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Item 1A. Risk Factors

2025-05-14 compared with 2024-11-13 · 219 added, 251 removed, 213 unchanged (69% of the section changed)

ITEM 1A — RISK FACTORS – TO BE UPDATED

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of

operations, cash flows, and the trading price of our common and capital stock.

You should carefully consider the risks and uncertainties described below in addition to the other information set forth in this Report, including in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making any investment in our common stock.

The risks and uncertainties described below are not the only

ones we face.

Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

If any of these risk factors occur, you could lose substantial value or your entire

investment in our shares.

ITEM 1A — RISK FACTORS

Risks Related to our Business and Our Financial Reporting

Our operating results may not be consistent and may be difficult to predict and we may not be able to achieve or sustain profitability in the future.

Our operating results have fluctuated in the past due to several factors.

We expect that our future operating results may also fluctuate due to the same or similar factors.

We had a net loss of $4

million for the quarter ended September 30, 2024.

We had a net loss of $3.7 million for the quarter ended March 31, 2025.

We had a net loss of $18.2 million for the year ended December 31, 2024.

As of September 30, 2024, we had an accumulated deficit of $198.5 million.

The following include some of the factors that

may cause our operating results to fluctuate:

Time and resources required to accelerate transition to new product development and sales strategies targeting large enterprises and government customers;

Our success depends in part on establishing and maintaining relationships with other companies to integrate our family of cybersecurity products and services into their solutions and to

resell them to their current and future customers;

As of March 31, 2025, we had an accumulated deficit of

$208.3 million.

Our operating results have fluctuated in the past due to several factors and may fluctuate in the future due to the same or similar factors, which include but are not limited to the following:

Time and resources required to accelerate transition to new product development and sales strategies targeting large enterprises, government customers, service provider partnerships and grant funding;

Our success depends in part on establishing and maintaining relationships with third parties to integrate our family of cybersecurity products and services into their operations and develop solutions key to the

defense market, critical infrastructure and threat intelligence service;

Customer adoption of our VirnetX One™ platform and software products and services;

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Adoption of VirnetX One TM platform by third party application providers of secure communications;

Intensely competitive market with established brands that have larger customer bases, and greater resources than we do;

Intensely competitive market with established companies that have larger customer bases, and greater resources than we do;

Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business; and

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further, cause our results to fall below investor’s expectations and adversely affect the market price of our common stock.

If we fail to increase our revenue to offset any increases in our operating expenses, we may not achieve or sustain

profitability in the future.

Our success depends in part on establishing and maintaining relationships with other companies to incorporate our products and services into their technology or vice versa.

Part of our business strategy is to enter into partnerships, strategic investments, and other cooperative arrangements with third parties.

We have invested in and we continue to seek to invest in or

acquire businesses, technologies, or other assets that we believe could complement or expand our business.

In addition, we are regularly involved in cooperative efforts with respect to the incorporation of our products into products of others and

vice versa, research and development efforts, and marketing, distributor and reseller arrangements.

These relationships are generally non-exclusive, and some of our partners also have cooperative relationships with certain of our competitors or

offer some products and services that are competitive with ours.

If we lose third-party relationships, if these relationships are not commercially successful, or if we are unable to enter into third-party relationships on commercially reasonable

terms in the future, our business could be negatively impacted.

We have limited ability to influence the operations of companies we invest in and could lose some or all of our investment.

In 2023, we invested $2,000 in L2 Holdings, LLC (“OmniTeq”) and $500 in OP Media, Inc.

These companies operate in the artificial intelligence sector and have

agreed to integrate our family of products and services into their solutions and to resell them to their current and future customers.

We do not control these companies and have limited ability to influence the operation or financial

activities of either company.

If either of these companies is unsuccessful in their endeavors we could lose some or all of our $2,500 investment.

If we fail to increase our revenue, we may not achieve or sustain profitability in the future.

Our success depends in part on establishing and maintaining relationships with third parties to incorporate our products and services into their operations.

Part of our business strategy is to enter into partnerships, strategic investments, and other cooperative arrangements with other companies and government agencies.

We have invested in and we continue

to seek to invest in or acquire businesses, technologies, or other assets that we believe could complement or expand our business.

In addition, we are regularly involved in cooperative efforts with respect to the incorporation of our products into

products of others and vice versa, collaborative research and development efforts with government and university laboratories, distributor and reseller arrangements and service provider partnerships.

These relationships are generally non-exclusive,

and some of our partners also have cooperative relationships with certain of our competitors or offer some products and services that are competitive with ours.

If we lose third-party relationships, if these relationships are not commercially

successful, or if we are unable to enter into third-party relationships on commercially reasonable terms in the future, our business could be negatively impacted.

We expect that we will experience long and unpredictable sales cycles, which may impact our operating results.

The sales cycle between initial customer contact and execution of a contract or license agreement with a customer or purchaser of our products can vary widely.

We expect that our sales cycles will

be long and unpredictable due to several factors, including but not limited to:

We expect that our sales cycles will be

long and unpredictable due to several factors, including but not limited to:

The need to educate potential customers about our product and service capabilities;

Our customers’ budgetary constraints and timing of their budget cycles;

Delays caused by time-consuming internal review processes customary with potential customers including large governments agencies and institutions in the defense industry; and

Delays caused by time-consuming internal review processes customary with potential customers including large governments agencies and institutions in the space and defense industries; and

Long sales cycles may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.

In addition, potential customers of our products include local, state, federal and foreign government agencies, as well as institutions in the defense industry.

Sales processes to government

authorities can be extensive and unpredictable.

Government authorities generally have complex budgeting, purchasing, and regulatory processes that govern their capital spending, and their spending is likely to be adversely impacted by economic

In addition, in many instances, sales to government authorities may require field trials and may be delayed by the time it takes for government officials to evaluate multiple competing bids, negotiate terms, and award contracts.

In addition, potential customers of our products include local, state, federal

and foreign government agencies, as well as institutions in the space and defense industries.

Sales processes to government authorities can be extensive and unpredictable.

Government authorities generally have complex budgeting, purchasing,

and regulatory processes that govern their capital spending, and their spending is likely to be adversely impacted by economic conditions.

In addition, in many instances, sales to government authorities may require field trials and may be

delayed by the time it takes for government officials to evaluate multiple competing bids, negotiate terms, and award contracts.

For these reasons, the sales cycle associated with our products is subject to a number of significant risks that are beyond our control.

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intensify in the future.

For example, disruptive technologies such as generative AI may fundamentally alter the market for our services in unpredictable ways and reduce customer demand.

If we fail to compete effectively, our business will be

For example, disruptive technologies such as generative AI has and may continue to fundamentally alter the market for our services in unpredictable ways and reduce customer demand.

If we fail to compete effectively, our

business will be harmed.

Some of our competitors offer their products or services at lower prices or for free as part of a broader bundled product sale or enterprise license arrangement, which has placed pricing pressure on our business.

If we are unable to

achieve our target pricing levels, our operating results will be negatively impacted.

For us to compete effectively, we need to introduce new products and services in a timely and cost-effective manner, meet customer expectations and needs at

prices that customers are willing to pay, and continue to enhance the features and functionalities of our cloud content management platform.

In addition, pricing pressures and increased competition could result in reduced sales, lower margins,

losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business.

unable to achieve our target pricing levels, our operating results will be negatively impacted.

For us to compete effectively, we need to introduce new products and services in a timely and cost-effective manner, meet customer expectations and

needs at prices that customers are willing to pay, and continue to enhance the features and functionalities of our cloud content management platform.

In addition, pricing pressures and increased competition could result in reduced sales, lower

margins, losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business.

Many of our competitors are able to devote greater resources to the development, promotion and sale of their products or services.

In addition, many of our competitors have established marketing

relationships and major distribution agreements with channel partners, consultants, system integrators and resellers.

relationships and major distribution agreements with government agencies, channel partners, consultants, system integrators and resellers.

Competitors may offer products or services at lower prices or with greater depth than our services.

Our competitors may be able

to respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements.

Furthermore, some potential customers, particularly large enterprises, may elect to develop their own internal solutions.

competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements.

Furthermore, some potential customers, particularly large enterprises, may elect to develop their

own internal solutions.

For any of these reasons, we may not be able to compete successfully against our competitors.

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Our products are highly technical and complex and, when deployed, may contain errors or defects.

Despite testing, some errors in our products may only be discovered after a product has been

installed and used by customers.

Any errors or defects discovered in our products after commercial release could result in failure to achieve market acceptance, loss of revenue or delay in revenue recognition, loss of customers and increased

service and warranty cost, any of which could adversely affect our business, operating results, and financial condition.

In addition, we could face claims for product liability, tort, or breach of warranty, including claims relating to changes to

our products made by our channel partners.

The performance of our products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our

services, which could result in legal claims against us, harming our business.

Furthermore, we expect to provide implementation, consulting, and other technical services in connection with the implementation and ongoing maintenance of our

products, which typically involves working with sophisticated software, computing, and communications systems.

We expect that our contracts with customers will contain provisions relating to warranty disclaimers and liability limitations, which

may not be upheld.

Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products.

In addition, if our business liability insurance coverage proves

inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted.

Despite testing, some errors in our products may only be discovered after a product has been installed

and used by customers.

warranty cost, any of which could adversely affect our business, operating results, and financial condition.

In addition, we could face claims for product liability, tort, or breach of warranty, including claims relating to changes to our products

made by our channel partners.

The performance of our products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our services, which could

result in legal claims against us, harming our business.

Furthermore, we expect to provide implementation, consulting, and other technical services in connection with the implementation and ongoing maintenance of our products, which typically

involves working with sophisticated software, computing, and communications systems.

We expect that our contracts with customers will contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld.

a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products.

In addition, if our business liability insurance coverage proves inadequate or future coverage

is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted.

Malfunctions of third-party communications infrastructure, hardware and software expose us to a variety of risks that we cannot control.

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of our connections.

If one or more of these companies is unable or unwilling to supply or expand its levels of service to us in the future, our operations could be severely interrupted.

If one or more of these companies is unable or unwilling to supply or expand their levels of service to us in the future, our operations could be severely interrupted.

Also, to the extent that the number of users of networks

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interruptions or increases in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users.

In addition, users depend on real-time communications; outages

caused by increased traffic could result in delays and system failures.

These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain

licensees, strategic partners, and customers.

In addition, users depend on real-time communications; outages caused

by increased traffic could result in delays and system failures.

These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain licensees,

strategic partners, and customers.

System failure or interruption or our failure to meet increasing demands on our systems could harm our business.

The success of our license and service offerings will depend on the uninterrupted operation of various systems, secure data centers and other computer and communication networks that we establish.

To the extent, the number of users of networks utilizing our future products suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume of traffic may result in slower response times,

service interruptions or delays or system failures.

the extent, the number of users of networks utilizing our future products suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume of traffic may result in slower response times, service

interruptions or delays or system failures.

Our systems and operations will also be vulnerable to damage or interruption from, among other things:

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System interruptions or failures and increases or delays in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks

These types of occurrences could cause users to perceive that our solution does not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners, and customers, and result in

lost revenue, customer dissatisfaction, or lawsuits against us.

revenue, customer dissatisfaction, or lawsuits against us.

If we are not able to adequately protect our patent rights and trade secrets, our business would be negatively impacted.

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with respect to our patents or become aware of our trade secrets by way of leaks from bad actors within or outside of our employee base or otherwise, and such claims could give rise to material cost for defense or settlement or both, and such

claims or leaks could jeopardize or substantially delay a successful outcome of litigation we are or may become involved in, divert resources away from our other activities, limit or cease our related revenues, or otherwise materially and

adversely affect our business.

affect our business.

Even if we are successful in protecting our intellectual property rights, they may not ultimately provide us with any competitive advantages and may be less valuable than we currently expect.

These risks may be

heightened in countries other than the United States where laws regarding patent protection are less developed and may be negatively affected by the fact that legal standards in the United States and elsewhere for protection of intellectual

property rights in Internet-related businesses are uncertain and still evolving.

In addition, there are a significant number of United States and foreign patents and patent applications in our areas of interest, and we expect that significant

litigation in these areas will continue and will add uncertainty to the value of certain patents and other intellectual property rights in our areas of interest.

If we are unable to protect our intellectual property rights or otherwise realize

value from them, our business would be negatively affected.

These risks may be heightened in

countries other than the United States where laws regarding patent protection are less developed and may be negatively affected by the fact that legal standards in the United States and elsewhere for protection of intellectual property rights in

Internet-related businesses are uncertain and still evolving.

In addition, there are a significant number of United States and foreign patents and patent applications in our areas of interest, and we expect that significant litigation in these

areas will continue and will add uncertainty to the value of certain patents and other intellectual property rights in our areas of interest.

If we are unable to protect our intellectual property rights or otherwise realize value from them, our

business would be negatively affected.

If we experience security breaches or incidents, we could be exposed to liability and our reputation and business could suffer.

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proprietary information relating to our business.

It will be critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure.

Our secure domain name registry operations will

also depend on our ability to maintain our computer and telecommunications equipment in effective working order and to reasonably protect our systems against interruption, and potentially depend on protection by other registrars in the shared

registration system.

The secure domain name servers that we will operate will be critical hardware to our registry services operations.

It will be critical to our business strategy that our facilities and infrastructure, including our secure domain name servers, remain secure and are perceived by the marketplace to be secure.

secure domain name registry operations will also depend on our ability to maintain our computer and telecommunications equipment in effective working order and to reasonably protect our systems against interruption, and potentially depend on

protection by other registrars in the shared registration system.

Additionally, we maintain confidential and proprietary business information, including trade secrets.

expect to have to expend significant time and money to maintain or increase the security of our products, facilities, and infrastructure.

Security technologies are constantly being tested by computer professionals, academics and “hackers.”

Advances in computer capabilities and the techniques for attacking security solutions, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security measures and could make

some or all our products obsolete or unmarketable.

Likewise, we may need to dedicate engineering and other resources to mitigate or eliminate security vulnerabilities and may find it necessary or appropriate to repair or replace products already

sold or licensed to our customers.

Despite the security measures that we and our service providers utilize, our infrastructure and that of our service providers may be vulnerable to physical break-ins, ransomware, computer viruses, other

malicious code attacks by hackers, phishing attacks, social engineering, or similar disruptive problems.

We expect to have to expend significant time and money to maintain or increase

the security of our products, facilities, and infrastructure.

Security technologies are constantly being tested by computer professionals, academics and “hackers.” Advances in computer capabilities and the techniques for attacking security

solutions, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security measures and could make some or all our products obsolete or unmarketable.

Likewise, we may need to

dedicate engineering and other resources to mitigate or eliminate security vulnerabilities and may find it necessary or appropriate to repair or replace products already sold or licensed to our customers.

Despite the security measures that we and

our service providers utilize, our infrastructure and that of our service providers may be vulnerable to physical break-ins, ransomware, computer viruses, other malicious code attacks by hackers, phishing attacks, social engineering, or similar

disruptive problems.

There can be no assurances our security measures or those of our service providers will prevent security breaches or incidents.

disruption or security breach or incident that we or our service providers suffer or are perceived to suffer, including any such disruption, breach or incident resulting in a loss of, or damage to, data or systems, or inappropriate disclosure,

access, loss, or other processing of confidential, financial, proprietary or personal information, including data related to our personnel, could result in loss, disclosure or other unauthorized processing of such data, could delay our research

and development or commercialization efforts, could compel us to comply with breach notification laws and regulations, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the

privacy and security of personal information.

It is possible that we may have to expend additional financial and other resources to address such problems.

Remote work by our personnel and those of third parties has resulted in increased

vulnerability to cyber-attacks.

Additionally, geopolitical tensions and conflicts may create increased risks of cyber-attacks.

As a provider of Internet security software and technology, we may be the target of dedicated efforts by hackers and

other third parties to overcome or defeat our security measures.

Any physical or electronic break-in or other security breach or incident or compromise impacting our products, or any information stored at our secure data centers and domain name

registration systems, including any compromise due to human error or employee or contractor malfeasance, may jeopardize the security of information stored on our premises or in the computer systems and networks of our customers.

Additionally, any

such data security incident, or the perception that one has occurred could also result in adverse publicity, harm to our reputation and competitive position, and therefore adversely affect the market’s perception of the security of electronic

commerce and communications over IP networks as well as the security or reliability of our services, which could have a material adverse impact on our business, financial condition, and results of operations.

Any disruption or security breach or incident that we or our service providers suffer or are

perceived to suffer, including any such disruption, breach or incident resulting in a loss of, or damage to, data or systems, or inappropriate disclosure, access, loss, or other processing of confidential, financial, proprietary or personal

information, including data related to our personnel, could result in loss, disclosure or other unauthorized processing of such data, could delay our research and development or commercialization efforts, could compel us to comply with breach

notification laws and regulations, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information.

It is possible that we may have to expend

additional financial and other resources to address such problems.

Remote work by our personnel and those of third parties has resulted in increased vulnerability to cyber-attacks.

Additionally, geopolitical tensions and conflicts may create

increased risks of cyber-attacks.

As a provider of Internet security software and technology, we may be the target of dedicated efforts by hackers and other third parties to overcome or defeat our security measures.

Any physical or electronic

break-in or other security breach or incident or compromise impacting our products, or any information stored at our secure data centers and domain name registration systems, including any compromise due to human error or employee or contractor

malfeasance, may jeopardize the security of information stored on our premises or in the computer systems and networks of our customers.

Additionally, any such data security incident, or the perception that one has occurred could also result in

adverse publicity, harm to our reputation and competitive position, and therefore adversely affect the market’s perception of the security of electronic commerce and communications over IP networks as well as the security or reliability of our

services, which could have a material adverse impact on our business, financial condition, and results of operations.

A security breach or other security incident, or the perception any such event has occurred, could require a substantial level of financial resources to address and otherwise respond to, may be

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regulatory framework governing the collection, processing, storage and use of confidential and proprietary business information and personal data is rapidly evolving.

The United States federal, various state and foreign governments have adopted

or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce

The United States federal, various state and foreign governments have adopted or

proposed requirements regarding the collection, distribution, use, security, storage, and other processing of personal information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce

regulations related to the online collection, use and dissemination of data.

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These laws and regulations often are more restrictive than those in the United States.

Laws and regulations in these jurisdictions apply broadly to the

collection, use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual, such as names, email addresses and, in some jurisdictions, IP addresses.

We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU, and

other jurisdictions.

For example, the European Commission adopted a General Data Protection Regulation (the “GDPR”) that became fully effective on May 25, 2018, superseding prior EU data protection legislation, imposing more stringent EU data

protection requirements, and providing for greater penalties for noncompliance.

The United Kingdom has enacted a Data Protection Act and legislation referred to as the UK GDPR that substantially implements the GDPR and provides for a penalty

regime similar to the GDPR.

We may be required to incur substantial expense in order to make significant changes to our product and business operations in connection with obtaining and maintaining compliance with the GDPR and similar legislation,

such as the UK GDPR and UK Data Protection Act, all of which may adversely affect our revenue and product sales.

California has enacted legislation, the California Consumer Privacy Act (the “CCPA”) that, among other things, requires covered

companies to provide disclosures to California consumers, and afford such consumers abilities to opt-out of certain sales of personal information.

The CCPA was modified and expanded by the California Privacy Rights Act (the “CPRA”), which was

approved by California voters in the November 2020 election.

Laws and regulations in these jurisdictions apply broadly to the collection,

use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual.

We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the EU, and other

jurisdictions.

For example, the European Commission maintains a General Data Protection Regulation (the “GDPR”) that imposes stringent data protection requirements and provides for substantial penalties for noncompliance.

The United Kingdom has

enacted a Data Protection Act and legislation referred to as the UK GDPR that substantially implements the GDPR and provides for a penalty regime similar to the GDPR.

We may be required to incur substantial expense in order to make significant

changes to our products and operations to address compliance with the GDPR and similar legislation, such as the UK GDPR and UK Data Protection Act, all of which may adversely affect our revenue and product sales.

California has enacted legislation,

the California Consumer Privacy Act (the “CCPA”) that, among other things, requires covered companies to provide disclosures to California consumers, and afford such consumers abilities to opt-out of certain sales of personal information.

was modified and expanded by the California Privacy Rights Act (the “CPRA”), which was approved by California voters in the November 2020 election.

Additionally, other U.S.

states continue to propose, and in certain cases adopt, privacy-focused legislation.

For example, Connecticut, Virginia, Utah and Colorado enacted legislation

similar to the CCPA and CPRA that took effect in 2023; Florida, Montana, Oregon, and Texas have enacted similar legislation that has become effective in 2024; Delaware, Nebraska, Maryland, New Hampshire, New Jersey, Minnesota, Tennessee, and Iowa

have enacted similar legislation that will take effect in 2025; and Indiana, Kentucky, and Rhode Island have enacted similar legislation that will become effective in 2026.

We cannot yet fully determine the impact these or future laws,

regulations and standards may have on our business, but they may require us to modify our data processing practices and policies and to incur substantial costs and expenses in efforts to comply.

Privacy, data protection and information security

laws and regulations are often subject to differing interpretations, may be inconsistent among jurisdictions, and may be alleged to be inconsistent with our current or future practices.

Additionally, we may be bound by contractual requirements

applicable to our collection, use, processing, and disclosure of various types of data, including personal data, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters.

other requirements could reduce demand for our products, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data or, in some cases, impact our ability to offer our service in some locations

and may subject us to liability.

Any failure or perceived failure to comply with applicable laws, regulations, industry standards, and contractual obligations may adversely affect our business.

Further, in view of new or modified federal, state,

or foreign laws and regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices

or to expend significant resources to modify our product and otherwise adapt to these changes.

We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products and

features could be limited.

The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant

fines, penalties, or liabilities for any noncompliance.

states continue to propose, and in certain cases adopt, privacy-focused

For example, Connecticut, Virginia, Utah and Colorado enacted legislation similar to the CCPA and CPRA that took effect in 2023; Florida, Montana, Oregon, and Texas have enacted similar legislation that has become effective in 2024;

Delaware, Nebraska, Maryland, New Hampshire, New Jersey, Minnesota, Tennessee, and Iowa have enacted similar legislation that has or will become effective in 2025; and Indiana, Kentucky, and Rhode Island have enacted similar legislation that will

become effective in 2026.

We cannot yet fully determine the impact these or future laws, regulations and standards may have on our business, but they may require us to modify our data processing practices and policies and to incur substantial costs

and expenses in efforts to comply.

Privacy, data protection and information security laws and regulations are often subject to differing interpretations, may be inconsistent among jurisdictions, and may be alleged to be inconsistent with our

current or future practices.

Additionally, we may be bound by contractual requirements applicable to our collection, use, processing, and disclosure of various types of data, including personal data, and may be bound by, or voluntarily comply with,

self-regulatory or other industry standards relating to these matters.

These and other requirements could reduce demand for our products, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data

or, in some cases, impact our ability to offer our service in some locations and may subject us to liability.

Any failure or perceived failure to comply with applicable laws, regulations, industry standards, and contractual obligations may

adversely affect our business.

Further, in view of new or modified federal, state, or foreign laws and regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation, we may find it

necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our product and otherwise adapt to these changes.

We may be unable to make such changes and modifications in a

commercially reasonable manner or at all, and our ability to develop new products and features could be limited.

The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines,

penalties, or liabilities for any noncompliance.

Privacy, information security, and data protection concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries .

Our business has been, and may continue to be, negatively affected by activist shareholders.

Responding to actions and communications by activist shareholders is costly and time-consuming, has diverted the attention of management, our Board of Directors and our employees, and may be

disruptive to our operations.

Additionally, perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of our business or other instability, which may be

exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel.

Furthermore, if customers choose to delay, defer or reduce transactions with us or do

business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected.

In addition, our share price could experience periods of increased volatility as a result of shareholder

Risks Related to Ownership of Our Common Stock

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will be required to look to appreciation of our common stock to realize a gain on their investment, which may not occur.

The exercise of our outstanding stock options and warrants, and the issuance of RSUs and restricted stock would result in a dilution of our current

stockholders’ voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the market price of our stock.

The exercise of our outstanding stock options and warrants, and the issuance of RSUs and restricted stock would result in a dilution of our current stockholders’

voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the market price of our stock.

The exercise of our outstanding vested stock options and warrants, and the vesting of RSUs and restricted stock dilutes the ownership interests of our existing stockholders.

As of September 30,

2024, we had outstanding options, warrants and RSUs to purchase an aggregate of 287,908 shares of common stock representing approximately 8% of our total shares outstanding of which 258,432 were vested and therefore exercisable.

To the extent

outstanding stock options or warrants are exercised and RSUs vest, additional shares of common stock will be issued, existing stockholders’ percentage voting interests will decline and the number of shares eligible for resale in the public market

will increase.

Such increase may have a negative effect on the value or market trading price of our common stock.

As of March 31, 2025, we

had 263,790 outstanding options, warrants and RSUs to purchase shares of common stock representing approximately 6% of our total shares outstanding of which 245,586 were vested.

To the extent outstanding stock options or warrants are exercised and

RSUs vest, additional shares of common stock will be issued, existing stockholders’ percentage voting interests will decline and the number of shares eligible for resale in the public market will increase.

Such increase may have a negative effect

on the value or market trading price of our common stock.

Investors may have limited influence because ownership of our common stock is limited.

As of September 30, 2024, our executive officers and directors beneficially owned approximately 15% of our outstanding common stock.

As of March 31, 2025, our executive officers and directors beneficially owned approximately 17% of our outstanding common stock.

Because of their beneficial ownership interest, our officers and

directors could significantly influence stockholder actions of which you disapprove or that are contrary to your interests.

This ability to exercise significant influence could prevent or significantly delay another company from acquiring or

merging with us.

directors could significantly influence stockholder actions.

This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us.

Our protective provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it difficult for a third party to

successfully acquire us even if you would like to sell your stock to them.

We have protective provisions in our amended and restated certificate of incorporation (“Restated Charter”) and amended and restated bylaws (“Restated Bylaws”) that could delay, discourage, or

prevent a third party from acquiring control of us without the approval of our Board of Directors.

a third party from acquiring control of us without the approval of our Board of Directors.

These protective provisions include:

A staggered Board of Directors:

Only one or two directors (of our five-person Board of Directors) will be up for election at any given annual meeting.

This delays the ability of

stockholders to affect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.

Only one or two of five directors will be up for election at any given annual meeting, delaying the ability of stockholders to affect a change in control of us because it would take

two annual meetings to effectively replace a majority of the Board of Directors.

Blank check preferred stock:

Our Board of Directors has the authority to establish the rights, preferences, and privileges of our 10,000,000 authorized, but unissued, shares of preferred

Therefore, this stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you.

In addition, blank check preferred stock can be

used to create a “poison pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors.

We have not adopted such a “poison pill;” but our Board of

Directors can do so in the future, very rapidly and without stockholder approval.

Our Board of Directors has the authority to establish the rights, preferences, and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock.

Therefore, this

stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you.

In addition, blank check preferred stock can be used to create a “poison

pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors.

We have not adopted such a “poison pill;” but our Board of Directors can do so in the future,

very rapidly and without stockholder approval.

Advance notice requirements for director nominations and for business to be brought before stockholder meetings:

Stockholders wishing to submit director nominations or raise matters to a

vote of the stockholders must provide notice to us within very specific date windows and in very specific form to have the matter voted on at a stockholder meeting.

This gives our Board of Directors and management more time to react to

stockholder proposals generally and could also permit us to disregard a stockholder proposal to the extent such proposal is not submitted in accordance with the Restated Bylaws.

Stockholders wishing to submit director nominations or raise matters to a vote of the stockholders

must provide notice to us within very specific date windows and in very specific form to have the matter voted on at a stockholder meeting.

This gives our Board of Directors and management more time to react to stockholder proposals

generally and could also permit us to disregard a stockholder proposal to the extent such proposal is not submitted in accordance with the Restated Bylaws.

No stockholder actions by written consent:

No stockholder or group of stockholders may take action by written consent.

Along with the advance notice requirements described above, this

provision also gives our Board of Directors and management more time to react to proposed stockholder actions.

Along with the advance notice requirements described above, this provision also gives our

Board of Directors and management more time to react to proposed stockholder actions.

Super majority requirement for stockholder amendments to the Restated Bylaws:

Stockholder proposals to alter or amend our Restated Bylaws or to adopt new bylaws can only be approved by the

affirmative vote of at least 66 2/3% of the outstanding shares of our common stock.

Stockholder proposals to alter or amend our Restated Bylaws or to adopt new bylaws can only be approved by the affirmative vote of at

least 66 2/3% of the outstanding shares of our common stock.

No ability of stockholders to call a special meeting of the stockholders:

A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board

of Directors, or by the chairman of the board, or by the president, and any power of stockholders to call a special meeting of stockholders is specifically denied.

Accordingly, stockholders, even those who represent a significant

percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.

A special meeting of the stockholders, other than as required by statute, may be called at any time by the Board of Directors, the chairman

of the Board of Directors, or the president, and any power of stockholders to call a special meeting of stockholders is specifically denied.

Accordingly, stockholders, even those who represent a significant percentage of our shares of

common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.

In addition, the provisions of Section 203 of the Delaware General Corporation Law govern us.

These provisions may prohibit large stockholders, particularly those owning 15% or more of our

outstanding voting stock, from merging or combining with us for a certain period of time.

These and other provisions in our Restated Charter, our Restated Bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay

for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Our Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us

and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our

behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers, or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General

Corporation Law, or our Restated Charter or Restated Bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not

have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.

These provisions may prohibit large stockholders, particularly those owning 15% or more of our outstanding

voting stock, from merging or combining with us for a certain period of time.

These and other provisions in our Restated Charter, our Restated Bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for

shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Our Restated Bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and

our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf,

(2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers, or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation

Law, or our Restated Charter or Restated Bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have

jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.

However, notwithstanding the exclusive forum provisions, our Restated Bylaws explicitly state that they would not preclude the filing of claims brought to enforce any liability or duty created under

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Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision.

This exclusive-forum provision may

limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.

a court were to find this exclusive-forum provision in our Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results

of operations.

This exclusive-forum provision may limit

a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.

were to find this exclusive-forum provision in our Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of

General Risk Factors

Failure to meet the NYSE’s continued listing requirements could result in the suspension of trading of our common stock and a subsequent delisting of our

common stock.

On August 28, 2024, we received a written notification from the NYSE that as of August 27, 2024, we were not in compliance with the continued listing standards set forth in Section 802.01B of the

NYSE Listed Company Manual because the average global market capitalization over a consecutive 30 trading-day period and stockholders’ equity were both less than $50 million.

In accordance with applicable NYSE procedures, we submitted a plan to

the NYSE on October 11, 2024, advising it of the actions we have taken, are taking and plan to take that would bring us into conformity with the standard set forth in Section 802.01B within 18 months of receipt of the written notification.

receipt of our plan, the NYSE has up to 45 days to evaluate the plan and determine whether we have made a reasonable demonstration of our ability to come into conformity with the relevant listing standards.

The written notification has no

immediate impact on our ongoing business operations, reporting requirements with the SEC or the listing of our common stock on the NYSE at this time, subject to the NYSE’s acceptance of our plan, any further processes required by the NYSE as well

as our continued compliance with the plan and the NYSE’s other continued listing standards.

We are considering all available options to regain compliance with NYSE’s continued listing standards but can provide no assurances that we will be able

to satisfy the requirements of the NYSE.

Failure to meet the NYSE’s continued listing requirements could result in the suspension of trading of our common stock and a subsequent delisting of our common

On August 28, 2024, we received a written notification from the NYSE that as of August 27, 2024, we were not in compliance with the continued listing standards set forth in Section 802.01B of the NYSE

Listed Company Manual because the average global market capitalization over a consecutive 30 trading-day period and stockholders’ equity were both less than $50 million.

In accordance with applicable NYSE procedures, we submitted a plan to the NYSE

on October 11, 2024, and provide quarterly updates advising it of the definitive actions we have taken, are taking and plan to take that would bring us into conformity with the standard set forth in Section 802.01B within 18 months of receipt of

the written notification.

The written notification has no immediate impact on our ongoing business operations, reporting requirements with the SEC or the listing of our common stock on the NYSE at this time, subject to the Company’s continued

compliance with the plan and NYSE’s other continued listing standards.

We are considering all available options to regain compliance with NYSE’s continued listing standards but can provide no assurances that we will be able to satisfy the

requirements of the NYSE.

Our common stock could also be delisted if our average global market capitalization over a consecutive 30 trading-day period is less than $15 million.

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opportunities, challenges, or unforeseen circumstances, including sales under our past and any future shelf registration statements.

Our ability to obtain additional capital, if and when required, will depend on our business plans, investor

demand, our operating performance, the condition of the capital markets, the terms of our current contractual obligations and other factors.

Our ability to obtain additional capital, if and when required, will depend on our business plans, investor demand,

our operating performance, the condition of the capital markets, the terms of our current contractual obligations and other factors.

If we raise additional funds through the issuance of equity, equity-linked or debt securities, including those under our past and any future shelf registration statements, those securities may have

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Additionally, we are unable to predict the future success of any future offerings.

Sales of a substantial number

of shares of our common stock in the public market, or the perception that these sales or other financings might occur, could depress the market price of our common stock, and could also impair our ability to raise capital through the sale of

Sales of a substantial number of

shares of our common stock in the public market, or the perception that these sales or other financings might occur, could depress the market price of our common stock, and could also impair our ability to raise capital through the sale of

additional equity securities.

If we issue debt securities or incur indebtedness, we could experience increased future payment obligations and a need to comply with restrictive covenants, such as limitations on our ability to incur additional

debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we are unable to obtain additional capital or are

unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or other circumstances could be adversely affected, and our business may be

The departure of Kendall Larsen, our Chief Executive Officer and President, and/or other key personnel could compromise our ability to execute our strategic

plan and materially harm our business.

limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we are unable to obtain additional capital or are unable to

obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or other circumstances could be adversely affected, and our business may be harmed.

The departure of Kendall Larsen, our Chief Executive Officer and President, and/or other key personnel could compromise our ability to execute our strategic plan

and materially harm our business.

Our success depends on the skills, experience, and performance of our key personnel.

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Our business may be adversely affected by instability, disruption, or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection,

or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm, or pandemic events and spread of disease, such as the COVID-19 pandemic.

Our business may also be adversely affected by further downturn in

macroeconomic conditions, including inflation and rising interest rates, global political and economic uncertainty and tensions, such as the ongoing Russia-Ukraine and Israel-Hamas conflicts as well as any related political or economic response,

counter responses or otherwise, financial services sector instability, a reduction in business confidence and activity, financial market volatility, and other factors.

Such events can adversely affect our operations or the economy as a whole and

may cause our customers to delay their decisions on spending for the services we provide and perpetuate significant changes in regional and global economic conditions and cycles.

These events may also pose risks to our personnel and to physical

facilities and operations, which could adversely affect our financial results.

or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm, or pandemic events and spread of disease.

Our business may also be adversely affected by further downturn in macroeconomic conditions, including

inflation and rising interest rates, tariffs, trade wars, global political and economic uncertainty and tensions, such as the ongoing Russia-Ukraine and Israel-Hamas conflicts, as well as any related political or economic response, counter

responses or otherwise, financial services sector instability, a reduction in business confidence and activity, financial market volatility, unexpected changes in tax law or policy, and other factors.

Such events can adversely affect our operations

or the economy as a whole and may cause our customers to delay their decisions on spending for the services we provide and perpetuate significant changes in regional and global economic conditions and cycles.

These events may also pose risks to our

personnel and to physical facilities and operations, which could adversely affect our financial results.

Trading in our common stock is limited and the price of our common shares may be subject to volatility.

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experienced significant fluctuations.

Between October 1, 2023, and September 30, 2024, the adjusted closing price on the NYSE for our common stock ranged between $3.53 and $9.22, adjusted for a 1-for-20 reverse stock split effective October 26,

The price of our common stock may continue to be volatile as a result of several factors, some of which are beyond our control.

These factors include, but not limited to, the following:

Between April 1, 2024, and March 31, 2025, the adjusted closing price on the NYSE for our common stock ranged between $3.62 and $9.32.

The price of our common stock may continue to be volatile as a result of

several factors, some of which are beyond our control.

These factors include, but are not limited to, the following:

Annual variations, actual or anticipated, in our operating results;

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information regarding trading in our common stock and listing on the NYSE, see additional risk factors included elsewhere in this Quarterly Report on Form 10-Q.

We have broad discretion in how we apply our funds, and we may not use these funds effectively, which could affect our results of operations and cause our

stock price to decline.

We have broad discretion in how we apply our funds, and we may not use these funds effectively, which could affect our results of operations and cause our stock

price to decline.

Our management has broad discretion in the application of our existing cash, cash equivalents and investments and could spend these funds in ways that do not improve our results of operations or

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holding certain types of securities would be deemed an Investment Company under the Investment Company Act of 1940 (the “1940 Act”).

If we do not manage our investments and business in a manner that meets the requirements for an exemption under

the 1940 Act, we may be deemed to be an investment company under the 1940 Act and subject to additional limitations on operating our business including limitations on the issuance of securities, which may make it difficult for us to raise

If we do not manage our investments and business in a manner that meets the requirements for an exemption under the

1940 Act, we may be deemed to be an investment company under the 1940 Act and subject to additional limitations on operating our business including limitations on the issuance of securities, which may make it difficult for us to raise capital.

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-Q

Item 1A. Risk Factors