What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-08-28 compared with 2023-03-02 · 111 added, 81 removed, 318 unchanged (38% of the section changed)

6 unchanged sentences

We have a history of operating losses, expect additional losses and may not achieve or sustain profitability.

We have a history of operating losses and expect to incur additional losses until we achieve sufficient revenue and resulting margins to offset our operating costs. Our net loss for the years ended December 31, 2022 and 2021 was $17.6 million and $24.4 million, respectively.

Our reduction in net losses in 2022 was primarily attributable to a new strategic roadmap with tighter cost controls and reduced operating expenses.

Our ability to achieve future profitability is dependent on a variety of factors, many of which are outside of our control.

Failure to achieve profitability or sustain profitability, if achieved, may require us to raise additional financing, which could have a material negative impact on the market value of our Common Stock.

We have a history of operating losses and expect to incur additional losses until we achieve sufficient revenue and resulting margins to offset our operating costs.

Our net loss for the years ended December 31, 2023 and 2022 was $30.2 million and $17.6 million, respectively.

Our increase in net losses in 2023 was primarily attributable to a non-cash charge of approximately $12.0 million related to the change in value of our warrant liability initially recorded as part of the preferred stock issuance in July 2023.Our ability to achieve future profitability is dependent on a variety of factors, many of which are outside of our control.

Failure to achieve profitability or sustain profitability, if achieved, may require us to raise additional capital, which could have a material negative impact on the market value of our Common Stock.

We may need additional capital to execute our business plan, and raising additional capital, if possible, by issuing additional equity securities may cause dilution to existing stockholders.

11 unchanged sentences

In addition, the issuance of any equity securities could be at a discount to the market price.

If we incur debt financing, the payment of principal and interest on such indebtedness may limit funds available for our business activities, and we could be subject to covenants that restrict our ability to operate our business and make distributions to our stockholders. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem stock or make investments.

These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem stock or make investments.

There is no assurance that any equity or debt financing transaction will be available on acceptable terms, if at all.

As a result of our failure to timely file our Annual Report on Form 10-K for the year ended December 31, 2023, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, we are currently ineligible to file a registration statement on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.

Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Exchange Act.

In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” under Rule 415 of the Securities Act.

The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering pursuant to a Registration Statement on Form S-1.

The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility.

Our inability to use Form S-3 may impair our ability to raise necessary capital to fund our operations and execute our strategy.

If we seek to access the capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and transaction costs and other considerations.

Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure on the stock price of our Common Stock.

If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under the Nasdaq rules, or seek other sources of capital.

The foregoing limitations on our financing approaches could have a material adverse effect on our results of operations, liquidity, and financial position.

We expect to be dependent on sales of our BolaWrap product line for the foreseeable future, and if this product is not widely accepted, our growth prospects will be diminished.

5 unchanged sentences

Expand, and as required, enforce our intellectual property portfolio for the BolaWrap product and other future products;

Maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities; and

Maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;

Grow market acceptance for the BolaWrap product line and/or other future products.

3 unchanged sentences

We expect 2D virtual training companies to either try to buy out companies like ours or choose to have to build 3D Virtual reality to compete with us.

As one of the only companies with both on premise 3D Virtual Reality and later in 2023 full cloud 3D Virtual Reality we plan to compete on both fronts, our ability to commercialize this 3D Virtual Reality product line may be influenced by many factors, including:

As one of the only companies with both on premise 3D Virtual Reality and full cloud 3D Virtual Reality we plan to compete on both fronts;

however, our ability to commercialize this 3D Virtual Reality product line may be influenced by many factors, including:

our ability to continue to develop new products and new content;

3 unchanged sentences

our ability to attract and retain talent.

We face competition from companies with greater financial, technical, sales, marketing and other resources, and, if we are unable to compete effectively with these competitors, our business could be harmed .

We face competition from other established companies.

A number of our competitors have longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing and other resources than we do.

As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or client requirements, more quickly develop new products or devote greater resources to the promotion and sale of their products and services than we can.

Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the global public safety industry and compete more effectively on the basis of price and production.

In addition, new companies may enter the markets in which we compete, further increasing competition in the global public safety solutions industry.

We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control.

We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.

We are materially dependent on the acceptance of our product by the law enforcement market.

16 unchanged sentences

We currently have no reserve for slow moving or obsolete inventory but may incur future charges for obsolete or excess inventory.

Our international operations could be harmed by factors including  

natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.

Our international operations could be harmed by factors including natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.

We sell our products worldwide and have exported to multiple countries.

15 unchanged sentences

Our business may be impacted by global economic conditions, which have been volatile in recent years.

Geopolitical conflict, such as the recent conflict in Ukraine, and related international economic sanctions and their impact may exacerbate this volatility.

Geopolitical conflict, such as the current conflict in Ukraine, and related international economic sanctions and their impact may exacerbate this volatility.

Specifically, our revenues and gross margins depend significantly on global economic conditions and the demand by foreign governments and agencies for the BolaWrap and Wrap Reality in many of our target markets.

2 unchanged sentences

Economic weakness and uncertainty also make it more difficult for us to make accurate forecasts of revenues, gross margins and expenses.

The continued impact of COVID-19 and uncertain market conditions may continue to adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic, which has caused significant uncertainty and disruption to global financial markets and supply chains since  early calendar year 2020, continues to adversely affect the Company’s business, operating results, and financial condition, although such disruptions and uncertainties have abated.

The extent to which the COVID-19 pandemic continues to impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the continued duration of the outbreak in the markets we target, new information which may emerge concerning the severity of COVID-19 and its variants, and the actions being taken to contain COVID-19 or treat its impact, among others.

Uncertainty surrounds the duration and broader impact of the COVID-19 pandemic and therefore, the effects it will have on our financial results and operations.

If economic or market conditions in key global markets deteriorate, we may experience material adverse effects on our business, financial condition, and results from operations.

Factors deriving from the domestic and international response to the COVID-19 pandemic that may negatively impact sales and gross margin in the future include but are not limited to:

limitations on the ability of our suppliers to meet delivery requirements and commitments;

limitations on the ability of employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home;

limitations on the ability of carriers to deliver products to customers;

limitations on the ability of our customers to conduct their business and purchase our products and services;

and limitations on the ability of our customers to pay us on a timely basis.

Public health crises could adversely affect our business, financial condition and results of operations.

Our business could be adversely impacted by the effects of future pandemics, epidemics or infectious disease outbreaks.

The extent to which the COVID-19 or other pandemics will in the future impact our financial conditions and results of operations, or those of our third-party suppliers, will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the continued duration of the outbreak in the markets we target.

Substantially all our employees are located in the US.

1 unchanged sentence

If we, or any of these third-party partners encounter any disruptions to our or their respective operations or facilities, or if we or any of these third-party partners were to shut down for any reason, including by pandemic, fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, or other unforeseen disruption, then we or they may be prevented or delayed from effectively operating our or their business, respectively.

Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected. 

We anticipate that a significant portion of our revenue in the short-term will be generated from international sales, which may adversely affect our ability to timely collect accounts receivable.

10 unchanged sentences

Our product is intended to be used in confrontations to de-escalate the situation and reduce the chance for injury to officers and the subjects that they interact with.

There is always a chance that use could result in injury to those involved, whether involving our product.

There is always a chance that use could result in injury to those involved.

Our product may cause or be associated with such injuries.

2 unchanged sentences

If successful, personal injury, misuse, and other claims could have a material adverse effect on our operating results and financial condition.

Although we carry product liability insurance, significant litigation could also result in a diversion of management’s attention and resources, negative publicity, and an award of monetary damages in excess of our insurance coverage.

The nature of our business may result in undesirable press coverage or other negative publicity.

12 unchanged sentences

We expect to expend significant resources to generate sales due to our lengthy sales cycle, and such efforts may not result in the level of sales or revenue we expect.

Generally, law enforcement agencies consider a wide range of issues before committing to purchase a product, including product benefits, training time and costs, the cost to use our product in addition to, or in place of, other less lethal products even though they are likely more dangerous, time in market, product reliability and budget constraints.

The length of our sales cycle may range from 30 days to a year or more.

Generally, law enforcement agencies consider a wide range of issues before committing to purchase a product, including product benefits, training time and costs, the cost to use our product in addition to, or in place of, other less lethal products, time in market, product reliability and budget constraints.

The length of our sales cycle may range from 30 days to a year or more.

We may incur substantial selling costs and expend significant effort in connection with the evaluation of our product by potential customers before they place an order if they place an order at all.

14 unchanged sentences

In addition, the lead times associated with certain components are lengthy and preclude rapid changes in quantities or changes for bugs or enhancements.

Delays in our suppliers’

abilities, especially any sole suppliers, to provide us with necessary materials and components may delay production or may require us to seek alternative supply sources.

Delays in our suppliers’ abilities, especially any sole suppliers, to provide us with necessary materials and components may delay production or may require us to seek alternative supply sources.

Any delay in receiving supplies could impair our ability to deliver products to our customers and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.

We have recently experienced, and in the future are likely to experience, disruption of the supply of some of our parts, components, and assemblies that we obtain from suppliers.

For example, the rapid increase in global demand as the COVID-19 pandemic wanes has caused, and is expected to continue to cause, significant stress on global supply chains.

As economies around the world have reopened, sharp increases in demand have created significant disruptions to the global supply chain, which have affected our ability to source and receive certain goods on a timely basis and at anticipated costs.

For example, the rapid increase in global demand as the COVID-19 pandemic waned caused, and may continue to cause, significant stress on global supply chains.

As economies around the world have reopened, sharp increases in demand created significant disruptions to the global supply chain, which affected our ability to source and receive certain goods on a timely basis and at anticipated costs.

Increases in input costs and freight due to price inflation and global supply chain disruptions may adversely affect our financial performance.

We do not have any long-term supply agreements with any suppliers.

We actively monitor and mitigate supply chain risk, but there can be no assurance that our mitigation plans will be effective to prevent disruptions that may arise from shortages of materials that we use in the production of our products.

We actively monitor and attempt to mitigate supply chain risk, but there can be no assurance that our mitigation plans will be effective to prevent disruptions that may arise from shortages of materials that we use in the production of our products.

Any interruption of supply for any material components of our products could significantly delay production and shipment of our products and have a material adverse effect on our revenue, profitability, and financial condition.

We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize revenue enhancements or other synergies from such acquisitions.

On November 30, 2022, we acquired the rights to certain software assets and services to drive the rapid enhancement of our Wrap Reality Cloud platform.

We believe this acquisition should help speed up our path to marketing with 3D Virtual Reality in the cloud in addition to our robust 3D Virtual Reality on premise.

In November 2022, we acquired the rights to certain software assets and services to drive the rapid enhancement of our Wrap Reality Cloud platform, and in August 2023 we acquired Intrensic, LLC, which included a Body-Worn Camera and Digital Evidence Management solution.

However, our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions we may acquire in the future.

1 unchanged sentence

There can be no assurance that we will be able to successfully integrate any other acquired businesses, products or technologies without substantial expense, delay or other operational or financial problems.

Acquisitions involve several risks, some or all of which could have a material adverse effect on our acquired businesses, products or

technologies.

Acquisitions involve several risks, some or all of which could have a material adverse effect on our acquired businesses, products or technologies.

Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income.

13 unchanged sentences

Our BolaWrap device is classified as a firearm and the BolaWrap 150 is also classified as an “Any other Weapon” (“ AOW ”).

Both firearms and explosive devices are regulated by the US Bureau of Alcohol, Tobacco, Firearms and Explosives (“

ATF ”) involving substantial regulatory compliance.

ATF regulations are enforced by surveillance and inspection of federal firearms licensees (“

FFLs ”).

Both firearms and explosive devices are regulated by the US Bureau of Alcohol, Tobacco, Firearms and Explosives (“ ATF ”) involving substantial regulatory compliance.

ATF regulations are enforced by surveillance and inspection of federal firearms licensees (“ FFLs ”).

If ATF finds a violation, it can institute a wide range of enforcement actions, ranging from warnings to more severe sanctions such as fines, penalties, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or total shutdown of production, and criminal prosecution.

8 unchanged sentences

Consequently, we are prohibited from transferring our devices directly to a non-government, non-licensed individual or entity in a different state.

To accomplish such a transfer, we must first obtain ATF approval to transfer the device to another FFL dealer in the end-user’s state.

After that transfer is completed, the FFL dealer must obtain ATF approval to transfer the device to the non-government, non-licensed individual.

3 unchanged sentences

Failure to comply with regulations could also result in the imposition of fines, penalties and other actions that could adversely impact our financial position, cash flows and operating results.

Our product is also controlled by the US Department of Commerce (“

DOC ”) for exports directly from the US.

Our product is also controlled by the US Department of Commerce (“ DOC ”) for exports directly from the US.

Consequently, we need to obtain export licenses from the DOC for the export of our products from the US.

Compliance with or future changes in US export regulations could significantly and adversely affect any future international sales.

The shipment of some of our components and our products involve conformity to regulations governing the transport of “dangerous goods”.

Failure to comply with shipping regulations could result in the imposition of fines, penalties and other actions that could adversely impact our financial position, cash flows and operating results.

3 unchanged sentences

Our future success depends in part upon our proprietary technology.

We currently own nineteen issued US patents related to the BolaWrap technology and have eight US patents pending.

We currently own twenty-two issued US patents related to the BolaWrap technology and have eight US patents pending.

We have filed foreign patent applications in the European Union (up to 39 countries) and seventeen other countries and reserved our rights to file additional foreign patents.

1 unchanged sentence

To date we have a total of 67 issued domestic and international patents for our small global company.

During 2022 we filed thirty-three patent applications, two of which were US filings.

During 2023 we filed nine patent applications, seven of which were US filings.

We feel the significant investment in patent protection in the US and abroad creates a significant amount of IP and value in Wrap Technologies.

5 unchanged sentences

Other companies and our competitors may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products.

Any intellectual property infringement claims made against us, with or without merit, could be costly and time-consuming to defend and divert our management’s attention from our business.

In the event of a successful claim of infringement against us and if we are unable to license the allegedly infringed technology, our business and operating results could be adversely affected.

27 unchanged sentences

We built additional distributor relationships.

In the last three quarters of 2022, the new management team significantly reduced operating expenses in almost all areas.

The new management team significantly reduced operating expenses in almost all areas.

These changes reduced overall headcount, contractor costs and spending.

35 unchanged sentences

We do not have the ability to predict future operating results with any certainty.

Our disclosure controls and procedures may not prevent or detect all acts of fraud.

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our management expects that our disclosure controls and procedures and internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within our company have been prevented or detected.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions.

Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing and other aspects of our business.

Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports.

Section 404 of the Sarbanes-Oxley Act of 2002 (" Sarbanes-Oxley Act ") and the related rules and regulations promulgated by the SEC require us to include in our Form 10-K a report by management regarding the effectiveness of our internal control over financial reporting.

The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of the respective fiscal year, including a statement as to whether or not our internal control over financial reporting is effective.

This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

While our management has concluded that our internal control over financial reporting was effective as of December 31, 2022, it is possible that material weaknesses will be identified in the future.

In addition, components of our internal control over financial reporting may require improvement from time to time.

If management is unable to assert that our internal control over financial reporting is effective in any future period, investors may lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the Company’s stock price.

Risk Factors Related to Our Series A Preferred Stock

The Certificate of Designations for the Series A Convertible Preferred Stock provides for dividends to be issued in the form of shares of Common Stock at a conversion price that varies with the trading price of our Common Stock, and it contains “ full ratchet ” anti-dilution provisions applicable to the dividend conversion price and the conversion price for voluntary conversions of Series A Convertible Preferred Stock into Common Stock.

These features may result in a greater number of shares of Common Stock being issued upon conversions than if the conversions were effected at the conversion price in effect at the time of this offering.

Sales of these shares will dilute the interests of other security holders and may depress the price of our Common Stock and make it difficult for us to raise additional capital.

The Certificate of Designations (the “Certificate of Designations”) for our Series A Convertible Preferred Stock (“Series A Preferred Stock”) provides for the payment of dividends to the holder of our Series A Preferred Stock in cash or shares of Common Stock, or a combination thereof, at the Company’s option.

If the Company elects to pay any dividends in shares of Common Stock, the Conversion Price (as defined herein) used to calculate the number of shares issuable will equal to the lower of (i) the then applicable Conversion Price and (ii) 85% of the arithmetic average of the three (3) lowest closing prices of the Common Stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the dividend payment date, subject to a floor price.

The Certificate of Designations also contains “full ratchet” anti-dilution provisions applicable to the conversion prices used in voluntary conversions of Series A Preferred Stock by the holders thereof and by the Company in paying any dividends in shares of Common Stock, which provisions require the lowering of the applicable conversion price, as then in effect, to the purchase price of equity or equity-linked securities issued in subsequent offerings.

If in the future, while any of our Series A Preferred Stock is outstanding, we issue securities at an effective Common Stock purchase price that is less than the applicable conversion price of our Series A Preferred Stock, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the Certificate of Designations for the Preferred Stock, to further reduce the relevant conversion price, which will result in a greater number of shares of Common Stock being issuable upon conversion of the Preferred Stock or upon the payment of dividends to the holders of the Preferred Stock in shares of Common Stock, which in turn will have a greater dilutive effect on our shareholders.

The potential for such additional issuances may depress the price of our Common Stock regardless of our business performance.

We may find it more difficult to raise additional equity capital while any of our Preferred Stock is outstanding.

Further, it is possible that we will not have a sufficient number of available shares to satisfy the conversion of the Preferred Stock or the payment of dividends to the holders of the Preferred Stock in shares of Common Stock if we enter into a future transaction that reduces the applicable conversion price.

If we do not have a sufficient number of available shares for any Preferred Stock conversions, we will be required to increase our authorized shares, which may not be possible and will be time consuming and expensive.

The Series A Preferred Stock provides for the payment of dividends in cash or in shares of our Common Stock, or a combination thereof, and we may not be permitted to pay such dividends in cash, which will require us to have shares of Common Stock available to pay the dividends.

Each share of the Series A Preferred Stock is entitled to receive cumulative dividends at the rate per share of 8% per annum of the stated value per share.

The dividends are payable in cash, out of any funds legally available for such purpose, or shares of Common Stock, or a combination thereof, at the Company’s option.

The conversion price used to calculate the number of shares of Common Stock issuable in connection with a given dividend payment is subject to reduction if in the future we issue securities for less than the conversion price of our Series A Preferred Stock, as then in effect.

This may have the effect of increasing the number of shares we would be obligated to issue in order to make a dividend payment in shares of Series A Common Stock.

We will not be permitted to pay the dividend in cash unless we are legally permitted to do so under Delaware law.

As such, we may rely on having available shares of Common Stock to pay such dividends, which will result in dilution to our stockholders.

If we do not have such available shares, we may not be able to satisfy our dividend obligations.

Risk Factors Relating to Our Common Stock

Our stock price is volatile and may continue to be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors.

The market price of our Common Stock has fluctuated significantly to date and in the future may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the factors listed below and other factors described in this “Risk Factors”

Actual or anticipated fluctuations in our operating results;

16 unchanged sentences

Stock prices of nanocap securities and small cap securities have fluctuated even more than medium and large cap companies in recent years.

We are and, in the future, may be subject to securities litigation, which may be expensive and could divert management attention.

We have been, and in the future may be, subject to securities litigation, which has and may be expensive and has and could divert management attention.

Our share price is volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation.

8 unchanged sentences

In addition, we may be the target of securities-related litigation in the future.

Such litigation may divert our management’s attention and resources, result in substantial costs, and have an adverse effect on our business, results of operations and financial condition.

We maintain director and officer insurance that we regard as reasonably adequate to protect us from potential claims;

3 unchanged sentences

Our officers and directors are among our largest stockholders and may have certain personal interests that may affect the Company.

Management and certain directors owned more than 10% of our Common Stock at December 31, 2022.

Management and certain directors owned more than 10% of our Common Stock at December 31, 2023.

As a result, our management and certain directors, acting individually or as a group, has the potential ability to exert influence on the outcome of issues requiring approval by our stockholders.

4 unchanged sentences

Our Common Stock could be delisted from the Nasdaq Stock Market.

Nasdaq’s continued listing standards for our Common Stock require, among other things, that (i) we maintain a closing bid price for our Common Stock of at least $1.00, and (ii) we maintain:

(A) stockholders’

equity of $2.5 million;

Nasdaq’s continued listing standards for our Common Stock require, among other things, that we maintain a closing bid price for our Common Stock of at least $1.00, we maintain (A) stockholders’ equity of $2.5 million;

(B) market value of listed securities of $35 million;

or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.

Any failures to satisfy any continued listing requirements could lead to the receipt of a deficiency notice from Nasdaq and ultimately to a delisting from trading of our Common Stock.

If our Common Stock were delisted from Nasdaq, among other things, this could result in a number of negative implications, including reduced liquidity in our Common Stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws as well as the potential loss of confidence by suppliers, customers and employees, institutional investor interest, fewer business development opportunities, greater difficulty in obtaining financing and possible breaches of certain contractual obligations.

or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, and timely file all required reports with the SEC.

On April 18, 2024, the Company received a notice (the “Initial Notice”) from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that as it has not yet filed its Annual Report on Form 10-K (the “Form 10‑K”) for the year ended December 31, 2023, the Company is not in compliance with Listing Rule 5250(c)(1) (the “Listing Rule”) for continued listing on Nasdaq.

Additionally, on May 17, 2024, the Company received a notice (the “May Notice") from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “Q1 Form 10‑Q”) for the three months ended March 31, 2024, that the Company is not in compliance with the Listing Rule.

On August 16, 2024, the Company received a notice (the “August Notice," and collectively with the Initial Notice and the May Notice, the “Notices”) from Nasdaq notifying the Company that as it has not yet filed its Quarterly Report on Form 10-Q (the “Q2 Form 10‑Q,” and collectively with the Form 10-K and Q1 Form 10-Q, the “Delinquent Filings”) for the six months ended June 30, 2024, that the Company is not in compliance with the Listing Rule for continued listing on Nasdaq

The Company previously submitted a plan to Nasdaq to regain compliance with respect to the delinquent Form 10-K and Q1 Form 10-Q (the “Plan”), and Nasdaq granted an exception until August 30, 2024, to file the delinquent Form 10-K and Q1 Form 10-Q.

Pursuant to the August Notice, the Company is required to submit an update to the Plan to Nasdaq no later than September 3, 2024, to regain compliance with respect to the filing requirements.

Nasdaq may grant the Company an additional exception of up to a maximum of 180 calendar days from the filing due date of the Form 10-K to file all Delinquent Filings, or until October 14, 2024, to regain compliance.

A delisting of our common stock from The Nasdaq Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock.

In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.

We may issue additional shares of Common Stock in the future.

2 unchanged sentences

Moreover, the economic and voting interests of each stockholder will be diluted as a result of any such issuances.

Although the number of shares of Common Stock that stockholders presently own will not decrease, such shares will represent a smaller percentage of the total shares that will be outstanding after the issuance of additional shares. The issuance of additional shares of Common Stock may cause the market price of our Common Stock to decline.

The issuance of additional shares of Common Stock may cause the market price of our Common Stock to decline.

Sales of shares of Common Stock issuable upon the exercise of any future options or warrants and vesting of restricted stock units may lower the price of our Common Stock.

At December 31, 2022, we had we had outstanding options and unvested stock units of on 6.4 million shares of our Common Stock.

At December 31, 2023, we had we had outstanding options and unvested stock units of 5.2 million shares of our Common Stock.

The issuance of shares of Common Stock issuable upon the exercise of options or issuance from restricted stock units or the exercise of warrants that may be outstanding in the future could cause substantial dilution to existing holders of our Common Stock, and the sale of those shares in the market could cause the market price of our Common Stock to decline.

8 unchanged sentences

As a public company, we incur significant levels of legal, accounting, insurance, exchange listing fees and other expenses that we did not incur as a private company.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “

Exchange Act ”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market and other applicable securities rules and regulations.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market and other applicable securities rules and regulations.

Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources as compared to when we operated as a private company.

2 unchanged sentences

In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required.

As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results.

We may need to hire more corporate employees in the future or engage outside consultants to comply with these requirements, which would increase our costs and expenses.

2 unchanged sentences

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities.

If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected. 

As a result of disclosure of information in this report and in the filings that we are required to make as a public company, our business, operating results, and financial condition have become more visible, which has resulted in, and may in the future result in threatened or actual litigation, increased competition due to this insight, including by key competitors and other third parties.

3 unchanged sentences

The declaration and amount of future dividends, if any, will be determined by our Board of Directors and will depend on our financial condition, earnings, capital requirements, financial covenants, regulatory constraints, industry practice and other factors our Board of Directors deems relevant.

UNRESOLVED STAFF COMMENTS

General Risk Factors

Our disclosure controls and procedures may not prevent or detect all acts of fraud.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls.

Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports.

This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

While our management has concluded that our internal control over financial reporting was effective as of December 31, 2023, it is possible that material weaknesses will be identified in the future.

In addition, components of our internal control over financial reporting may require improvement from time to time.

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