| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The significant accounting policies of our Company, which are summarized below, are consistent with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect practices appropriate to the business in which we operate. Unless indicated otherwise, the information in the Notes to the Condensed Financial Statements relates to our operations. We have prepared the accompanying financial data for the three and nine months ended September 30, 2024 and 2023 pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The accompanying financial data and information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report”). The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly our Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023, Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023, and Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2024 and 2023. Going Concern and Nasdaq Continued Listing Requirements Compliance Due to our financial performance as of September 30, 2024 and December 31, 2023, including net losses of $1.3 million for the nine months ended September 30, 2024 and $4.3 million for the twelve months ended December 31, 2023, and total cash used in operating activities of $1.0 million for the nine months ended September 30, 2024 and $2.4 million for the twelve months ended December 31, 2023, we determined that substantial doubt about our ability to continue as a going concern continues to exist at September 30, 2024. As a result of restructuring actions and initiatives, we have tailored our operating expenses to be more in line with our expected sales volumes; however, we continue to incur losses and have a substantial accumulated deficit. Additionally, global supply chain and logistics constraints are impacting our inventory purchasing strategy, as we seek to manage both shortages of available components and longer lead times in obtaining components while pursuing cost-saving measures to enhance profitability. As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following: • obtaining financing from traditional or non-traditional investment capital organizations or individuals; • obtaining funding from the sale of our common stock or other equity or debt instruments; and • obtaining debt financing with lending terms that more closely match our business model and capital needs. There can be no assurance that we will obtain funding on acceptable terms, in a timely fashion, or at all. Obtaining additional funding contains risks, including: • additional equity financing may not be available to us on satisfactory terms, particularly in light of the current price of our common stock, and any equity we are able to issue could lead to dilution for current stockholders and have rights, preferences and privileges senior to our common stock; • loans or other debt instruments may have terms or conditions, such as interest rate, restrictive covenants, conversion features, refinancing demands, and control or revocation provisions, which are not acceptable to management or the Company’s Board of Directors (the “Board of Directors”); and • the current environment in the capital markets and volatile interest rates, combined with our capital constraints, may prevent us from being able to obtain adequate debt financing. Considering both quantitative and qualitative information, we continue to believe that the combination of our plans to ensure adequate external funding, timely re-organizational actions, current financial position, liquid resources, obligations due or anticipated within the next year, development and implementation of an excess inventory reduction plan, plans and initiatives in our research and development, product development and sales and marketing, and development of potential channel partnerships, if adequately executed, could provide us with an ability to finance our operations through the next twelve months and may mitigate the substantial doubt about our ability to continue as a going concern. Nasdaq Capital Market Compliance As of the date of this Quarterly Report, the Company believes it has maintained compliance with the Minimum Stockholders’ Equity Rule, which requires listed companies to maintain stockholders’ equity of at least $2.5 million for continued listing on the Nasdaq Capital Market. To become compliant with the Bid Price Rule, which has a minimum bid price of at least $1.00 per share as one of its continued listing requirements, the Company effected a 1-for-7 reverse stock split to increase the per share trading price of the common stock, effective June 16, 2023 (See Note 8, “Stockholders’ Equity”). However, there can be no assurance that the Company will be able to maintain compliance with the Minimum Stockholders’ Equity Rule, Bid Price Rule, or other Nasdaq listing requirements. If the Company fails to maintain compliance with Nasdaq’s continued listing standards in accordance with the Panel’s decision, the Company’s common stock will be subject to delisting from Nasdaq Use of estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may vary from the estimates. Estimates include, but are not limited to, the establishment of credit loss allowance for accounts receivable, sales returns, inventory obsolescence and warranty claims, the useful lives of property and equipment, valuation allowance for net deferred taxes, and stock-based compensation. In addition, estimates and assumptions associated with the determination of the fair value of financial instruments and evaluation of long-lived assets for impairment requires considerable judgment. Actual results could differ from those estimates and such differences could be material. Revenue Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. We recognize revenue at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. Distributors’ obligations to us are not contingent upon the resale of our products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales. We provide for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year. We do not incur any other incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described below. Sales taxes assessed by governmental authorities and collected by us are accounted for on a net basis and are excluded from net sales. The following table provides a disaggregation of product net sales for the periods presented (in thousands): Three months ended Nine months ended 2024 2023 2024 2023 Net sales: Commercial $ 350 $ 498 $ 1,004 $ 1,261 MMM products 846 841 2,578 2,063 Total net sales $ 1,196 $ 1,339 $ 3,582 $ 3,324 Accounts Receivable Our trade accounts receivable consists of amounts billed to and currently due from customers. Substantially all of our customers are concentrated in the United States. In the normal course of business, we extend unsecured credit to our customers related to the sale of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and the amounts due are stated at their estimated net realizable value. We maintain allowances for sales returns and credit loss to provide for the estimated number of account receivables that will not be collected. On January 1, 2023, the Company adopted ASC 326. The standard adds to U.S. GAAP an impairment model known as the CECL model, which is based on expected losses rather than incurred losses. This standard only impacts the Company’s trade receivables. The Company decided to use the historical loss rate method of valuing its reserve for trade receivables. The reserve for credit losses is reviewed and assessed for adequacy on a quarterly basis. We take into consideration (1) any circumstances of which we are aware of a customer's inability to meet its financial obligations and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers. If circumstances change, and the financial condition of our customers is adversely affected and they are unable to meet their financial obligations, we may need to take additional allowances, which would result in an increase in our operating expense. We do not generally require collateral from our customers. Our standard payment terms with customers are net 30 days from the date of shipment, and we do not generally offer extended payment terms to our customers, but exceptions are made in some cases for major customers or with particular orders. Accordingly, we do not adjust trade accounts receivable for the effects of financing, as we expect the period between the transfer of product to the customer and the receipt of payment from the customer to be in line with our standard payment terms. Pursuant to ASC 606, Revenue Recognition , contract assets and contract liabilities as of the beginning and ending of the reporting periods must be disclosed. Below is the breakout of the Company’s contract assets for such periods: September 30, 2024 December 31, 2023 January 01, 2023 Gross Accounts Receivable $ 757 $ 1,590 $ 471 Less: Allowance for Credit Loss (12) (20) (28) Net Accounts Receivable $ 745 $ 1,570 $ 443 Activity related to our reserve for credit losses for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands): Allowance for credit loss as of December 31, 2023 $ (20) Reduction of reserve for credit losses as of March 31, 2024 11 Allowance for credit loss as of March 31, 2024 $ (9) Reduction of reserve for credit losses as of June, 30 2024 — Allowance for credit loss as of June 30, 2024 $ (9) Increase in reserve for credit losses as of September, 30 2024 (3) Allowance for credit loss as of September 30, 2024 $ (12) Allowance for credit loss as of December 31, 2022 $ (26) Cumulative effect of the implementation of ASC 326 (2) Allowance for credit loss as of January 1, 2023 $ (28) Reserve for credit losses as of March 31, 2023 (12) Prior year reclassification of sales returns out of allowance for doubtful accounts (18) Allowance for credit loss as of March 31, 2023 $ (58) Reserve for credit losses as of June 30, 2023 (3) Prior year reclassification of sales returns out of allowance for doubtful accounts (18) Allowance for credit loss as of June 30, 2023 $ (79) Reserve for credit losses as of September 30, 2023 14 Prior year reclassification of sales returns out of allowance for doubtful accounts (11) Allowance for credit loss as of September 30, 2023 $ (76) Geographic information All of our long-lived fixed assets are located in the United States. For the three and nine months ended September 30, 2024 and 2023, approximately 100% of sales were attributable to customers in the United States. The geographic location of our net sales is derived from the destination to which we ship the product. Net loss per share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period. Dilutive potential shares of common stock consist of incremental shares upon the exercise of stock options, warrants and convertible securities, unless the effect would be anti-dilutive. The following table presents a reconciliation of basic and diluted loss per share computations (in thousands): Three months ended Nine months ended 2024 2023 2024 2023 Numerator: Net loss $ (316) $ (944) $ (1,288) $ (3,444) Denominator: Basic and diluted weighted average shares of common stock outstanding 5,261 3,514 4,840 2,868 As a result of the net loss we incurred for the three and nine months ended September 30, 2024 and 2023, convertible securities representing approximately 25 thousand shares of common stock were excluded from the basic loss per share calculation as their inclusion would have been anti-dilutive. Product warranties We warrant our commercial and MMM LED products and controls for periods generally ranging from five The following table summarizes warranty activity for the periods presented (in thousands): Three months ended Nine months ended 2024 2023 2024 2023 Balance at beginning of period $ 117 $ 146 $ 150 $ 183 Warranty accruals for current period sales 1 1 3 3 Adjustments to existing warranty reserves — — (35) (39) Accrued warranty reserve at end of period $ 118 $ 147 $ 118 $ 147 Financial Instruments Fair Value Measurements The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below. We classify the inputs used to measure fair value into the following hierarchy: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 Unobservable inputs for the asset or liability. The carrying amounts of certain financial instruments including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities. Based on borrowing rates currently available to us for loans with similar terms, the carrying value of borrowings under our revolving credit facilities also approximates fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented. Certain risks and concentrations We have certain customers whose net sales individually represented 10% or more of our total net sales, or whose net trade accounts receivable balance individually represented 10% or more of our total net trade accounts receivable; we have certain suppliers, which individually represent 10% or more of our total purchases, or whose trade accounts payable balance individually represented 10% or more of our total trade accounts payable balance, as follows: • For the three months ended September 30, 2024, four customers accounted for an aggregate of approximately 66% net sales, with sales to our primary shipbuilders for the U.S. Navy accounting for approximately 24% of net sales, sales to our primary distributor for the U.S. Navy accounting for approximately 26% of net sales and sales to our primary commercial lighting customer accounting for approximately 16% of net sales. For the three months ended September 30, 2023, two customers accounted for approximately 42% net sales, with sales to our primary distributor for the U.S. Navy and shipbuilders for the U.S. Navy accounting for approximately 42% of net sales. • For the nine months ended September 30, 2024, three customers accounted for an aggregate of approximately 39% net sales, with sales to our primary distributor for the U.S. Navy accounting for approximately 29% of net sales and sales to our primary commercial lighting customer accounting for approximately 10% of net sales. For the nine months ended September 30, 2023, two customers accounted for approximately 29% net sales, with sales to our primary shipbuilder for the U.S. Navy and a distributor to the Department of Defense. • At September 30, 2024, four customers accounted for an aggregate of approximately 85% of net trade accounts receivable. • At December 31, 2023, one distributor for the U.S. Department of Defense accounted for 74% of our net trade accounts receivable. We require substantial amounts of purchased materials from selected vendors. With specific materials, all of our purchases are from a single vendor. The availability and costs of materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocation to other purchasers, interruptions in production by suppliers, global health issues such as the COVID-19 pandemic, and changes in exchange rates and worldwide price and demand levels. Our inability to obtain adequate supplies of materials for our products at favorable prices could have a material adverse effect on our business, financial position, or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. Additionally, certain vendors require advance deposits prior to the fulfillment of orders. Deposits paid on unfulfilled orders totaled $0.4 million and $0.8 million at September 30, 2024 and December 31, 2023, respectively. We have certain vendors who individually represented 10% or more of our total expenditures, or whose net trade accounts payable balance individually represented 10% or more of our total net trade accounts payable, as follows: • one supplier (a related party, see Note 10 “Related Party Transactions”) accounted for more than 10% of our total expenditures for the three and nine months ended September 30, 2024. One supplier accounted for more than 10% of our total expenditures for the three months ended September 30, 2023. • At September 30, 2024, two offshore suppliers accounted for approximately 29% and 44% (the latter, a related party, see Note 10 “Related Party Transactions”) of our trade accounts payable balance, respectively. At December 31, 2023, two offshore suppliers accounted for approximately 16% and 57% (the latter, a related party, see Note 10 “Related Party Transactions”) of our trade accounts payable balance, respectively. Recent Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which, among other updates, requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures. In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures. |
