What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-06-05 compared with 2023-06-01 · 98 added, 123 removed, 83 unchanged (73% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

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.

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

As of June 4, 2024 the number of stockholders of record of our common stock was 159.

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.

Securities Authorized for Issuance under Equity Compensation Plans

For information on securities authorized for issuance under the Company’s equity compensation plans, see “Item 12 - Security Ownership of Certain Beneficial Owners and Related Stockholder Matters.”

Unregistered Sales of Equity Securities

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.

There were no unregistered sales of the Company’s equity securities during 2023 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

Not Applicable.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this Report contain forward-looking statements that involve risks and uncertainties.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this Report contain forward-looking statements that involve risks and uncertainties.

All forward-looking statements included in this Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “

RISK FACTORS ”

in Item 1A and elsewhere in this Report.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our Company.

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.

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 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 actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “ RISK FACTORS ” in Item 1A and elsewhere in this Report.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand our Company.

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, 2023 and 2022 and the accompanying notes included elsewhere in this Report.

All share totals reported herein have been adjusted to reflect our 1-for-18 reverse stock split, which was effective December 21, 2023.

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 seventeen 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.

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.

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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 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. 

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 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.

 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.

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

fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the user of a particular scanner.

Security-conscious software developers leverage our platform APIs and federation interfaces to securely and efficiently embed biometric and MFA identity capabilities into their software.  

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.

Our NIST-certified fingerprint biometric platform is unique in that it supports interoperable mixing and matching combinations of different manufactures’ fingerprint scanners in a deployment, so that the right scanner can be selected for the right use case, without mandating the user of a particular scanner.

Security-conscious software developers leverage our platform APIs and federation interfaces to securely and efficiently embed biometric and MFA identity capabilities into their software.

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. 

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

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.

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We base subscription fees primarily on the products used and the number of users enrolled in our platform.

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

Strategic Outlook

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

We plan to offer customers a suite of authentication options that complement our biometric solutions.

We plan to continue to offer customers a suite of authentication options that complement our biometric solutions.

The more well-rounded offerings of authentication options will allow customers to customize their approach to authentication all under one umbrella.

We expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence including financial services, higher education, and healthcare. 

We expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence including financial services, higher education, and healthcare.

We believe that continued heightened security and privacy requirements in these industries, and as colleges and universities continue operating in remote environments, we will generate increased demand for security solutions, including biometrics.

In addition, we expect that the compatible, yet superior portable biometric user experience offered by our technology for Windows 10 users will accelerate the demand for our computer network log-on solutions and fingerprint readers. 

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. 

In furtherance of this strategy, we are active in the industry and regularly evaluate businesses that we believe will either provide an entry into new market verticals or be synergistic with our existing operations and in either case, be accretive to earnings. 

We cannot provide any assurance as to whether we will be able to complete any acquisition and if completed, successfully integrate any business we acquire into our operations. 

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 eighty-five 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.

We cannot provide any assurance as to whether we will be able to complete any acquisition and if completed, successfully integrate any business we acquire into our operations.

Recent Developments

As discussed under “Item 1A.

Risk Factors”

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.

As discussed under “Item 1A.

Risk Factors”, given the uncertainty the current economic and political environment 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.

A growing trend of security incidents that highlight potential cybersecurity vulnerabilities, additional regulatory requirements, and increasingly stringent Cyber Insurance underwriting standards that mandate enhanced security solutions has resulted in many businesses requiring MFA for their employees, partners and customers to access their business systems and data.

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

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Cost of hardware

Cost of hardware reserve

Operating expenses

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Costs and other expenses

Hardware reserves

Total Costs and other expenses

Revenue increased $1,905,769 or 37% to $7,020,258 in 2022 as compared to $5,114,489 in 2021 due to the factors stated below. 

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 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.

Revenue increased $734,647 or 10% to $8,654,905 in 2023 as compared to $7,020,258 in 2022 due to the factors stated below.

For the years ended December 31, 2023, and 2022, service revenues included approximately $1,193,000 and $1,243,000, respectively, of recurring maintenance and support revenue, and approximately $1,026,000 and $546,000, respectively, of non-recurring custom services revenue.

Recurring service revenue decreased 4% in 2023 due to delayed renewals in the fourth quarter.

Non-recurring custom services increased 88% in 2023 due to increased new customer installations, Swivel Secure 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, 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.

For the year ended December 31, 2023 and 2022 license revenue decreased $242,042 or 5% to $4,342,010, due primarily to lower new customer orders.

We expect do not expect this trend to continue into 2024.

Hardware sales increased by $547,524, or 85%, to $1,194,010 in 2023 from $646,486 in 2022.

The increase was attributable largely to fourth quarter 2023 sales to an international defense agency.

Costs of goods sold

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 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.

For the year ended December 31, 2023, cost of services increased approximately 19% to $861,936, due to the increased costs to support Swivel Secure deployments.

License fees for the year ended December 31, 2023 increased $268,502, or approximately 30%, to $1,174,919 due primarily to increased license revenue and related license fees payable for third-party software distributed by Swivel Secure.

Hardware costs for the year ended December 31, 2023 increased $289,230, or approximately 70%, to $700,231 from $411,001 in 2022.

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

Hardware reserve costs for the year ended December 31, 2023 increased $3,186,500 due to a complete reserve of slow moving inventory purchased for projects in Nigeria, and for other older inventory.

We are continuing to explore other markets and opportunities to sell this inventory.

Selling, general and administrative

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.

Selling, general and administrative costs for year ended December 31, 2023 were $7,862,710 representing a 16% decrease from 2022.

The decrease included lower sales and marketing expenses related to show participation and personnel costs, offset by an increase in allowance for doubtful accounts ofr $750,000 compared to $360,000 in 2022.

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 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.

For the year ended December 31, 2023, research, development and engineering costs were $2,394,926 representing a 26% decrease from 2022.

Included in the decrease were lower personnel costs associated with wages and benefits for engineering employees.

Reversal of earnout payable – Swivel Secure 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 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.

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)

Interest income

Gain from sale of asset

Foreign currency loss

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Interest expense

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.

The amounts for other income (expense) for the year ended December 31, 2023 consisted of interest income of $11,533, a gain from the sale of a PistolStar domain asset, change in loan transactions costs for payment of the convertible note payable as we elected to value the convertible note under the fair value option, and interest expense of $218,270 on the convertible note payable and the government loan through the BBVA bank.

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

LIQUIDITY AND CAPITAL RESOURCES

Operating activities overview

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

Net cash used for operations during the year ended December 31, 2023 was $3,793,456.

Items of note included:

Net positive cash flows related to non-cash expenses of approximately $4,933,000.

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.

Net negative cash flows related to changes in accounts receivable, prepayments, lease liabilities, and deferred revenue in the aggregate amount of approximately $244,000 and our net loss for the period.

Investing activities overview

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

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.

Net cash used in investing activities during the year December 21, 2023 was $1,000 for capital expenditures.

Fi nancing activities overview

Approximately $4,297,000 was provided by financing activities during the year ended December 31, 2023 consisting of the issuance of common stock and warrants in public and private securities offerings, and exercise of warrants.

These amounts were offset by repayment of convertible note payable, costs associated with the issuance of our securities, and proceeds of $17,478 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.

On November 20, 2023, we completed a private placement of shares of common stock and warrants resulting in net proceeds of approximately $435,000, after deducting placement agent fees and estimated offering expenses.

On October 30, 2023, we completed a public offering of shares of common stock and warrants resulting in net proceeds of approximately $3.3 million, after deducting placement agent fees and estimated offering expenses.

We used approximately $2.2 million of the net proceeds to repay the outstanding amount due under outstanding convertible note payable.

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

Interest under the Note accrued at a rate of 10% per annum, payable monthly through month six and at 12% per annum in months seven through twelve, payable monthly.

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

The Note was repaid in December 2022.

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.

The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us (the “Advance Amount”), with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer.

We entered into an accounts receivable factoring arrangement with a financial institution (the “Factor”) which has been extended to October 31, 2024 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.

The Factor remits 35% of the foreign and 75% of the domestic accounts receivable balance to us (the “Advance Amount”), with the remaining balance, less fees, forwarded to us once the Factor collects the full accounts receivable balance from the customer.

In addition, from time to time, we receive over advances from the Factor.

Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice.

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

Factoring fees range from 2.75% to 15% of the face value of the invoice factored and are determined by the number of days required for collection of the invoice.

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

Liquidity Outlook

At December 31, 2022, our total cash and cash equivalents were approximately $2,600,000, as compared to $7,800,000 at December 31, 2021. 

At December 31, 2022, we had working capital of approximately $3,529,000. 

At December 31, 2023, our total cash and cash equivalents were approximately $511,000, as compared to $2,600,000 at December 31, 2022.

At December 31, 2023, we had working capital of approximately $(777,000) as a result of the allowance for doubtful accounts and reserve on inventory.

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.

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We expect that Swivel Secure Europe will continue to generate positive cash flow in 2024.

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.

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.

We also have approximately $3.6 million of inventory (currently reserved) purchased for projects in Nigeria.

We continue to explore other markets and opportunities to sell or return the product to generate additional cash.

If we are unable to generate sufficient revenue and positive cash flow from operations or liquidation of existing inventory to fund current operations and execute our business plan, we will need to obtain additional third-party financing during the next twelve months.

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

To the extent that we require such additional financing, no assurance can be given that any form of additional financing will be available on terms acceptable to us, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders.

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.

To the extent that we require such additional financing, no assurance can be given that any form of additional financing will be available on terms acceptable to us, if at all, that adequate financing will be obtained to meet our needs, or that such financing would not be dilutive to existing stockholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Our actual results may differ significantly from these estimates under different assumptions or conditions.

There have been no material changes to these estimates for the periods presented in this Annual Report on Form 10-K.

We believe that of our significant accounting policies, which are described in Note A of the notes to our consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.

We believe that of our significant accounting policies, which are described in Note A of the notes to our consolidated financial statements included in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity.

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:

Business Combinations  

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.

Revenue Recognition

Impairment or Disposal of Long Lived Assets, including Intangible Assets

Allowances for Accounts Receivable

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

1 unchanged sentence

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See financial statements appearing at pages 37-64 of this Annual Report on Form 10-K.

See financial statements appearing at pages 37-64 of this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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