What changed in this filing

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Item 1A. Risk Factors

2021-03-25 compared with 2020-03-09 · 493 added, 567 removed, 115 unchanged (90% of the section changed)

Any investment in our securities involves

a high degree of risk.

You should consider carefully the risks and uncertainties described below and all information contained

in this Report, before you decide whether to purchase our securities.

If any of the following risks or uncertainties actually

occurs, our business, financial condition, results of operations and prospects would likely suffer, possibly materially.

the trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose part or all of

your investment.

Any investment in our securities involves a high degree of risk.

You should consider carefully the risks and uncertainties described below and all information contained in this Report, before

you decide whether to purchase our securities.

If any of the following risks or uncertainties actually occur, our business, financial

condition, results of operations and prospects would likely suffer, possibly materially.

In addition, the trading price of our

common stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.

Risks Relating to the COVID-19 Pandemic

Our business, results of operations

and financial condition may be adversely impacted by the coronavirus (“COVID-19”) pandemic .

pandemic has negatively affected the U.S.

and global economy, resulted in significant travel restrictions, including mandated closures

and orders to “shelter-in-place,”

and created significant disruption of the financial markets.

We are closely monitoring

the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers

and sales network.

To date, the COVID-19 pandemic has limited our attendance at trade shows and other in-person events that would

allow us to expand our customer base and increase global awareness.

Furthermore, while we capitalized on new market developments

created by the COVID-19 pandemic, our operations were affected by delays in orders and postponement of sales negotiations.

extent to which our operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments,

which are highly uncertain and cannot be accurately predicted, including the duration and spread of the outbreak, the effectiveness

of vaccines and speed of distribution of any.

Even after the COVID-19 pandemic has subsided, we may experience materially adverse

impacts to our business due to any resulting economic recession or depression.

Furthermore, the impacts of a potential worsening

of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

The impact of the COVID-19 pandemic may

also exacerbate other risks discussed in this section, any of which could have a material effect on us.

This situation is changing

rapidly and additional impacts may arise that we are not aware of currently.

The COVID-19 pandemic has resulted

in prohibitions of non-essential activities, disruption and shutdown of businesses, travel restrictions, and the cancellation and

postponement of conferences and in-person meetings, which could negatively impact our sales and results of operations .

In response to the COVID-19 pandemic, we have suspended all non-essential travel for our employees, are canceling or postponing

attendance at events, are discouraging employee attendance at industry events and limiting in-person work-related meetings.

employees travel frequently to establish and maintain relationships with our customers and partners, and attend sales-conferences,

many of which have been cancelled or postponed.

Currently, as a result of the work and travel restrictions related to the ongoing

pandemic, substantially all of our sales and services activities are being conducted remotely which might be less effective than

in-person meetings.

We do not yet know the extent of the negative impact on our ability to attract, serve, or retain customers.

We continue to monitor the situation and as restrictions start easing and safety measures are heightened globally, we will allow

limited travel for key in-person business meetings.

The overall travel strictions could negatively impact our marketing and business

development efforts and create operational or other challenges, any of which could harm our business, financial condition and results

of operations.

The COVID-19 pandemic may decrease

demand for our products and any such decrease in demand would adversely affect our revenues and results of operations .

We are unsure what actions our customers may take in response to the COVID-19 pandemic.

Health concerns, as well as political or

governmental developments in response to COVID-19, could result in economic, social or labor instability or prolonged contractions

in the industries in which our customers or partners operate, which could reduce the amount of packaging they print, which would

reduce out sales.

Furthermore, existing and potential customers may choose to reduce or delay spending in response to the COVID-19

pandemic, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our operating

results, financial condition and prospects.

We have a small management team and

if any of our employees or management suffer COVID-19 related illnesses, our business operations may be materially and adversely

The COVID-19 pandemic could disrupt our operations due to absenteeism by infected or ill members of management

or other employees because of our limited staffing.

COVID-19 related illness could also impact members of our Board of Directors

resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the

quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

Risks Relating to Our Business

to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales

We anticipate

that we will continue to lose money for the foreseeable future.

Our continued existence is dependent upon generating sufficient

working capital and obtaining adequate new debt or equity financing.

Because of our continuing losses, we may have to continue

to reduce our expenditures, without improvements in our cash flow from operations or new financing.

Working capital limitations

continue to impinge on our day-to-day operations thus contributing to continued operating losses.

If we are unable to secure additional

financing or to achieve or sustain profitability on acceptable terms, we may not be able to meet our obligations as they come due,

raising substantial doubts as to our ability to continue as a going concern.

Any such inability to continue as a going concern

may result in our shareholders losing their entire investment.

There is no guarantee that we will secure additional financing on

acceptable terms or become profitable.

has indicated in its report that there is substantial doubt about our ability to continue as a going concern and if we are unable

to generate significant revenue or secure financing, we may be required to cease or curtail our operations .

of our independent auditors dated March 9, 2020 on our financial statements for the year ended December 31, 2019 includes

an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.

financial statements contemplate that we will continue as a going concern and do not contain any adjustments that might

result if we were unable to continue as a going concern.

Our ability to continue as a going concern is dependent upon our

ability to raise additional capital and implement our business plan.

The going concern paragraph in the independent

auditor’s report emphasizes the uncertainty related to our business as well as the level of risk associated with an

investment in our securities.

We are a developmental

stage company with a history of losses and we may never achieve or maintain profitability .

developmental stage company with a history of losses and we may never achieve or maintain profitability .

As a developmental

stage enterprise, we do not currently have revenues to generate cash flows to cover operating expenses.

Since our inception, we

have incurred operating losses in each year due to costs incurred in connection with research and development activities and general

and administrative expenses associated with our operations.

We incurred a net loss of $2,507,799 for the year ended December 31,

We expect to continue to incur substantial expenditures to develop and market our services and could continue to incur losses

and negative operating cash flow.

We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors

that may adversely affect our business.

Our ability to generate profits will depend, in part, on our expenses and our ability to

generate revenue.

Our prior losses and any future losses have had and may continue to have an adverse effect on our working capital.

If we fail to generate revenue and eventually become and remain profitable, or if we are unable to fund our continuing losses,

our shareholders could lose all or part of their investments.

Our recent issuance of senior secured

convertible debentures, that are secured by all of our assets, could limit our ability to obtain future financings, dilute our

current shareholders, and if we cannot pay them when due, we will cease operations

On March 6, 2020, the Company completed the offering of $1,992,000

of senior secured Convertible Debentures (the “2020 Debentures”) for net proceeds of $1,814,040.

The 2020 Debentures

mature 18 months after issuance and are secured by a first lien on all of the Company’s assets, including our intellectual

If we are unable to repay the 2020 Debentures on maturity and such debt is neither converted nor extended, we will cease

The Company used the net proceeds to repay existing convertible debentures and will use any additional proceeds for

working capital.

The Company needs to raise additional capital

to meet its working capital needs, including the payment of $150,000 in deferred salary which will become due to our Chief Executive

Officer on August 15, 2020.

If we are unable to raise additional capital, we may be unable to meet our working capital needs as

The Company does not generate positive cash flow from operations and may need to raise additional capital in 2020.

Moreover, in August 2021 we will need to repay the 2020 Debentures if they are not converted.

There can be no assurance that we

will obtain the necessary financing on favorable terms or at all, in which case we will be forced to cease operations.

The 2020 Debentures are convertible at

$0.08 per share with standard price protection against lower priced issuances.

The 2020 Debentures automatically convert upon

the earlier of (i) the Company’s common stock becoming listed on a national securities exchange or (ii) the minimum bid

price exceeds $0.50 per share for 20 consecutive trading days with an average daily trading volume of at least 100,000 shares

if the underlying shares (i) may be sold under an effective registration statement or (ii) may be sold under Rule 144 under the

Securities Act of 1933.

We also issued 24,900,000 three-year warrants

to the purchasers.

The warrants have an exercise price of $0.15 per share, and may be exercised cashlessly if the Company fails

to maintain an effective registration statement at any time beginning six months after issuance.

Based upon the closing of our

2020 Debentures, we will issue up to approximately 50 million shares of common stock if all 2020 Debentures are converted and

all warrants exercised assuming that the conversion price upon such listing remains at $0.08 per share.

The 2020 Debentures convert

upon a stock exchange listing at the lower of $0.08 per share or a 30% discount to any public offering price if that occurs at

the time of the uplisting.

These numbers do not include the issuance of common stock at $0.08 per share in lieu of 10% per annum

cash interest since all interest is paid in kind.

To the extent this occurs, our current shareholders will sustain material dilution.

Because our name and brand could be

confused with brands that have similar names, we may be adversely affected by any confusion or negative publicity related to others

that use a name similar to VerifyMe in their brand names.

stage enterprise, we do not currently have sufficient revenues to generate cash flows to cover operating expenses.

Since our inception,

we have incurred operating losses in each year due to costs incurred in connection with research and development activities and

general and administrative expenses associated with our operations.

We incurred a net loss of $5.9 million and 2.5 million for

the year ended December 31, 2020 and December 31, 2019, respectively.

We expect to continue to incur substantial expenditures to

develop and market our services and could continue to incur losses and negative operating cash flow.

We may encounter unforeseen

expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

Our ability to

generate profits will depend, in part, on our expenses and our ability to generate revenue.

Our prior losses and any future losses

have had and may continue to have an adverse effect on our working capital.

If we fail to generate revenue and become profitable,

or if we are unable to fund our continuing losses, our shareholders could lose all or part of their investments.

Because our name and brand could

be confused with brands that have similar names, we may be adversely affected by any confusion or negative publicity related to

others that use a name similar to VerifyMe in their brand names .

We have trademarked the VerifyMe TM brand

in the United States and have pending applications with respect to our brand internationally.

However, our name and brand has

been and could in the future be confused with brands that have similar names, including but not limited to Verified.Me, a service

offered to Canadians by SecureKey Technologies Inc.

However, our name and brand has been

and could be in the future confused with brands that have similar names, including but not limited to Verified.Me, a service offered

to Canadians by SecureKey Technologies Inc.

and www.verifyme.ng, a website offering verification services in Nigeria.

We have a pending application for the VerifyMe name in Canada but can make no assurances regarding its approval.

attempted to contact the operators of the Nigeria website to resolve the confusion caused there but to date have been unsuccessful

in our efforts.

pending application for the VerifyMe name in Canada but can make no assurances regarding its approval.

We have also attempted to

contact the operators of the Nigeria website to resolve the confusion caused there but to date have been unsuccessful in our efforts.

Further, we have registered certain trademarks and service marks in the United States and foreign jurisdictions.

We are aware of names and marks similar to our service marks being used from time to time by other persons.

Although we oppose

any such infringement, further or unknown unauthorized uses or other misappropriation of our trademarks or service marks may diminish

the value of our brands and adversely affect our business.

Because our competitors in the anti-counterfeiting

industry have much greater financial resources than we do and more functional technology offerings than we currently have, we may

not be able to successfully compete with them.

The market for protection from counterfeiting,

diversion, theft and forgery is a mature industry dominated by a number of large, well-established companies, as described in “Business

Competition”.

To compete effectively, we will need to expend significant resources in technology and marketing.

of our competitors has substantially greater financial, human and other resources than we do and may develop superior technology

or more cost-effective alternatives to our products and services.

We may not have sufficient resources to develop and market our

services effectively, or at all.

If we cannot continue to develop or market competitive, cost-effective products and services,

we may not be able to compete effectively, which will harm our operating results.

We are aware of

names and marks similar to our service marks being used from time to time by other persons.

Although we oppose any such infringement,

further or unknown unauthorized uses or other misappropriation of our trademarks or service marks may diminish the value of our

brands and adversely affect our business.

Because our competitors in the

anti-counterfeiting industry have much greater financial resources than we do and more functional technology offerings than

we currently have, we may not be able to successfully compete with them .

The market for protection from

counterfeiting, diversion, theft and forgery is a mature industry dominated by a number of large, well-established companies,

as described in Item 1, “Business Competition”.

To compete effectively, we will need to expend significant

resources in technology and marketing.

Each of our competitors has substantially greater financial, human and other resources

than we do and may develop superior technology or more cost-effective alternatives to our products and services.

have sufficient resources to develop and market our services effectively, or at all.

If we cannot continue to develop or

market competitive, cost-effective products and services, we may not be able to compete effectively, which will harm our

operating results.

If our technologies

do not work as anticipated once we achieve meaningful sales, we will not be successful .

business depends on our ability to market and sell our ink technology.

Without material sales and feedback from customers with

respect to our ink technology, we will not be successful.

Further, we made a significant investment in our new authenticators,

and if customers do not find them useful or decline to lease them, our business may suffer.

We can provide no assurances that the

market will accept our products or that we will achieve any meaningful sales.

Our business depends on

our ability to market and sell our ink technology.

Without material sales and acceptance from customers with respect to our ink

technology, we will not be successful.

Further, we made a significant investment in our new authenticators, and if customers do

not find them useful or decline to lease them, our business may suffer.

We can provide no assurances that the market will accept

our products or that we will achieve any meaningful sales.

If our technology

cannot be used successfully to prevent counterfeiting, we may not be able to generate material revenue .

market is characterized by new and evolving technologies.

Counterfeiting is constantly evolving in order to create items which

appear to be legitimate and evade regulations which would seize counterfeit items and penalize counterfeiters.

In order to stay

competitive, our technologies will need to be sufficiently complex so that they cannot be reproduced or copied by counterfeiters.

If we are unable to develop and integrate effective anti-counterfeiting technologies to address the increasingly sophisticated

technological needs of our customers in a timely and cost-effective manner, we may not be successful in preventing counterfeiting

and we may not be able to generate material revenue.

If the market does not accept or embrace

our technologies or product offering, our business may fail .

Our technologies and the products we are

offering have not been tested in the market on a large-scale basis.

As a result, we can only speculate as to the market acceptance

of these products and services.

No assurance can be given that the market will accept our any of our technologies, products and

If the public fails to accept our technologies, products and services to the degree necessary to generate sufficient

revenues, our business may fail.

Our market is characterized

by new and evolving technologies.

Counterfeiting is constantly evolving in order to create items which appear to be legitimate

and evade regulations which would seize counterfeit items and penalize counterfeiters.

In order to stay competitive, our technologies

will need to be sufficiently complex so that they cannot be reproduced or copied by counterfeiters.

If we are unable to develop

and integrate effective anti-counterfeiting technologies to address the increasingly sophisticated technological needs of our customers

in a timely and cost-effective manner, we may not be successful in preventing counterfeiting and we may not be able to generate

material revenue.

If the market does not accept or

embrace our technologies or product offering, our business may fail .

Our technologies and the products we are offering

have not been tested in the market on a large-scale basis.

As a result, we can only speculate as to the market acceptance of these

products and services.

No assurance can be given that the market will accept any of our technologies, products and services.

the public fails to accept our technologies, products and services to the degree necessary to generate sufficient revenues, our

business may fail.

Because our current and target customers

are large companies, their internal policies and resistance to change may impair our ability to successfully commercialize our

Our ability to become successful and generate

positive cash flow will be dependent upon the extent of commercialization of products using our technology.

Commercialization

of new technology products often has a very long lead time.

This problem is exacerbated when customers are large entities.

current and target customers are large entities.

These factors may adversely affect our ability to commercialize our technologies

or any products or services related to our technologies.

Further, we cannot assure you that commercialization will result in profitability.

Our ability to become successful and generate positive cash flow will be dependent upon the extent of commercialization

of products using our technology.

Commercialization of new technology products often has a very long lead time.

This problem is

exacerbated when customers are large entities.

Our current and target customers are large entities.

These factors may adversely

affect our ability to commercialize our technologies or any products or services related to our technologies.

Further, we cannot

assure you that commercialization will result in profitability.

Our reliance on HP Indigo to qualify

additional HP Indigo digital printing presses adversely affects our ability to sell our products and generate revenue .

In 2017, we signed a five-year contract

with HP Indigo, a division of HP Inc., to print our RainbowSecure®

technology on packages and labels on their 6000 series digital

HP Indigo has yet to qualify more HP Indigo digital printing presses that include our technology which hinders

our ability to sell our products.

We believe that without further qualified HP Indigo presses, our ability to sell to a large part

of the label and packaging print manufacturing market is impeded, and as a result our business and revenues are adversely affected.

In 2017, we signed a five-year contract with HP Indigo, a division of HP Inc., to print our RainbowSecure®

technology on packages

and labels on their 6000 series digital presses.

In 2020, RainbowSecure®

technology was qualified on HP Indigo’s 6900

series printing presses.

In addition, we successfully trialed production on their 7900 press series.

Notwithstanding, HP Indigo

has yet to qualify more HP Indigo digital printing presses that include our technology which hinders our ability to sell our products.

We believe that without further qualified HP Indigo presses, our ability to sell to a large part of the label and packaging print

manufacturing market is impeded, and as a result our business and revenues are adversely affected.

Severe price competition from similar

ink technologies may hinder our ability to sell our products .

Currently an ultra violet ink is being

sold and supported by HP, Inc.

Currently an ultraviolet ink is being sold and supported

for their HP Indigo digital presses that competes with our product.

This ink has been in the security

ink industry for many years and is therefore a wide-spread uncontrolled security product that sells for an extremely low cost.

The same ultra violet ink has some similar properties as our RainbowSecure®

ink technology but the cost is so low it is being

selected by some clients based on price which limits our ability to sell RainbowSecure®.

Ultra violet ink is also readily

available in many forms and locations, including Amazon.com.

This wide-spread availability of ink technologies that are similar

to ours limits our ability to market and sell RainbowSecure®.

If we are unable to successfully develop

and market an ink jet solution to address a large segment of the label and print manufacturing market used by major brands, our

revenues and business will be negatively affected.

We believe it is important to our business

to successfully develop and market an ink jet solution to address the large segment of the label and print manufacturing market

which is used by most major brands.

In 2019, we entered into a strategic partnership with INX International Ink Company, the third

largest producer of inks in North America, to co-develop inkjet inks to be used for inkjet printing in combination with high speed,

high volume label and packaging printing presses.

There can be no assurance that we will successfully develop and market this technology.

Without the successful development of the ink jet head utilizing our technology, we will be unable to provide our technology to

most of the addressable market which will adversely impact our business, revenues and financial condition.

This ink has been in the security ink industry

for many years and is therefore a wide-spread uncontrolled security product that sells for an extremely low cost.

The same ultraviolet ink has some similar properties as our RainbowSecure®

ink technology but the cost is so low it is being selected by

some clients based on price which limits our ability to sell RainbowSecure®.

Ultraviolet ink is also readily available in

many forms and locations, including Amazon.com.

This wide-spread availability of ink technologies that are similar to ours limits

our ability to market and sell RainbowSecure®.

depends on the efforts, abilities and continued service of Patrick White, our President and Chief Executive Officer, and if we

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White, we may not be able to continue our operations .

Our success depends

to a significant extent upon the continued service of Patrick White, our President and Chief Executive Officer.

Effective August

15, 2019, Mr.

White’s employment agreement with us automatically renewed for one year.

depends to a significant extent upon the continued service of Patrick White, our President and Chief Executive Officer.

August 15, 2019, Mr.

White’s employment agreement with us automatically renewed for one year and, on May 19, 2020, we agreed

to extend Mr.

White’s agreement until August 15, 2021 and to include automatic renewal provisions for subsequent one-year

The loss of Mr.

White’s services

and any negative market or industry perception arising from such loss could significantly harm our business, future prospects and

the price of our common stock.

are relying on our small management team, we lack business development resources which may hurt our ability to increase revenue.

We have a small

management team that is focused on sales.

In addition, our Chairman, who is not involved in sales, handles operational matters,

legal compliance, board relationships and shareholder relations.

Because we have only a few people dedicated to business development,

we lack the resources to grow beyond certain levels.

We cannot assure you that we will generate cash flow from operations or from

financings which will enable us to grow our revenues.

If we are unable

to hire an experienced sales team, or our partners are not successful, we may not be able to generate material revenue.

Presently our

personnel consists of one full-time employee, three part-time employees, including our Chief Financial Officer and two consultants.

have several outside partners and a licensed global label manufacturer (the “GLM”) who are working on sales of our

Our agreement with the GLM allows it to market our technologies to current and new clients.

Our strategic partner agreements

are individualized.

We have a cross selling agreement that provides that the partner is able to sell and mark-up our technologies

and we can sell and mark-up the strategic partner’s products.

Another strategic partner is selling our products globally

as well as providing marketing support, warehousing, shipping services, help desk services and billing for a fixed percentage

of our sales.

Our potential customers are large companies which do not impulsively enter into large contracts.

we may be required to hire sales persons to bolster our current sales efforts.

If the efforts of our management team, the

GLM, strategic partners, and any sales persons we hire are unsuccessful, we may be unable to generate material revenue and those

outside sales channels may end their relationship with us, thus ending their sales and services and materially harming our financial

condition and results of operations.

None of our strategic partners have sold our products under the cross-selling arrangements,

White’s services and any negative market or industry perception arising from such loss could significantly

harm our business, future prospects and the price of our common stock.

we are relying on our small management team, we lack business development resources which may hurt our ability to increase revenue .

have a small management team that is focused on sales.

In addition, our Chairman, who is not involved in sales, handles operational

matters, legal compliance, board relationships and shareholder relations.

Because we have only a few people dedicated to business

development, we lack the resources to grow beyond certain levels.

We cannot assure you that we will generate cash flow from operations

or from financings which will enable us to grow our revenues.

If we are unable to hire an experienced

sales team, or our partners are not successful, we may not be able to generate material revenue .

Presently our personnel consists of three full-time employees,

one part-time employee and four outside consultants.

We have several outside partners and a licensed global label manufacturer

(the “GLM”) who are working on sales of our products.

Our agreement with the GLM allows it to market our technologies

to current and new clients.

Our strategic partner agreements are individualized.

We have two cross-selling agreements that provide

that the partners are able to sell and mark-up certain of our technologies and we can sell and mark-up certain of the strategic

partners’

Another strategic partner is selling our products globally as well as providing marketing support, warehousing,

shipping services, help desk services and billing for a fixed percentage of our sales.

Our potential customers are large companies

with long sales cycles.

Accordingly, we may be required to hire sales persons to bolster our current sales efforts.

If the efforts of our management team, the GLM, strategic partners, and any sales persons we hire are unsuccessful, we may be unable

to generate material revenue and those outside sales channels may end their relationship with us, thus ending their sales and services

and materially harming our financial condition and results of operations.

None of our strategic partners have sold our products

under the cross-selling arrangements, to date.

growth will depend upon the success of our strategic partners who integrate our solutions into their product offerings .

We rely on strategic

partnerships with larger companies which integrate our technologies into their product offerings.

This distribution strategy leaves

us largely dependent upon the success of our partners.

If any of our strategic partners who include our technology in their products

cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technology, or these partners

are unsuccessful in their efforts, expanding deployment of our technology our business and future growth would be materially and

adversely affected.

rely on strategic partnerships with larger companies which integrate our technologies into their product offerings.

This distribution

strategy leaves us largely dependent upon the success of our partners.

If any of our strategic partners who include our technology

in their products cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technology,

or these partners are unsuccessful in their efforts, expanding deployment of our technology, our business and future growth would

be materially and adversely affected.

manage our growth effectively, we may not become profitable .

Businesses which

grow rapidly often have difficulty managing their growth.

Our staff presently consists of one full-time employee, three part-time

employees and two consultants.

If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting

and employing experienced executives and key employees capable of providing the necessary support.

We cannot assure you that our

management will be able to manage our growth effectively or successfully.

Our failure to meet these challenges could harm our

financial condition and ability to become profitable.

Businesses which grow rapidly often have difficulty

managing their growth.

Our staff presently consists of three full-time employees, one part-time employee and four consultants.

If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing experienced

executives and key employees capable of providing the necessary support.

We cannot assure you that our management will be able

to manage our growth effectively or successfully.

Our failure to meet these challenges could harm our financial condition and ability

to become profitable.

Because a small number of customers

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and cash flows .

We derive our revenue from a limited number

of customers.

Our revenue in 2019 and 2018 was nominal although we began to generate what we believe is the beginning of a meaningful

revenue in the fourth quarter.

We derive our revenue from a limited number of customers and our revenue in 2020 and 2019 was nominal.

Our principal revenue has been generated from two customers.

Certain of our agreements with customers

have short terms or can be terminated on short notice.

Any termination of a business relationship with, or a significant sustained

reduction in business received from, one of these customers could have a material adverse effect on our operating results and

We must materially increase the number of customers and be able to have our customers increase the number of products

for which they use our service and if we cannot, it will adversely impact our financial condition and our business.

We will need to expand our sales, marketing

and support organizations and our distribution arrangements to increase market acceptance of our products and services.

We currently have a limited number of sales,

marketing, customer service and support personnel and may need to increase our staff to generate a greater volume of sales and

to support any new customers or the expanding needs of existing customers.

The employment market for sales, marketing, customer

service and support personnel in our industry is very competitive, and we may not be able to hire the kind and number of sales,

marketing, customer service and support personnel we are targeting.

Our inability to hire qualified sales, marketing, customer

service and support personnel may harm our business, operating results and financial condition.

We may not be able to sufficiently

build out our distribution network or enter into arrangements with qualified sales personnel on acceptable terms or at all.

we are not able to develop greater distribution capacity, we may not be able to generate sufficient revenue to continue our operations.

to protect or enforce our intellectual property rights, or if the costs involved in protecting and defending these rights are prohibitively

high, our business and operating results may suffer.

Our patent rights,

trade secrets, copyrights, trademarks, domain names and other product rights are critical to our success.

We strive to protect

our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions.

enter into confidentiality and invention assignment agreements with our employees and confidentiality agreements with parties with

whom we conduct business to limit access to, and disclosure and use of, our proprietary information.

However, these contractual

arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our

proprietary information or deter independent development of similar technologies by others.

Certain of our agreements with customers have short terms or can be

terminated on short notice.

Any termination of a business relationship with, or a significant sustained reduction in business received

from, one of these customers could have a material adverse effect on our operating results and cash flows.

We must materially increase

the number of our customers and be able to have our customers increase the number of products for which they use our service and

if we cannot, it will adversely impact our financial condition and our business.

We will need to expand our sales,

marketing and support organizations and our distribution arrangements to increase market acceptance of our products and services .

We currently have a limited number of sales, marketing, customer service and support personnel and may need to increase our staff,

or further outsource our sales process, to generate a greater volume of sales and to support any new customers or the expanding

needs of existing customers.

The employment market for sales, marketing, customer service and support personnel in our industry

is very competitive, and we may not be able to hire the kind and number of sales, marketing, customer service and support personnel

we are targeting.

Our inability to hire or outsource qualified sales, marketing, customer service and support personnel may harm

our business, operating results and financial condition.

We may not be able to sufficiently build out our distribution network

or enter into arrangements with qualified sales personnel on acceptable terms or at all.

If we are not able to develop greater

distribution capacity, we may not be able to generate sufficient revenue to continue our operations.

If we fail to protect or enforce

our intellectual property rights, or if the costs involved in protecting and defending these rights are prohibitively high, our

business and operating results may suffer .

Our patent rights, trade secrets, copyrights, trademarks, domain names

and other product rights are critical to our success.

We strive to protect our intellectual property rights by relying on federal,

state and common law rights, as well as contractual restrictions.

We may enter into confidentiality and invention assignment agreements

with our employees and confidentiality agreements with parties with whom we conduct business to limit access to, and disclosure

and use of, our proprietary information.

However, these contractual arrangements and the other steps we have taken to protect our

intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar

technologies by others.

As management

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through increased patent filings that are expensive and time-consuming and may not result in issued patents that can be effectively

If we are required

to sue third parties who we allege are violating our intellectual property rights, or if we are sued for violating a third party’s

patents or other intellectual property rights, we may incur substantial expenses, and we could incur substantial damages, including

amounts we cannot afford to pay.

Litigation may

be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary

rights claimed by others.

Patent and intellectual property litigation is extremely expensive and beyond our ability to pay.

third parties do, under certain circumstances, finance litigation for companies that file suit, we cannot assure you that we could

find a third party to finance any claim we choose to pursue.

Moreover, third parties frequently refuse to finance companies

that are sued.

Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity

or diversion of management and technical resources, any of which could adversely affect our business and operating results.

we fail to maintain, protect and enforce our intellectual property rights, our business and operating results may be harmed.

required to sue third parties who we allege are violating our intellectual property rights, or if we are sued for violating a third

party’s patents or other intellectual property rights, we may incur substantial expenses, and we could incur substantial

damages, including amounts we cannot afford to pay .

Litigation may be necessary to enforce our intellectual

property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others.

and intellectual property litigation is extremely expensive and beyond our ability to pay.

While third parties do, under certain

circumstances, finance litigation for companies that file suit, we cannot assure you that we could find a third party to finance

any claim we choose to pursue.

Moreover, third parties frequently refuse to finance companies that are sued.

Any litigation

of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management

and technical resources, any of which could adversely affect our business and operating results.

If we fail to maintain, protect

and enforce our intellectual property rights, our business and operating results may be harmed.

From time-to-time, we may face allegations

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statements or comply with applicable regulations could be impaired .

As a public company, we are subject to

the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (“SOX”).

We expect that the requirements

of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities

more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources.

SOX requires, among other things, that

we maintain effective disclosure controls and procedures and internal control over financial reporting.

We are continuing to develop

and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by

us in the reports that we will file with the the SEC is recorded, processed, summarized, and reported within the time periods specified

in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated

to our principal executive and financial officers.

In order to maintain and improve the effectiveness of our disclosure controls

and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend,

significant resources, including accounting-related costs and significant management oversight.

As a public company, we are subject to the reporting

requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 (“SOX”).

We expect that the requirements of these

rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more

difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources.

SOX requires, among other things, that we maintain effective

disclosure controls and procedures and internal control over financial reporting.

We are continuing to develop and refine our disclosure

controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we

will file with SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and

that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive

and financial officers.

In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal

control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including

accounting-related costs and significant management oversight.

Our management concluded that our disclosure

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We have not yet been able to remediate the material weakness related to our internal control over financial reporting.

Additional material weaknesses in our internal

control over financial reporting may be identified in the future.

Any failure to maintain existing or implement required

new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses,

cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements.

we are unable to effectively remediate material weaknesses in a timely manner, investors could lose confidence in the accuracy

and completeness of our financial reports, which could have an adverse effect on our stock price.

If the SEC investigates us and the SEC

sues us due to our inability to remediate, or a delay in remediating, identified material weaknesses in our internal control over

financial reporting, it may have a material adverse effect on our business.

In January 2019, the SEC sued four public

companies alleging in part that they had violated Section 13(b) of the Exchange Act resulting from their failure to remediate material

weaknesses in their internal control over financial reporting over an extensive period of time.

Three of these companies had remediated

their material weaknesses.

We have identified and disclosed material weaknesses in internal control over financial reporting beginning

with the year ended December 31, 2016.

While we are taking steps to remediate any material weaknesses we have not yet fully remediated

our internal control failures.

If the SEC Staff investigates us and following that investigation a lawsuit is filed alleging that

we had not remediated our material weaknesses for a number of consecutive annual reporting periods, we will face the following

It will divert our management’s attention from our core business;

We will incur substantial legal fees in connection with both the investigation and the lawsuit if it is filed;

If we are sued, we may be required to pay a civil monetary penalty in addition to other remedies the SEC or a court may impose;

Any public disclosure may cause investors to sell our stock which may result in a material decline in our stock price

that will cause investors to lose money;

Our existing shareholders will experience more dilution as we are required to raise capital at a lower price per share.

do business outside of the United States, we may be exposed to liabilities under the Foreign Corrupt Practices Act, violations

of which could have a material adverse effect on our business .

We are subject

to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign

governments and their officials and political parties by U.S.

persons and issuers as defined by the statute for the purpose of

obtaining or retaining business.

We have operations and agreements with third parties and make sales in jurisdictions which may

be subject to corruption.

These activities create the risk of unauthorized payments or offers of payments by one of the employees,

consultants or agents of our Company, because these parties are not always subject to our control.

It is our policy to implement

safeguards to discourage these practices by our employees.

However, our existing safeguards and any future improvements may prove

to be less than effective, and the employees, consultants, sales agents or distributors of our company may engage in conduct for

which we might be held responsible.

Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject

to other liabilities, which could negatively affect our business, operating results and financial condition.

Additional material weaknesses in our disclosure

controls and internal control over financial reporting may be identified in the future.

Any failure to maintain existing

or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional

material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial

If we are unable to effectively remediate material weaknesses in a timely manner, investors could lose confidence in

the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

Because we do business outside

of the United States, we may be exposed to liabilities under the Foreign Corrupt Practices Act, violations of which could have

a material adverse effect on our business .

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other

laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by

persons and issuers as defined by the statute for the purpose of obtaining or retaining business.

We have operations and agreements

with third parties and make sales in jurisdictions which may be subject to corruption.

These activities create the risk of unauthorized

payments or offers of payments by one of the employees, consultants or agents of our Company, because these parties are not always

subject to our control.

It is our policy to implement safeguards to discourage these practices by our employees.

However, our existing

safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors

of our company may engage in conduct for which we might be held responsible.

Violations of the FCPA may result in severe criminal

or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and

financial condition.

If our computer systems are hacked,

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of operations or financial condition .

We rely on information technology networks

and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety

of business processes and activities.

Additionally, we collect and store certain data, including proprietary business information,

and may have access to confidential or personal information in certain of our businesses that is subject to privacy and security

laws and regulations.

These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures

during the process of upgrading or replacing software, databases or components;

We rely on information technology networks and systems, including the Internet,

to process, transmit and store electronic information, and to manage or support a variety of business processes and activities.

Additionally, we collect and store certain data, including proprietary business information, and may have access to confidential

or personal information in certain of our businesses that is subject to privacy and security laws and regulations.

These technology

networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or

replacing software, databases or components;

power outages;

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server or cloud provider breaches;

and computer viruses or

cyberattacks.

Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access

to information technology networks and systems to more sophisticated and targeted measures, known as advanced persistent threats,

directed at us, our products, customers and/or our third-party service providers.

It is possible a security breach could result

in theft of trade secrets or other intellectual property or disclosure of confidential customer, supplier or employee information.

Should we be unable to prevent security breaches or other damage to our information technology systems, disruptions could have

an adverse effect on our operations, as well as expose us to costly litigation, liability or penalties under privacy laws, increased

cybersecurity protection costs, reputational damage and product failure.

and computer viruses or cyberattacks.

Cybersecurity threats and

incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems

to more sophisticated and targeted measures, known as advanced persistent threats, directed at us, our products, customers and/or

our third-party service providers.

It is possible a security breach could result in theft of trade secrets or other intellectual

property or disclosure of confidential customer, supplier or employee information.

Should we be unable to prevent security breaches

or other damage to our information technology systems, disruptions could have an adverse effect on our operations, as well as expose

us to costly litigation, liability or penalties under privacy laws, increased cybersecurity protection costs, reputational damage

and product failure.

Evolving regulations concerning data

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products to our users, or require us to modify our products, thereby harming our business.

The regulatory framework for privacy issues

worldwide is currently in flux and is likely to remain so for the foreseeable future.

Practices regarding the collection, use,

storage, transmission and security of personal information by companies operating over the Internet and mobile platforms have recently

come under increased public scrutiny, and civil claims alleging liability for the breach of data privacy have been asserted against

government, including the Federal Trade Commission and the Department of Commerce, has announced that it is

reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including

regulation aimed at restricting certain targeted advertising practices.

The regulatory framework

for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future.

Practices regarding the

collection, use, storage, transmission and security of personal information by companies operating over the Internet and mobile

platforms have recently come under increased public scrutiny, and civil claims alleging liability for the breach of data privacy

have been asserted against companies.

government, including the Federal Trade Commission and the Department of Commerce,

has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior

on the Internet, including regulation aimed at restricting certain targeted advertising practices.

Many jurisdictions have already taken steps

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Fines for noncompliance of the CCPA

can be as high as $7,500 per violation.

can be as high as $8 thousand per violation.

Since the CCPA was enacted, Nevada and Maine have enacted similar legislation designed

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impact on our business.

Because we are, and will continue to

be, dependent on certain third-party vendors for key services, we are vulnerable to disruptions in the supply of these services

Because we are, and will continue

to be, dependent on certain third-party vendors for key services, we are vulnerable to disruptions in the supply of these services

which are beyond our control, and which could harm our operations.

We are relying upon our business partners

to assist us including the GLM, S-One and Micro Focus.

These partners are larger companies and may not necessarily have the same

goals as employees.

We currently depend on a single vendor of pigment for the inks we sell, and we may continue to be dependent

on a small number of third party suppliers in the future including for services relating to our electronic technology.

be certain that any of these providers will be willing or able to meet our evolving needs.

Additionally, they could end our relationship

in accordance with applicable contractual arrangements, some of which can be terminated on short notice.

If our partners, vendors,

or service providers fail to meet their obligations, provide poor, inaccurate or untimely service, or we are unable to make alternative

arrangements for these services, we may fail, in turn, to provide our services or to meet our obligations to our users, and our

business, financial condition and operating results could be materially and adversely affected.

Fluctuations in the price of raw materials,

changes in the availability of key suppliers, or catastrophic events may increase the cost of our products and services.

Our security pigments are manufactured

from naturally occurring inorganic rare earth materials.

The cost of these raw materials is a key element in the cost of our products.

Our inability to offset material price inflation could adversely affect our results of operations.

While we rely on multiple suppliers

to procure our raw materials, it is difficult to predict what effects shortages or price increases for the raw materials we use

to make our products may have in the future.

Our ability to manage inventory and meet delivery requirements may be constrained

by our suppliers’

inability to scale production and adjust delivery during times of volatile demand.

Our inability to fill

our supply needs would jeopardize our ability to fulfill obligations under current contracts or enter new contracts to sell our

products, which would, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer

relationships.

Our ability to become profitable

is largely dependent upon our ability to develop new technologies and introduce new products that achieve market acceptance

in increasingly competitive markets.

Our ability to become profitable

depends upon a number of factors, including our ability to (i) identify and evolve with emerging technological and broader

industry trends, (ii) develop and maintain competitive products, (iii) defend our market share against an ever-expanding

number of competitors including many new and non-traditional competitors, (iv) enhance our products by adding innovative

features that differentiate our products from those of our competitors and prevent commoditization of our products, (v)

develop, manufacture and bring compelling new products to market quickly and cost-effectively, (vi) monitor disruptive

technologies and business models, (vii) achieve sufficient return on investment for new products introduced based on capital

expenditures and research and development spending, (viii) respond to changes in overall trends related to end market demand,

(x) leverage our strategic partnerships to develop and commercialize new and existing products and (xi) attract, develop and

retain individuals with the requisite skill, expertise and understanding of customers’

needs to develop new

technologies and introduce new products and sell our current products.

The failure of our technologies or products to gain

market acceptance due to more attractive offerings by our competitors or the failure to address any of the above factors

could significantly reduce our revenues and adversely affect our competitive standing and prospects.

The expenses or losses associated with

lack of widespread market acceptance of our solutions may harm our business, operating results and financial condition.

Rapid technological changes and frequent

new product introductions are typical in the markets we serve.

Our future success will depend in part on continuous, timely development

and introduction of new products that address evolving market requirements.

To the extent we fail to introduce new and innovative

products, we may lose any market share we have to our competitors, which may be difficult or impossible to regain.

Any inability,

for technological or other reasons, to successfully develop and introduce new products could harm our business.

Additionally,

we may experience delays in the development and introduction of products, we may be unable keep pace with the rapid rate of change

in anti-counterfeiting and security products’

research, and any new products acquired or developed by us may not meet the

requirements of the marketplace or achieve market acceptance.

If we are unable to develop new products to meet market demands,

our business could be materially adversely affected.

We are relying upon our business partners to assist

us including the GLM, S-One and Micro Focus.

These partners are larger companies and may not necessarily have the same goals as

We currently depend on a single vendor of pigment for the inks we sell, and we may continue to be dependent on a small number

of third-party suppliers in the future including for services relating to our electronic technology.

We cannot be certain that

any of these providers will be willing or able to meet our evolving needs.

Additionally, they could end our relationship in accordance

with applicable contractual arrangements, some of which can be terminated on short notice.

If our partners, vendors, or service

providers fail to meet their obligations, provide poor, inaccurate or untimely service, or we are unable to make alternative arrangements

for these services, we may fail, in turn, to provide our services or to meet our obligations to our users, and our business, financial

condition and operating results could be materially and adversely affected.

Fluctuations in the price of raw

materials, changes in the availability of key suppliers, or catastrophic events may increase the cost of our products and services.

Our security pigments are manufactured from naturally occurring inorganic rare earth materials.

The cost of these raw materials

is a key element in the cost of our products.

Our inability to offset material price inflation could adversely affect our results

of operations.

We rely on one supplier to procure our raw materials, and it is difficult to predict what effects shortages or price

increases for the raw materials we use to make our products may have in the future.

Our ability to manage inventory and meet delivery

requirements may be constrained by our supplier’s inability to scale production and adjust delivery during times of volatile

Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under current contracts or enter

new contracts to sell our products, which would, in turn, result in reduced sales and profits, contract penalties or terminations,

and damage to customer relationships.

Our ability to become profitable is largely dependent

upon our ability to develop new technologies and introduce new products that achieve market acceptance in increasingly competitive

Our ability to become profitable depends upon a number of factors, including our ability to (i) identify and evolve

with emerging technological and broader industry trends, (ii) develop and maintain competitive products, (iii) defend our market

share against an ever-expanding number of competitors including many new and non-traditional competitors, (iv) enhance our products

by adding innovative features that differentiate our products from those of our competitors and prevent commoditization of our

products, (v) develop, manufacture and bring compelling new products to market quickly and cost-effectively, (vi) monitor disruptive

technologies and business models, (vii) achieve sufficient return on investment for new products introduced based on capital expenditures

and research and development spending, (viii) respond to changes in overall trends related to end market demand, (ix) leverage

our strategic partnerships to develop and commercialize new and existing products and (x) attract, develop and retain individuals

with the requisite skill, expertise and understanding of customers’

needs to develop new technologies and introduce new products

and sell our current products.

The failure of our technologies or products to gain market acceptance due to more attractive offerings

by our competitors or the failure to address any of the above factors could significantly reduce our revenues and adversely affect

our competitive standing and prospects.

The expenses or losses associated

with lack of widespread market acceptance of our solutions may harm our business, operating results and financial condition .

Rapid technological changes and frequent new product introductions are typical in the markets we serve.

Our future success will

depend in part on continuous, timely development and introduction of new products that address evolving market requirements.

the extent we fail to introduce new and innovative products, we may lose any market share we have to our competitors, which may

be difficult or impossible to regain.

Any inability, for technological or other reasons, to successfully develop and introduce

new products could harm our business.

Additionally, we may experience delays in the development and introduction of products, we

may be unable keep pace with the rapid rate of change in anti-counterfeiting and security products’

research, and any new

products acquired or developed by us may not meet the requirements of the marketplace or achieve market acceptance.

If we are unable

to develop new products to meet market demands, our business could be materially adversely affected.

Risks Relating to our Common Stock

Upon exercise of our outstanding warrants

and conversion of our 2020 Debentures and Series B Convertible Preferred Stock we will be obligated to issue a substantial number

of additional shares of common stock which will dilute our present shareholders.

We are obligated to issue additional shares

of our common stock in connection with our outstanding warrants, 2020 Debentures and shares of our Series B Convertible Preferred

As of March 6, 2020 there were warrants, debentures and shares of Series B Convertible Stock outstanding, convertible into

47,162,608, 24,900,000 and 7,222,222 shares of common stock, respectively.

The exercise, conversion or exchange of warrants or

convertible securities, including for other securities, will cause us to issue additional shares of our common stock and will dilute

the percentage ownership of our shareholders.

In addition, we have in the past, and may in the future, exchange outstanding securities

for other securities on terms that are dilutive to the securities held by other shareholders not participating in such exchange.

Please also see the risk factor above entitled “Our recent issuance of senior secured convertible debentures, that are secured

by all of our assets, could limit our ability to obtain future financings, dilute our current shareholders, and if we cannot pay

them when due, we will cease operations.”

Due to factors beyond our control, our

stock price may be volatile.

Any of the following

factors could affect the market price of our common stock:

The continued outbreak of the coronavirus and its adverse impact upon the capital markets;

Upon exercise of our outstanding options or warrants,

conversion of our Series B Convertible Preferred Stock and vesting of our restricted stock units, we will be obligated to issue

a substantial number of additional shares of common stock which will dilute our present shareholders .

obligated to issue additional shares of our common stock in connection with our outstanding options, warrants and shares of our

Series B Convertible Preferred Stock.

As of March 19, 2021, there were options, warrants, shares of Series B Convertible Stock

outstanding, and restricted stock units convertible into 463,771, 3,779,243,144,444 and 145,010 shares of common stock, respectively.

The exercise, conversion or exchange of warrants or convertible securities, including for other securities, will cause us to issue

additional shares of our common stock and will dilute the percentage ownership of our shareholders.

In addition, we have in the

past, and may in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities

held by other shareholders not participating in such exchange.

Offers or availability for sale of

a substantial number of shares of our common stock may cause the price of our common stock to decline .

of large blocks of our common stock over a short time in the fall of 2019 had a significant adverse effect on our common stock

Further sales could depress the price of our common stock.

The existence of these shares and shares of common stock issuable

upon conversion of outstanding shares of Series B Convertible Preferred Stock, warrants and options create a circumstance commonly

referred to as an “overhang”

which can act as a depressant to our common stock price.

The existence of an overhang,

whether or not sales have occurred or are occurring, also could make our ability to raise additional financing through the sale

of equity or equity-linked securities more difficult in the future at a time and price that we deem reasonable or appropriate.

If our existing shareholders and investors seek to sell a substantial number of shares of our common stock, such selling efforts

may cause significant declines in the market price of our common stock.

Our common stock may be affected

by limited trading volume and price fluctuations, which could adversely impact the value of our common stock .

common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could

adversely affect the market price of our common stock without regard to our operating performance.

In addition, we believe that

factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial

markets could cause the price of our common stock to fluctuate substantially.

These fluctuations may also cause short sellers to

periodically enter the market in the belief that we will have poor results in the future.

We cannot predict the actions of market

participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

Because we may issue preferred stock

without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire

us and could depress our stock price .

In general, our Board of Directors may issue, without a vote of our shareholders,

one or more additional series of preferred stock that have more than one vote per share, although the Company’s ability to

designate and issue preferred stock is currently restricted by covenants under our agreements with prior investors.

Without these

restrictions, our Board of Directors could issue preferred stock to investors who support us and our management and give effective

control of our business to our management.

Additionally, issuance of preferred stock could block an acquisition resulting in both

a drop in our stock price and a decline in interest of our common stock.

This could make it more difficult for shareholders to

sell their common stock.

This could also cause the market price of our common stock shares to drop significantly, even if our business

is performing well.

Because we do not intend to pay cash

dividends on our shares of common stock, any returns will be limited to the value of our shares .

We currently anticipate

that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring

or paying any cash dividends for the foreseeable future.

Any return to shareholders will therefore be limited to the increase,

if any, of our share price.

There can be no assurance that we

will be able to comply with the continued listing standards of the Nasdaq Capital Market, a failure of which could result in a

de-listing of our common stock and certain warrants .

The Nasdaq Capital Market requires that the trading price of

its listed stocks remain above one dollar in order for the stock to remain listed.

If a listed stock trades below one dollar for

more than 30 consecutive trading days, then it is subject to delisting from the Nasdaq Capital Market.

In addition, to maintain

a listing on the Nasdaq Capital Market, we must satisfy minimum financial and other continued listing requirements and standards,

including those regarding director independence and independent committee requirements, minimum stockholders’

certain corporate governance requirements.

If we are unable to satisfy these requirements or standards, we could be subject to

delisting, which would have a negative effect on the price of our common stock and warrants and would impair your ability to sell

or purchase our common stock or warrants when you wish to do so.

In the event of a delisting, we would expect to take actions to

restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow

our common stock or warrants to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent

our common stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.

Provisions of our publicly traded

warrants could discourage an acquisition of us by a third party .

In addition to certain provisions of our amended

and restated articles of incorporation, as amended, and our amended and restated by-laws, certain provisions of our outstanding

warrants could make it more difficult or expensive for a third party to acquire us.

The warrants prohibit us from engaging in certain

transactions constituting “fundamental transactions”

unless, among other things, the surviving entity assumes our obligations

under the warrants.

These and other provisions of the warrants could prevent or deter a third party from acquiring us even where

the acquisition could be beneficial to you.

General Risk Factors

Due to factors beyond our control,

our stock price may be volatile .

Any of the following factors could affect the market price of our common

The sales of large numbers of shares of common stock by former directors and their donees and associates;

The continued impact of the COVID-19 pandemic and its adverse impact upon the capital markets;

The loss of one or more members of our management team;

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Our public disclosure of the terms of any financing which we consummate in the future

An announcement that we have effected a reverse split of our common stock;

Our failure to become profitable;

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Our failure to meet financial forecasts we publicly disclose;

The sale of large numbers of shares of common stock by former directors and their associates;

Short selling activities;

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otherwise be used to benefit our business.

Offers or availability for sale of a

substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of large blocks of our common stock

over a short time last fall had a significant adverse effect on our common stock price.

Further sales could depress the price of

our common stock.

The existence of these shares and shares of common stock issuable upon conversion of outstanding preferred stock,

2020 Debentures, warrants and options create a circumstance commonly referred to as an “overhang”

which can act as

a depressant to our common stock price.

The existence of an overhang, whether or not sales have occurred or are occurring, also

could make our ability to raise additional financing through the sale of equity or equity-linked securities more difficult in the

future at a time and price that we deem reasonable or appropriate.

If our existing shareholders and investors seek to sell a substantial

number of shares of our common stock, such selling efforts may cause significant declines in the market price of our common stock.

Our common stock may be affected by

limited trading volume and price fluctuations, which could adversely impact the value of our common stock.

Our common stock has experienced, and

is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price

of our common stock without regard to our operating performance.

In addition, we believe that factors such as quarterly fluctuations

in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of

our common stock to fluctuate substantially.

These fluctuations may also cause short sellers to periodically enter the market

in the belief that we will have poor results in the future.

We cannot predict the actions of market participants and, therefore,

can offer no assurances that the market for our common stock will be stable or appreciate over time.

If our common stock price does not materially

increase, we will be unable to list it on The Nasdaq Capital Market.

In the fall of 2019 we publicly disclosed

that we were seeking to list our common stock on The Nasdaq Capital Market (“Nasdaq”).

In order to be listed, we must

meet certain rules relating to our stock price which at current levels we cannot meet even if we effect a shareholder approved

reverse stock split.

Unless our common stock price materially increases, we will not be able to “uplist”

stock even if we meet other requirements, including the need to complete a significant equity financing.

In addition, Nasdaq has

what is commonly referred to as qualitative standards which give Nasdaq discretion to not list issuers and as a result, even if

we meet the qualitative standards, we may not be approved for listing on Nasdaq.

If we implement a reverse stock split

and it does not result in a proportionate increase in the price of our common stock, we will not be able to list our common stock

on Nasdaq even if we meet all other initial listing standards .

At our 2019 Annual Shareholders

Meeting, the Company’s shareholders voted to authorize the Board of Directors to effect, at its discretion, a reverse

stock split of the outstanding and treasury shares of the Company’s common stock at a ratio ranging from 1-for-25 to

We expect that, if effected, the reverse stock split will increase the market price of our common stock so that we

will be able to meet the minimum bid price requirement of the listing rules of Nasdaq.

However, the effect of a reverse stock

split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits

by companies in similar circumstances have been varied.

If we are unable to meet the minimum bid price requirement, we may be

unable to list our shares on Nasdaq.

It is not uncommon for the market price of a company’s common stock to decline in

the period following a reverse stock split.

If the market price of our common stock declines following the effectuation of

the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split.

any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or

operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet

Nasdaq’s minimum bid price requirement.

Even if we effect a reverse stock split,

the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy

the investing requirements of those investors.

Consequently, the trading liquidity of our common stock may not improve .

Although we believe that a higher market

price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock

split will result in a share price that will attract new investors, including institutional investors.

In addition, there can be

no assurance that the market price of our common stock will satisfy the investing requirements of those investors.

the trading liquidity of our common stock may not necessarily improve.

In addition, the reverse stock split may increase the number

of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience

an increase in the cost of selling their shares and greater difficulty effecting such sales.

Because our common stock is subject

to the SEC’s “penny stock”

rules, brokers cannot generally solicit the purchase of our common stock, which adversely

affect the liquidity and market price.

The SEC has adopted regulations that generally

define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.

These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors

must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written

agreement to execute the transaction.

Unless an exception is available, the rules require the delivery, prior to any transaction

involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the

penny stock market.

In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered

representative and current quotations for the securities they offer.

The additional burdens imposed upon broker-dealers by these

requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity

of our securities and consequently adversely affect the market price for our securities.

Because we may issue preferred stock

without the approval of our shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire

us and could depress our stock price .

In general, our Board may issue, without

a vote of our shareholders, one or more additional series of preferred stock that have more than one vote per share, although the

Company’s ability to designate and issue preferred stock is currently restricted by covenants under our agreements with prior

Without these restrictions, our Board could issue preferred stock to investors who support us and our management and

give effective control of our business to our management.

Additionally, issuance of preferred stock could block an acquisition

resulting in both a drop in our stock price and a decline in interest of our common stock.

This could make it more difficult for

shareholders to sell their common stock.

This could also cause the market price of our common stock shares to drop significantly,

even if our business is performing well.

Because we do not intend to pay cash

dividends on our shares of common stock, any returns will be limited to the value of our shares .

We currently anticipate that we will retain

future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash

dividends for the foreseeable future.

Any return to shareholders will therefore be limited to the increase, if any, of our share

STAFF COMMENTS.

UNRESOLVED STAFF

We do not lease or own any property which are material to our

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Item 1A. Risk Factors