What changed in this filing

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Item 1A. Risk Factors

2024-06-05 compared with 2023-06-01 · 82 added, 102 removed, 231 unchanged (44% of the section changed)

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This section contains forward-looking statements.

You should refer to the explanation of the qualifications and limitations on forward-looking statements appearing just before the section captioned “

BUSINESS ”

in Item 1 above.

You should refer to the explanation of the qualifications and limitations on forward-looking statements appearing just before the section captioned “ BUSINESS ” in Item 1 above.

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.

The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could materially adversely affect our financial position, results of operations and cash flows.

As discussed in the Explanatory Note to this Annual Report and in Note U, Quarterly Financial Data (Unaudited and Restated), to the consolidated financial statements included in this Annual Report, we are restating our previously issued financial statements for our unaudited consolidated financial statements covering the quarterly reporting periods during fiscal year 2023, consisting of the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023 (the "Restatement Periods").

These restatements, and the remediation efforts we have undertaken and are continuing to undertake, have been time-consuming and expensive and could expose us to a number of additional risks that could materially adversely affect our financial position, results of operations and cash flows.

To the extent these steps are not successful, we could be forced to incur additional time and expense.

Our management’s attention has also been diverted from the operation of our business in connection with the restatements and ongoing remediation of material weaknesses in our internal controls.

We identified a material weakness in our internal control over financial reporting related to the recording and processing of revenue transactions.

Such material weaknesses could materially and adversely affect our operations, financial condition, reputation and stock price.

As discussed in Note U of our consolidated financial statements, Management has concluded that the Company’s previously issued consolidated financial statements should be restated due to inadvertently including certain revenue from our European subsidiary, Swivel Secure Europe, Ltd., in the first quarter of 2023.

In addition, certain allowances for accounts receivable and certain reserves for inventory were understated.

Therefore, the Company misstated gross revenues, accounts receivable, and inventory during the Restatement Periods.

The restatement related to the Company’s material weakness in internal control over financial reporting over the recording of revenue, accounts receivable, and inventory transactions.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We completed the restatement and are now evaluating and working towards the appropriate corrective actions to remediate the material weakness to strengthen our internal controls over the recording of revenue transactions.

It is possible that we may discover significant deficiencies or material weaknesses in our internal control over financial reporting in the future.

For example, internal control over financial reporting may not achieve their intended objectives.

Control processes that involve human diligence and compliance, such as our disclosure controls and procedures and internal control over financial reporting, are subject to lapses in judgment and breakdowns resulting from human failures.

Controls can also be circumvented by collusion or improper management-override of such controls.

Because of such limitations, there are risks that material misstatements due to error or fraud may not be prevented or detected, and that information may not be reported on a timely basis.

Based on our limited cash resources, history of significant losses, and negative cash flow, 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 significant losses, limited cash resources, and negative cash flow, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 2023 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.

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We currently require approximately $732,000 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.

During 2023, we generated approximately $9.0 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.

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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.

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.

The delayed filing of this annual report has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital.

As a result of the delayed filing of this annual report with the SEC, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until one year from the date we regain and maintain status as a current filer.

Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.

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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Our future success depends, in part, upon business customers adopting biometrics generally, and our solution specifically.

Biometric technology is a new approach to Internet security, which must be accepted in order for our WEB-key solution to generate significant revenue.

Our WEB-key authentication initiative represents a new approach to Internet security, which has been adopted on a limited basis by companies that distribute goods, content or software applications over the Internet.

Biometric technology is a relatively new approach to Internet security, which must be accepted in order for our WEB-key solution to generate significant revenue.

Our WEB-key authentication initiative represents a relatively new approach to Internet security, which has been adopted on a limited basis by companies that distribute goods, content or software applications over the Internet.

The implementation of our WEB-key solution requires the distribution and use of a finger scanning device and integration of database and server side software.

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Although we believe that our biometric technologies comply with existing standards, these standards may change and any standards adopted could prove disadvantageous to or incompatible with our business model and current or future solutions, products and services.

Our software products may  

contain defects which will make it more difficult for us to establish and maintain customers.

Our software products may contain defects which will make it more difficult for us to establish and maintain customers.

Although we have completed the development of our core biometric technology, it has only been used by a limited number of business customers.

Despite extensive testing during development, our software may contain undetected design faults and software errors, or “bugs”

that are discovered only after it has been installed and used by a greater number of customers.

Despite extensive testing during development, our software may contain undetected design faults and software errors, or “bugs” that are discovered only after it has been installed and used by a greater number of customers.

Any such defect or error in new or existing software or applications could cause delays in delivering our technology or require design modifications.

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Since our technologies are intended to be utilized to secure physical and electronic access, the effect of any such bugs or delays will likely have a detrimental impact on us.

In addition, given that biometric technology generally, and our biometric technology specifically, has yet to gain widespread acceptance in the market, any delays would likely have a more detrimental impact on our business than if we were a more established company.  

In order to generate revenue from our biometric products, we are dependent upon independent original equipment manufacturers, system integrators and application developers, which we do not control.

As a result, it may  

be more difficult to generate sales.

As a result, it may be more difficult to generate sales.

We market our technology through licensing arrangements with:

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While we have commenced a significant sales and marketing effort, we have only begun to develop a significant distribution channel and may not have the resources or ability to sustain these efforts or generate any meaningful sales.

We face intense competition and may  

not have the financial and human resources necessary to keep up with rapid technological changes, which may  

result in our technology becoming obsolete.

We face intense competition and may not have the financial and human resources necessary to keep up with rapid technological changes, which may result in our technology becoming obsolete.

The Internet, facility access control, and information security markets are subject to rapid technological change and intense competition.

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If we are unable to develop new applications or enhance our existing technology in a timely manner in response to technological changes, we will be unable to compete in our chosen markets.

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 and the European Union in 2022 and 2023 and expect continued revenues from these regions in future periods.

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Our ability to enforce our international contracts is contingent on our relationships with foreign resellers, and their financial viability.

Although we are making efforts to better enforce our contract rights, there can be no assurance that we will be able to fully collect all receivables originating in Asia and Africa or that will not have to write-off future receivables which may be material in amount. 

Any such write-offs have in the past and will negatively impact our financial position and results of operation.

Any such write-offs have negatively impacted our financial position and results of operation.

We depend on key employees and members of our management team, including our Chairman of the Board and Chief Executive Officer, Chief Financial Officer, and our Chief Legal Officer, in order to achieve our goals.

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Welch, our Chief Financial Officer, and James D.

Sullivan, our Chief Legal Officer, expire annually, and renew automatically for successive one-year periods unless notice of non-renewal is provided by the Company.

Although the contracts do not prevent them from resigning, they do contain confidentiality and non-compete clauses, which are intended to prevent them from working for a competitor within one year after leaving our Company.

Sullivan, our Chief Legal Officer, expire annually, and renew automatically for successive one-year periods unless notice of non-renewal is provided by the Company.

Although the contracts do not prevent them from resigning, they do contain confidentiality and non-compete clauses, which are intended to prevent them from working for a competitor within one year after leaving our Company.

Our success depends on our ability to attract, train and retain employees with expertise in developing, marketing and selling software solutions.

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We can provide no assurance that we will have the financial resources to oppose any actual or threatened infringement by any third party.

Furthermore, any patent or copyrights that we may be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage awards. 

We may be subject to claims with respect to the infringement of intellectual property rights of others, which could result in substantial costs and diversion of our financial and management resources.

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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 may  

not achieve profitability if we are unable to maintain, improve our offerings.

We may not achieve profitability if we are unable to maintain, improve our offerings.

We believe that our future business prospects depend in part on our ability to maintain and improve our current services and to develop new ones on a timely basis.

Our services will have to achieve market acceptance, maintain technological competitiveness, and meet an expanding range of customer requirements.

As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods.

We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements.

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

We have international operations and continue to expand our international operations when we acquired Swivel Secure Europe SA.

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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natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;

regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the U.S.

regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the U.S.

Foreign Corrupt Practices Act (FCPA), its books and records provisions, or its anti-bribery provisions, or laws similar to the FCPA in other jurisdictions in which we may now or in the future operate;

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

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.

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.

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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. 

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. 

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 function as expected or may not be sufficient to protect our internal networks and platform against certain attacks.

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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.

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.

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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.

Additionally, in 2023, the SEC adopted 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.

There is an increasing focus from certain investors, employees, customers and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance matters (“ESG”).

Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to corporate responsibility are inadequate.

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We may face reputational damage in the event that we do not meet the ESG standards set by various constituencies.

Furthermore, if our competitors’

corporate social responsibility performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead.

Furthermore, if our competitors’ corporate social responsibility performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead.

In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals.

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.

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.

New climate disclosure rules 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.

In March 2024, the SEC adopted new climate disclosure rules, which require new disclosure in certain SEC filings about material climate-related risks, activities to mitigate or adapt to such risks, board oversight of climate-related risks and management’s role in managing material climate-related risks, and climate-related targets and goals.

The new climate disclosure rules have been the subject of multiple legal challenges, so the extent to which the new rules will go into effect remains uncertain.

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

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.

Russia’s military intervention in Ukraine in late February 2022, Ukraine’s widespread resistance, and the NATO led and United States coordinated economic, financial, communications, and other sanctions imposed by other countries have created significant political and economic world uncertainty.

There is significant risk of expanded military confrontation between Russia and other countries. 

The war in Ukraine and the international community ’ s response have created substantial political and economic disruption, uncertainty, and risk.

There is significant risk of expanded military confrontation between Russia and other countries.

It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S.

and other countries in respect thereof, as well as any counter measures or retaliatory actions by Russia in response.

At a minimum, the continuing conflict is likely to cause regional instability, geopolitical shifts and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy, which could materially adversely affect our financial condition or results of operations. 

Current and likely additional international sanctions against Russia may contribute to higher costs, particularly for petroleum-based products. 

These and related actions, responses, and consequences that cannot now be predicted or controlled may contribute to world-wide economic reversals.

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competition from other acquirers of operating companies;

lack of sufficient capital to acquire a profitable distribution company;

lack of sufficient capital to acquire a profitable company;

unwillingness of a potential acquiree to work with our management.

Risks related to acquisition financing.

We have a limited amount of financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is limited.

We have limited financial resources and our ability to make additional acquisitions without securing additional financing from outside sources is also limited.

In order to continue to pursue our acquisition strategy, we may be required to obtain additional financing.

We may obtain such financing through a combination of traditional debt financing or the placement of debt and equity securities.

We may obtain such financing through a combination of debt financing or the placement of debt and equity securities.

We may finance some portion of our future acquisitions by either issuing equity or by using shares of our common stock for all or a portion of the purchase price for such businesses.

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As a result, if we fail to properly evaluate and execute any acquisitions or investments, our business and prospects may be seriously harmed.

To the extent we make any material acquisitions, our earnings  

adversely affected by non-cash charges relating to the amortization of intangible assets.

To the extent we make any material acquisitions, our earnings may be adversely affected by non-cash charges relating to the amortization of intangible assets.

Under applicable accounting standards, purchasers are required to allocate the total consideration paid in a business combination to the identified acquired assets and liabilities based on their fair values at the time of acquisition.

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RISKS RELATED TO OUR COMMON STOCK

We have issued a substantial number of options and warrants exercisable into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.

As of the date of this report, approximately 5,075,000 shares of our common stock were reserved for issuance upon exercise or conversion of outstanding stock options and warrants.

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.

We have issued a substantial number of warrants exercisable into shares of our common stock which could result in substantial dilution to the ownership interests of our existing stockholders.

As of the date of this report, approximately 1,814,000 shares of our common stock (as adjusted to reflect our 1-for-18 reverse stock split, which was effective December 21, 2023) were reserved for issuance upon exercise or conversion of outstanding stock options and warrants.

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.

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

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If an active market for our common stock is not developed or sustained, it may be difficult for you to sell your shares without depressing the market price for the shares or sell your shares at all.

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, 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.

If we fail to comply with the requirement to timely file all required periodic financial reports with the Securities and Exchange Commission, or other continued listing requirements of The Nasdaq Stock Market, 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’

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 must satisfy Nasdaq’s continued listing requirements, including, among other things, to timely file all required periodic financial reports with the Securities and Exchange Commission.

On April 17, 2024, we received notice from Nasdaq indicating that were not in compliance with Nasdaq continued 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 for the fiscal year ended December 31, 2023.

On May 22, 2024, we received a second notice from Nasdaq indicating that we were not in compliance with Nasdaq’s continued listing rules due to our failure to timely file our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024.

We have 60 calendar days from the initial notification letter, or until June 17, 2024 to submit a plan to regain compliance with Nasdaq’s continued listing requirements.

If the plan is accepted, we may be eligible for up to 180 calendar days from the original due date to file this Annual Report on Form 10-K, or until October 14, 2024, to regain compliance.

The 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.

Delisting could also 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.

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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Payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time.

Accordingly, investors seeking cash dividends should not purchase shares of our common stock. 

Provisions of our certificate of incorporation, bylaws and Delaware law may make a contested takeover of our Company more difficult.

Certain provisions of our certificate of incorporation, bylaws and the General Corporation Law of the State of Delaware (“DGCL”) could deter a change in our management or render more difficult an attempt to obtain control of us, even if such a proposal is favored by a majority of our stockholders.

For example, we are subject to the provisions of the DGCL that prohibit a public Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation’s outstanding voting shares (an “interested stockholder”) for three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Our certificate of incorporation also includes undesignated preferred stock, which may enable our board of directors to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise.

Finally, our bylaws include an advance notice procedure for stockholders to nominate directors or submit proposals at a stockholders meeting.

Delaware law and our charter may, therefore, inhibit a takeover. 

The trading price of our common stock may be volatile.

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In recent years broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations.

Such broad market fluctuations may adversely affect the future-trading price of our common stock.  

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