What changed in this filing

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Item 1A. Risk Factors

2024-04-01 compared with 2023-03-28 · 45 added, 26 removed, 123 unchanged (37% of the section changed)

7 unchanged sentences

If these governmental and quasi-government agencies were to stop sharing data with us, the utility of our proprietary software would be diminished in those jurisdictions and our business would be damaged.

Currently, the fifty states, ten Canadian provinces and the District of Columbia, in most instances, conform to the guidelines established by certain organizations responsible for implementing industry standards and, cooperate with us by providing sample identification cards so that we may modify all our hardware and software products to read and analyze the encoded information found on such jurisdiction’s identification cards.

Currently, every U.S.

state, ten Canadian provinces and the District of Columbia, in most instances, conform to the guidelines established by certain organizations responsible for implementing industry standards and, cooperate with us by providing sample identification cards so that we may modify all our hardware and software products to read and analyze the encoded information found on such jurisdiction’s identification cards.

If one or more of these jurisdictions do not continue to provide this reference data, the utility of our proprietary software may be diminished in those jurisdictions.

4 unchanged sentences

These initiatives have costs associated with them, and we cannot assure you that they ultimately will prove successful, or result in, an increase to our revenues or profitability.

We could be negatively impacted by the ongoing coronavirus (COVID-19) pandemic.

In December 2019, it was first reported that there had been an outbreak of a novel strain of COVID-19, in China.

Since then, COVID-19 has continued to spread outside of China, including throughout the United States and other parts of the world, becoming a global pandemic.

Since then, the pandemic has seen waves of increases and decreases of infections due to the emergence of variants to the original COVID-19 strain such as the Delta variant and Omicron variant.

While we are hopeful that widespread vaccinations from COVID-19, together with increases in immunity within the population and an overall decrease in cases, will continue to usher in a new sense of normalcy, we are unable to accurately predict the full impact that the COVID-19 pandemic could have on our results of operations or financial condition due to numerous factors that are not within our control, including the duration and severity of any future outbreak together with any additional statewide closures resulting from increases in cases nationwide, whether from COVID-19 or recently discovered or newly emerged variants.

Governments in affected regions have implemented and could re-implement safety precautions, including stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures.

While many of the original restrictions levied by governments in 2020 have been removed, additional variants, could emerge causing significant increases in cases which could cause governments to reinstitute some or all of the previously implemented restrictive measures in order to curtail the increase in the number of reported cases.

Such additional restrictions could lead to the cancellation of industry events which could limit our ability to meet with existing and potential new customers.

We could be negatively impacted by COVID-19, or other similar pandemics.

As a result of the COVID-19 pandemic, or other similar pandemics, we may in the future experience disruptions that could severely impact our business, including government shutdowns, stay-at-home orders, travel restrictions, business closures, cancellations of public gatherings, and other measures.

While many of the original restrictions levied by governments in 2020 have been removed, additional variants, or similar pandemics in the future, could cause governments to reinstitute some or all of the previously implemented restrictive measures.

Such restrictions could lead to the cancellation of industry events which could limit our ability to meet with existing and potential new customers.

The industry for our systems and software is evolving and its growth is uncertain.

Demand as well as industry acceptance for recently introduced and existing systems, and software and sales from such systems and software, are subject to a high level of uncertainty and risk.

Demand and industry acceptance for recently introduced and existing systems, and software and sales from such systems, are subject to a high level of uncertainty and risk.

With changing administration in government, changes in government budgets, and slowly evolving government standards on use of identity products, the government sector is slowly developing.

15 unchanged sentences

These processes include:

■ contractual arrangements providing for nondisclosure of proprietary information;

■ including provisions for nondisclosure of proprietary information in our contractual arrangements;

■ maintaining and enforcing issued patents and filing patent applications on innovative solutions to commercially important problems;

11 unchanged sentences

In addition, foreign laws treat the protection of proprietary rights differently from laws in the United States.

The failure of foreign laws or judicial systems to adequately protect our proprietary rights or intellectual property, including intellectual property developed on our behalf by foreign contractors or subcontractors, may have a material adverse effect on our business, operations, and financial results.

The failure of foreign laws or judicial systems to adequately protect our proprietary rights or intellectual property, including

intellectual property developed on our behalf by foreign contractors or subcontractors, may have a material adverse effect on our business, operations, and financial results.

If our future products incorporate technologies that infringe the proprietary rights of third parties, and we do not secure licenses from them, we could be liable for substantial damages.

9 unchanged sentences

As a result, we would incur substantial costs, delays in product development, sales and shipments, and our revenues may decline substantially.

Additionally, we may not be able to achieve the minimum necessary growth for our continued success.

Additionally, we may not be able to achieve the growth necessary for our continued success.

Failure to attract and retain management and other personnel may damage our operations and financial results and cause our stock price to decline.

8 unchanged sentences

Should our sales decline or if we are unsuccessful at increasing prices to cover higher expenditures for internal controls and audits, our costs associated with regulatory compliance will rise as a percentage of sales.

Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate.

We are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls.

This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities.

If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting.

In either case, we could become subject to regulatory sanction or investigation.

Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

Our management has concluded that our internal controls over financial reporting were ineffective, as of December 31, 2023 as a result of the following:

The Company did not design and maintain effective controls to periodically reassess whether Nexus was achieved in the states we do business.

This caused us not to be able to collect sales tax from our customer and subsequently remitting those sales tax to the appropriate state tax agency.

During our assessment in 2023, it was determined that we had prior period sales tax obligation on certain states, in which we failed to collect and remit the sales tax..

While management intends to remediate the material weakness, there is no assurance that such changes, when economically feasible and sustainable, will remediate the identified material weaknesses or that the controls will prevent or detect future material weaknesses.

If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business.

Long lead times for the components used in certain products creates uncertainty in our supply chain and may prevent us from making required deliveries to our customers on time.

We rely exclusively on commercial off-the-shelf technology in manufacturing our products.

We rely exclusively on COTS technology in manufacturing our products.

The lead-time for ordering certain components used in our products and the production of products can be lengthy.

As a result, we must, from time to time, order products based on forecasted demand.

If demand for products lags significantly behind forecasts, we

may purchase more product than we can sell.

If demand for products lags significantly behind forecasts, we may purchase more product than we can sell.

Conversely, if demand exceeds forecasts, we may not have enough products to meet our obligations to our customers.

17 unchanged sentences

The occurrence of product defects or errors could result in negative publicity, delays in product introduction and the diversion of resources to remedy defects and loss of or delay in industry acceptance or claims by customers against us and could cause us to incur additional costs, any one of which could adversely affect our business.

Because of the risk of undetected error, we may be compelled to accept liability provisions that vary from our preferred contracting model in certain critical transactions.

Because of the risk of undetected error, we may be compelled to accept liability provisions that vary from our preferred contracting model in certain critical

transactions.

There is a risk that in certain contracts and circumstances we may not be successful in adequately minimizing product and related liabilities or that the protections negotiated will not ultimately be deemed enforceable.

7 unchanged sentences

Revenues from our ten largest customers accounted for 71% of total revenues in 2023 and 72% of total revenues in 2022.

Three customers accounted for 52% of revenues in 2022 and two customers accounted for 55% of revenues in 2021.

Our loss of one or more significant customers could have a significant adverse impact on our business, financial condition, and results of operations.

Three customers accounted for 47% of revenues in 2023 and three customers accounted for 52% of revenues in 2022.

The loss of one or more significant customers could have a significant adverse impact on our business, financial condition, and results of operations.

Risks Related to Our Common Stock and the Market for Our Common Stock

1 unchanged sentence

The market price of our common stock, like the price of shares of technology companies generally, has been and may continue to be volatile.

From January 1, 2002 to March 28, 2023, the intra-day trading price of our common stock has varied from a high of $145.52 to a low of $0.75 per share, as reported on The Nasdaq Stock Market.

From January 1, 2002 to April 1, 2024, the intra-day trading price of our common stock has varied from a high of $145.52 to a low of $0.75 per share, as reported on The Nasdaq Stock Market.

Many factors may cause the market price for our common stock to decline, including:

6 unchanged sentences

■ unfavorable outcomes from outstanding litigation.

In addition, the stock market experiences extreme fluctuations in price and volume, which was heightened as a result of the COVID-19 pandemic and the rise in interest rates, that particularly affect the market price of shares of technology companies, such as ours.

In addition, the stock market experiences extreme fluctuations in price and volume, that particularly affect the market price of shares of technology companies, such as ours.

These price and volume fluctuations are often unrelated or disproportionate to the operating performance of the affected companies.

3 unchanged sentences

These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.

Declines in our stock price for any reason, as well as broad-based market fluctuations or fluctuations related to our financial results or other developments outside of our control such as market reactions to increasing inflation described above or to ongoing hostilities between Russia and the Ukraine, may adversely affect your ability to sell your shares at a price equal to or above the price at which you purchased them.

Declines in our stock price for any reason, fluctuations related to our financial results or due to macroeconomic conditions, including inflation and rising interest rates, capital market volatility and global conflicts, including the Russia-Ukraine war, the Israel-Hamas war and the conflict between China and Taiwan, may adversely affect your ability to sell your shares at a price equal to or above the price at which you purchased them.

Decreases in the price of our common stock may also lead to de-listing of our common stock.

6 unchanged sentences

As a result, we do not anticipate paying cash dividends in the foreseeable future.

Any future determination as to the declaration and payment of cash dividends will be at

the discretion of our Board of Directors and will depend on factors the Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements.

Any future determination as to the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors the Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements.

Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock.

There is no guarantee that our stock will appreciate.

Unresolved Staff Comments

Not applicable.

The Company's cash and cash equivalents could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.

We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, in amounts which exceed the FDIC insurance limits.

The failure or rumored failure of a bank, or events involving limited liquidity, defaults, non-performance, bankruptcy, receivership or other adverse developments in the financial or credit markets impacting financial institutions, may lead to disruptions in access to our bank deposits.

These disruptions could impact our liquidity and financial performance.

There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S.

government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

As such, those funds in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure.

Currently, we have full access to all funds in deposit accounts or other money management arrangements.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds.

In the event of such failure, we may experience delays or other issues in meeting our financial obligations, our ability to access our cash and cash equivalents may be threatened and could have a material adverse effect on our business and financial condition.

Future adverse developments with respect to specific financial institutions or the broader financial services industry may also lead to market-wide liquidity shortages.

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