KonaTel, Inc. 10-K

ITEM 1A. RISK FACTORS RISK FACTORS As we are a smaller reporting company as defined by Section 12b-2 of the Exchange Act, we are not required to provide the information under this Item or in our annual or quarterly reports filed with the SEC; however, we believe this information may be of value to our shareholders or potential investors in our Company. These risk factors should be considered in light of the caption “Forward-Looking Statements” at the forepart of this Annual Report. We reserve the right not to provide risk factors in our future filings. Our primary risk factors and other considerations include: Risks Related to the Company We have a limited operating history and cannot ensure the long-term successful operation of our business or the execution of our business plan. We commenced our current business operations in November of 2014, and our wireless marketing technology and solutions are an evolving business offering. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies in new and rapidly evolving markets. We may be unable to successfully accomplish and fund our current endeavors, which would materially impact our ability to implement our business plan, including: · establishing and maintaining broad market acceptance of our technology, solutions, services and platforms, and converting that acceptance into direct and indirect sources of revenue; 10 · establishing and maintaining adoption of our technology, solutions, services and platforms in and on a variety of environments, experiences and types of devices; · timely and successfully developing new technologies, solutions, services and platform features, and increasing the functionality and features of our existing technologies, solutions, services and platform offerings; · developing technologies, solutions, services and platforms that result in a high degree of customer satisfaction and a high level of end-customer usage; · successfully responding to competition, including competition from emerging technologies and solutions; · developing and maintaining strategic relationships to enhance the distribution, features, content and utility of our technologies, solutions, services and platforms; · identifying, attracting and retaining talented engineering, network operations, program management, technical services, creative services and other personnel at reasonable market compensation rates in the markets in which we employ such personnel; and · integration of potential evolving offerings of products and acquisitions. Our business strategy may be unsuccessful, and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully accomplish these tasks, our business will be harmed, and we may fail. For the year end December 31, 2024, we reported gross revenues of $15,503,251, cost of revenues of $12,088,944, operating expenses of $7,905,600, other income and expenses of $9,213,940 and a net income of $4,722,647. For the prior year ended December 31, 2023, we reported gross revenues of $18,223,745, cost of revenues of $14,850,105, operating expenses of $6,494,243, other income and expenses of ($820,224) and net loss of ($3,940,827). For the year ended December 31, 2024, we had $9,056, in non-cash depreciation expense. As of December 31, 2024, our accumulated deficit was ($7,516,044). The United States Government’s dissolution or reduction of the Lifeline Program or the elimination of “resellers” of these services will and has had a substantial adverse effect on our current and planned business operations. · Considering there are approximately 7,300,000 current Lifeline users and approximately 38,000,000 eligible Lifeline customers (according to Universal Service Administrative Company, a governmental body that administers the “Universal Service Fund” of the FCC [the “USF”]), this would be a draconian move; however, it is a possibility. Federal or state governmental agencies could also significantly reduce or delay Lifeline reimbursement payments to Lifeline carriers, forcing Lifeline carriers to continue to provide minimum Lifeline services and at a reduced reimbursement rate. Depending on any reimbursement reduction, a reduction would diminish earnings and could make Lifeline unprofitable. The FCC established the Lifeline program in 1985 to ensure that qualifying low-income consumers could afford phone service and the opportunities and security it provides. Congress supported and strengthened Lifeline in the Telecommunications Act of 1996, requiring that affordable service and advanced communications be available to low-income consumers across the country. · Lifeline and ACP require several factors to be successful. The impact of negative governmental changes and negative national carrier pricing have been outlined above. In addition to those two risks, an interruption to the supply of low-cost phones and/or a reduction of Lifeline and ACP agents (no access to or not enough access to agents) would have a negative impact on Lifeline and/or ACP services. · Adequate equipment financing and available cash resources to pay up-front compensation payments (sometimes required) is critical to facilitate Lifeline, ACP, B2B and retail sales, and the lack of these resources would have a negative impact on our business. 11 The increase in the number of resellers of services and products that we provide by any national carrier could saturate the markets and market segments of our targeted customers, which could affect our business adversely. Market saturation could occur when a national carrier allows too many resellers into the market and margins drop so low where the reseller business model is no longer profitable, and our business may suffer and fail. A decrease in the amount of wholesale voice and mobile data available to purchase from wholesale aggregators could cause a substantial reduction in our business and customers. We purchase a portion of our mobile data service (“IoT”) directly from national carriers and purchase the remainder of our wholesale voice and mobile data from wholesale aggregators or MVNEs like PWG and Telispire. If one of these aggregators vacated the market, such action could force the transition of services to other providers, and could substantially reduce our current and anticipated revenues from our IoT or cellular service. A wireless reseller could gain a significant price advantage over other wireless resellers by entering into a special national carrier pricing agreement not available to other resellers. Any special national carrier pricing agreement that was not available to us would allow that particular reseller to “undercut” all other resellers. This scenario could also apply to a national wireless carrier acquiring a reseller then allowing that reseller to operate with special wholesale pricing not available to other resellers. Any such event could have a substantial adverse impact on our business and revenues. Adequate funds for our current and intended operations may not be available, requiring us to raise additional financing or curtail our current and planned operations significantly. We might be required to raise additional funding through public or private debt or equity financings. Any additional equity financings may be dilutive to our current shareholders and may be completed at a discount to the then-current market price of our common stock. Debt financing, if available, would likely involve restrictive covenants on our operations or pertaining to future debt or equity financing arrangements. Nevertheless, we may not successfully complete any future equity or debt financing. Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us. If the Company is unable to generate sufficient cash flow or raise additional capital, our plans to operate our business may be adversely affected, and we could be required to curtail our activities significantly and/or cease operations. If we seek to raise capital, we may be required to pay higher prices for capital based upon the current illiquid market for our common stock, among other factors. We may need to raise additional capital to implement our business plan and meet financial obligations as they come due. If we do need to raise additional capital, and cannot attract sufficient capital from customary sources, we may be required to pay a higher price for capital. Factors affecting the availability and price of capital may include the following: · the availability and cost of capital generally; · our financial results; · the experience and reputation of our management team; · market interest, or lack of interest, in our industry, industry segments and our business plan; · the trading volume of, and volatility in, the market for our common stock, assuming there is a reasonable trading market for our common stock; · our ongoing success, or failure, in executing our business plan; 12 · the amount of our capital needs; and · the amount of debt, options, warrants and convertible securities that may be outstanding in our Company at any time. A national carrier (Verizon, AT&T, T-Mobile) could dissolve, reduce or restrict any wholesale program, agent program or reseller program. This includes both voice and data IoT, which would adversely affect our business. We, like all voice and data resellers, are dependent on the FCC licensed national carriers to provide services that can be resold for profit. The wireless carriers own/control their respective network (towers) and provide the wireless service. Resellers do not own network and are dependent on the national carriers to provide a reseller program. These carriers could eliminate a reseller program or implement new policies that could reduce profit margins, making any applicable program unprofitable. They could also implement market restorations reducing markets we could sell into, which would have a direct adverse effect on our current and future prospects. Similarly, one of these national carriers could reduce their own retail pricing, with no corresponding reduction in their wholesale pricing, which could create a situation where a reseller is unable to make enough profit to sustain operations. We may be unable to meet our current or future obligations or to adequately develop existing or future opportunities if we cannot raise sufficient capital. If we are unable to obtain any required capital for an extended period of time, we may be forced to discontinue or curtail our business operations and we may fail. We expect that there will be significant consolidation in our industry. Our failure or inability to lead that consolidation would have a severe adverse impact on our access to financing, customers, technologies and human resources. Our industry is currently composed of a small number of substantial entities, and a relatively large number of small businesses, no single one of which is dominant, or which provides integrated solutions and product offerings incorporating much of the available technology. Accordingly, we believe that substantial consolidation of the smaller companies may occur in our industry in the near future as has occurred with many larger participants. If we do not play a positive role in that consolidation, either as a leader or as a participant whose capabilities and offerings are merged into a larger entity, we may be left out of this process, with product and service offerings of limited value compared with those of our competitors. Moreover, even if we lead the consolidation process, the market may not validate the decisions we make in that process and our business will suffer and may fail. Our success depends on our product and service technologies achieving and maintaining widespread acceptance in our targeted markets. Our success will depend to a large extent on broad market acceptance of our telecommunications solutions among our current and prospective customers. Our prospective customers may be unwilling to use our solutions for a number of other reasons, including preference for static advertising, lack of familiarity with our technologies, preference for competing technologies or perceived lack of reliability. We believe that the acceptance of our technologies by prospective customers will depend primarily on the following factors: · our ability to demonstrate the economic and other benefits attendant to our products and services; · our customers becoming comfortable with using our telecommunications technologies; and · the reliability of these services and technologies. Because we do not have long-term purchase commitments from our customers, the failure to obtain anticipated orders or the deferral or cancellation of commitments could have an adverse effect on our business and future prospects. Our business is characterized by short-term purchase orders and contracts that do not require that purchases be made. This makes forecasting our sales difficult. The failure to obtain anticipated orders and deferrals or cancellations of purchase commitments because of changes in customer requirements, or otherwise, could have a material adverse effect on our business, financial condition and results of operations. We have experienced such challenges in the past and may experience such challenges in the future. 13 Most of our contracts are terminable by our customers with limited notice and without penalty payments, and early terminations could have a material adverse effect on our business, operating results and financial condition. Most of our contracts are terminable by our customers following limited notice and without early termination payments or liquidated damages due from them. In addition, each stage of a project often represents a separate contractual commitment, at the end of which the customer may elect to delay or not to proceed to the next stage of the project. We cannot assure you that one or more of our customers will not terminate a material contract or materially reduce the scope of any large project. The delay, cancellation or significant reduction in the scope of a large project or a number of projects could have a material adverse effect on our business, operating results and financial condition. Our industry is characterized by frequent technological change. If we are unable to adapt our products and services and develop new products and services to keep up with these rapid changes, we will not be able to obtain or maintain market share and our business may fail. We must respond to changing technology and industry standards in a timely and cost-effective manner. We may not be successful in using new technologies, developing new products and services or enhancing existing products and services in a timely and cost-effective manner. Furthermore, even if we successfully adapt our products and services, these new technologies or enhancements may not achieve market acceptance. The market for our products and services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, heavy competition and frequent new product and service introductions. If we fail to develop new products and services or modify or improve our existing products and services in response to these changes in technology, customer demands or industry standards, our products and services could become less competitive or obsolete. A portion of our business involves the use of software technologies that we have developed or licensed. Industries involving the ownership and licensing of software-based intellectual property are characterized by frequent intellectual property litigation, and we could face claims of infringement by others in the industry. Such claims are costly and add uncertainty to our operational results. A portion of our business involves our ownership and/or licensing of software. This market space is characterized by frequent intellectual property claims and litigation. We could be subject to claims of infringement of third-party intellectual property rights resulting in significant expense and the potential loss of our own intellectual property rights. From time to time, third parties may assert copyright, trademark, patent or other intellectual property rights to technologies that are important to our business. Any litigation to determine the validity of these claims, including claims arising through our contractual indemnification of our business partners, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. If any such litigation resulted in an adverse ruling, we could be required to: · pay substantial damages; · cease the development, use, licensing or sale of infringing products; · discontinue the use of certain technologies; or · obtain a license under the intellectual property rights of the third-party claiming infringement, which license may not be available on reasonable terms or at all. Our business may be adversely affected by malicious applications that interfere with, or exploit security flaws in, our products and services. Our business may be adversely affected by malicious applications that make changes to our customers’ computer systems and interfere with the operation and use of our products or products that impact our business. These applications may attempt to interfere with our ability to communicate with our customers’ devices. The interference may occur without disclosure to or consent from our customers, resulting in a negative experience that our customers may associate with our products and services. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. If our efforts to combat these malicious applications fail, or if our products and services have actual or perceived vulnerabilities, there may be claims based on such failures and our reputation may be harmed, which would damage our business and financial condition and our ability to continue our business. 14 We face risks relating to Cyberattacks. Our business operations are dependent upon secure information technology systems and telecommunications networks. Breaches of these systems and networks through cyberattack or other unauthorized access may have numerous negative effects on our business, including lost sales and damage to customer relationships; disruptions on our operations; reputational harm and negative publicity; lost trust from our customers, partners and employees; lawsuits resulting from the compromise of sensitive customer or employee information; costs of mitigation; and remediation and security enhancement expenses. See Part I, Item 1C, below. We compete with other companies that have substantially greater resources, and we are at a distinct competitive disadvantage in our chosen industry. The market for our products and service solution technologies is generally highly competitive, and we expect competition to increase in the future. Some of our competitors or potential competitors have significantly greater financial, technical and marketing resources than we have. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do. We expect competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. Successful new product and service introductions or enhancements by our competitors could reduce sales and the market acceptance of our products and services, cause intense price competition or make our products and services obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. If we do not have sufficient resources to make these investments or are unable to make the technological advances necessary to be competitive, our competitive position will suffer, and we may fail. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could also adversely affect our business and financial condition. Our future success depends on key personnel and our ability to attract and retain additional personnel. Our success is dependent upon attracting and maintaining key personnel, including our founder, Chairman and CEO, D. Sean McEwen, and various key executive employees, including Joshua Ploude from whom we acquired Apeiron Systems and who serves as CEO of Apeiron Systems, and Charles D. Griffin, our President and COO, among others, who are listed in Part III, Item 10 of this Annual Report. Further, if we fail to retain our key personnel or to attract, retain and motivate other qualified employees, our ability to maintain and develop our business may be adversely affected. Our future success depends significantly on the continued service of our key technical, sales and senior management personnel and their ability to execute our growth strategy. The loss of the services of our key employees could harm our business. We may be unable to retain our employees or to attract, assimilate and retain other highly qualified employees who could migrate to other employers who may offer competitive or superior compensation packages. Unpredictability in financing markets could impair our ability to grow our business through acquisitions. We anticipate that opportunities to acquire similar businesses will materially depend on the availability of financing alternatives with acceptable terms. As a result, poor credit and other market conditions or uncertainty in financial markets could materially limit our ability to grow through acquisitions since such conditions and uncertainty make obtaining financing more difficult. Our reliance on information management and transaction systems to operate our business exposes us to cyber incidents and hacking of our sensitive information if our outsourced service providers experiences a security breach. Effective information security internal controls are necessary for us to protect our sensitive information from illegal activities and unauthorized disclosure, in addition to preventing service attacks and corruption of our data. Further, we rely on the information security internal controls maintained by our outsourced service providers. Breaches of our information management system could also adversely affect our business reputation. Finally, significant information system disruptions could adversely affect our ability to effectively manage operations or reliably report results. Cyberattacks against companies have occurred and will continue to occur and have increased in frequency, scope and potential harm in recent years. While, to date, we have not been subject to cyberattacks, that, individually or in the aggregate, have been material to our operations, the preventative actions we take to reduce the risks associated with cyberattacks may be insufficient to stop or mitigate the effects of a cyberattack in the future. See Part I, Item 1C, Cybersecurity. 15 Because our technology, products, platforms and services are complex and are deployed in and across complex environments, they may have errors or defects that could seriously harm our business. Our technology, proprietary platforms, products and services are highly complex and are designed to operate in and across data centers, large and complex networks and other elements of the digital media workflow that we do not own or control. On an ongoing basis, we need to perform proactive maintenance services on our platform and related software services to correct errors and defects. In the future, there may be additional errors and defects in our software that may adversely affect our services. We may not have in place adequate reporting, tracking, monitoring and quality assurance procedures to ensure that we can detect errors in our software in a timely manner. If we are unable to efficiently and cost-effectively correct errors or other problems that may be identified, or if there are unidentified errors that allow persons to improperly access our services, we could experience loss of revenues and market share, damage to our reputation, increased expenses and legal actions by our customers and our business may fail. We may have insufficient network or server capacity for our current and planned business, which could result in interruptions in our services and the loss of revenues resulting in a negative impact on our business. Our operations are dependent, in part, upon network capacity provided by our telecommunications network and third-party telecommunications networks; data center services provider owned and leased infrastructure and capacity; server capacity located at the data center services provider partner or partners; and our own infrastructure and equipment. Collectively, this infrastructure, equipment and capacity must be sufficiently robust to handle all of our customers’ wireless requirements, particularly in the event of unexpected surges in high-definition video traffic and network services incidents. We may not be adequately prepared for unexpected increases in bandwidth and related infrastructure demands from our customers. In addition, the bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including payment disputes, outages or such service providers going out of business. Any failure of these service providers or our own infrastructure to provide the capacity we require due to financial or other reasons may result in a reduction in or the interruption of service to our customers, leading to an immediate decline in revenue and possible additional decline in revenue, as a result of subsequent customer losses, which could result in the cessation of all or part of our business operations. We do not have sufficient capital to engage in substantial research and development, which may harm our long-term growth. In light of our limited resources in general, we have made no substantial investments in research and development. This conserves capital in the short term. In the long term, as a result of our limited investment in research and development, our technologies and product offerings may not keep pace with the market, and we may lose any existing competitive advantage. Over the long term, this may harm our revenue growth and our ability to be profitable. Our business operations are susceptible to interruptions caused by events beyond our control. Our business operations are susceptible to interruptions caused by events beyond our control. We are vulnerable to the following potential problems, among others: · our platform, technologies, products, services and underlying infrastructure, or that of our key suppliers, may be damaged or destroyed by events beyond our control, such as fires, earthquakes, pandemics, war, floods, power outages or telecommunications failures; · we and our customers and/or partners may experience interruptions in service as a result of the accidental or malicious actions of Internet users, hackers, hostile nation states or current /former employees; · we may face liability for transmitting viruses to third parties that damage or impair their access to computer networks, programs, data or information. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to our customers; and · the failure of our systems or those of our suppliers may disrupt service to our customers (and from our customers to their customers), which could materially impact our operations (and the operations of our customers), adversely affecting our relationships with our customers and lead to lawsuits and contingent liabilities. The occurrence of any of the foregoing could result in claims for consequential and other damages, significant repair and recovery expenses and extensive customer losses and otherwise have a material adverse effect on our business, financial condition and results of operations. See Part I, Item 1C, Cybersecurity. 16 Our business operations could be impacted by public health crises. We are subject to risks related to public health crises, such as the 2020 COVID-19 pandemic, which impacted our operations. Actions taken around the world to help mitigate the spread of the coronavirus included restrictions on travel and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which we operate. While it is unknown how long these conditions will last and what the complete financial affect will be on us, to date, and as a result of actions taken by management to mitigate a material impact to our financial statements or our operational results, we are not currently experiencing a material impact to our financial statements or our results of operations; however, a pandemic typically results in social distancing, travel bans and quarantines, which may result in limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, may not only impact our operations, financial condition and demand for our services, but our overall ability to react timely to mitigate the impact of this event. Given our small staff, if a key member of our team were disabled by COVID-19 or some other similar crisis, it could have a material negative impact on our business. Also, it may substantially hamper our efforts to provide our investors with timely information and to comply with our filing obligations under the Exchange Act with the SEC. If any pandemic were to last a prolonged period of time, we could see a decline in revenue due to the closure of customer businesses, which could then impact our ability to pay our short-term debts. Our concentration of revenue from a small group of Apeiron Systems’ customers makes it reasonably possible that we are vulnerable to the risk of a long-term severe impact. Our dependence on certain suppliers to provide equipment to be distributed or sold to our customers could also be impacted if inventory shortages occur due to import or export restrictions resulting from any pandemic. General global market and economic conditions may have an adverse impact on our operating performance and results of operations. Our business has been and could continue to be affected by general economic and market conditions. Weakness in the United States and worldwide economy could have a negative effect on our operating results. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure, customer loss, slowdown in commerce over the Internet and corresponding decrease in traffic delivered over our network and failures by our customers to pay amounts owed to us on a timely basis or at all. Suppliers on which we rely for equipment, field services, servers, bandwidth, co-location and other services could also be negatively impacted by economic conditions that, in turn, could have a negative impact on our business operations or revenues. Flat or worsening economic conditions may harm our operating results and financial condition. Economic, political and market conditions may adversely affect our business, financial condition and operating results. Our business, financial condition and operating results are sensitive to changes in general economic conditions, including interest rates, consumer credit conditions, consumer debt levels, consumer confidence, unemployment rates, economic growth, energy costs, rates of inflation (or concerns about deflation), supply chain disruptions, impacts of current geopolitical conflict or instability, such as the Ukraine-Russia and Israel-Hamas wars, and further escalations thereof, and other macroeconomic factors. These unfavorable economic conditions may lead to decreased demand for our products or services in the future, especially by our lower-income customers, which would have a negative effect on our business and results of operations. In particular, inflation could affect the price of equipment for the services provided in our Lifeline Program. Ongoing global conflicts and sanctions could lead to higher prices for commodities used in the production of telephones and other technologies used in the global telecommunications industry, which may result in decreased demand for our products and services. To the extent that we are unable to increase the prices of our goods and services in response to increased costs, our operating margins will be compressed. Legal challenge to the Universal Service Fund (“USF”) could adversely affect our business. Currently before the U.S. Supreme Court is a challenge to the 1996 statute creating the USF to promote the infrastructure necessary to provide nationwide communications service to rural communities, schools and low-income consumers. The plaintiffs in the case argue that the statute creating the USF delegated too much power to the FCC to administer the fund through the establishment of contribution rates paid into the fund by telecommunications companies. The FCC created a separate not-for-profit corporation called the Universal Service Administrative Company to oversee the fund and its receipts and disbursements. Historically, courts have unanimously rejected such claims; however, the U.S. Court of Appeals for the 5 th Circuit ruled that the statute is unconstitutional. If the plaintiffs in this case are successful, the U.S. Supreme Court could agree with the U.S. Court of Appeals and the USF could be abolished, creating a barrier for low-income consumers to receive the benefits they have received since 1996. Without funding received from the Lifeline Program, our IM Telecom business will be adversely impacted. 17 Recent reductions in force (“RIF”) could adversely affect our business. In November of 2024, we determined that in order to achieve certain necessary cost reductions created by the expiration of the Affordable Connectivity Program, a RIF of certain positions within the Company was necessary. This RIF included several key personnel with significant knowledge of the industry and operation of the Company. This reduction in personnel could create a strain on our ability to execute new business opportunities that may arise prevent our future growth. Supply chain disruptions could adversely affect our business. Supply chain dislocations resulting from global geopolitical and public health issues such as the Ukraine-Russia and Israel-Hamas wars, any resurgence in the COVID-19 health crises and other causes may have a material adverse impact on our business and results of operations. Such disruptions may increase our costs of doing business, including significant increases in the price of our products and their components and materials and the related costs of shipment, including equipment used in the Lifeline Program. Supply chain disruptions may also adversely affect our access to suppliers, manufacturers, customers and vendors and may impair our ability to perform contracted services. Delays in our ability to meet our obligations as a result of supply chain issues may negatively affect our reputation, our relationships with customers and our ability to deliver products and services. The markets in which we operate are rapidly emerging, and we may be unable to compete successfully against existing or future competitors to our business. The markets in which we operate are becoming increasingly competitive. Our current competitors generally include those that offer similar products and services. These competitors, including future new competitors who may emerge, may be able to develop comparable or superior solution capabilities, platforms, services, products and/or a series of services that provide a similar or more robust set of features and functionality than the technologies, products and services we offer. If this occurs, we may be unable to grow as necessary to make our business profitable. Regardless of whether we have superior products, many of these current and potential future competitors have a longer operating history in their current respective business areas and greater market presence, brand recognition, engineering and marketing capabilities, and financial, technological and personnel resources than we do. Existing and potential competitors with an extended operating history, even if not directly related to our business, have an inherent marketing advantage because of the reluctance of many potential customers to entrust key operations to a company that may be perceived as unproven or in the early stage of its development. In addition, our existing and potential future competitors may be able to use their extensive resources: · to develop and deploy new products and services more quickly and effectively than we can; · to develop, improve and expand their platforms and related infrastructures more quickly than we can; · to reduce costs, particularly hardware costs, because of discounts associated with large volume purchases and longer-term relationships and commitments; · to offer less expensive products, technologies, platforms and services as a result of a lower cost structure, greater capital reserves or otherwise; · to adapt more swiftly and completely to new or emerging technologies and changes in customer requirements; · to take advantage of acquisition and other opportunities more readily; and · to devote greater resources to the marketing and sales of their products, technology, platform and services. If we are unable to compete effectively in our various markets, or if competitive pressures place downward pressure on the prices at which we offer our products and services, our business, financial condition and results of operations may suffer, and our business may fail. 18 Compliance with the reporting requirements of federal securities laws can be expensive. We are a public “reporting company” in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, rules and regulations, including compliance obligations under the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited and reviewed financial statements in reports filed with the SEC, along with required communications with our shareholders, are substantial. We have incurred and expect to continue to incur costs associated with continuing as a public company, including, but not limited to, legal, accounting, filing and other related costs and expenses. Failure to comply with the applicable securities laws could result in private or governmental legal action against us or our officers and directors, which could have a detrimental impact on our business and financial condition, the value of our common stock and the ability of our shareholders to resell their common stock. We do not intend to pay dividends on our common stock for the foreseeable future. All future revenues are anticipated to be utilized for research, development and the furtherance of our business plan and our technologies, products, services and platform, and accordingly, it is highly unlikely that shareholders will receive any dividends from us in the near future, if ever. We do not intend to provide guidance about future events in the foreseeable future. Our Board of Directors anticipates adopting a policy that will preclude us from providing guidance about matters that may happen in the foreseeable future, though any such policy will not prohibit our responsibilities to provide forward-looking information to our shareholders and to the public in our Exchange Act filings with the SEC, including our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” required in a number of SEC reports and registration statements. Risks Related to Our Common Stock There is a limited active trading market for our shares of common stock. In general, there has been a limited trading volume in our common stock. The small trading volume will likely make it difficult for shareholders to sell their shares as and when they choose. Furthermore, small trading volumes are generally understood to depress market prices. As a result, you may not always be able to resell shares of our common stock publicly at the time and prices that you feel are fair or appropriate. Additionally, if we do not timely file our reports required to be filed with the SEC under the Exchange Act, broker-dealers may not be able or willing to trade our common stock, and the OTC Markets will post adverse warnings on its website about such failures, which, unless such failures are corrected by us, could have an additional adverse impact on the viability of any “established trading market” that may develop for our common stock. Other adverse warnings of the OTC Markets under their current and future policies could similarly have an adverse effect on any market for our common stock, and there is no assurance that we will be able to satisfy comments or concerns of the OTC Markets, if any are expressed. If an active market for our common stock develops, there is a significant risk that the Company’s common stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control, including, but not limited to: · variations in our quarterly operating results; · announcements that our revenue or income are below analysts’ expectations; · general economic slowdowns; · sales of large blocks of our common stock by insiders and others; and · announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital raises. 19 Our investors’ ownership in the Company may be diluted in the future. In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of ownership interests of our present shareholders. We expect to need to issue a substantial number of shares of our common stock or other securities convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, raising additional capital in the future to fund our operations and other business purposes. We currently offer incentive stock options for our officers, directors and certain significant employees and may extend this policy to others. Additional shares of common stock issued by us in the future will dilute an investor’s investment in the Company. Directors, executive officers, principal shareholders and affiliated entities own a significant percentage of our capital stock, and they may make decisions that our shareholders do not consider to be in their best interests. As of the date of this Annual Report, D. Sean McEwen, our Chairman and Chief Executive Officer, beneficially owns approximately 37% of our issued and outstanding shares of common voting stock by reason of his personal holdings. This percentage includes certain vested non-compensatory stock options which he owns and that can be exercised on or before midnight on September 18 and December 18, 2025, for 187,500 shares, respectively, at an exercise price of $0.22 per share, and all of which options are described under the caption “Security Ownership of Certain Beneficial Owners and Management” in Part III, Item 12 hereof. As a result, Mr. McEwen may have the ability to substantially control the election of our board of directors, the outcome of issues requiring approval by our shareholders and other corporate actions. This concentration of ownership may also have the effect of delaying or preventing a change in control of our Company that may be favored by other shareholders; and could prevent transactions in which shareholders might otherwise recover a premium for their shares over current market prices. This concentration of ownership and influence in management and board decision making could also harm the price of our capital stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our capital stock, whether by making a tender offer or attempting to obtain control of our Company. Also see the caption “Executive Compensation” of Part III, Item 11 hereof. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results in a timely manner or detect fraud. Consequently, investors could lose confidence in our financial reporting, and this may adversely affect any trading price for our common stock that may then exist. We must maintain effective internal controls to provide reliable financial reports and to detect and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as would be possible with an effective control system in place. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist and may in the future discover areas of our internal controls that need improvement. We are continually in the process of evaluating our internal controls for effectiveness as well as evaluating the need for additional internal controls. Failure to implement changes to our internal controls that we may deem to be ineffective or any others that we may identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence could have a substantial negative affect on the trading price of our common stock. During the year ended December 31, 2021, our Board of Directors adopted an Insider Trading Policy, which was amended in the latter part of 2024. The Insider Trading Policy was adopted by the Company to satisfy its obligations to prevent insider trading and to help its personnel avoid the consequences associated with violations of applicable federal and state securities laws, rules and regulations regarding insider trading of our securities when they have material non-public information related to the Company. It is also intended to prevent even the appearance of improper conduct on the part of anyone employed by or associated with us, not just so-called “insiders.” It contains four (4) “Black-Out Periods”, which are as follows: twenty (20) days prior to the release of financial results for the periods ending March 31, June 30, September 30 and December 31 of each year and end after three (3) full trading days of our securities on the OTCQB (or any other recognized nation medium on which our securities publicly trade [“Other Medium”]) after financial results are announced for the preceding fiscal period. If the last day of the month falls on a weekend, the Black-Out Period will start at the close of business on the last trading day prior to the weekend. Additional Black-Out Periods may occur when other material events occur, such as a press release sent out to the public, wherein only a select few persons have knowledge of the event. The Black-Out Periods do not apply to the exercise of outstanding and vested ISOs issued by the Company or other stock issuances approved by the Board of Directors; however, they do apply to all of our securities that are the subject of a registration statement filed with the SEC. 20 Effective November 8, 2024, our Board of Directors amended our Insider Trading Policy to exempt the exercise of stock options granted by the Company that allow payment of the exercise price of such stock options by the holder’s conveyance of fully-paid shares of common stock of the Company having a value on the date of exercise equal to the exercise price of the subject stock options, based upon the closing price of our shares of common stock on or about the date of exercise, from the Black-Out Periods. See Section 9 – Financial Statements and Exhibits, Item 9.01, Part IV, Item 15 Exhibit 99.1 . This summary is modified in its entirely by reference to Exhibit 99.1 .