has faced significant objections and concerns from governments, legislatures, and regulators. The massive social network and a number of other partners are estimating that the Diem digital coin and Facebook's corresponding digital wallet would be a way to make sending payments around the world as easy as it is to send a photo. Facebook's significant resources and ability to engage the world via social media may enable it to bring Diem to market rapidly and to deploy it across industries more rapidly and successfully than previous cryptocurrencies. Facebook's size and market share may cause its cryptocurrency to succeed to the detriment and potential exclusion of existing cryptocurrencies.  Further, in the event that government-backed digital currencies, which regulators in several countries are already considering or even developing, are developed and widely adopted, it is likely to have a negative impact on the existing currencies including larger widespread adoption and potentially impacting the market share by non-government digital currency. Additional cryptocurrencies are introduced to the market frequently, and although some have gained popularity as some features have been different than Bitcoin, Bitcoin remains the market leader.  As cryptocurrency adoption grows the likelihood that additional cryptocurrencies will be introduced increases and will gain popularity against Bitcoin, potentially negatively impacting the value of Bitcoin.

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Our mining operations may experience damages, including damages that are not covered by insurance.

Our current mining operation in East Wenatchee, Washington is, and any future mines we establish will be, subject to a variety of risks relating to physical condition and operation, including:

• the presence of construction or repair defects or other structural or building damage;
• any noncompliance with or liabilities under applicable environmental, health, or safety regulations or requirements or building permit requirements; and
• any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods, and windstorms.

For example, our mine could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine. The security and other measures we take to protect against these risks may not be sufficient. Additionally, our mine could be materially adversely affected by a power outage, loss of access to the electrical grid, or loss by the grid of cost-effective sources of electrical power-generating capacity. Given the amount of power required to operate a cryptocurrency mine, it would not be feasible to run miners on back-up power generators in the event of a power outage. Our insurance covers the replacement cost of any lost or damaged miners but does not cover any interruption of our mining activities; our insurance therefore may not be adequate to cover the losses we suffer as a result of any of these events, dependent on the amount of downtime that is experienced.  In the event of an uninsured loss, including a loss in excess of insured limits, at our current or any future mines, such mines may not be adequately repaired in a timely manner or at all and we may lose some or all of the future revenues anticipated to be derived from such mines. At this time the potential impact of such a loss on our business is magnified as we are operating only a single mine.

Reliance on Soluna to operate mining machines may cause delays in production and mining and could have an impact on our business and financial condition.

EcoChain relies on Soluna to operate its cryptocurrency mining machinery. While we hold a 2% equity interest in Soluna and certain principals of the Company have roles in Soluna, we do not control Soluna or have control over their employees and, except for restrictions imposed by our contracts with Soluna, we have limited ability to control the amount or timing of resources that Soluna devotes to our programs. Although we rely on Soluna to operate our mining machinery, we remain responsible for the overall mining operations. Soluna may, over time, have relationships with entities that compete with us. If Soluna does not perform its contractual duties or obligations, we may need to enter into new arrangements with alternative third parties. This could be costly, and mining operations may be delayed or terminated. If our relationship with Soluna terminates, we may not be able to enter into arrangements with alternative third-party contractors or to do so on commercially-reasonable terms. Though we carefully manage our relationship with Soluna, there can be no assurance that we will not encounter challenges or delays resulting from this arrangement or that any such delays or challenges will not have a material adverse impact on our business, financial condition, and prospects.

EcoChain's reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on EcoChain's operations.

As discussed in "Item 1. Busines," EcoChain participates in mining pools whereby our miners' computations and those of other, unrelated miners are combined to place blocks on the blockchain, which generates the applicable cryptocurrency. Should any such mining pool suffer downtime due to a cyber-attack, software malfunction, or other problems, it will negatively impact our ability to mine and receive revenue from our mining activities.

We face risk of failure of our strategic alliances to achieve their objectives or perform as contemplated and the risk of cancellation or early termination of such alliance by either party.  

We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive in our market, and recent acquisitions, strategic alliances or partnerships could be difficult to integrate, disrupt our business and dilute shareholder value.

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For example, in January 2020, the Company formed EcoChain as its wholly-owned subsidiary to pursue a new business line focused on cryptocurrency and the blockchain ecosystem. In connection with this new venture, we entered into a strategic relationship with Soluna, which has assisted us in developing, and which is now operating, the cryptocurrency mining facility. In the future, we may acquire or form strategic alliances or partnerships with other businesses in order to remain competitive or to acquire new technologies. Acquisitions, alliances, and investments involve numerous risks, including:

• The potential failure to achieve the expected benefits of the combination or acquisition;
• Difficulties in and the cost of integrating operations, technologies, services and personnel;
• Diversion of financial and managerial resources from existing operations;
• Risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions;
• Potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;
• Inability to generate sufficient revenue to offset acquisition or investment costs;
• Potential unknown liabilities associated with the acquired businesses;
• Unanticipated expenses related to acquired technology and its integration into the existing business; and
• Negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred revenue.

Our failure to successfully manage our strategic relationship with Soluna, or other future acquisitions, strategic alliances or partnerships could seriously harm our operating results. In addition, our shareholders would be diluted if we finance the future acquisitions, strategic alliances or partnerships by incurring convertible debt or issuing equity securities.

Risks Related to our Common Stock

The market price of our common stock is likely be volatile, which may cause investment losses for our shareholders.

The market price of our common stock has been and is likely to continue to be volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their common stock or the loss of their entire investment in the Company for a number of reasons, including reasons unrelated to our operating performance or prospects. The market price of our common stock could be subject to wide fluctuations in response to a broad and diverse range of factors, including those described elsewhere in this "Risk Factors" section as well as the following:

• announcements by us regarding liquidity, significant acquisitions, equity investments and divestitures, addition or loss of significant customers and contracts, capital expenditure commitments, and litigation;
• our issuance of securities or debt, particularly if in connection with acquisition activities;
• the sale of a significant number of shares of our common stock by shareholders;
• recent changes in financial condition or results of operations, such as in earnings, revenues or other measure of company value;
• general market and economic conditions; and
• announcements of technological innovations or new product introductions by us or our competitors.

Further, broad market and industry factors may have a material adverse effect on the market price of our common stock regardless of our actual operating performance.

In addition, stock markets have experienced in the past and may in the future experience a high level of price and volume volatility, and the market prices of equity securities of many companies have experienced in the past and may in the future experience wide price fluctuations not necessarily related to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.

Finally, our relatively small public float and daily trading volume have in the past caused, and may in the future result in, significant volatility in our stock price. At December 31, 2020, we had approximately 5,549,005 million shares outstanding held by non-affiliates. Our daily trading volume for the year ended December 31, 2020 averaged approximately 13,488 shares.

If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our common stock or broker-dealers may be discouraged from effecting transactions in shares of our common stock.

As previously discussed our common stock became listed and commenced trading on Nasdaq on March 23, 2020. 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 such applicable listing standards. If we fail to do so, Nasdaq may delist our common stock, which would likely have an adverse impact on the market price and liquidity of our common stock.

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In addition, our shares of common stock have in the past constituted, and may again in the future constitute, "penny stock" within the meaning of Section 3(a)(51) of the Exchange Act and Rule 3a-51-1 thereunder, and so will be subject to the "penny stock" rules adopted under Section 15(g) (now 15(h)) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on a national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stocks to persons other than "established customers" complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If our common stock is subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock. If the common stock is subject to the penny stock rules, investors will find it more difficult to dispose of their shares of our common stock.

Raising additional funds through debt or equity financing could be dilutive and may cause the market price of our common stock to decline. We still may need to raise additional funding which may not be available on acceptable terms, or at all. Failure to obtain additional capital may force us to delay, limit, or terminate our product development efforts or other operations.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Furthermore, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products and services. In addition, the sale of a significant number of our shares of common stock, either by us or by our shareholders (in particular Brookstone, our largest shareholder) could depress the price of our common stock.

We estimate that our current cash and cash equivalents, along with the net proceeds of our contemplated common stock offering, will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We may continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed, as a result of insufficient authorized shares or otherwise, could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.