Item 1A. Risk Factors
You should carefully consider the risk factors described below. If any of the following risk factors actually occur, our business, prospects, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could fall, resulting in the loss of all or part of your investment. You should look at all these risk factors in total. Some risk factors may stand on their own. Some risk factors may affect (or be affected by) other risk factors. You should not assume we have identified these connections. You should not assume that we will always update these and future risk factors in a timely manner. Except as required under applicable securities laws, we are not undertaking any obligation to update these risk factors to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Risks Related to Our Business and Industry
Global economic conditions could have a negative impact on our business, operating results and financial condition.
Our business can be positively or negatively affected by fluctuations in exchange rates and country by country economic conditions. Our international customers increase, reduce, delay or cancel their purchases of our products when exchange rates are unfavorable to importation. Unfavorable economic and currency situations at times force us to adjust prices downward to remain competitive. We incur losses if a customer's business fails and the customer is unable to pay us, or pay us on a timely basis. Likewise, if our suppliers have difficulty in obtaining credit or in operating their businesses, they may not be able to provide us with the materials we use to manufacture our products. Our law enforcement business is dependent on the availability of federal and state grants to fund new equipment purchases. Should this funding be unavailable or delayed, our volume may be negatively affected. Our workplace business may be affected by the health of industries with safety-sensitive jobs such as oil and gas and transportation. Demand for our products may be affected by downturns in these segments. These actions would result in reduced revenues and higher operating costs, and have an adverse effect on our results of operations and financial condition.
Changes in trade policy and tariffs could increase our costs and adversely affect our sales.
Our business is subject to risks arising from changes in U.S. and foreign trade policy, including the imposition or escalation of tariffs, import restrictions, and retaliatory trade measures. The current trade environment is characterized by a high degree of policy uncertainty, and the scope and duration of existing and potential future measures remain difficult to predict.
We purchase components and materials from domestic and international suppliers. To the extent our suppliers are affected by tariff increases, the cost of such components may rise, and we may not be able to fully offset those increases through pricing adjustments or by identifying alternative suppliers on a timely basis or at all.
We also sell our products globally. Foreign governments may impose retaliatory tariffs or other trade barriers on U.S.-manufactured goods, which could increase the cost of our products for international customers, reduce demand, or cause distributors to seek alternative suppliers. If we are unable to effectively manage these risks, our business, financial condition, and results of operations could be materially and adversely affected.
Geopolitical instability and international conflicts may disrupt our operations, supply chain, and financial performance.
Ongoing and escalating international conflicts, including the Ukraine-Russia war and multiple conflicts in the Middle East, continue to create economic and geopolitical uncertainty, which may adversely impact our business. Trade restrictions, sanctions, and supply chain disruptions resulting from these conflicts could materially affect our cost structure, operational efficiency, and overall financial performance.
Beyond regulatory concerns, ongoing conflicts may also create significant supply chain inefficiencies by increasing transportation costs, delaying shipments, and restricting the availability of critical materials. We cannot predict the duration or outcome of these geopolitical tensions, nor the extent to which future sanctions or conflicts may escalate. However, we remain subject to potential financial and operational risks associated with global instability. If our international operations, suppliers, or markets are affected by sanctions, military actions, trade barriers, or regulatory changes, our business, results of operations, and financial condition could suffer.
We rely on customers who may not consistently purchase our products in the future and if we lose any one of these customers, our revenues may decline.
Eighteen percent of our product sales in 2025 and sixteen percent in 2024 were attributable to three customers, with whom we do not have long-term contracts. If orders from those customers are not renewed, our revenues may be adversely affected. Furthermore, at December 31, 2025, our accounts receivable balance included approximately $344,879 or 46% from one customer, $56,096 or 7% from a second customer, and $39,780, or 5%, from a third customer.
In the future, a small number of customers may continue to represent a significant portion of our total revenues in any given period. These customers may not consistently purchase our products at a particular rate over any subsequent period. A loss of any of these customers could adversely affect our revenues.
We rely heavily upon the talents of our Chief Executive Officer, the loss of whom could severely damage our business.
Our performance depends to a large extent on a small number of key managerial personnel. In particular, we believe our success is highly dependent upon the services and reputation of our Chief Executive Officer and President, Dr. Wayne R. Willkomm. Loss of Dr. Willkomm's services could severely damage our business.
We must continue to be able to attract employees, including employees with the scientific and technical skills that our business requires, and if we are unable to attract and retain such individuals, our business could be severely damaged. Labor shortages across the country threaten to damage our business.
Our ability to attract employees, including employees with a high degree of scientific and technical talent is crucial to the success of our business. There is intense competition for the services of such persons, and we cannot guarantee that we will continue to be able to attract and retain individuals possessing the necessary qualifications. If we cannot attract such individuals, we may not be able to keep our products current, bring new innovations to market or produce our products. As a result, our business could be damaged.
Our growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services.
If we do not develop innovative new and enhanced products and services on a timely basis, our offerings will become obsolete over time and our business will suffer. Our success depends on several factors, including our ability to:
correctly identify customer needs and preferences and predict future needs and preferences;
allocate our R&D funding to products and services with higher growth prospects;
anticipate and respond to our competitors’ development of new products and services and technological innovations;
differentiate our offerings from our competitors’ offerings and avoid commoditization;
innovate and develop new technologies and applications;
obtain adequate intellectual property rights with respect to key technologies before our competitors do;
successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively manufacture and deliver sufficient volumes of new products of appropriate quality on time;
obtain necessary regulatory approvals of appropriate scope; and
stimulate customer demand for and convince customers to adopt new technologies.
If we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in R&D of products and services that do not lead to significant revenue, which would adversely affect our business. Even when we successfully innovate and develop new and enhanced products and services, we often incur substantial costs in doing so, and our profitability may suffer. In addition, promising new offerings may fail to reach the market or realize only limited commercial success because of real or perceived efficacy or safety concerns.
Our ongoing investment in new products, services, and technologies is inherently risky, and could disrupt our ongoing businesses.
We have invested and expect to continue to invest in new products, services, and technologies. Such endeavors involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, and unidentified issues not discovered in our due diligence of such strategies and offerings. Because these new ventures are inherently risky, sometimes they have been unsuccessful and no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating results.
We are subject to a high degree of regulatory oversight, and, if we do not continue to receive the necessary regulatory approvals, our revenues would decline.
We are subject to regulation by the United States Department of Transportation ("DOT") and by various state departments of transportation. The Omnibus Transportation Employee Testing Act of 1991 requires drug and alcohol testing of safety-sensitive transportation employees in aviation, trucking, railroads, mass transit, pipelines, and other transportation industries. The DOT Office of Drug & Alcohol Policy & Compliance ("ODAPC") publishes, implements, and provides authoritative interpretations of these rules. These regulations cover all transportation employers, safety-sensitive transportation employees, and service agents. Manufacturers submit devices to the DOT for testing and approval. Instruments are tested according to their model specifications and, if passed, included on the CPL. Law enforcement applications also require that portable breath testing instruments be included on the CPL. Lifeloc's FC10, FC10Plus, FC20, FC20BT, EV30, and Phoenix® 6.0 and Phoenix®6.0BT are included on the Conforming Products List of Evidential Breath Alcohol Measurement Devices (“CPL”). Lifeloc’s LX9 and LT7 have received conformance letters from the DOT and are expected to appear in the next publication of the CPL. We believe that we were in substantial compliance with the regulations described above as of December 31, 2025 for our products sold into these markets and states.
The DOT has approved the alcohol monitoring products we currently sell in the United States. However, further DOT approval may be required before we can domestically market additional alcohol monitoring products that we may develop in the future. We may also seek to sell new drug-related products, or market current products for new uses, either of which could require us to obtain DOT approval to sell such products. We may also be required to obtain regulatory approvals or licenses from other federal, state or local agencies or comparable agencies in other countries.
We may not continue to receive DOT approval of our current products or we may not obtain the necessary regulatory clearance, approvals or licenses for the marketing of any of our future products. Also, we cannot predict the impact on our business of DOT regulations or determinations arising from future legislation or administrative action. If we lose DOT permission to sell our current products or we do not obtain regulatory permission to sell our future products, our revenues would likely decline, harming our business.
Our business in the domestic law enforcement area is susceptible to changes in state policies and DUI laws.
Portable breath testers (“PBTs”) are not used to the same degree in each state. Usage is determined by a complex combination of individual state DUI laws, historical practice, and individual state directions for alcohol testing. Some states do not accept breath alcohol testing as evidence. Other states may prefer different breath alcohol testing technology, such as infrared. Lifeloc cannot control the direction or timing of changes to individual state DUI laws, public and political sentiment toward the use of PBTs, or individual state preferences for a specific breath alcohol testing technology. These factors threaten current state contracts and future state contracts and threaten revenue.
Our business relies on state contracts, governed by state contracting policies that are beyond our control.
Many state purchases of PBTs are governed by state contracts with competitive price bids, multiple year terms and without guarantees of purchases. Other states prefer to share PBT usage across several vendors, also without guarantees of volume. These state practices limit Lifeloc's ability to retain current business, forecast volumes and win new business.
Furthermore, a significant amount of our law enforcement business is concentrated in eight states (Arizona, Arkansas, California, Colorado, Michigan, Idaho, Texas and Nevada). Loss of this business, or delays or cancellations in purchasing by these states, seriously impacts our law enforcement business.
We derive a significant portion of our revenue directly or indirectly from government customers, and our business may be adversely affected by changes in the contracting or fiscal policies of those governmental entities.
We derive a significant portion of our revenue directly or indirectly from federal, international, state and local governments. We believe that the success and growth of our business will continue to depend on government customers purchasing our products and services either directly from us or indirectly through our distributors. Changes in government contracting policies or government budgetary constraints may adversely affect our financial performance. Among the factors that could adversely affect our business are the impact of actions, such as those recently announced by the U.S. Department of Government Efficiency, intended to reduce the size of the federal government and federal spending; other changes in fiscal policies or decreases in available government funding; changes in government funding priorities; changes in government programs or applicable requirements; the adoption of new laws or regulations or changes to existing laws or regulations relating to the provision of biometrics services or the use of biometric data; changes in political or social attitudes with respect to security and defense issues; changes in audit policies and procedures of government entities; potential delays or changes in the government appropriations process; and delays in the payment of our invoices by government payment offices. These and other factors could cause government customers or our distributors to reduce purchases of products and services from us, which would have a material adverse effect on our business, financial condition and operating results.
Third parties may infringe on our patents, and as a result, we could incur significant expense in protecting our patents or not have sufficient resources to protect them.
We hold several patents that are important to our business. We plan to protect these patents from infringement and obtain additional patents whenever feasible. To this end, we have obtained confidentiality agreements from our employees and consultants and others who have access to the design of our products and other proprietary information. Protecting and obtaining patents, however, is both time consuming and expensive. We therefore may not have the resources necessary to assert all potential patent infringement claims or pursue all patents that might be available to us. If our competitors or other third parties infringe on our patents, our business may be harmed.
Third parties may claim that we have infringed on their patents and as a result, we could be prohibited from using all or part of any technology used in our products.
Should third parties claim a proprietary right to all or part of any technology that we use in our products, such a claim, regardless of its merit, could involve us in costly litigation. If successful, such a claim could also result in us being unable to freely use the technology that was the subject of the claim, or sell products embodying such technology. If we engage in litigation, our expenses may increase and our business may be harmed. If we are prohibited from using a particular technology in our products, our revenues may decline and our business may be harmed.
Third parties to whom we have licensed our patents may choose to enforce them through litigation, over which we would exert little or no control.
Should third parties who have licensed our intellectual property determine it is in their best interest to pursue litigation based on those patents, we would have no control in the direction of that litigation or the resulting publicity. Litigation may result in unfavorable findings by courts regarding the nature or protectability of our intellectual property. Litigation may result in additional expenditures or harm the business. Additionally, we would have no control over the publicity any such litigation may garner, which could negatively affect the company in the marketplace. In any of these situations, revenues may decline and our business may be harmed.
Failure of third parties from whom we license key intellectual property to protect their intellectual property could adversely affect our business.
We rely on third-party licensors for certain key intellectual property that is important to our business, and we have limited control over how they protect and enforce their rights. If any of our licensors fail to adequately protect, maintain, or enforce their intellectual property, it could result in unauthorized use, infringement by third parties, or legal disputes that diminish the value of the licensed assets. Any such failure could negatively impact our ability to use the intellectual property as intended, limit our competitive advantages, or expose us to potential litigation, which could materially affect our business, financial condition, and results of operations.
We depend on the availability of certain key supplies and services that are available from only a few sources, and if we experience difficulty with a supplier, we may have difficulty finding alternative sources of supply.
We require certain key supplies for our products, particularly fuel cells, that are available from only a few sources. Based upon our ordering experience to date, we believe the materials and services required for the production of our products are currently available in sufficient quantities. However, this does not mean that we will continue to have timely access to adequate supplies of essential materials and services in the future or that supplies of these materials and services will be available on satisfactory terms when the need arises. Our business could be severely damaged if we become unable to procure essential materials and services in adequate quantities and at acceptable prices.
From time to time, subcontractors may produce certain of our products for us, and our business is subject to the risk that these subcontractors may fail to make timely delivery and/or become unable to acquire essential supplies and services from third parties in a timely fashion. If this occurs, we may not be able to deliver our products on a timely basis and our revenues may decline. Our products and services are also from time to time used as components in the products of other manufacturers. We are therefore subject to the risk that manufacturers that integrate our products or services into their own products may change their source of supply to other vendors, may change their product designs in a way that eliminates our components, and/or may choose to have their components manufactured by other means. If this occurs, our sales may decline and our business may be harmed.
We may be exposed to claims of liability.
Like any manufacturer, we are and always have been exposed to liability claims resulting from the use of our products. We maintain product liability insurance to cover us in the event of liability claims, and as of December 31, 2025, no such claims have been asserted or threatened against us. However, our insurance may not be sufficient to cover all possible future product liabilities.
We could be liable if our business operations harmed the environment, and a failure to maintain compliance with environmental laws could severely damage our business.
Our operations are subject to a variety of federal, state and local laws and regulations relating to the protection of the environment. From time to time, we use hazardous materials in our operations. Although we believe that we are in material compliance with all applicable environmental laws and regulations, our business could be severely damaged by any failure to maintain such compliance.
Climate change may adversely impact our business.
The impact of continuing climate change could result in increased costs or reduced demand for our products, carbon asset risks, risks due to severe weather events and may result in the need for us to devote additional resources to the management of greenhouse gas emissions which will likely harm our profitability.
Our quarterly financial results vary quarter to quarter, which adversely affects our stock price at times. We cannot predict with any certainty our operating results in any particular fiscal quarter.
Our quarterly operating results may vary significantly depending upon factors such as:
the timing of completion of significant orders;
the timing and amount of our research and development expenditures;
the costs of initial production in connection with new products;
the availability, quality and cost of key components that go into the assembly of our products;
the timing of new product introductions — both by us and by our competitors;
changes in the regulatory environment and regulations under which we operate;
the loss of a major customer;
the timing and level of market acceptance of new products or enhanced versions of our existing products;
our ability to retain existing employees, customers and our customers' continued demand for our products and services;
our customers' inventory levels, and levels of demand for our customers' products and services; and
competitive pricing pressures.
We may not be able to grow or sustain revenues or achieve or maintain profitability on a quarterly or annual basis, and levels of revenue and/or profitability may vary from one such period to another.
Identification of material weakness in internal control may adversely affect our financial results.
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. Those provisions provide for the identification of material weaknesses in internal control. If such a material weakness is identified, it could indicate a lack of adequate controls to generate accurate financial statements. We routinely assess our internal controls, but we cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods, or maintain all of the controls necessary for continued compliance.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
We monitor our capital adequacy on an ongoing basis. To the extent that our funds are insufficient to fund future operating requirements, we may need to raise additional funds through corporate finance transactions or curtail our growth and reduce our liabilities. Any equity, hybrid or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition and operating results would be adversely affected, and we may be required to reduce, delay, or discontinue our SpinDetect™ development program, which could materially affect our business prospects and the value of our investment in that technology.
Our outstanding indebtedness requires ongoing debt service and could limit our financial flexibility.
We have incurred indebtedness in the form of two subordinated debentures in an aggregate principal amount of $825,000, both bearing interest at 8.25% per annum. Monthly principal and interest payments on these debentures commenced in January 2026, and balloon payments are due in December 2030. We also carry a mortgage on our corporate headquarters with a maturity of September 2031. Our ability to service this indebtedness depends on our continued ability to generate cash from operations. If our revenues decline or our operating costs increase, we may have difficulty meeting these obligations. If we are unable to service our debt or to refinance or repay it at maturity, we could be required to seek additional financing on unfavorable terms, sell assets, or take other actions that could adversely affect our business and the interests of our stockholders.
We have a number of large, well-financed competitors who have research and marketing capabilities that are superior to ours.
The industry in which we operate is highly competitive. Many of our existing and potential competitors have greater financial resources and manufacturing capabilities, more established and larger marketing and sales organizations and larger technical staffs than we have. Other companies, some with greater experience in the alcohol monitoring industry, produce products and services that compete with our products and services. When our competitors are successful in developing products that are superior to our products, or competing products that sell for lower prices, there is a reduction in the demand for our products and a corresponding reduction in our revenue and our profits.
Our products rely on technology that may become outdated or out of favor.
All of Lifeloc's products use fuel cell technology for the measurement of breath alcohol results. This technology has been developed and refined over many years by Lifeloc and our major competitors. While we expect it to remain as the dominant technology in breath testing devices, other technologies for the measurement of breath alcohol exist and are employed in other market and application segments where the technology is more suitable or developed to the specific requirements. Future development of these technologies pose a risk to Lifeloc's business. See “Item 1. Business – Competition and Markets” for more information about these other technologies.
Natural disasters, public health crises, political crises, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact customer priorities and consumer spending.
We have global third parties upon whom we rely and who are sometimes impacted by events outside of our control. An earthquake or other natural disaster or power shortages or outages could disrupt operations or impair sales. In addition, if any facilities of our suppliers, third-party service providers, vendors, or customers, is affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, or other events outside of our control, our business and operating results could suffer. Any of these disruptions or other events outside of our control would affect our business negatively, harming our operating results.
Increasingly common data privacy and cybersecurity regulations impact the use of or market for our products .
Information collected with our products may be governed by certain data privacy and cyber security regulations, breach of which could cause negative publicity or otherwise harm the company. As a company with information stored online, the company may be vulnerable to cybersecurity attacks which may trigger reporting requirements and legal liability. Responding to a cybersecurity threat or breach would require financial resources, would cause a loss of productivity, and would open the Company to legal liability.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced, and may continue to experience, significant volatility and disruption, including periods of increased inflation, diminished liquidity and credit availability, declines in consumer confidence and economic growth, and uncertainty about economic stability. Ongoing and emerging geopolitical conflicts, trade tensions, and other destabilizing events contribute to this uncertainty, and the scope, duration, and long-term impact of any such conditions are difficult to predict. Our general business strategy may be adversely affected by any such economic downturn, volatile geopolitical and business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon research and development plans. In addition, there is a risk that one or more of our current suppliers or other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
Risks Related to Our Stock
Shares of our common stock lack a significant trading market.
Shares of our common stock are not eligible for trading on any national securities exchange. Our common stock may be quoted in the over-the-counter market on the OTC Bulletin Board or in what are commonly referred to as "pink sheets." However, these markets are highly illiquid. There is no assurance that an active trading market in our common stock will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance for market volatility for securities quoted on the OTC Bulletin Board and pink sheets as compared with securities traded on a national exchange. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations and generally lower trading volume.
Under certain circumstances, shares of our common stock may be sold without registration pursuant to the safe harbor provided in Exchange Act Rule 144 ("Rule 144"). Any sale under Rule 144 or under any other exemption from the Securities Act of 1933, as amended (the "Securities Act"), if available, or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of our common stock in any market that may develop.
Additionally, the price of our securities may be volatile as a result of a number of factors, including, but not limited to, the following:
our ability to successfully conceive and to develop new products and services to enhance the performance characteristics and methods of manufacture of existing products;
our ability to retain existing customers and customers' continued demand for our products and services;
the timing of our research and development expenditures and of new product introductions;
the timing and level of acceptance of new products or enhanced versions of our existing products;
price and volume fluctuations in the stock market at large which do not relate to our operating performance; and
outside news reports which may or may not accurately convey information about us, our products, our prospects and opportunities.
Our principal stockholder has significant voting power and may take actions that may not be in the best interests of other stockholders.
Vern D. Kornelsen, Chairman of our Board of Directors, Secretary, and Chief Financial Officer, beneficially owned approximately 77% of our outstanding common stock as of December 31, 2025. Through this ownership, Mr. Kornelsen is able to control the composition of our Board and direct our management and policies. Accordingly, Mr. Kornelsen has the direct or indirect power to:
amend our bylaws and some provisions of our articles of incorporation; and
cause or prevent mergers, consolidations, sales of all or substantially all our assets or other extraordinary transactions.
Mr. Kornelsen's significant ownership interest could adversely affect investors' perceptions of our corporate governance. In addition, Mr. Kornelsen may have an interest in pursuing acquisitions, divestitures and other transactions that involve risks to us and you. For example, Mr. Kornelsen could cause us to make acquisitions that increase our indebtedness or to sell revenue-generating assets. Mr. Kornelsen may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.
Stockholders should not anticipate receiving cash dividends on our stock.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We may issue shares in the future, diluting your interest in us.
We issue options to purchase shares of our common stock to compensate employees, consultants and directors or to raise capital. Any such issuances will have the effect of further diluting the interest of the holders of our securities.
General Risk Factors
Blue Sky considerations limit sales in certain states.
The holders of our securities and persons who desire to purchase them in any trading market that might develop in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our securities. Investors should consider any secondary market for our securities to be a limited one. The "manual exemption" permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Since June 14, 2011, we have been listed in Standard & Poor's. While many states expressly recognize this manual, a smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals, making applicability of the manual exemption uncertain in those states. The following states do not have provisions expressly recognizing the manual exemption: Alabama, Illinois, Kentucky, Louisiana, Montana, New York, Pennsylvania, Tennessee and Virginia. While we may, in our discretion, cause our securities to be registered under the state securities laws of these or other states, there is no guarantee that we will do so.
Compliance with changing regulations of corporate governance and public disclosure result in expense.
We are subject to certain federal, state and other rules and regulations, including those required by the Sarbanes-Oxley Act of 2002, new regulations promulgated by the SEC and the rules of the OTC Market. The expense of compliance with these and other laws relating to corporate governance and public disclosure is included in our general and administrative expenses. These laws, regulations and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we invest resources to comply with evolving laws, regulations and standards, and this investment results in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
