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Item 1A. Risk Factors

2022-03-14 compared with 2021-03-25 · 627 added, 572 removed, 36 unchanged (97% 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.

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.

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.

Our business, results of operations and

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

The COVID-19 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.

The 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.

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.

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 .

After an approximately one-year

COVID-19 related hiatus we begun attending sales conferences and other in-person sales, events in September of 2021.

Such events are not

at full capacity due to the ongoing pandemic, and we cannot predict if we will need to suspend these activities again.

Our employees travel

frequently to establish and maintain relationships with our customers and partners and attend sales-conferences.

Currently, there are

still many work and travel restrictions related to the ongoing pandemic, requiring some activities to be 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

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

continue to 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 affected .

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

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 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 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.

Our investment

in G3 VRM Acquisition Corp.

(the “SPAC”) could be lost if the SPAC is unable to consummate a business combination or if its

business combination proves unsuccessful.

On July 6, 2021, we acted

as the sponsor for the initial public offering of G3 VRM Acquisition Corp, a special purpose acquisition company, or SPAC, through a contribution

into the SPAC’s sponsor, G3 VRM Holdings LLC, or the Sponsor Entity.

The Sponsor Entity holds founder shares equal to 20% of

the shares underlying the Units issued in the SPAC IPO (less 210,000 founder shares issued to the officers and certain directors of the

SPAC), plus 516,280 shares underlying private placement units purchase by the Sponsor Entity in connection with the SPAC’s IPO.

Our investment in the SPAC through the Sponsor Entity equaled approximately $2,593 thousand, and our ownership in the Sponsor Entity is

The Sponsor Entity and all holders of founder shares and private placement securities have agreed to waive any right to distributions

under the trust established for the benefit of the SPAC’s public shareholders.

Accordingly, if the SPAC is unable to complete its

initial business combination within 12 months from the closing of the IPO (or 15 or 18 months from the closing of the IPO, if we and the

co-sponsor extend the period of time to consummate a business combination by depositing additional funds into the trust account as described

in more detail in IPO prospectus), the SPAC will redeem 100% of the public shares for cash, the rights will expire worthless, and the

founder shares and the private placement securities will be worthless.

Even if the SPAC is able to complete a business combination within

the allotted time, if the combined company is unable to maintain adequate results from operations, then our investment in the SPAC could

lose value and may ultimately become worthless.

There can be no assurance that the SPAC will complete a business combination within the

allotted time or that any such business combination will be successful.

As a company with significant revenues deriving

from clients in the cannabis industry, we face many unique and evolving risks.

We currently derive significant revenues from

clients in the cannabis industry from use of our track and trace and customer engagement technologies.

As such, any risks related to the

cannabis industry may adversely impact our clients, and potential clients, which may in turn, impact the demand for our products and services.

Specific risks impacting the cannabis industry include, but are not limited, to the following:

United States federal law

prohibits Marijuana

Under the Controlled Substances

Act (“CSA”), marijuana is a Schedule-I controlled substance making it illegal under federal law to grow, cultivate, distribute,

sell or possess marijuana for any purpose or to assist or conspire with those who do so.

Although the use of marijuana is legal in certain

states under state law, since federal law supersedes state law, strict enforcement of federal law would likely result in adverse effects

on our clients’ operations, which would in turn, adversely impact our revenues.

Banking regulations could

limit access to banking services and expose us to risk

Funds received from our clients

in the cannabis industry, operating legally under state law, may subject us to a variety of federal laws and regulations involving money

laundering, financial record keeping and proceeds of crime, since the funds are considered illegal under the CSA and as such banks and

other financial institutions providing services to us risk violation of anti money laundering statutes and other applicable statutes.

Furthermore, banks often refuse to provide banking services to businesses involved in the cannabis industry due to the federal and state

laws and regulations governing financial institutions.

The difficulty and potential inability to open bank accounts that our clients in

the cannabis industry deal with, makes it difficult to conduct business and as such could affect our ability to collect revenues earned.

Furthermore, our clients in this industry are more susceptible to theft, and potentially lack the ability to insure themselves against

We may experience similar difficulties in obtaining banking and financial services because of the activities of our clients in

the cannabis industry.

The legality of cannabis

could be reversed in one or more states

The voters or legislatures

of states in which marijuana has already been legalized could potentially repeal applicable laws that permit the operation of both medical

and retail marijuana businesses.

These actions might force businesses, including those that are our clients, to cease operations in one or

more states entirely.

Additionally, these actions could negatively impact us and lead to a decrease of our revenue through the loss of

current and potential customers.

Recent and changing interpretations

of the law regarding medical and recreational use of marijuana

State laws and regulations

surrounding medical and recreational use of marijuana are fairly recent and constantly changing resulting in a potential challenge to

maintain compliance.

As such, violations of these laws, or allegations of such violations, could be disruptive to our clients’ business

and in return cause a disruption in our operations.

Future modifications of state and local laws surrounding marijuana, may limit operations

of our clients’ business in this industry, which could negatively impact our revenues.

Dependence on client licensing

Our clients in the cannabis

industry must obtain various licenses from various local and state licensing agencies.

As such, there is a risk that our existing clients

will not be able to retain their licenses going forward, should they violate applicable rules and regulations, or should renewal become

more stringent.

If our customers are not able to maintain or renew their licenses, this would adversely impact our operations.

Insurance Risk

Insurance companies may limit

policies to only cover claims legal under federal law.

As such our clients in the cannabis industry may not be properly insured.

against our clients may have a negative impact on our ability to collect revenues from our clients in the cannabis sector.

Global supply-chain delays and shortages may adversely impact

our customers or potential customers

Global supply-chain delays and shortages, which

are out of our control, are currently affecting a wide variety of businesses globally including one of our customers.

Supply-chain delays

shortages may affect our customers or potential customers which would adversely affect our operations.

We are an early

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

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

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 expect to continue to incur substantial expenditures to develop

and market our services and could continue to incur operating 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 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.

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 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.

We have a 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 Item 1, “Business Competition”.

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.

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

If our technologies

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

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.

Our business depends on our ability

to market and sell our ink technology.

Without material sales and acceptance from customers with respect to our technologies, 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

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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.

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.

assurance can be given that the market will accept any of our technologies, products and services.

If 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.

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

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.

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 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 ultraviolet ink is being sold and supported

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 VerifyInk TM

technology on packages and labels on their 6000 series digital presses.

In 2020, VerifyInk TM

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 ultraviolet ink is being sold and supported by HP, Inc.

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 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

are unable to continue to retain the services of Mr.

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

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

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 VerifyInk TM ink technology, but the cost is so low it is being

selected by some clients based on price which limits our ability to sell VerifyInk TM .

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 VerifyInk TM .

Our success depends on the efforts, abilities

and continued service of Patrick White, our Chief Executive Officer, and if we are unable to continue to retain the services of Mr.

we may not be able to continue our operations .

Our success depends to a significant extent upon the continued service of

Patrick White, our Chief Executive Officer.

On February 15, 2022, we entered into an employment agreement with Mr.

employment agreement does not have a defined term.

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.

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

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.

Because 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.

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.

Presently our

personnel consists of seven full-time employees, one part-time employee and several 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 .

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’ 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 with long sales cycles.

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

If the efforts of our management team, the GLM, strategic partners, and any salespersons 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.

Our future growth

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

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

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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 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

account for all of our revenue, the loss of any of these customers would have a material adverse impact on our operating results

and cash flows .

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 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

deems appropriate, we will pursue the registration of our domain names, trademarks, and service marks in the U.S.

and in certain

locations outside the U.S.

We will seek to protect our trademarks, patents and domain names in an increasing number of jurisdictions,

a process that is expensive and time-consuming and may not be successful or which we may not pursue in every location.

expensive and cost prohibitive to file patents worldwide and we may be financially required to file patents in select countries

where we see the greatest potential for our technologies.

We may, over time, increase our investment in protecting our innovations

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

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

that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from

our competitors and inactive entities.

Patent and other intellectual property litigation may be protracted and expensive, and the

results are difficult to predict.

As the result of any court judgment or settlement, we may be obligated to cancel the launch of

a new feature or product, stop offering certain features or products, pay royalties or significant settlement costs, purchase licenses

or modify our products and features.

If we fail to maintain an effective

system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial

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 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

controls and procedures were not effective as of December 31, 2020 as the result of the material weaknesses in our internal control

over financial reporting identified in Item 9A of this Report.

Any failure to develop or maintain effective controls or any difficulties

encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting

obligations and may result in a restatement of our financial statements for prior periods.

Any failure to implement and maintain

effective internal control over financial reporting also could adversely affect the results of periodic management evaluations

and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control

over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.

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

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.

If we cannot manage

our growth effectively, we may not become profitable .

Businesses which grow rapidly often have difficulty managing

their growth.

Our staff presently consists of seven full-time employees, one part-time employee and several 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 account

for all of our revenue, the loss of any of these customers would have a material adverse impact on our operating results and cash flows .

We derive our revenue from a limited number of customers and our revenue in 2021 grew to $867 thousand compared to $343 thousand in 2020

and $245 thousand 2019.

Our principal revenue has been generated from five customers in 2021 compared to two customers in both 2020 and

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

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 deems appropriate,

we will pursue the registration of our domain names, trademarks, and service marks in the U.S.

and in certain locations outside the U.S.

We will seek to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive

and time-consuming and may not be successful or which we may not pursue in every location.

It may be expensive and cost prohibitive to

file patents worldwide and we may be financially required to file patents in select countries where we see the greatest potential for

our technologies.

We may, over time, increase our investment in protecting our innovations through increased patent filings that are expensive

and time-consuming and may not result in issued patents that can be effectively enforced.

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.

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.

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 that

we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors

and inactive entities.

Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult

As the result of any court judgment or settlement, we may be obligated to cancel the launch of a new feature or product, stop

offering certain features or products, pay royalties or significant settlement costs, purchase licenses or modify our products and features.

If we fail to maintain an effective system

of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial 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 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 controls

and procedures were not effective as of December 31, 2021, as the result of the material weaknesses in our internal control over financial

reporting identified in Item 9A of this Report.

Any failure to develop or maintain effective controls or any difficulties encountered

in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and

may result in a restatement of our financial statements for prior periods.

Any failure to implement and maintain effective internal control

over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered

public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually

be required to include in our periodic reports that will be filed with the SEC.

While we have begun to implement a remediation plan to

address this material weakness, including hiring a Senior VP of Finance and a Financial Controller in 2021, we have not yet been able

to remediate the material weakness related to our internal control over financial reporting as of December 31, 2021.

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,

or we experience any other cybersecurity incident, we may face a disruption to our operations, a compromise or corruption of our

confidential information and/or damage to our business relationships, all of which could negatively impact our business, results

of operations or financial condition .

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.

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 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.

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 or our third-party vendors’

computer systems are hacked, or we experience any other cybersecurity incident, we may face a disruption to our operations, a compromise

or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business,

results 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;

power outages;

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.

Furthermore, in the operation of our business

we also use third-party vendors that are subject to their own cybersecurity threats.

While our standard vendor terms and conditions include

provisions requiring the use of appropriate security measures to prevent unauthorized use or disclosure of our data, as well as other

safeguards, a breach may still occur.

In addition, if we select a vendor that uses cloud storage of information as part of their service

or product offerings our proprietary information could be misappropriated by third parties despite our attempts to validate the security

of such services.

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;

telecommunications or system failures;

2 unchanged sentences

employee error or malfeasance;

server or cloud provider breaches;

server or cloud provider

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

privacy may result in increased regulation and different industry standards, which could prevent us from providing our current

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 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

to restrict and penalize companies that collect and utilize information from their users and the general public.

For example, in

May 2018 the European Union made sweeping reforms to its existing data protection legal framework by enacting the General Data

Protection Regulation (the “GDPR”), which resulted in a greater compliance burden for many companies with users in

The GDPR includes operational requirements for companies that receive or process personal data of residents of the European

Union that are broader and more stringent than those previously in place in the European Union and in most other jurisdictions

around the world.

The GDPR also imposes significant penalties for non-compliance, including fines of up to €20 million or

4% of total worldwide revenue.

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 privacy

may result in increased regulation and different industry standards, which could prevent us from providing our current 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 companies.

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 to

restrict and penalize companies that collect and utilize information from their users and the general public.

For example, in May 2018

the European Union made sweeping reforms to its existing data protection legal framework by enacting the General Data Protection Regulation

(the “GDPR”), which resulted in a greater compliance burden for many companies with users in Europe.

The GDPR includes operational

requirements for companies that receive or process personal data of residents of the European Union that are broader and more stringent

than those previously in place in the European Union and in most other jurisdictions around the world.

The GDPR also imposes significant

penalties for non-compliance, including fines of up to €20 million or 4% of total worldwide revenue.

Additionally, we may be subject to increasingly

complex and expansive data privacy regulations within the United States.

For example, California enacted the California Consumer

Privacy Act (the “CCPA”), which became effective in 2020.

The CCPA requires covered companies to provide California

consumers with disclosures and expands the rights afforded consumers regarding their data.

Fines for noncompliance of the CCPA

can be as high as $8 thousand per violation.

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

to protect the personal information of consumers and penalize companies that fail to comply, and other states have proposed similar

The costs of compliance with, and other burdens imposed by, the GDPR, CCPA, and similar laws may limit the use and

adoption of our products and services and/or require us to incur substantial compliance costs, which could have a material adverse

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

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

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.

For example, California enacted the California Consumer Privacy

Act (the “CCPA”), which became effective in 2020.

The CCPA requires covered companies to provide California consumers with

disclosures and expands the rights afforded consumers regarding their data.

Fines for noncompliance of the CCPA can be as high as $8 thousand

per violation.

Since the CCPA was enacted, Nevada and Maine have enacted similar legislation designed to protect the personal information

of consumers and penalize companies that fail to comply, and other states have proposed similar legislation.

The costs of compliance with,

and other burdens imposed by, the GDPR, CCPA, and similar laws may limit the use and adoption of our products and services and/or require

us to incur substantial compliance costs, which could have a material adverse impact on our business.

We rely on the services of third-party data

center hosting facilities.

Interruptions or delays in those services could impair the delivery of our service and harm our business.

VerifyMe Engage™, VerifyMe Authenticate™,

VerifyMe Track & Trace™, and VerifyMe Online™ utilize cloud computing technology.

It is hosted pursuant to agreements

on technology platforms by third-party service providers.

We do not control the operation of these providers or their facilities, and

the facilities are vulnerable to damage, interruption or misconduct.

Unanticipated problems at these facilities could result in lengthy

interruptions in our services.

If the services of one or more of these providers are terminated, disrupted, interrupted or suspended for

any reason, we could experience disruption in our ability to provide our services, which may harm our business and reputation.

any damage to, or failure of, the cloud services we use could result in interruptions in our services.

Interruptions in our service may

damage our reputation, reduce our revenue, cause customers to terminate their agreements and adversely affect our ability to attract new

While we believe our strong partnerships reduce our risk, our business would be harmed if our customers and potential customers

believe our services are unreliable.

Additionally, if our 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

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.

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.

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 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

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 .

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

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 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”

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 December 31, 2021, there were options, warrants, shares of Series B Convertible Stock outstanding,

and restricted stock units convertible into 465,471, 3,779,243, 144,444 and 187,010 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 .

Sales 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 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

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;

Our failure to generate material revenues

Regulatory changes including new laws and rules which adversely affect companies in our line of business;

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

Our failure to become profitable;

Our failure to raise working capital;

Any acquisitions we may consummate;

Announcements by us or our competitors of significant contracts, new services, acquisitions, commercial relationships, joint

ventures or capital commitments;

Cancellation of key contracts;

Our failure to meet financial forecasts we publicly disclose;

Short selling activities;

Changes in market valuations of similar companies.

In the past, following periods of volatility

in the market price of a company’s securities, securities class action litigation has often been instituted.

class action suit against us could result in substantial costs and divert our management’s time and attention, which would

otherwise be used to benefit our business.

UNRESOLVED STAFF

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

business or results of operations.

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.

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

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’ equity, and 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.

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.

UNRESOLVED STAFF COMMENTS.

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

or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors