What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-02-11 compared with 2020-05-12 · 49 added, 44 removed, 128 unchanged (42% of the section changed)

7 unchanged sentences

We cannot anticipate with any degree of certainty what our revenues will be in future periods.

While our gross profit margin increased from 59.2% in 2018 to 63.1% in 2019, our revenues declined approximately 16% in 2019 as compared to 2018.

While our gross profit margin increased to 81.4% in 2020 from 63.1% in 2019, our revenues declined approximately 27% in 2020 as compared to 2019.

We reported an operating loss of approximately $8,048,581 million in 2020 as compared to an operating loss of approximately $7,738,193 million in 2019.

The lower revenue in 2019 as compared to 2018 was due primarily to the ValidClick operations where monetization from advertising inventory sold to our largest demand partners was lower in 2019 in part due to a focus shift associated with the Mergers (as described below) which were terminated in June 2019.

In addition, the previously announced strategy to reduce focus on the non-strategic publisher side technologies resulted in lower revenue in 2019 this year compared to 2018.

The higher gross margin in 2019 is primarily due to the change of revenue mix within the ValidClick business.

As described elsewhere in this report, our industry is currently in a consolidation phase and our strategic decisions in 2018 to discontinue certain non-strategic technologies in response to our changing industry involved the short-term loss of revenue and margin in anticipation of future growth and margins starting in 2019.

Since our credit facility is dependent upon receivables, and we do not know when, if ever, that our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources, the combination of lower credit availability and recent negative cash flows generated from operating activities introduces potential risk of operation without interruption.

The lower revenue in 2020 as compared to 2019 was due primarily to the ValidClick operations where monetization from advertising inventory sold to our largest demand partners was lower in 2020 in part due to the COVID-19 pandemic.

The higher gross margin in 2020 was primarily due to the change of revenue mix within the ValidClick business.

The COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition .

1 unchanged sentence

Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic—the first pandemic caused by a coronavirus.

The outbreak has reached more than 160 countries, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans, intended to control the spread of the virus.

The outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans, intended to control the spread of the virus.

The COVID-19 outbreak has already caused severe global disruptions.

Beginning in late April 2020, we experienced a significant reduction in demand (marketing budgets) within the ValidClick business and a modest decline in demand within the IntentKey business, the combination of which has resulted in a significant reduction in our revenue run rate, the combination of which has resulted in a significant reduction in our revenue run rate.

Beginning in late April 2020, we experienced a significant reduction in demand (marketing budgets) within the ValidClick platform and a modest decline in demand within the IntentKey platform, the combination of which has resulted in a significant reduction in our revenue run rate.

Generally, marketing budgets tend to decline in times of a recession.

We have started to curtail expenses, including compensation and travel and we have issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers.

We are beginning to experience interruptions in our daily operations, including our 10-K reporting process, as a result of these policies.

We expect the revenue impact on our industry could vary dramatically by vertical.

For example, we would expect to see less advertising demand from the travel, leisure and hospitality verticals.

We also maintain long-standing relationships with Yahoo!, Google and Microsoft Online that provide access to hundreds of thousands of advertisers from which most of our ValidClick and digital publishing revenue originates.

We have curtailed expenses, including compensation and travel and we have issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers.

We began to experience interruptions in our daily operations, as a result of these policies.

The revenue impact on our industry could vary dramatically by vertical.

For example, we experienced less advertising demand from the travel, leisure and hospitality verticals.

We also maintain long-standing relationships with Yahoo!

and Google that provide access to hundreds of thousands of advertisers from which most of our ValidClick and digital publishing revenue originates.

Any adverse impact on the operations of those companies would have a correspondingly adverse impact on our revenues in future periods.

1 unchanged sentence

Should revenues continue to turn downwards or fail to return to historical levels, we may not be able to offset expenses quickly enough which could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.

Our auditors have raised substantial doubts as to our ability to continue as a going concern .

Our consolidated financial statements appearing later in this report have been prepared assuming we will continue as a going concern.

We have sustained recurring losses from operations and have a net capital deficiency.

These factors, among others, raise substantial doubt about our ability to continue as a going concern.

Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our working capital deficit has increased substantially at December 31, 2019 as compared to December 31, 2018.

At December 31, 2019, we had a cash balance of approximately $373,000 and a working capital deficit of approximately $7.5 million as compared to a cash balance of approximately $229,000 and a working capital deficit of approximately $6.9 million at December 31, 2018.

We used approximately $5.3 million in net cash in our operations in 2019 as compared to approximately $2.1 million of net cash used in operations in 2018.

Our principal sources of liquidity are our borrowings under our credit facility, which was represented in 2019 by, the Amended and Restated Financing Agreement with Western Alliance Bank which is described in Note 6 to our 2019 audited consolidated financial statements appearing elsewhere in this report, the sale of our common stock and borrowings from non-bank lenders.

In March 2020 and April 2020, we raised approximately $1.5 million from the sale of our securities to provide additional working capital for our company.

In addition, in April 2020 we

obtained an unsecured $1.1 million loan through Relyance Bank N.A.

under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

In accordance with the requirements of the CARES Act, we are using the proceeds from the PPP Loan primarily for payroll costs.

Though we believe current operating cash flows, the additional working capital, the PPP Loan and the credit facility will be sufficient to sustain operations for the next six months, if our plan to grow the IntentKey business is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions.

There is no assurance that we will be successful in obtaining funding to continue operations, particularly in light of the current impact of the coronavirus on the U.S.

capital markets.

We rely on two customers for a significant portion of our revenues.

4 unchanged sentences

and Google accounted for 64.4% and 14.1% of our revenues, respectively.

The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries.

The amount of revenue we receive from these customers is

dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries.

We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not approve our new websites and applications, or if we violate their guidelines or they change their guidelines.

1 unchanged sentence

The loss of any of these customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.

Ability to maintain our credit facility could impact our ability to access capital as needed.

We historically maintained a credit facility with Western Alliance Bank, the parent company of Bridge Bank, N.A.

Ability to maintain our credit facility could impact our ability to access capital in the future.

On March 12, 2020 we closed a Loan and Security Agreement with Hitachi Capital America Corp.

("Hitachi") the terms of which are described later in this report which replaced our credit facility with Western Alliance Bank.

("Hitachi") the terms of which are described in this report which replaced our credit facility with Western Alliance Bank.

Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment which permits us to borrow against eligible accounts receivable and unbilled receivables.

The Hitachi Loan and Security Agreement contains certain affirmative and negative covenants to which we are subject.

As of December 31, 2020, we were in compliance or obtained a waiver for these covenants.

There are no assurances that we will be able to comply with all the covenants.

In the event we violate a covenant, Hitachi may limit or demand all amounts due under the credit facility at any time, including upon an event of default outstanding, if any, to be due and payable.

If this occurs and we have outstanding obligations and are not able to repay, Hitachi could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral.

If this occurs and if we have outstanding obligations and are not able to repay, Hitachi could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral.

Should this occur, we cannot assure you that our assets would be sufficient to repay our debt in full, we would be able to borrow sufficient funds to refinance the debt.

46 unchanged sentences

From time to time third parties have asserted infringement claims against us including copyright, trademark and patent infringement, among other things.

While we believe that we have defenses to these types of claims under appropriate

trademark laws, we may not prevail in our defenses to any intellectual property infringement claims.

While we believe that we have defenses to these types of claims under appropriate intellectual property laws, we may not prevail in our defenses to any intellectual property infringement claims.

In addition, we may not be adequately insured for any judgments awarded in connection with any litigation.

14 unchanged sentences

As of December 31, 2020, we had 38 full-time employees located in Arkansas.

Failure to meet the requirements of the grant after the initial four-year period, may require us to repay a portion of the grant, up to but not to exceed the full amount of the grant.

Failure to meet the requirements of the grant after the initial four-year period, may require

us to repay a portion of the grant, up to but not to exceed the full amount of the grant.

At December 31, 2020, we accrued a contingent liability of $60,000 for the lower than required employment.

Should the lower than required employment continue, we cannot assure you that our assets would be sufficient to repay our grant in full, we would be able to borrow sufficient funds to refinance the grant, or that we would be able to obtain a waiver to cure any such default.

In such an event, our ability to conduct our business as it is currently conducted would be in jeopardy.

We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock .

28 unchanged sentences

• general economic and financial market conditions.

Significant dilution will occur if outstanding convertible securities options are exercised or restricted stock unit grants vest.

As of December 31, 2019, we had stock options outstanding to purchase a total of 18,248 shares with exercise prices ranging from $0.56 to $3.70 per share, with a weighted average exercise price of $1.74, 2,568,951 outstanding restricted stock units and a convertible promissory note which is convertible into an aggregate of 657,143 shares of our common stock, subject to adjustment under the terms of the notes.

We also had 2,568,951 restricted stock units outstanding.

If outstanding stock options are exercised, the note is converted or the restricted stock units vest, dilution will occur to our stockholders, which may be significant.

Significant dilution will occur when outstanding restricted stock unit grants vest.

As of December 31, 2020, we had 1,930,526 restricted stock units outstanding.

If the restricted stock units vest, dilution will occur to our stockholders, which may be significant.

Our financial condition may be adversely affected if we are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses, or are unable to obtain financing for acquisitions on acceptable terms.

The acquisition of assets or businesses that we believe to be complementary to our business is an important component of our strategy.

We believe that acquisition opportunities may arise from time to time, and that any such acquisitions could be significant.

At any given time, discussions with one or more potential sellers may be at different stages.

However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able to identify or complete any acquisitions.

We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our ordinary shares.

Our business is capital intensive and any such transactions could involve the payment by us of a substantial amount of cash and/or equity securities.

We may need to raise additional capital through public or private debt or equity financings to execute our growth strategy and to fund acquisitions.

Adequate sources of capital may not be available when needed on favorable terms.

If we raise additional capital by issuing additional equity securities or use equity securities for acquisitions, existing shareholders may be diluted.

If our capital resources are insufficient at any time in the

future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

Any usage of capital to fund an acquisition could lead to a decrease in liquidity.

Any future acquisitions could present a number of risks, including:

• the risk of using management time and resources to pursue acquisitions that are not successfully completed;

• the risk of incorrect assumptions regarding the future results of acquired operations;

• the risk that the amount and timing of the expected benefits of any acquisition, including potential synergies, are subject to uncertainties;

• the risk of unexpected losses of key employees, customers and suppliers of the acquired business;

• the risk of increasing the scope, geographic diversity, and complexity of our business;

• the risk of unfavorable accounting treatment and unexpected increases in taxes;

• the risk of difficulty in conforming standards, controls, procedures, policies, business cultures, and compensation structures;

• the risk of failing to integrate the operations or management of any acquired operations or assets successfully and in a timely manner;

• the risk of diversion of management’s attention from existing operations or other priorities.

If we are unsuccessful in completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully.

In addition, if we are unsuccessful in integrating our acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected.

UNRESOLVED STAFF COMMENTS.

1 unchanged sentence

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