What changed in this filing

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Item 1A. Risk Factors

2023-06-01 compared with 2022-04-01 · 82 added, 37 removed, 251 unchanged (32% of the section changed)

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in Item 1 above.

Effective November 20, 2020, we implemented a reverse stock split of our outstanding common stock at a ratio of 1-for-8. All share figures are reflected on a post-split basis.

BUSINESS AND FINANCIAL RISKS

Based on our lack of sufficient revenue and recurring losses from operations, our independent registered public accounting firm has included an explanatory paragraph in their opinion as to the substantial doubt about our ability to continue as a going concern.

Due to, among other factors, our history of losses and insufficient revenue, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 2022 as to the substantial doubt about our ability to continue as a going concern.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that we will continue to operate as a going concern.

Our financial statements do not contain any adjustments that might result if we are unable to continue as a going concern.

We have historically not generated significant revenue and have sustained substantial operating losses.

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If we are unable to achieve revenue or raise capital sufficient to cover our ongoing operating expenses, we will be required to scale back operations, including marketing and research initiatives, or in the extreme case, discontinue operations.

As of December 31, 2021, we had an accumulated deficit of approximately $105 million.

We may need to obtain additional financing to execute our business plan over the long-term, which may not be available.

If we are unable to raise additional capital or generate significant revenue, we may not be able to continue operations.

We have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities, convertible preferred stock, common stock, and through factoring receivables.

We currently require approximately $798,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation.

During 2022, we generated approximately $7.0 million of revenue, which is below our average monthly requirements.

If we are unable to generate sufficient revenue to cover operating expenses and fund our business plan, we will need to obtain additional third-party financing.

We may, therefore, need to obtain additional financing through the issuance of debt or equity securities.

We cannot assure you that we will be able to secure any such additional financing on terms acceptable to us or at all.

If we cannot obtain such financing, we will not be able to execute our business plan, will be required to reduce operating expenses, and in the extreme case, discontinue operations. 

Our $2.2 million principal amount secured note matures on December 22, 2023 and we may not have sufficient cash flow from our business or the ability to raise sufficient funds to repay this note when due which may expose us to the risk of default which would materially and adversely affect our financial condition.

On December 22, 2022, we issued a $2.2 million secured promissory note (the “Note”) to an investor which is due six months following the date of issuance, subject to one six-month extension by us.

Interest under the Note accrues at a rate of 10% per annum, payable monthly through month six increasing to 12% per annum if we extend the term of the Note for an additional six months.

The Note is secured by a lien on substantially all of our assets and properties. 

In addition to current interest payment obligations, the Note contains various covenants. 

Upon the occurrence of any event of default (as defined in the Note), whether for payment or covenant breach, and expiration of any applicable cure periods, all amounts due under the Note will immediately become due and payable in full, interest will accrue at the higher of 18% per annum or the maximum amount permitted by applicable law, the outstanding principal amount due under the Note will be increased by 30%, and the Investor will have the right to convert all amounts due under the Note into shares of common stock at a conversion price equal to the 10 day volume weighted average sales price of our stock. 

Although the aggregate number of shares of common stock issuable upon conversion of the Note is capped at 985,576 shares, any such conversion could cause substantial dilution to existing stockholders and cause the price of our stock to drop.  

In April of 2023, we were in default under the Note due to our failure to timely file this annual report and timely file a registration statement covering the public resale of the shares issued to the holder of the Note in connection with the financing. 

We have obtained a waiver and, therefore, as of the date of this report we are not in default. 

We plan to satisfy our obligations under the Note through a combination of cash from operations, liquidation of existing inventory, and proceeds from the issuance of additional debt or equity securities. 

Such payments will reduce the funds available to us for working capital, capital expenditures and other corporate purposes which may in turn limit our ability to implement our business strategy, heighten our vulnerability to downturns in our business, the industry, or in the general economy, and prevent us from taking advantage of business opportunities as they arise.  

While we believe that our plans to repay and or refinance this indebtedness are reasonable, as of the date of this report, we can provide no assurances that we will have cash resources from operations or be able to obtain the necessary financing on attractive terms or at all to repay the Note in full. 

Any plans to refinance are subject to the conditions in the capital and credit markets, which have been volatile due to, among other things, increases in interest rates. 

As a result, we may be forced to obtain capital on terms that are unattractive or that are dilutive to our stockholders and may need to pursue other alternatives to satisfy our obligation under the Note if we are unable to access the capital markets.

Our biometric technology has yet to gain widespread market acceptance and we do not know how large of a market will develop for our technology.

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In addition, if one or more other biometric technologies such as voice, face, iris, hand geometry or blood vessel recognition are widely adopted, it would significantly reduce the potential market for our fingerprint identification technology. 

We recognized revenues from Africa in 2021 and expect continued revenues from Africa and the European Union in future periods.

We recognized revenues from Africa and the European Union in 2021 and 2022 and expect continued revenues from these regions in future periods.

Our financial performance will be subject to risks associated with changes in the value of the U.S.

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However, there can be no assurance that our efforts will be adequate to prevent the misappropriation or improper use of our protected technology in international markets.

We face inherent product liability or other liability risks that could result in large claims against us.

We have inherent risk of exposure to product liability and other liability claims resulting from the use of our products, especially to the extent customers may depend on our products in public safety situations that may involve physical harm or even death to individuals, as well as exposure to potential loss or damage to property.

Despite quality control systems and inspection, there remains an ever-present risk of an accident resulting from a faulty manufacture or maintenance of products, or an act of an agent outside of our or our supplier’s control.

Even if our products perform properly, we may become subject to claims and costly litigation due to the catastrophic nature of the potential injury and loss.

A product liability claim, or other legal claims based on theories including personal injury or wrongful death, made against us could adversely affect operations and financial condition.

Although we may have insurance to cover product liability claims, the amount of coverage may not be sufficient. 

We may need to obtain additional financing to execute our business plan over the long-term, which may not be available.

If we are unable to raise additional capital or generate significant revenue, we may not be able to continue operations.

We currently require approximately $735,000 per month to conduct our operations, a monthly amount that we have been unable to consistently achieve through revenue generation.

During 2021, we generated approximately $5.1 million of revenue, which is below our average monthly requirements.

If we are unable to generate sufficient revenue to cover operating expenses and fund our business plan, we will need to obtain additional third-party financing.

We may, therefore, need to obtain additional financing through the issuance of debt or equity securities.

We cannot assure you that we will be able to secure any such additional financing on terms acceptable to us or at all.

If we cannot obtain such financing, we will not be able to execute our business plan, will be required to reduce operating expenses, and in the extreme case, discontinue operations. 

We may  

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We are subject to risks and uncertainties associated with the continued growth of our international operations, which may harm our business.

We have international operation, recently expanded our international operations when we acquired Swivel Secure Europe SA, and plan to continue expanding abroad.

We have international operations and recently expanded our international operations when we acquired Swivel Secure Europe SA, and plan to continue expanding abroad.

Accordingly, our business is subject to risks and uncertainties associated with doing business outside of the United States and could be adversely affected by a variety of factors, including:

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Any of these factors could significantly harm our business, operating results, financial condition or prospects.

The outbreak of COVID-19 has and may continue to have a negative impact on our business, sales, results of operations and financial condition.

The global outbreak of COVID-19 has led to severe disruptions in general economic activities, particularly retail operations and travel, as businesses and federal, state, and local governments take increasingly broad actions to mitigate this public health crisis.

Individually and collectively, the consequences of the COVID-19 outbreak have and could continue to have a material adverse effect on our business, sales, results of operations and financial condition. 

Although our employees have been accustomed to working remotely prior to the COVID-19 pandemic, the uncertainty has extended sales cycles, extended payment terms, impacted access to inventory overseas, and delayed the start of planned deployments.

The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of new variants, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future. 

We have taken measures to minimize the health risks of COVID-19 to our employees, as their safety and well-being are a top priority.

employees are working from both the office and remotely.

The extent to which COVID-19 impacts our business, sales and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

Our business could be negatively impacted by security threats, including cybersecurity threats, ransomware, and other disruptions.

As a technology company, we face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information.

Our customers use our solutions to access their business systems and store data related to their employees, contractors, partners and customers. 

Our systems’

integrity is essential to their use of our platform, which stores, transmits and processes customers’

proprietary information and users’

personal data.

If the confidentiality, integrity or availability of our customers’

data or systems is disrupted, we could incur significant liability to our customers and to individuals or businesses whose information was being stored by our customers, and our platform may be perceived as less desirable, which could negatively affect our business and damage our reputation.

We, our third-party service providers, and our customers may be unable to anticipate these techniques or to implement adequate preventive measures.

Further, because we do not control our third-party service providers, or the processing of data by our third-party service providers, we cannot ensure the integrity or security of measures they take to protect customer information and prevent data loss beyond evaluating and relying on their representations as to their security methods and posture. 

Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing.

If any of these events were to materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities, essential to our operations and could have a material adverse effect on our reputation, financial position, results of operations, or cash flows.

Cybersecurity attacks in particular are evolving and include but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data.

Although we have implemented systems and procedures that are designed to protect customer, employee, vendor and Company information, prevent data loss and other security breaches, and otherwise identify, assess, and analyze cybersecurity risks, these measures may not be effective.

As a technology company, we face various security threats, including cybersecurity threats to gain unauthorized access to sensitive information.

on an ongoing basis.

In addition to threats from traditional computer “hackers,”

malicious code (such as malware, viruses, worms and ransomware), employee or contractor theft or misuse, password spraying, phishing and denial-of-service attacks, we and our third-party service providers now also face threats from sophisticated nation-state and nation-state-supported actors who engage in attacks (including advanced persistent threat intrusions) that add to the risks to our systems (including those hosted on AWS’

systems), internal networks, our customers’

systems and the information that they store and process. 

Cybersecurity attacks in particular are evolving, we expect that they will continue, and we expect the scope and sophistication of these efforts may increase in future periods.

As a result, we and our third-party service providers may be unable to anticipate these techniques or implement adequate preventative measures quickly enough to prevent either an electronic intrusion into our systems or services or a compromise of customer data, employee data or other protected information. 

Development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures increase and become more sophisticated.

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While, to the best of our knowledge, we have not experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a security breach or cyberattack that could materially increase financial risk to the Company or our customers, such a security breach or cyberattack could adversely affect our business and operations, including by damaging our reputation and our relationships with our customers, employees and investors, exposing us to litigation, fines, penalties or remediation costs.

We maintain cybersecurity insurance, but our insurance may be insufficient to cover all liabilities incurred in any such incident, and any incident may result in loss of, or increased costs of, that cybersecurity insurance.

Any breach, or any perceived breach, of our systems, our customers’

systems, or other systems or networks secured by our products, without regard to whether any breach is due to a vulnerability in our platform, may also undermine confidence in our platform or the identity as a service industry and could result in damage to our reputation and brand, negative publicity, loss of partners, customers and sales, increased costs to correct any problem, costly litigation and other liabilities.

In addition, a breach of the security measures of one of our partners could result in the disclosure of confidential information or other data that may provide additional avenues of attack, and if a high profile security breach occurs with respect to a comparable cloud technology provider, our customers and potential customers may lose trust in the security of the cloud business model generally, which could adversely impact our ability to retain existing customers or attract new ones.

Any of these negative outcomes could adversely impact market acceptance of our products and could harm our business, results of operations, and financial condition.

Our failure to comply with applicable privacy, data protection and information security laws or related contractual obligations could subject us to significant liability and negatively impact our financial position and results of operation.

There are numerous laws and regulations in various jurisdictions regarding privacy, data protection, information security, and the storing, sharing, use, processing, transfer, disclosure and protection of personal data.

In light of the increasing pace of new technology development, including with respect to biometric data, the scope of these data protection and privacy-related laws and regulations are expanding, subject to differing interpretations, and may be inconsistent among jurisdictions, or conflict with other rules that we are subject to.

These evolving laws and regulations may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

We are also subject to the terms of our privacy policies and contractual obligations to third parties related to privacy, data protection and information security.

Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or applicable laws or regulations relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others, and could result in significant liability or cause our customers to lose trust in us, which could cause them to cease or reduce use of our products and services and otherwise have an adverse effect on our reputation and business.

Any similar failure or perceived failure by users of our products or services may also have an adverse effect on our reputation and business.

In addition, legal, regulatory, contractual and other obligations as well as public concerns relating to privacy, data protection or information security could restrict our ability to store and process data as part of our solutions or otherwise impact our ability to provide our solutions in certain jurisdictions and may result in the loss of business opportunities from customers operating in, or seeking to expand into, those jurisdictions.

Additionally, in 2022, the SEC proposed new rules related to cybersecurity risk management, which may further increase our regulatory burden and the cost of compliance in such events.

Our failure to maintain appropriate environmental, social, and governance ("ESG") practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.

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If we fail to satisfy the expectations of investors, employees and other stakeholders or our initiatives are not executed as planned, our reputation and business, operating results and financial condition could be adversely impacted.

Russia ’

s recent military intervention in Ukraine and the international community ’

New climate disclosure rules, if adopted by the SEC, may increase our costs and litigation risks, which could materially and adversely affect our future results of operations and financial condition.

During 2022, the SEC proposed new climate disclosure rules, which, if adopted, would require new climate-related disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements.

In addition to requiring public companies to quantify and disclose direct emissions data, the new rules also would require disclosure of climate impact arising from the operations and uses by the company’s business partners and contractors and end-users of the company’s products and/or services.

We are currently assessing the impact of the new rules, if adopted as proposed, but at this time, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules if adopted.

However, we may incur increased costs relating to the assessment and disclosure of climate-related risks and increased litigation risks related to disclosures made pursuant to the new rules, either of which could materially and adversely affect our future results of operations and financial condition.

The war in Ukraine and the international community ’

s response have created substantial political and economic disruption, uncertainty, and risk.

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the potential loss of existing or acquired strategic operating partners following an acquisition;

the potential loss of key employees following an acquisition and the associated risk of competitive efforts from such departed personnel;

the potential loss of key employees following an acquisition and the associated risk of competitive efforts from departures;

assumed or unforeseen liabilities that arise in connection with the acquired business

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The exercise or conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing stockholders. 

Upon an event of default under our $2.2 million principal amount secured note, all amounts then due under the note plus all resulting default sums will be convertible into up to 985,576 shares of our common at conversion price equal to the 10-day volume weighted average closing price of our stock.

Any such conversion could cause substantial dilution to our existing stockholders and cause the price of our stock to decline.

Upon the occurrence of any event of default (as defined) under our $2.2 million principal amount secured note, whether for payment or covenant breach, and expiration of any applicable cure periods, all amounts then due under the note, will immediately become due and payable in full, interest will accrue at the higher of 18% per annum or the maximum amount permitted by applicable law, the outstanding principal amount due under the Note will be increased by 30% to approximately $2.86 million, and the holder of the note will have the right to convert all amounts then due under the Note into shares of common stock conversion price equal to the 10-day volume weighted average sales price of our common stock on the date of conversion. 

Although the aggregate number of shares of common stock issuable upon conversion of the Note is capped at 985,576 shares, any conversion of the note could cause substantial dilution to our existing stockholders and cause the price of our stock to decline.  

During April 2023, we were in default under the Note due to our failure to timely file this annual report and timely file a registration statement covering the public resale of the shares issued to the holder of the Note in connection with the financing. 

We have obtained a waiver and, therefore, as of the date of this report we are not in default.

An active trading market for our common stock may not be sustained.

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Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. 

If we fail to comply with the continued minimum closing bid requirements of the Nasdaq or other requirements for continued listing, our Common Stock may be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.

If we fail to comply with the continued minimum closing bid requirements, the requirement to timely file all required periodic financial reports with the Securities and Exchange Commission, or other Nasdaq requirements for continued listing, our Common Stock may be delisted and the price of our Common Stock and our ability to access the capital markets could be negatively impacted.

Our common stock is listed for trading on Nasdaq.

We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share and minimum stockholders’

A delisting of our common stock from Nasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our Common Stock.

In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

agreement. 

On January 12, 2023, we received a letter from the NASDAQ advising us that we have failed to satisfy the $1.00 minimum bid requirement due to the fact that the closing bid price for our Common Stock for thirty consecutive days was less than $1.00. 

We have 180 calendar days, or until July 11, 2023, to regain compliance. 

If we are unable to regain compliance during this period, we may be eligible for an additional 180 calendar day period to satisfy the minimum bid requirement.

In addition, on April 18, 2023, we received notice from Nasdaq advising that we were not in compliance with Nasdaq’s continuing listing rule which requires us to timely file all required periodic financial reports with the Securities and Exchange Commission due to our failure to timely file this Annual Report on Form 10-K. 

We have 60 calendar days to submit a plan to regain compliance.

If the plan is accepted, we may be eligible for an additional 180 calendar days from the filing’s due date, or until October 16, 2023, to regain compliance.

We may need to raise additional funds in the future through issuances of securities and such additional funding may be dilutive to stockholders or impose operational restrictions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors