Item 1A. Risk Factors
ITEM 1A. RISK
FACTORS
Any investment in our securities involves a high
degree of risk. You should consider carefully the risks and uncertainties described below and all information contained in this Report,
before you decide whether to purchase our securities. If any of the following risks or uncertainties actually occur, our business, financial
condition, results of operations and prospects would likely suffer, possibly materially. In addition, the trading price of our common
stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.
Risks Relating to Our Business
We have engaged, and may engage in future,
acquisitions or strategic partnerships that increase our capital requirements, dilute our stockholders, cause us to incur debt or assume
contingent liabilities, and subject us to other risks.
We may evaluate various acquisitions and strategic
partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. To realize
the anticipated benefits of any potential acquisitions, we must successfully integrate those businesses with ours. The integration of
any potential acquisition or strategic partnership entails numerous risks, including:
· increased operating expenses and cash requirements;
· the assumption of indebtedness or contingent liabilities;
· dilution of our stockholder’s equity due to the issuance of additional equity securities;
· assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating
new personnel;
· the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic
merger or acquisition;
· retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; and
· our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition
or even to offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions, we
may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could
result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this
inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our
business.
Failure to attract and retain management, and develop successors
for management, may damage our operations and financial results and cause our stock price to decline.
We depend, to a significant degree, on the skills, experience and efforts
of our management team, and other personnel, particularly in the management of our subsidiary PeriShip Global. Our failure to attract,
integrate, motivate and retain existing or additional personnel in a timely fashion, and develop successors with commensurate skills and
talents, could disrupt or otherwise harm our operations and financial results. The loss of services of certain of our management team
and key employees, an inability to attract or retain qualified personnel in the future could delay the development of and negatively impact
the operations and profitability of our business.
Our future growth will depend upon the success of our Precision
Logistics segment and future businesses we may acquire. If we fail to effectively execute our strategy, our competitive position and financial
performance could be materially harmed.
Our future growth will depend upon the success of our Precision Logistics
segment and future businesses we may acquire. We are currently engaged in efforts to find and acquire businesses, which is intended to
streamline operations, improve profitability and improve our overall competitiveness. The successful execution of our strategy is subject
to significant uncertainties and may require additional capital and operational expenditures. If we fail to execute our strategy effectively,
our ability to realize the intended benefits may be compromised. Even if we successfully implement our strategy, we may not see the intended
results, diminishing the expected improvements to efficiency or revenue generation. This could materially and adversely affect our competitive
position, financial performance, and brand reputation.
6
Table of Contents
Our Precision Logistics segment relies on one key strategic partner
for shipping services for our customers and as a source for customers representing a substantial percentage of our revenues.
Our business
is dependent, and we believe that it will continue to depend on our relationship with one strategic partner. PeriShip Global partners
with one major global carrier for all its customers’ shipping needs. While we work closely with this key strategic partner and have
transportation services and pricing agreements in place covering the shipping services they provide to our customers, such agreements
are subject to termination or modification from time to time. If our strategic partner is unwilling or unable to supply to us the shipping
services we market and sell on acceptable terms, or at all, or otherwise elects to terminate its business relationship with us, we may
not be able to obtain alternative shipping services from other providers on acceptable terms, in a timely manner, or at all, and our business
may be materially and adversely impacted. We do not currently have any alternative shipping service suppliers from which we can obtain
the shipping services we currently receive from our strategic partner. Establishing the necessary information technology infrastructure
and business relationship with another shipping services provider would be costly and time consuming and may ultimately not be successful
or cost-effective. Further, any increase in the prices charged by our single strategic partner or failure to perform by our strategic
partner could cause our costs to increase or could cause us to experience short-term unavailability of shipping services on which our
business relies.
In particular,
delays and other shipping disruptions at our strategic partner significantly negatively impact our business. Our business involves the
shipment of time and temperature sensitive goods, so our customers are significantly negatively impacted by delays and other shipping
disruptions that cause product loss, spoilage and reputational harm. An increase in delays and other shipping disruptions on the part
of our strategic partner could cause our clients to seek shipping solutions from our competitors who use alternative shipping service
providers. If these events occur, it may reduce our profitability or may cause us to increase our prices. In addition, any material interruptions
in shipping services by this strategic partner may result in significant cost increases and reduce sales, which could harm our business,
financial condition and results of operations and may have a material adverse impact on our business.
In addition
to relying on this strategic partner for shipping services, a material portion of our revenue has been generated through a service agreement
pursuant to which this strategic partner resells our services to its customers under a “white label” arrangement, which we
refer to as a Premium Service. Under this arrangement we provide our logistics services to our strategic partner’s customers in
exchange for a pre-negotiated service fee per shipment. Sales through our strategic partner accounted for approximately 16% of revenue
of our Precision Logistics segment for the year ended December 31, 2024, and 17% for the year ended December 31, 2023. Our strategic partner
has begun to provide its own service offerings to its customers, and we expect revenue from our Premium Services in our Precision Logistics
segment will begin to decrease as we experience a reduction in business for these services. If we fail to offset a reduction in business
for our Premium Services in our Precision Logistics segment through our ProActive Services or other service offerings, our business, financial
condition and results of operations could be materially adversely affected.
Our business is subject to seasonal trends.
Historically, our operating results in the Precision
Logistics segment have been subject to seasonal trends when measured on a quarterly basis. Our first and second quarters have traditionally
been the weakest compared to our third and fourth quarters. This trend is dependent on numerous factors including economic conditions,
customer demand and weather. Because revenue is directly related to the available working days of shippers, national holidays and the
number of business days during a given period may also create seasonal impact on our results of operations. After the winter holiday season
and during the remaining winter months, our freight volumes are typically lower because some customers reduce shipment levels. In addition,
a substantial portion of our revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand
which can sometimes be difficult to predict or are based on just-in-time production schedules. Therefore, our revenue is, to a large degree,
affected by factors that are outside of our control. There can be no assurance that our historic operating patterns will continue in future
periods as we cannot influence or forecast many of these factors.
Severe climate conditions and other catastrophic events can have
an adverse impact on our business.
Our business involves the shipment of time and
temperature sensitive goods, so our customers are significantly negatively impacted by delays and other shipping disruptions that cause
product loss, spoilage and reputational harm. Disasters, severe weather, public health issues, such as pandemics, earthquake, cyber-attack,
heightened security measures, actual or threatened terrorist attack, strike, civil unrest, or other catastrophic event may cause shipment
delays or an inability to ship, which could prevent, delay or reduce shipment volumes and could have an adverse impact on consumer spending
and confidence levels, all of which could result in decreased revenues. In particular, c ertain weather-related
conditions such as ice and snow can disrupt the operations of our carrier partners during the peak holiday season, which could have a
disproportionately large negative impact on our business and revenues.
7
Table of Contents
We operate in a highly competitive industry and our business
may suffer if we are unable to adequately address potential downward pricing pressures and other competitive factors.
The transportation and logistics industry is highly
competitive, cyclical, and is expected to remain so for the foreseeable future. We face competition in all geographic markets and each industry sector in which we operate. We have and may face continued
competition by strategic partners. Many of these competitors have significantly more resources and are actively pursuing acquisition opportunities
and are developing new technologies to gain competitive advantages. The primary competitive factors are price and quality of service.
Increased competition or our inability to compete successfully may lead to a reduction in our volume, reduced revenues, reduced profit
margins, increased pricing pressure, or a loss of customer relationships, any one of which could affect our business and financial results.
Numerous competitive factors could impair our ability to maintain our current profitability, including the following:
· our competitors may periodically reduce their prices to gain business, especially during times of weak
economic conditions, which may limit our ability to maintain or increase prices or impede our ability to maintain or grow our customer
relationships;
· our inability to achieve expected customer retention levels or sales growth targets;
· we compete with many other transportation and logistics service providers, which has included and may include our strategic partners, some of which have greater capital resources
or lower cost structures than us;
· our strategic partners may take steps to position their own product offerings as a replacement or competitor
to our service offerings;
· our inability to compete with existing and new entrants in the market that may offer similar services
at lower cost or have greater technological capabilities;
· customers may choose to provide for themselves the services that we now provide;
· many customers periodically accept proposals from multiple carriers for their shipping needs, and this
process may depress rates or result in the loss of some of our business to competitors; and
· advances in technology require increased investments to remain competitive, and our customers may not
be willing to accept higher prices to cover the cost of these investments; and
· we may not have sufficient resources to develop and market our services effectively, or at all.
There can be no assurance that such competitive
factors will not increase our cost of delivering our services to our customers, hinder our ability to deliver our services to our customers,
entice our existing customers to discontinue using our services, or reduce the number of customers referred to us by strategic partners.
Any of these factors could harm our business, financial condition and results of operations and may have a material adverse impact on
our business.
The shipping and logistics industry is rapidly
evolving. We expect to continue to face significant competition, which could materially adversely affect us.
The shipping and logistics industry is rapidly
evolving, including demands for faster deliveries and increased visibility into shipments. We expect to face significant competition on
a local, regional, national and international basis. Competitors include the U. S. and other international postal services, various motor
carriers, express companies, freight forwarders, air couriers, large transportation and e-commerce companies that have made and continue
to make significant investments in their own logistics capabilities, some of whom are currently our customers. We also face competition
from start-ups and other smaller companies that combine technologies with crowdsourcing to focus on local market needs. Competition may
also come from other sources in the future as new technologies are developed. Competitors have cost, operational and organizational structures
that differ from ours and may offer services or pricing terms that we are not willing or able to offer. Additionally, to sustain the level
of service and value that we deliver to our customers, from time to time we may raise prices and our customers may not be willing to accept
these higher prices. If we do not timely and appropriately respond to competitive pressures, including replacing any lost volume or maintaining
our profitability, we could be materially adversely affected.
Our future growth will depend upon the success
of our strategic partners who integrate our solutions into their product offerings .
We rely on strategic partnerships with one large logistics carrier
for our Precision Logistics segment and larger companies which integrate our technologies into their product offerings for our legacy
Authentication segment. These strategies leave 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.
8
Table of Contents
Damage to our brand image and corporate reputation could materially
adversely affect us.
Our success depends on our ability to consistently
deliver operational excellence and strong customer service. Our inability to deliver our services and solutions as promised on a consistent
basis, or our customers having a negative experience or otherwise becoming dissatisfied, can negatively impact our relationships with
new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings growth.
Adverse publicity (whether or not justified) relating to activities by our employees, contractors, suppliers, agents or others with whom
we do business, such as customer service mishaps or noncompliance with laws, could tarnish our reputation and reduce the value of our
brand. With the increase in the use of social media outlets such as Meta (f/k/a Facebook), YouTube, Instagram, LinkedIn and X (f/k/a Twitter),
adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to effectively respond. Damage to our
reputation and loss of brand equity could have a material adverse effect on us, and could require additional resources to rebuild our
reputation and restore the value of our brand.
The Company has significant goodwill and
other intangible assets, and future impairment of these assets could have a material adverse impact on the Company's financial results.
As of
the date of this Report, the Company has recorded significant goodwill and other identifiable intangible assets on its balance sheet as
a result of its acquisition of the PeriShip Global business in 2022. A number of factors may result in impairments to goodwill and other
intangible assets, including significant negative industry or economic trends, disruptions to our business, increased competition and
significant changes in the use of the assets.
Impairment
charges could adversely affect the Company's financial condition or results of operations in the periods recognized.
Our customers’ businesses may be negatively
affected by various economic and other factors such as recessions, downturns in the economy, inflation, global uncertainty and instability,
the effects of pandemics, changes in United States social, political, and regulatory conditions and/or a disruption of financial markets,
which may decrease demand for our services or increase our costs.
Adverse economic and other conditions, both in
the United States and internationally, can negatively affect our customers’ business levels, the amount of logistics services they
need, their ability to pay for our services and overall freight levels, any of which might impair our profitability. For example, inflation
and uncertainty and instability in the global economy and geopolitical events may lead to fewer goods being transported. Many of the products
our clients ship are luxury or discretionary products and the demand for such products may decrease in adverse economic times. Further,
when adverse economic times arise, customers may select competitors that offer lower rates or choose to ship their goods without logistical
support in an attempt to lower their costs. In addition, changes in the United States’ or international trade policy, including
tariffs, export controls, quotas, embargoes, or sanctions, could trigger additional retaliatory actions by affected countries, resulting
in “trade wars” and further increased costs for goods transported globally, which may negatively impact our customers. These
and other economic factors such as recessions could have an adverse effect on our business, financial conditions and results of operations
and we might be forced to lower our rates or lose customers.
Overall economic conditions that reduce
freight volumes could have a material adverse impact on our operating results and ability to achieve growth.
We are sensitive to changes in overall economic
conditions that impact customer shipping volumes. The transportation and logistics industry historically has experienced cyclical fluctuations
in financial results due to economic recession, downturns in business cycles of our customers, interest and currency rate fluctuations,
inflation and other economic factors beyond our control. Changes in U.S. or international trade policy, including tariffs, export controls,
quotas, embargoes, or sanctions, could trigger additional retaliatory actions by effected countries, resulting in “trade wars”
impacting the volume of economic activity globally and in the United States, and as a result, shipping volumes may be materially reduced.
Such a reduction may materially and adversely affect our business.
Reductions in discretionary consumer
spending could have an adverse effect on our business, financial condition, and results of operations.
The services and products we provide are sensitive
to reductions from time to time in discretionary consumer spending. For example, demand for high-end perishable items, and subsequently
the demand for shipping, brand protection, and other services related to such, can be affected by changes in the economy and consumer
tastes, both of which are difficult to predict and beyond our control. Unfavorable changes in general economic conditions, including recessions,
economic slowdowns, sustained high levels of unemployment, and rising prices or the perception by consumers of weak or weakening economic
conditions, may reduce consumer’s disposable income or result in a decrease in demand for our services and products. As a result,
we cannot ensure that demand for our services and products will materialize or remain constant. In response to market conditions and lower
demand some carriers have implemented strategies to address a potential global recession. In April 2023, the major carrier that PeriShip
Global partners with laid out steps it was taking to slash $4 billion in permanent costs by the end of its 2025 fiscal year in response
to these market conditions and lower demand. In June 2023, the major carrier stated that due to ongoing demand its plans to ground 29
more aircraft in its fiscal year that started in June 2024. In mid-December 2024 the carrier forecasted flat revenue year over year for
2025.
9
Table of Contents
We have seen a softening in demand for some services
related to high-end perishable items which seem to be impacted by reduced discretionary spending by U.S. consumers. While a recession,
whether global or more localized to the U.S., may decrease the demand for our services that are more discretionary in nature, we believe
that the internal cost cutting measures, if implemented by the major global carrier may benefit out-sourced service providers, including
PeriShip Global. Additionally, PeriShip Global is working with this major global carrier to address their small and medium sized
business clients, which we believe is an underserved segment and presents considerable growth opportunities for PeriShip Global. However,
we can provide no assurances that a decline in discretionary consumer spending will not have a negative impact on our revenues and results
of operations. Adverse developments affecting economies throughout the world, including a general tightening of availability of credit,
decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts
of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment
or significant declines in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases, could
lead to a further reduction in consumer discretionary spending and have an adverse effect on our business, financial condition, and results
or operations.
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 have a history
of losses and we may never achieve or maintain profitability .
Since our inception,
we have incurred operating losses each year due to costs incurred in connection with research and development activities and general and
administrative expenses associated with our operations. In addition, we have made significant expenditures on acquisitions and may continue
to complete acquisitions in the future. We expect to continue to incur expenditures to develop and market our services and to make acquisitions
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.
Our ability to
use our net operating losses to offset future taxable income may be subject to certain limitations.
Our net operating loss
carryforwards ("NOLs"), and certain other tax attributes could be unavailable to offset future income tax liabilities because
of restrictions under U.S. tax law. Under the Tax Cuts and Jobs Act, or the TCJA, federal NOLs generated in tax years ending after December
31, 2017, may be carried forward indefinitely. The carryforwards are limited to 80% of each subsequent year's net income.
In addition, Sections
382 and 383 of the Internal Revenue Code (“IRC”), contain rules that limit the ability of a corporation that undergoes an
"ownership change" (generally, any change in ownership of more than 50% of the corporation's stock over a three-year period)
to utilize its pre-change NOLs and tax credit carryforwards to offset future taxable income. These rules generally operate by focusing
on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a corporation and any change in ownership
arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on
the use of NOLs and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term, tax-exempt
rate and the value of the corporation's stock immediately before the ownership change. The Company completed an IRC Section 382 analysis
in 2022 and determined that an ownership change occurred sufficient to impose additional limitations on the use of NOL carryforwards.
The Company has not completed an IRC Section 382 analysis in 2023 or 2024. In the event future ownership changes are determined, we might
be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire, in which
event we could incur larger federal and state income tax liabilities than we would have had we not experienced an ownership change.
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. We have 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.
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 technology. Without material sales and acceptance from customers with respect to our technologies,
we will not be successful. We can provide no assurances that the market will accept our products or that we will achieve any meaningful
sales.
10
Table of Contents
If our technology
cannot be used successfully to proactively provide analytics logistics management, we may not be able to generate material revenue .
Our proprietary technology
is the core of our PeriShip Global operations. The failure of our technology will result in the stoppage of our operation. Due to the
fact our business is the monitoring of time sensitive goods movement, any stoppage will result in the financial loss and service liability
damage. In order to stay competitive, we need to ensure the continuity and the timeliness of our service, it is essential that the technology
platform has redundancy built in, high performing and scalable.
We may not continue to invest in our Authentication segment operations
and as a result, we may not be able to complete the development and commercialization of our Authentication segment products.
Given our planned use of capital, we may not have the ability to fund
and invest in the development and commercialization of our Authentication segment. If we do not invest in our Authentication segment,
we may have to significantly delay, scale back or discontinue our operations and the development or commercialization of our Authentication
Segment, which could harm our results of operations.
Our Authentication segment has historically
targeted large companies and, their internal policies and resistance to change may impair our ability to successfully commercialize our
Authentication segment. .
Our ability to become successful and generate
positive cash flow within our Authentication segment will be dependent upon the extent of commercialization of products using our technology.
Commercialization of new technology products often has a very long lead time. This problem is exacerbated when customers are large entities.
Our current and target customers are large entities. These factors may adversely affect our ability to commercialize our Authentication
technologies. Further, we cannot assure you that commercialization will result in profitability.
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 .
We rely on intellectual property in order to maintain
a competitive advantage. As such, 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.
The terms of our
patents may not be sufficient to effectively protect our business.
In most countries in
which we file patent applications, including the U.S., the term of an issued patent is twenty years from the earliest claimed filing date
of a non-provisional patent application in the applicable country. With respect to any issued patents in the U.S., we may be entitled
to obtain a patent term extension or extend the patent expiration date provided we meet the applicable requirements for obtaining such
patent term extensions. Although such extensions may be available, the life of a patent and the protection it affords is by definition
limited. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against
competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we
may have competition for our technologies. Upon the expiration of our issued patents, we will not be able to assert such patent rights
against potential competitors and our business and results of operations may be adversely affected.
11
Table of Contents
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. 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 effective as of December 31, 2024. 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.
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 statements. 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.
12
Table of Contents
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. 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.
Our business depends on our ability to successfully
develop, implement, maintain, upgrade, enhance, protect and integrate information technology systems.
We rely heavily on the proper functioning and
availability of our information technology systems for our operations as well as for providing value-added services to our customers.
Our information systems are integral to the efficient operation of our business. We strive to be best in class, and in order to do so,
we must correctly interpret and address market trends and enhance the features and functionality of our technology platform in response
to these trends, which may lead to significant ongoing software development costs and capital investments in information technology infrastructure.
We may be unable to accurately determine the needs of our customers and integrate cohesively with our key strategic partner, and identify
the trends in the transportation services industry, in a timely and cost-effective manner, which could result in decreased demand for
our services and a corresponding decrease in our revenues. Despite testing, external and internal risks, such as malware, insecure coding,
“Acts of God,” data leakage and human error pose a direct threat to our information technology systems and operations. We
may also be subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors
or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability
to customers or others, diversion of resources, injury to our reputation and increased service and maintenance costs. Addressing such
issues could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial
cost. We must maintain and enhance the reliability and speed of our information technology systems to remain competitive and effectively
handle higher volumes of shipments. If our information technology systems are unable to manage additional volume for our operations as
our business grows, or if such systems are not suited to manage the various service modes we offer or businesses we acquire, our service
levels and operating efficiency could decline. If we fail to hire and retain qualified personnel to implement, protect and maintain our
information technology systems or if we fail to upgrade our systems to meet our customers’ and strategic operating partners’
demands, our business and results of operations could be seriously harmed. This could result in a loss of customers or a decline in the
volume of shipments we receive from customers.
Our information technology systems also depend
upon the Internet, third-party service providers, global communications providers, satellite-based communications systems, the electric
utilities grid, electric utility providers and telecommunications providers as well as their respective vendors. The services and service
providers have all experienced significant system failures and outages at some point in the past. We have minimal control over the operation,
quality, or maintenance of these services or whether vendors will improve their services or continue to provide services that are essential
to our business. Disruptions due to transitional challenges in upgrading or enhancing our technology systems; failures in the services
upon which our information technology platforms rely, including those that may arise from adverse weather conditions or natural calamities,
such as floods, hurricanes, earthquakes or tornadoes; illegal acts, including terrorist attacks; human error or systems modernization
initiatives; and/or other disruptions, may adversely affect our business, which could increase our costs or result in a loss of customers
that could have a material adverse effect on our results of operations and financial position.
Our information technology systems are subject
to cyber and other risks some of which are beyond our control. A security breach, failure or disruption of these services could have a
material adverse effect on our business, results of operations and financial position.
Our information systems are integral to the efficient
operation of our business and handle sensitive customer and shipment data. It is critical that the data processed by these systems remain
secure, as it often includes competitive customer information, confidential transaction data, employee records and key financial and operational
results and statistics. The sophistication of efforts by hackers, foreign governments, cyber-terrorists, and cyber-criminals, acting individually
or in coordinated groups, to launch distributed denial of service attacks, ransomware or other coordinated attacks that may cause service
outages, gain inappropriate or block legitimate access to systems or information, or result in other business interruptions has continued
to increase in recent years. We utilize third-party service providers who have access to our systems and certain sensitive data, which
exposes us to additional security risks, particularly given the complex and evolving laws and regulations regarding privacy and data protection.
While we and our third-party service providers have experienced cyber-attacks and attempted breaches of our and their information technology
systems and networks or similar events from time to time, no such incidents have been, individually or in the aggregate, material to us.
Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of our systems, information
and measures, including outages, computer viruses, theft or misuse by third parties or insiders, break-ins and similar disruptions, could
have a significant adverse impact on our operations.
13
Table of Contents
It is difficult to fully protect against the possibility
of power loss, telecommunications failures, cyber-attacks, ransomware and other cyber incidents in every potential circumstance that may
arise. A significant cyber incident, including system failure, security breach, disruption by malware or ransomware, or other damage,
could interrupt or delay our operations, damage our reputation and brand, cause a loss of customers, expose us to a risk of loss or litigation,
result in regulatory scrutiny, investigations, actions, fines or penalties and/or cause us to incur significant time and expense to remedy
such an event, any of which could have a material adverse impact on our results of operations and financial position. Furthermore, any
failure to comply with data privacy, biometric privacy, data security or other laws and regulations could result in claims, legal or regulatory
proceedings, inquiries or investigations. To comply with this changing landscape, we may be required to further segregate our systems
and operations, implement additional controls, or adopt new systems, all of which could increase the cost and complexity of our operations.
In addition, our insurance is intended to address costs associated with aspects of cyber incidents, network failures and privacy-related
concerns, and may not sufficiently cover all types of losses or claims that may arise.
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. The U.S. 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 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 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.
We 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.
Further, 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 customers. 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
affected.
14
Table of Contents
Fluctuations in labor costs, changes in
the availability of key suppliers, or catastrophic events may increase the cost of our products and services.
Increases in labor costs might be difficult to
pass on to our customers. In our Authentication segment security pigments, and ink canisters are key elements in the cost of our products.
Our inability to offset material price inflation could adversely affect our results of operations. We rely on one global carrier for transportation
services, one supplier to procure our raw materials, one strategic partner to produce our ink canisters, 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 continually improve our platforms and acquiring new customers in increasingly competitive markets.
Our ability to become profitable depends upon
a number of factors, including our ability to (i) identify and evolve with emerging technological and broader industry trends, (ii) develop
and maintain competitive products, (iii) defend our market share against an ever-expanding number of competitors including many new and
non-traditional competitors, (iv) enhance our products by adding innovative features that differentiate our products from those of our
competitors and prevent commoditization of our products, (v) develop, manufacture and bring compelling new products to market quickly
and cost-effectively, (vi) monitor disruptive technologies and business models, (vii) achieve sufficient return on investment for new
products introduced based on capital expenditures and research and development spending, (viii) respond to changes in overall trends related
to end market demand, (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. To the extent we fail to introduce new and innovative products,
we may lose any market share we have to our competitors, which may be difficult or impossible to regain. Any inability, for technological
or other reasons, to successfully develop and introduce new products could harm our business. Additionally, we may experience delays
in the development and introduction of products, we may be unable to 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, conversion of our Convertible debt, 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 .
We are 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. For the years ended December
31, 2024, there were approximately 7,971,000 anti-dilutive shares consisting 1,606,000 unvested performance restricted stock units, 414,000
restricted stock units and restricted stock awards, 221,000 shares issuable upon exercise of stock options, 4,629,000 shares issuable
upon exercise of warrants, 957,000 shares issuable upon conversion of convertible debt, and 144,000 shares issuable upon conversion of
preferred stock. 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.
15
Table of Contents
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 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 .
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 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’ 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. 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.
16
Table of Contents
Risks Relating to our Debt
If we do not timely pay amounts due and
comply with the covenants under our debt facilities, our business, financial condition and results of operations may be adversely impacted.
Our consolidated financial statements have been
prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. We have a facility with PNC Bank National Association (the “PNC Facility”), which includes
a $1 million RLOC. The RLOC has no scheduled payments of principal until maturity and bears interest per annum at a rate equal to the
sum of Daily SOFR plus 2.85% with monthly interest payments. The PNC Facility place encumbrances on our assets, and subject us to
restrictive covenants that limit our operating flexibility.
In the event of a continuing default, our senior
secured lenders would have the right to accelerate the then-outstanding amounts under the PNC Facility and to exercise their respective
rights and remedies to collect such amounts, which would include foreclosing on collateral constituting substantially all of our assets
and the assets of our PeriShip Global subsidiary. Any continuing default on the PNC Facility could result in the outstanding principal
balance under the facility becoming immediately due and payable, which could harm our business, financial condition and results of operations
and may have a material adverse impact on our business.
On August
25, 2023, the Company entered into a Convertible Note Purchase Agreement with certain investors for the sale of convertible promissory
notes for the aggregate principal amount of $1,100 thousand. As of January 21, 2025, $350 thousand was converted to common stock. The
notes are subordinated unsecured obligations of the Company and accrue interest at a rate of 8% per year payable semiannually in arrears.
The notes will mature on August 25, 2026, unless earlier converted or repurchased at a conversion price of $1.15 per share of common stock.
Although we believe the majority of our investors will choose to convert into shares, if this does not occur, this may have a material
adverse impact on our cash and as a result, a material adverse impact on our business.
Our cash flows and operating results could
be adversely affected by required payments of debt or related interest and other risks of our debt financing.
We are generally subject to risks associated with
debt financing. These risks include: (1) our cash flow may not be sufficient to satisfy required payments of principal and interest;
(2) we may not be able to refinance existing indebtedness or the terms of any refinancing may be less favorable to us than the terms
of existing debt; (3) debt service obligations could reduce funds available for other uses such as growing our business; (4) any
default on our indebtedness could result in acceleration of those obligations and possible loss of assets or capital; and (5) the
risk that necessary capital expenditures cannot be financed on favorable terms. Any of these risks could place strains on our cash flows,
reduce our ability to grow, and adversely affect our results of operations.
Covenants in our debt agreements may restrict
our operating activities and adversely affect our financial condition.
Our existing debt agreements contain, and future
debt agreements may contain, financial and/or operating covenants including, among other things, certain coverage ratios, as well as limitations
on the ability to incur additional secured and unsecured debt, and/or otherwise affect our distribution and operating policies. These
covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these
debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even
in the absence of a payment default. A default under one of our debt agreements could result in a cross-default under other debt agreements,
and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional
collateral, and enforce their respective interests against existing collateral. In the event of a continuing default, our senior secured
lenders would have the right to accelerate the then-outstanding amounts under each such facility and to exercise their respective rights
and remedies to collect such amounts, which would include foreclosing on collateral constituting substantially all of our assets and the
assets of our PeriShip Global subsidiary As a result, a default under applicable debt covenants could have an adverse effect on our financial
condition or results of operations. These covenants may restrict our ability to engage in transactions that we believe would otherwise
be in the best interests of our stockholders.
17
Table of Contents