What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-06-01 compared with 2022-04-01 · 94 added, 71 removed, 112 unchanged (60% of the section changed)

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Our common stock currently trades on the Nasdaq Capital Market under the symbol “BKYI”.

As of March 29, 2022, the number of stockholders of record of our common stock was 126.

We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future.

The declaration and payment of dividends on our common stock is also subject to the discretion of our Board of Directors and certain limitations imposed under the Delaware General Corporation Law. 

The timing, amount, and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

As of May 18, 2023, the number of stockholders of record of our common stock was 131.

We have not paid any cash dividends on our common stock to-date and have no intention of paying any cash dividends on our common stock in the foreseeable future. The terms of our secured promissory note issued in December 2022 prohibits us from paying or declaring any dividends or without the consent of the lender.

The declaration and payment of dividends on our common stock is also subject to the discretion of our Board of Directors and certain limitations imposed under the Delaware General Corporation Law. The timing, amount, and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.

Securities Authorized for Issuance under Equity Compensation Plans

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There were no unregistered sales of the Company’s equity securities during 2022 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Rule 10b-18 Transactions

Issuer Purchases of Equity Securities

Not Applicable.

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This discussion is provided as a supplement to and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2022 and 2021 and the accompanying notes included elsewhere in this Report.

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.

We are a leading identity access management (IAM) platform provider for the enterprise and large-scale customer and civil ID solutions. 

Built to leverage BIO-key’s world-class biometric core platform among 16 other strong authentication factors, BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems. 

PortalGuard goes beyond traditional multifactor authentication (MFA) solutions by addressing sizeable gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification. 

Millions of people use BIO-key every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices.

Built to leverage BIO-key’s world-class biometric core platform among 17 strong authentication factors, BIO-key PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems. 

PortalGuard goes beyond traditional multifactor authentication (MFA) solutions by addressing functional gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification. 

Our customers use BIO-key every day to securely access a variety of cloud, mobile and web applications, on-premise and cloud-based servers from all of their devices.

Employees, contractors, students and faculty sign in through PortalGuard to seamlessly and securely access the applications they need to do their important work, without relying on personal phone use or per-user tokens.

Organizations use our platform to securely collaborate with their supply chain and partners, and to provide their customers with flexible, resilient user experiences online or in-person.

Large-scale customer and civil ID customers use our scalable biometric management platform and FBI-certified scanner hardware to manage enrollment, de-duplication and authentication for millions of users. One large bank has enrolled and identifies over 19 million of their customers in branches on a daily basis. 

We sell our branded biometric and FIDO authentication hardware as accessories to our IAM platforms, so that customers can have a single vendor providing all components of their IAM solution. We do not mandate the use of BIO-key hardware with our software and services.

Large-scale customer and civil ID customers use our scalable biometric management platform and FBI-certified scanner hardware to manage enrollment, de-duplication and authentication for millions of users. One large bank has enrolled and identifies over 21.7 million of their customers using BIO-key fingerprint biometrics in branches on a daily basis. 

PortalGuard and hosted PortalGuard IDaaS are platforms that enable our customers to securely and easily assure that only the right people can access the right systems by utilizing our world-class biometric core platform among 17 other authentication factors. 

PortalGuard goes beyond traditional multi-factor authentication, or MFA, solutions by addressing sizeable gaps, such as allowing roving users to biometrically authenticate at any workstation without using their phones or tokens, eliminating unauthorized account delegation, detecting duplicate users, and accommodating in-person identification.

PortalGuard and IBB deliver unique value to enterprises who find that mainstream MFA solutions do not adequately address their workforce use cases. 

PortalGuard operates as a single MFA user experience, providing a rich set of authentication choices to meet every use case.

Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’

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Our approach to IDaaS allows our customers to efficiently scale their security and identity infrastructures to protect both internal cloud workforce- and external customer-facing applications.

In 2022, we expanded our product offerings and customer base when we acquired Swivel Secure, a Madrid, Spain based provider of IAM solutions. 

Swivel Secure is the exclusive distributer of AuthControl Sentry, AuthControl Enterprise, and AuthControl MSP product line in Europe, Africa and the Middle East, or EMEA, excluding the United Kingdom and Ireland. 

These solutions include a patented one-time-code extraction technology, helping enterprises manage the increasing data security risks posed by cloud services and bring your own device policies.

We operate a SaaS business model with customers subscribing to term use of our software for annual recurring revenue.

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We generate subscription fees pursuant to noncancelable contracts with a weighted average duration of approximately one year. 

PortalGuard is used by our customers to manage and secure IT access by their employees, contractors and partners, which we call workforce identity.

PortalGuard is also used to manage and secure the identities of an organization’s customers through integration of APIs we have developed and industry-standard federation standards, which we call customer identity.

We invoice customers in advance in annual and multi-year prepaid installments for subscriptions to our platforms.

Strategic Outlook

Historically, our largest market has been access control within highly regulated industries such as government, financial services, and healthcare.  In 2019 we became the go-to biometric authentication provider for board of election offices which continue to deploy our hardware and software to secure internal access to the voter registration database.

We have and expect to continue  to extend this footprint in 2022 and beyond.

In 2020, we announced that we had secured two contracts with our partner Technology Transfer Institute. The contracts are for large-scale identification projects in Africa and Nigeria.

Under the first contract, we will provide biometric authentication to support the infrastructure of a new e-commerce project developed with the expectation to generate more than one million jobs in Nigeria.

The second contract provides for BIO-key hardware and software to be used by a leading African telecommunications company to secure internal access to customer data.

Currently Africa and the surrounding regions are receiving government funding to expand the use of biometric authentication solutions to help establish trustworthy government programs and reduce fraud. We received our first purchase order related to these contracts in the fourth quarter of 2020 which we shipped in the first quarter of 2021.

The COVID-19 pandemic has and may continue to delay the rollout of these programs.

We plan to have a more significant role in the IAM market which continues to expand.

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Through value add-offerings via direct sales, resellers, and strategic partnerships with leading higher education platform providers, we will continue to grow our installed base. 

Our primary sales strategies are focused on (i) increased marketing efforts into the IAM market, (ii) dedicated pursuit of large-scale identification projects across the globe and (iii) growing our channel alliance program which we have grown to more than one hundred and fifty participants and continues to generate incremental revenues.

A second component of our growth strategy is to pursue strategic acquisitions of select businesses and assets in the IAM space. 

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Risk Factors”

given the uncertainty of the duration and severity of the current COVID-19 pandemic and the conflict between Ukraine and Russia and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.

The complications caused by COVID-19 has forced organizations to quickly adapt to a work from home remote business model.

This increases the risk of unauthorized users, phishing attacks, and hackers who are eager to take advantage of the challenges of securing remote workers.

given the uncertainty of the duration and severity of a possible economic recession and the conflict between Ukraine and Russia and their effects on our business operations, sales cycles, personnel, and the geographic markets in which we operate, and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature, the related financial impact cannot be reasonably estimated at this time.

The current trend of continued remote work environments increases the risk of unauthorized users, phishing attacks, and hackers who are eager to take advantage of the challenges of securing remote workers.

We believe that biometrics should continue to play a key role in remote user authentication.

On March 8, 2022, we expanded our sales and support operation into Europe, Africa and the Middle East (“EMEA”) by acquiring Swivel Secure Europe, SA for up to $2.25 million.

Swivel Secure Europe is a Madrid, Spain based provider of IAM solutions serving  over 300 customers through a network of  channel partners throughout EMEA.

Swivel Secure the exclusive distributer of AuthControl Sentry, AuthControl Enterprise and AuthControl MSP product line in Europe, Middle East, and Africa, excluding the United Kingdom.

Swivel Secure maintains a direct sales force with offices in Madrid, Spain and Lisbon, Portugal.

There can be no assurance that we will be able to manage Swivel Secure Europe, SA’s business or successfully integrate the business with our historic operations without substantial costs, delays or other operational or financial problems. 

RESULTS OF OPERATIONS

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Research, development and engineering

Reversal of earnout payable-Swivel acquisition

Impairment of goodwill

Total operating expenses

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Total other income (expense)

Loss before provision for income tax benefit

Provision for income tax benefit

Revenues and Costs and other expenses

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For the years ended December 31, 2022, and 2021, service revenues included approximately $1,243,000 and $1,100,000, respectively, of recurring maintenance and support revenue, and approximately $546,000 and $173,000, respectively, of non-recurring custom services revenue. 

Recurring service revenue decreased 20% from 2020 to 2021  due largely to the decreased maintenance as PistolStar acquired customer maintenance agreements expired by June 30, 2021.

Non-recurring custom services increased 252% due to increased new customer installations and conversion to the cloud platform.

Recurring service revenue increased 13% from 2021 to 2022 due largely to the increased maintenance related to increased license revenue.

Non-recurring custom services increased 216% due to increased new customer installations, Swivel service fees, and conversion to the cloud platform.

Although inflation has negatively impacted many industries, we have continued to see our pipeline increase for the cybersecurity protection software and services that we offer.

As our customer base continues to grow, we expect the service revenue to increase in future periods.

For the years ended December 31, 2021 and 2020, license revenue increased approximately $1,594,000 or 166% to $2,555,809, due primarily to  new customer orders and cloud conversion customers, in addition to existing recurring revenue contracts.

Hardware sales increased by approximately $843,000, or 190%, to $1,285,326 in 2021 from $442,516 in 2020.

The increase was attributable largely to sales in Nigeria for an international government agency during the first quarter of 2021.

For the years ended December 31, 2022 and 2021, license revenue increased $2,028,243 or 79% to $4,584,052, due primarily to new customer orders, revenues from Swivel Secure for approximately $1.9 million, and existing recurring revenue contracts.

We expect the recurring revenue to continue to grow in 2023.

Hardware sales decreased by $638,840, or 50%, to $646,486 in 2022 from $1,285,326 in 2021.

The decrease was attributable largely to Q1 2021 sales in Nigeria to an international government agency, which did not recur in 2022 due to delayed roll out of the government project.

Costs of goods sold

For the year ended December 31, 2021, cost of service increased approximately 37% to $686,175, due to the increased revenue and the direct support for the PortalGuard installations.

License costs for the year ended December 31, 2021 increased $133,308, or approximately 267%, to $183,199 related to increased license revenue and the resale of associated third party software.

For the year ended December 31, 2022, cost of services increased approximately 5% to $722,152, due to the increased costs to support for the PortalGuard deployments.

License fees for the year ended December 31, 2022 increased $732,218, or approximately 395%, to $906,417 related to increased license revenue and license fees payable for third-party software distributed by Swivel Secure.

Hardware costs for the year ended December 31, 2022 increased $7,446, or approximately 1%, to $811,001.

The increase was associated with the increased hardware sales and hardware mix.

The increase was associated with the decreased hardware sales and hardware mix described above, offset by the $400,000 reserve on inventory due to slow moving inventory purchased for projects in Nigeria.

The Company is looking into other markets and opportunities to sell or return the product.

Selling, general and administrative

Selling, general and administrative costs for year ended December 31, 2021 were $6,028,360 representing 3% increase from 2020.

The increase included higher administrative personnel expenses, marketing expenses, Delaware franchise taxes, and bad debt expense related to the reserve on the note receivable of $100,000 and an allowance for doubtful accounts of $200,000.

These were  offset by lower factoring fees, contract and temporary labor, non-cash compensation, the absence of one-time expenses incurred in 2020 for integration costs incurred in connection the acquisition of Pistol Star, as well as accounting and legal fees. 

Selling, general and administrative costs for year ended December 31, 2022 were $9,364,887 representing a 55% increase from 2021.

The increase included higher sales and marketing expenses incurred by Swivel Secure which we acquired in 2022, increased legal, professional, and other fees and expenses incurred in connection with the acquisition of Swivel Secure and the AJB Capital loan, bad debt expense related to a reserve on a note receivable, and an increase in the allowance for doubtful accounts of $360,000.

Research, development and engineering

For the year ended December 31, 2022, research, development and engineering costs were $3,252,236 representing a 38% increase over 2021.

Included in the increase were personnel costs associated with PistolStar, new hires and recruiting fees, increased professional fees, and increased amortization of intangible assets acquired from PistolStar.

These amounts were offset by a decrease and non-cash compensation.

Included in the increase were personnel costs associated with retaining outside services related to the development of our MobileAuth application, and wages and benefits for new engineering employees.

Reversal of earnout payable –

Swivel acquisition

For the year ended December 31, 2022, we recognized income on the elimination of the earnout payable on the acquisition of Swivel Secure as the certain requirements for the payout were not achieved.

Impairment of goodwill

For the year ended December 31, 2022, we recognized an impairment of our goodwill balances due to the decrease in market value of our common stock compared to the carrying value of our net assets.

Other income (expense)

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Investment-debt security reserve

Government grant –

Paycheck Protection Program

Loan transaction costs

Change in fair value of convertible note

Interest expense

Loss of extinguishment of debt

Other expense for 2021 consisted of interest expense from the amortization of debt discounts of $18,000, a reserve on the investment-debt security as adjustment for collections of such security of $60,000, and a foreign currency adjustment to an accounts receivable invoice of $50,000, offset by interest income of $4,075.

Interest expense for 2020 related to the amortization of debt discounts and debt issuance costs relating to convertible notes of approximately $3,574,000, as well as the amortization of a beneficial conversion feature of approximately $641,000.

Also included in other income (expense) for 2020 was a loss on the extinguishment of a convertible note in the approximate amount of $500,000 resulting from the issuance of an amended and restated convertible note, for which the issuer did not grant a concession.

These amounts were partially offset by amounts received under the Payment Protection Program (the “Program”) the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S.

Small Business Administration of approximately $341,000 and interest income of approximately $31,000.

The amounts for other income (expense) for the year ended December 31, 2022 consisted of interest income of $233, a write-off of the investment-debt security as the Company received the proceeds and the bond issuer defaulted on repayment, loan transactions costs expensed for the convertible note payable as the Company elected to value the convertible note payable under the fair value option, the change in the fair value of the convertible note payable, and interest expense of $10,462 on the convertible note payable and the government loan through the BBVA bank.

The amounts for the year ended December 31, 2021, related to a loss on a reserve on the investment in the debt security due to a delay in receiving the funds, interest expense from the amortization of debt discounts, and a foreign currency adjustment to an accounts receivable invoice, offset by interest income.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

Net cash used for operations during the year ended December 31, 2021 was approximately $8,942,000.

Net cash used for operations during the year ended December 31, 2022 was $6,229,034.

Items of note included:

Net positive cash flows related to non-cash expenses of approximately $5,980,000.

Net negative cash flows related to changes in accounts receivable, prepayments, inventory, accruals, lease liabilities, and deferred revenue in the aggregate amount of approximately $5,601,000 and our net loss for the period.

Net negative cash flows related to changes in accounts receivable, prepayments, accruals, lease liabilities, and deferred revenue in the aggregate amount of approximately $299,000 and our net loss for the period.

Investing activities overview

Approximately $42,000 was used for investing in capital expenditures during the year ended December 31, 2021.

Net cash used in investing activities during the year December 21, 2022 was $696,618.

This consisted of approximately $82,000 of capital expenditures, $9,000 of receipts from a note receivable and $624,000 (net of cash acquired and currency adjustment) to fund the cash portion of the purchase price for Swivel Secure.

Financing activities overview

Approximately $219,000 was used in financing activities during the year ended December 31, 2021 consisting of repayment of notes payable, and costs associated with the issuance of our securities, net of proceeds from common stock sold to employees under the Company's employee stock purchase plan.

Net cash from financing activities was $1,903,240 during the year ended December 31, 2022 consisting of proceeds of $2,002,000 from the issuance of a convertible note, costs paid to acquire the convertible note of $155,140 and proceeds of $56,380 from sales of common stock under the employee stock purchase plan.

Sources of Liquidity

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The following sets forth our primary sources of capital during the previous two years:

In December 2022, we entered into and closed a securities purchase agreement (the “Purchase Agreement”) with AJB Capital Investments, LLC under which we issued a $2,200,000 principal amount senior secured promissory note (the “Note”).

The principal amount of the Note is due six months following the date of issuance, subject to one six-month extension.

Interest under the Note accrues at a rate of 10% per annum, payable monthly through month six.

In the event the maturity date of the Note is extended, interest will accrue at the rate of 12% per annum in months seven through twelve, payable monthly.

The Note is secured by a lien on substantially all of the Company’s assets and properties can be prepaid in whole or in part without penalty at any time.

In March 2022, in connection with the acquisition of Swivel Secure, we assumed a €500,000 government loan that was issued through BBVA Bank during the COVID-19 pandemic. 

The loan bears interest at the rate of 1.75% per annum and is payable in monthly installments of approximately $11,900 inclusive of interest from May 2022 through maturity in April 2026.

Upon closing of the acquisition, Swivel Secure had cash equal to the outstanding balance.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2023 and may be discontinued at that time. Pursuant to the terms of the arrangement, from time to time, we sell to the Factor a minimum of $150,000 per quarter of certain of our accounts receivable balances on a non-recourse basis for credit approved accounts.

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We expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements.   

On April 20, 2020, we entered into a Paycheck Protection Program Term Note (the “SVB Note”) with Silicon Valley Bank (“SVB”) pursuant to the Program.

We received total proceeds of approximately $341,000 which was used in accordance with the requirements of the CARES Act.

The full amount of the SVB Note was forgiven.

On July 23, 2020, we completed an underwritten public offering of shares of common stock and warrants resulting in net proceeds of approximately $22.7 million, inclusive of the over-allotment and after deducting underwriting discounts and commissions and estimated offering expenses.

We used approximately $4.2 million of the net proceeds to repay all outstanding amounts due under outstanding convertible promissory notes at that time.

Liquidity Outlook

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As discussed above, 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 $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 $5,114,000 of revenue, which is below our average monthly requirements.

We expect that Swivel Secure Europe will generate positive cash flow in 2022.

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 $7,020,000 of revenue, which did not generate enough cash to fully fund our average monthly cash requirements.

We expect that Swivel Secure Europe will continue to generate positive cash flow in 2023.

We also have approximately $3.8 million of inventory purchased for projects in Nigeria.

We are  looking into other markets and opportunities to sell or return the product to generate additional cash.

If we are unable to generate sufficient revenue to fund current operations and execute our business plan, we may need to obtain additional third-party financing.

As of the date of this report, we do not expect that we will need to obtain additional financing during the next twelve months.

Our secured note is due on June 22, 2023 which we expect to extend for an additional six months.

Unless we generate sufficient positive cash flow from operations or liquidation of existing inventory, we expect that we will need to obtain additional financing during the next twelve months to be used in part to repay our outstanding secured note.

Our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing.

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If available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue, we may be required to further reduce operating expenses, delay the expansion of operations, be unable to pursue merger or acquisition candidates, or in the extreme case, not continue as a going concern.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or, are in the opinion of management reasonably likely to have, a current or future effect on our financial condition or results of operations.

CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States.

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Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations, as listed below:

Revenue Recognition

Business Combinations  

Goodwill and acquired intangible assets

Impairment or Disposal of Long Lived Assets, including Intangible Assets

Research and Development Expenditures

Accounting for Stock-Based Compensation

We allocate the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill.

Acquired customer relationships, proprietary software, and trade names are recognized at fair value.

The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets.

Direct transaction costs associated with the business combination are expensed as incurred.

The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

We include the results of operations of the business that we have acquired in our consolidated results prospectively from the date of acquisition.

Impairment of Goodwill  

 Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment.

For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit based on the Company’s market capitalization and compares this amount to the carrying value of the reporting unit.

If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required.

The effect of any impairment would be reflected in operating income in the consolidated statement of operations.

The annual goodwill impairment test is performed as of December 31st of each year.

Income Taxes  We account for income taxes under the asset and liability method, based on the income tax laws and rates in the jurisdictions in which operations are conducted and income is earned.

This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using expected rates in effect for the tax year in which the differences are expected to reverse.

Developing the provision for income taxes requires significant judgment including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.

The Company has recorded a valuation allowance in the current and prior years to reduce net deferred tax assets to zero.

If we were to subsequently determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to deferred tax assets would increase net income for the period in which such determination was made.

We will continue to assess the adequacy of the valuation allowance on a quarterly basis.

Our judgments and tax strategies are subject to audit by various taxing authorities.

Fair Value of Convertible Note Payable  We elected the fair value option to account for the convertible note payable.

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition.

We elected the fair value option to better depict the ultimate liability associated with the note, including all features and embedded derivatives.

The note accounted for under the fair value option election represents the debt host financial instrument containing certain embedded features that would otherwise be required to be bifurcated from the debt host and recognized as separate derivative liabilities subject to initial and subsequent periodic fair value measurement in accordance with U.S.

When the fair value option election is applied to financial liabilities, bifurcation of embedded derivatives is not required, and the financial liability in totality is recorded at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis as of each balance sheet date thereafter.

We estimated the fair value of the note using a probability-weighted discounted cash flow model with significant assumptions including the present value discount rate and the likelihood of default.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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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 5. Market for Registrant’s Common Equity