What changed in this filing

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Item 1A. Risk Factors

2025-04-23 compared with 2024-06-05 · 47 added, 45 removed, 268 unchanged (26% of the section changed)

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BUSINESS AND FINANCIAL RISKS

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.

We identified a material weakness in our internal control over financial reporting related to the recording and processing of revenue transactions which required the restatement of our quarterly financial statements for the interim periods in 2023.

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 connection with the audit of our financial statements for the year ended December 31,2023, management 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.

Therefore, the Company misstated gross revenues, accounts receivable, and inventory during the first three quarters of 2023.

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.

We completed the restatement and have now corrected and continue to monitor the applied corrective actions to remediate the material weakness and continue 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.

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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.

Based on our limited cash resources, history of significant losses, negative cash flow, and dependence on debt and equity financing to fund 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 significant losses, limited cash resources, negative cash flow, and dependence on debt and equity financing to fund operations, our independent registered public accounting firm has included an explanatory paragraph in their opinion for the year ended December 31, 2024 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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If we are unable to achieve revenue or raise capital sufficient to cover our ongoing operating expenses, we will be required to scale back operations, including marketing and research initiatives, or in the extreme case, discontinue operations.

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

We may need to obtain additional financing to execute our business plan, which may not be available.

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

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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.

Our failure to timely our annual report on Form 10-K for the year ended December 31, 2023 and our quarterly report on Form 10-Q for the period ended March 31, 2024 has made us ineligible to use a 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 our failure to timely file our annual report on Form 10-K for the year ended December 31, 2023 and our Quarterly Report on SEC Form 10-Q for the period ended March 31, 2024, we are not 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.

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Our technology represents a novel security solution and we have not yet generated significant sales.

Although recent security concerns relating to identification of individuals and appearance of biometric readers on popular consumer products, including the Apple iPhone, have increased interest in biometrics generally, it remains an undeveloped, evolving market.

Biometric based solutions compete with more traditional security methods including keys, cards, personal identification numbers and security personnel.

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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.

Sullivan, our Chief Legal Officer, each have one-year terms 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.

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If we cannot effectively develop and improve services, we may not be able to recover our fixed costs or otherwise become profitable.

If we fail to adequately manage our resources, it could have a severe negative impact on our financial results or stock price.

We could be subject to fluctuations in technology spending by existing and potential customers.

Accordingly, we will have to actively manage expenses in a rapidly changing economic environment.

This could require reducing costs during economic downturns and selectively growing in periods of economic expansion.

If we do not properly manage our resources in response to these conditions, our results of operations could be negatively impacted.

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

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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.

The growing investor demand for measurement of non-financial performance is addressed by third-party providers of sustainability assessment and ratings on companies.

The criteria by which our corporate responsibility practices are assessed may change due to the constant evolution of the sustainability landscape, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria.

If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies and/or actions with respect to corporate social responsibility are inadequate.

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.

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 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.

Our business could be adversely affected by trade tariffs or other trade barriers.

Our business is subject to the imposition of tariffs and other trade barriers, which may make it more costly for us to import inventory from China and Hong Kong and certain product components from South Korea.

The new presidential administration recently imposed new tariffs on imports to the United States from China, Mexico, Canada, and Europe and is expected to impose new tariffs on imports from other countries.

In addition, these countries have, and in the future other countries may, impose retaliatory tariffs.

The resulting environment of retaliatory trade or other practices or additional trade restrictions or barriers could harm our ability to obtain inventory and product components or sell our products and services at prices customers are willing to pay, which could have a material adverse effect on our business, prospects, results of operations, and cash flows.

Relatedly, trade policies could lead to an increasing number of competitors entering the United States, thereby creating more competition.

If we experience cost increases as a result of existing or future tariffs and are unable to pass on such additional costs to our customers, or otherwise mitigate the costs, our business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected.

Scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Public companies are facing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.

Investor advocacy groups, investment funds and influential investors are also focused on these practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, labor conditions and human rights, both in our own operations and in our supply chain.

Increased ESG-related compliance costs could result in material increases to our overall operational costs.

Our ESG practices may not meet the standards of all of our stakeholders and advocacy groups may campaign for further changes.

Additionally, different stakeholder groups have divergent views on ESG matters, which increases the risk that any action or lack thereof with respect to ESG matters may be perceived negatively by at least some stakeholders and adversely impact our reputation and business.

Anti-ESG sentiment has gained some momentum across the United States, with several states having enacted or proposed “anti-ESG” policies or legislation or issued related legal opinions.

The federal government has similarly taken action to curtail ESG initiatives.

A failure, or perceived failure, to adapt to or comply with regulatory requirements or to respond to investor or stakeholder expectations and standards could negatively impact our business and reputation and have a negative impact on the trading price of our common stock.

Legal, regulatory or market measures to address climate change may materially and adversely affect our future results of operations and financial condition.

In March 2024, the SEC adopted climate disclosure rules, which would 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.

These climate disclosure rules have been the subject of multiple legal challenges, and the SEC recently dropped its defense of the rules, so the extent to which the rules will go into effect remains uncertain.

Inconsistency of regulations at the federal and state level may affect the costs of compliance with such legal or regulatory requirements.

We may incur increased costs relating to the assessment and disclosure of climate-related risks and increased litigation risks related to such disclosures, either of which could materially and adversely affect our future results of operations and financial condition.

Adverse publicity or climate-related litigation that impacts us could have a negative impact on our business.

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.

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.

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There is a scarcity of and competition for acquisition opportunities.

A component of our business plan is to acquire businesses and assets in the biometric and identity access management industry and other industries which we believe would complement our current offerings.

There are a limited number of operating companies available for acquisition that we deem to be desirable targets.

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We may experience difficulties in integrating the operations, personnel and assets of any business we acquire which may disrupt our business, dilute stockholder value, and adversely affect our operating results .

A component of our business plan is to acquire businesses and assets in the biometric and identity access management industry.

There can be no assurance that we will be able to identify, acquire or profitably manage businesses or successfully integrate acquired businesses into the Company without substantial costs, delays or other operational or financial problems.

There can be no assurance that we will be able to identify, acquire or profitably manage any businesses or successfully integrate acquired businesses into the Company without substantial costs, delays or other operational or financial problems.

Such acquisitions also involve numerous operational risks, including:

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

If we fail to comply with the 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.

If we fail to comply with the 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, 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.

In order to maintain our listing, we must satisfy Nasdaq’s continued listing requirements.

In 2024, we received multiple notices from Nasdaq indicating that we were not in compliance with Nasdaq continued listing requirements.

These notices referenced failures to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, to timely file our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, and failure to maintain minimum stockholders' equity of at least $2.5 million.

We have timely cured each of these deficiencies and are currently in compliance with Nasdaq’s continued listing standards.

The value of the shares of common stock of Boumarang Inc.

that we purchased from Fiber Food Systems, Inc.

in connection with our collaboration with Fiber Food Systems increased our stockholders’ equity to a level which satisfied the Nasdaq minimum requirement.

As a privately held pre-revenue company, Boumarang is subject to all of the risks and uncertainties inherent in an early-stage enterprise and the value of its shares are subject to fluctuation which could be material.

Any material decrease in the value of these shares could cause us our stockholders’ equity to fall below the Nasdaq minimum requirement resulting in the potential delisting of our shares from the Nasdaq stock market.

In addition, in recent weeks the trading price of our common stock has fallen below the $1.00 minimum bid required to maintain our listing on Nasdaq.

Continued trading below $1.00 per share could subject us to delisting from the Nasdaq stock market.

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.

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

What changed 10-K

Item 1A. Risk Factors