Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
Our future results of operations, financial condition and liquidity and the market price for our securities are subject to numerous risks, many of which are driven by factors that we cannot control. The following cautionary discussion of risks, uncertainties and assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed below, including factors unknown to us and factors known to us which we have not currently determined to be material, could also adversely affect our business, results of operations, financial condition, prospects and cash flows. Also see “ Forward-looking Statements ” in Part I, Item I, above.
Risks relating to our Financial Condition
We have incurred net losses on an annual basis since our inception and may continue to experience losses and negative cash flow in the future.
We have not yet generated enough revenue or gross profit from operations to fund our expenses, and, accordingly, we have incurred net losses every year since our inception. For the year ended December 31, 2025 we recorded a net loss of $15,189,000, of which $3,886,000 was a credit loss expense resulting from a customer's contractual defaults (see Note 2 , " Allowance for Credit Losses "), and which is the subject of litigation (see Note 14 ), compared to a net loss of $4,347,000 for the year ended December 31, 2024. At December 31, 2025, we had $3,883,000 in cash and cash equivalents. We have funded the majority of our activities through the issuance of equity securities, both at corporate level (BioLargo Inc.) and through direct third-party investments in our subsidiaries (such as Clyra Medical ( see Note 10 ) and BETI ( see Note 9 )). Our ability to reach positive cash flow depends on many factors, including our ability to fund sales and marketing activities, the rate of client adoption of our products, and the efforts and success of third parties, such as the companies distributing our medical products. We may continue to incur losses and experience negative cash flows from operations for the foreseeable future, and intend to continue to raise additional capital on acceptable terms.
Our cash requirements are significant. We will continue to require additional financing to sustain our operations and without it we may not be able to continue operations.
Our cash requirements and expenses continue to be significant. For the year ended December 31, 2025, we used $8,297,000 cash in operations, and at December 31, 2025, we had a working capital of $51,000 and current assets of $5,114,000. In order to become profitable, we must significantly increase our revenues. We expect to continue to use cash for the foreseeable future as it becomes available to advance our developing technologies, ramp up staffing to accommodate growth and increase support infrastructure, and expect to continue to need to sell our securities to fund operations at both the corporate level (BioLargo Inc.) and through our subsidiaries.
Our auditor’s report for the year ended December 31, 2025, includes an explanatory paragraph in their audit opinion stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional financing to continue these operations.
We have relied on private securities offerings, as well as sales of stock to Lincoln Park Capital Fund, LLC (see “ Share Purchase Agreement with Lincoln Park ” above), to provide cash needed to close the gap between operational revenue and expenses. Our agreement with Lincoln Park expired February 1, 2026. Although we do not intend to enter into a new purchase agreement with Lincoln Park, we are negotiating terms of a similar arrangement with a third party. Furthermore, our ability to rely on private financing from individual investors may change due to many economic factors outside of our control, including whether the United States enters a recession, the Dow Industrial Average or Nasdaq composite decline significantly, interest rates rise, real estate values decline, international events affect the global economy, or many other factors that impact private investors’ willingness to invest in high-risk companies. Thus, while we have been able to rely on private investments in the past, we may not be able to do so in the near future.
During the year ended December 31, 2025, we (i) sold $2,122,000 of our common stock to Lincoln Park ( see Note 3 ), (ii) sold $215,000 of our common stock and warrants to accredited investors (see Note 3 and Note 6 ), (iii) sold $2,339,000 of Clyra Medical common stock and $2,145,000 of Clyra Medical Series B Preferred Stock ( see Note 10 ), and $425,000 from the sale of BETI common stock ( see Note 9 ). The sale of stock is dilutive to our existing stockholders, and the stockholders of our subsidiaries. We intend to continue these financing activities and thus intend to continue to dilute existing and future stockholders.
Our ability to access capital markets could be limited.
From time-to-time, we may need to access capital markets to obtain long-term and short-term financing. However, our ability to access capital markets could be limited or adversely affected by, among other things, the performance of the stock market in general, interest rates, our asset base, our track record in the industries in which we operate, our financial condition, and the health or market perceptions of the US or global economy. In addition, many of the factors that affect our ability to access capital markets, including the liquidity of the overall capital markets in general and the lack of liquidity for our common stock and the state of the economy, among others, are outside of our control. No assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which could adversely affect our business, financial condition and results of operations.
We expect to incur future losses and may not be able to achieve profitability.
Although we are generating revenue from the sale of our products and from providing services, and we expect to generate revenue from new products we are introducing, and eventually from other license or supply agreements, we anticipate net losses and negative cash flow to continue for the foreseeable future until our products are expanded in the marketplace and they gain broader acceptance by resellers and customers. Our current level of sales is not sufficient to support the financial needs of our business. We cannot predict when or if sales volumes will be sufficiently large to cover our operating expenses. We intend to expand our marketing efforts of our products as financial resources are available, and we intend to continue to expand our research and development efforts. Consequently, we will need to generate significant additional revenue or seek additional financings to fund our operations. This has put a proportionate corresponding demand on capital. Our ability to achieve profitability is dependent upon our efforts to deliver a viable product and our ability to successfully bring it to market, which we are currently pursuing. Although our management is optimistic that we will succeed in licensing our technology, we cannot be certain as to timing or whether we will generate sufficient revenue to be able to operate profitably. If we cannot achieve or sustain profitability, then we may not be able to fund our expected cash needs or continue our operations. If we are not able to devote adequate resources to promote commercialization of our technology, then our business plans will suffer and may fail.
Because we have limited resources to devote to sales, marketing and licensing efforts with respect to our technology, any delay in such efforts may jeopardize future research and development of technologies and commercialization of our technology. Although our management believes that it can finance commercialization efforts through sales of our securities and possibly other capital sources, if we do not successfully bring our technology to market, our ability to generate revenues will be adversely affected.
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Some of our revenues are dependent on the marketing efforts of third parties.
We manufacture and sell private-labeled products to third parties who market those products to businesses, consumers and retailers. We have no control over the marketing budgets, sales activities or efforts of these third parties. We cannot predict if their current level of efforts will increase, decrease, or stay the same. A significant portion of our revenues has historically come from the sale of private label products. In 2025, our largest private-label customer ceased purchasing products from us, and as a result our annual revenues decreased by 56% as compared to the prior year. This customer failed to pay for products purcahsed from us and for license royalties, and we are involved in litigation with them. (See subheading Credit Loss Expense, Pooph Litigation in Results of Operations below.) While we intend to defend our interests vigorously, litigation is inherently uncertain and adverse judgments, settlements, injunctions, or government actions could occur. These outcomes could require substantial payments, restrict or delay aspects of our operations, divert management time, increase insurance or legal costs, or otherwise negatively affect our financial condition and results of operations. We cannot predict the timing, outcome, or ultimate impact of any pending matter, or whether, if we were to prevail in such litigation, we would be able to collect on any judgment we obtain.
We do not have contracts with customers that require the purchase of a minimum amount of our products.
Very few of our customers provide us with firm, long-term or short-term volume purchase commitments. As a result, we could have periods during which we have no or limited orders for our products but will continue to have fixed costs. We may not be able to find new customers in a timely manner if we experience no or limited purchase orders. Periods of no or limited purchase orders for our products would adversely affect our business, financial condition and results of operations.
Supply Chain Challenges
As we emerge with new products like our AEC and AOS water treatment systems, and battery storage systems, we may face supply chain challenges, including supply and pricing volatility, that will be beyond our control that might include steel, electrodes, membranes, electronic components (like chips), raw chemicals. We predict that at some level we may face delays and or extended delivery times for systems sold to clients and that could lead to delays in our anticipated growth. Tariffs on imported goods may adversely affect prices of our raw materials.
We rely on a small number of key supply ingredients in order to manufacture our odor control products, including CupriDyne Clean and our private-label products.
The raw ingredients used to manufacture our liquid odor control products are readily available from multiple suppliers. However, commodity prices for these ingredients can vary significantly, and the margins that we are able to generate could decline if prices rise. If our manufacturing costs rise significantly, we may be forced to raise the prices for our products, which may reduce their acceptance in the marketplace.
If any party to which we have outsourced certain functions fails to perform its obligations under agreements with us, the commercialization of our technology could be delayed or curtailed.
To the extent that we rely on other companies to manufacture the chemicals used in our technology, our products, or sell or market products incorporating our technology, we will be dependent on the timeliness and effectiveness of their efforts. If any of these parties does not perform its obligations in a timely and effective manner, the commercialization of our technology could be delayed or curtailed because we may not have sufficient financial resources or capabilities to continue such efforts on our own.
If our technology or products incorporating our technology do not gain market acceptance, it is unlikely that we will become profitable.
The potential markets for products into which our technology can be incorporated are rapidly evolving, and we have many successful competitors including some of the largest and most well-established companies in the world. The commercial success of products incorporating our technology will depend on the adoption of our technology by commercial and consumer end users in various fields.
Market acceptance may depend on many factors, including:
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the willingness and ability of consumers and industry partners to adopt new technologies from a company with little or no history in the industry;
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our ability to convince potential industry partners and consumers that our technology is an attractive alternative to other competing technologies;
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our ability to license our technology in a commercially effective manner;
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our ability to continue to fund operations while our products move through the process of gaining acceptance, before the time in which we are able to scale up production to obtain economies of scale; and
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our ability to overcome brand loyalties.
If products incorporating our technology do not achieve a significant level of market acceptance, then demand for our technology itself may not develop as expected, and, in such event, it is unlikely that we will become profitable.
If we are not able to manage our anticipated growth effectively, we may not become profitable.
We anticipate that expansion will continue to be necessary to address potential market opportunities for our technologies and our products. Our existing infrastructure is limited. While we believe our current manufacturing processes as well as our office and warehousing provide the basic resources to expand to sales of more than $2 million per month, our infrastructure will need more staffing to support manufacturing, customer service, administration as well as sales/account executive functions. There can be no assurance that we will have the financial resources to create new infrastructure, or that any such infrastructure will be sufficiently scalable to manage future growth, if any. There also can be no assurance that, if we invest in additional infrastructure, we will be effective in expanding our operations or that our systems, procedures or controls will be adequate to support such expansion. In addition, we will need to provide additional sales and support services to our partners if we achieve our anticipated growth with respect to the sale of our technology for various applications. Failure to effectively manage an increase in customer demands could result in a material adverse effect on customer satisfaction, our ability to meet our contractual obligations, and our operating results.
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Some of the products incorporating our technology will require regulatory approval.
The products in which our technology may be incorporated have both regulated and non-regulated applications. The regulatory approvals for certain applications may be difficult, impossible, time consuming and/or expensive to obtain. While our Company management believes such approvals can be obtained for the applications contemplated, until those approvals from the FDA or the EPA or other regulatory bodies, at the federal and state levels, as may be required are obtained, we may not be able to generate commercial revenues for regulated products. Certain specific regulated applications and their use require highly technical analysis and additional third-party validation and will require regulatory approvals from organizations like the FDA. Certain applications may also be subject to additional state and local agency regulations, increasing the cost and time associated with commercial strategies. Additionally, most products incorporating our technology that may be sold in the European Union (“EU”) will require EU and possibly individual country’s regulatory approval. All such approvals, including additional testing, are time-consuming, expensive and do not have assured outcomes of ultimate regulatory approval.
Our internal controls are not effective.
We have determined that our disclosure controls and procedures and our internal controls over financial reporting are currently not effective. The lack of effective internal controls, has not yet, but could in the future, materially adversely affect our financial condition and ability to implement our business plan, and the accuracy of our consolidated financial statements. As more financial resources become available, we need to invest in additional personnel to better manage the financial reporting processes.
If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve profitability.
Our future success is substantially dependent on the efforts of our senior management, particularly Dennis P. Calvert, our president and chief executive officer. The loss of the services of Mr. Calvert or other members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Because of the scientific nature of our business, we heavily rely on our ability to attract and retain qualified marketing, scientific and technical personnel. There is intense competition among specialized and technologically-oriented companies for qualified personnel in the areas of our activities. If we lose the services of, or do not successfully recruit, key marketing, scientific and technical personnel, then the growth of our business could be substantially impaired. At present, we do not maintain key man insurance for any of our senior management, although management is evaluating the potential of securing this type of insurance in the future as may be available. As we expand the scope of our operations, we will need to obtain the full-time services of additional senior management and other personnel. Competition for highly-skilled personnel is intense, and there can be no assurance that we will be able to attract or retain qualified senior personnel. Our failure to do so could have an adverse effect on our ability to implement our business plan. As we add full-time senior personnel, our overhead expenses for salaries and related items will increase from current levels and, depending upon the number of personnel we hire and their compensation packages, these increases could be substantial.
Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we rely in part on nondisclosure agreements with our employees, potential licensing partners, potential manufacturing partners, testing facilities, universities, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
We may become subject to product liability claims.
As a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by our products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming and/or result in costly litigation. Although we maintain general liability insurance, our insurance may not cover potential claims of the types described above and may not be adequate to indemnify for all liabilities that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business and operating results, and you may lose some or all of any investment you have made, or may make, in our company.
Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.
Substantial, complex or extended litigation could cause us to incur major expenditures and distract our management. For example, lawsuits by employees, former employees, investors, stockholders, partners, customers or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. As a result of our financing activities over time, and by virtue of the number of people that have invested in our company, we face increased risk of lawsuits from investors. Such lawsuits or actions could from time to time be filed against our company and/or our executive officers and directors. Such lawsuits and actions are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or actions on terms favorable to our company.
If we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.
If concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims are supported by applicable law.
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Our revenues and operating results are likely to continue to fluctuate from quarter to quarter.
We believe that our future operating results will fluctuate due to a variety of factors, including:
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delays in product development by us or third parties;
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market acceptance of products incorporating our technology;
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changes in the demand for, and pricing of, products incorporating our technology;
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competition and pricing pressure from competitive products; and
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fluctuations in the activities of third parties that market and sell products based on our technologies.
Although our revenues have increased year-over-year for the past nine years, much of our revenue is dependent upon the activities of third parties, which are out of our control. We expect our operating expenses will continue to fluctuate significantly in future periods, as we continue to develop and introduce new products to market, and increase our sales, marketing and licensing efforts. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors; in that case, our stock price could decline.
The licensing of our technology or the manufacture, use or sale of products incorporating our technology may infringe on the patent rights of others, and we may be forced to litigate if an intellectual property dispute arises.
If we infringe or are alleged to have infringed another party’s patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have infringed patents declared invalid, we may:
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incur substantial monetary damages;
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encounter significant delays in marketing our current and proposed product candidates;
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be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses;
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lose patent protection for our inventions and products; or
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find our patents are unenforceable, invalid or have a reduced scope of protection
Parties making such claims may be able to obtain injunctive relief that could effectively block our company’s ability to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm our company. Litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, our company.
Our patents are expensive to maintain, our patent applications are expensive to prosecute, and thus we are unable to file for patent protection in many countries.
Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pending patent applications relating to our technology may not result in the issuance of any patents or any issued patents that will offer protection against competitors with similar technology. We must employ patent attorneys to prosecute our patent applications both in the United States and internationally. International patent protection requires the retention of patent counsel and the payment of patent application fees in each foreign country in which we desire patent protection, on or before filing deadlines set forth by the International Patent Cooperation Treaty (“PCT”). We therefore choose to file patent applications only in foreign countries where we believe the commercial opportunities require it, considering our available financial resources and the needs for our technology. This has resulted, and will continue to result, in the irrevocable loss of patent rights in all but a few foreign jurisdictions.
Patents we receive may be challenged, invalidated or circumvented in the future, or the rights created by those patents may not provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
We are subject to risks related to future business outside of the United States.
Over time, we may develop business relationships outside of North America, and as those efforts are pursued, we will face risks related to those relationships such as:
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foreign currency fluctuations;
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unstable political, economic, financial and market conditions;
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import and export license requirements;
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trade restrictions;
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increases in tariffs and taxes;
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high levels of inflation;
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restrictions on repatriating foreign profits back to the United States;
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greater difficulty collecting accounts receivable and longer payment cycles;
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less favorable intellectual property laws, and the lack of intellectual property legal protection;
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regulatory requirements;
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unfamiliarity with foreign laws and regulations; and
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changes in labor conditions and difficulties in staffing and managing international operations.
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The volatility of certain raw material costs may adversely affect operations and competitive price advantages for products that incorporate our technology.
Most of the chemicals and other key materials that we use in our business, such as minerals, fiber materials and packaging materials, are neither generally scarce nor price sensitive, but prices for such chemicals and materials can be cyclical. Supply and demand factors, which are beyond our control, generally affect the price of our raw materials. We try to minimize the effect of price increases through production efficiency and the use of alternative suppliers, but these efforts are limited by the size of our operations. If we are unable to minimize the effects of increased raw material costs, our business, financial condition, results of operations and cash flows may be materially adversely affected.
Certain of our product sales historically have been highly impacted by fluctuations in seasons and weather.
Industrial odor control products have proven highly effective in controlling volatile organic compounds that are released as vapors produced by decomposing waste material. Such vapors are produced with the highest degree of intensity in temperatures between 40 degrees Fahrenheit (5 degrees Celsius) and 140 degrees Fahrenheit (60 degrees Celsius). When weather patterns are cold or in times of precipitation, our clients are less prone to use our odor control products, presumably because such vapors are less noticeable or, in the case of precipitation, can be washed away or altered. This leads to unpredictability in use and sales patterns for, especially, our CupriDyne Clean product line which accounts for 76% of our total revenue.
There may be battery technologies that we are not aware of, and some of them may be subject to patent applications.
We may not be aware of technologies that are similar or identical to our liquid sodium battery. We may not be aware of patent applications that have been filed that may include claims that are similar or identical to portions of our liquid sodium battery or our manufacturing process. No assurance can be made that our liquid sodium battery, or our proprietary manufacturing process, does not infringe on the intellectual property rights of third parties. If our technology or manufacturing process infringes on the intellectual property rights of third parties, we may be subject to litigation, or required to pay royalties, to such third parties, and our results of operations and financial condition may be adversely affected.
We expect to face strong competition for our products from a growing list of established and new competitors.
The worldwide battery market is highly competitive today and we expect it will become even more so in the future. For example, Tesla is one of the largest companies in the United States as measured by its market capitalization, and sells lithium-ion batteries for grid-scale applications, commercial and home storage, as well as in its vehicles. There are many other well capitalized and established companies that manufacture and/or sell batteries. Many of the companies have significantly greater or better-established resources than we do to devote to the design, development, manufacturing, distribution, promotion, sale and support of their products. This competition may prevent us from entering the marketplace, or if we do, may prevent us from establishing market share.
There may not be a market for our liquid sodium battery.
While we believe that there will be customer demand for our liquid sodium battery provided that we are able to prove its competitive advantages, there is no assurance that there will be any market acceptance of it, or any broad market acceptance. There also may not be broad market acceptance of our liquid sodium battery if competitors offer batteries which are preferred by prospective customers. In such event, there may be a material adverse effect on the company’s results of operations and financial condition, and the company may not be able to achieve its goals.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our contractors and consultants, could be subject to pandemics, earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism, acts of war and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely in part on third-party manufacturers to produce and process our products or the raw materials used to make our products. Our ability to obtain supplies of our products or raw materials could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster, pandemics, epidemics, or other business interruption. Our corporate headquarters and offices of ONM are in Southern California near major earthquake faults and fire zones. Our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.
General Risks
Increased information technology security threats and more sophisticated computer crime pose a risk to us and our subsidiaries, vendors, systems, networks, products and services.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties (which we refer to collectively as our “associated third parties”). Additionally, we and our associated third parties collect and store data that is of a sensitive nature, which may include names and addresses, bank account or financial information, and other types of personally identifiable information or sensitive business information. The secure operation of these information technology systems and networks, and the processing and maintenance of this data is critical to our business operations and strategy.
We may face attempts to gain unauthorized access to our information technology systems or products or those of our associated third parties for the purpose of improperly acquiring trade secrets or confidential business information. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development.
Threats to our systems and our associated third parties’ systems can derive from human error, fraud, or malice on the part of employees or third parties, or may result from accidental technological failure. Globally, these types of threats have increased in number and severity and it is expected that these trends will continue. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Should an attack on our or our associated third parties’ information technology systems and networks succeed, it could expose us and our employees, customers, dealers and suppliers to misuse of information or systems, the compromising of confidential information, manipulation and destruction of data, production downtimes and operations disruptions.
The occurrence of any of these events could adversely affect our reputation, competitive position, business, results of operations and cash flows. While we have a cybersecurity program, expenses, damages and claims arising from cybersecurity incidents could cause a material adverse effect on our business. See Part I. Item 1C. Cybersecurity for additional details on our cybersecurity program.
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Economic uncertainties, recession, and domestic or world events and policies may adversely affect our business and operations.
Domestic and world events continue to create economic uncertainties, including the wars in Iran and the Ukraine, international trade policies, including tariffs, and inflationary pressures. The Federal Reserve could raise interest rates in the United States in response to price inflation. Any myriad of factors could cause a sharp downward correction in stock market. We cannot predict how the foregoing factors will affect the market for our products and services, but the impact may be adverse. If the U.S. economy were to contract into a recession or depression, our existing clients, and potential future clients, may divert their resources to other goods and services, and our business may suffer.
Risks Relating to our Common Stock
The sale or issuance of our common stock to any equity line provider causes dilution, and the sale of the shares of common stock acquired by any such provider, or the perception that such sales may occur, could cause the price of our common stock to fall.
On December 13, 2022, we entered into a purchase agreement with Lincoln Park ("Purchase Agreement"), pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,000,000 of our common stock (subject to certain limitations) from time to time over a period of three years expiring February 1, 2026 (see “ Share Purchase Agreement with Lincoln Park ” above). Although we have not yet done so, we intend to enter in to a similar agreement with another institutional investor that would allow us to control the timing and amount of any sales of our shares to such party. Sales of our common stock, if any, to such third party will depend on market conditions and other factors to be determined by us, and we may ultimately decide to sell to some, all or none of the shares of our common stock that may be available for us to sell pursuant to any such new agreement. If and when we do enter into a new agreement and sell shares to the third party, after such third party has acquired shares, they may resell all, some or none of those shares at any time or from time to time at its discretion. Therefore, sales of our shares by us could result in substantial dilution to the interests of other holders of our common stock, as well as sales of our stock into the open market causing fluctuations or reductions in the price of our common stock. Additionally, the sale of a substantial number of shares of our common stock to an institutional investor, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire to effect sales.
Our common stock is thinly traded and largely illiquid.
Our stock is currently quoted on the OTC Markets (OTCQX). Although it is the highest level platform on the OTC Markets, it is not a national exchange, which can prevent institutional investors from trading in our stock, and results in a lower frequency of trades and trading volume than stocks quoted on a national exchange. Continued trading on the OTCQX may also adversely affect our ability to obtain financing in the future due to the decreased liquidity of our shares and other restrictions that certain investors have for investing in securities not traded on a national exchange. While we intend to seek listing on the Nasdaq Stock Market (“Nasdaq”) or another national stock exchange when our company is eligible, there can be no assurance when or if our common stock will be listed on Nasdaq or another national stock exchange. Until then, we expect our stock to remain volatile and lack the liquidity of larger companies.
The market price of our stock is subject to volatility.
Our stock price has been and is likely to continue to be volatile. As a result of this volatility, investors may not be able to sell their common stock at or above their purchase price. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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developments with respect to patents or proprietary rights;
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announcements of technological innovations by us or our competitors;
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announcements of new products or new contracts by us or our competitors;
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actual or anticipated variations in our operating results due to the level of research and development expenses and other factors;
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changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates;
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conditions and trends in our industry;
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new accounting standards;
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the size of our public float;
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short sales, hedging, and other derivative transactions involving our common stock;
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sales of large blocks of our common stock including sales by our executive officers, directors, and significant stockholders;
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general economic, political and market conditions and other factors;
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our decision to sell our stock to any third party or institutional investor;
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the activities of third parties that market and distribute our products, and decisions made by them to increase or decrease such activities, resulting in increases or decreases in product purchases from us and thus our revenues; and
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the occurrence of any of the risks described herein.
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You may have difficulty selling our stock because it is deemed a “ penny stock ” and not quoted on a national exchange.
Because our common stock is not quoted or listed on a national securities exchange, if the trading price of our common stock remains below $5.00 per share, which we expect for the foreseeable future, trading in our common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer and current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock and the ability of holders of our common stock to sell their shares.
Because our shares are deemed a “ penny stock, ” rules enacted by FINRA make it difficult to sell previously restricted stock.
Rules put in place by the Financial Industry Regulatory Authority (FINRA) require broker-dealers to perform due diligence before depositing unrestricted common shares of penny stocks, and as such, some broker-dealers, including many large national firms (such as eTrade and Charles Schwab), are refusing to deposit previously restricted common shares of penny stocks. We routinely issued non-registered restricted common shares to investors, vendors and consultants. The issuance of such shares is subjected to the FINRA-enacted rules. As such, it can be difficult for holders of restricted stock, including those issued in our private securities offerings, to deposit the shares with broker-dealers and sell those shares on the open market.
Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock, and must rely on the benefit of owning shares, and presumably a rise in share price. We cannot predict the future price of our stock, and due to the factors enumerated herein, can make no assurance of a future increase in the price of our common stock.
We regularly issue stock, or stock options, instead of cash, to pay some of our operating expenses. These issuances are dilutive to our existing stockholders.
We are party to agreements that provide for the payment of, or permit us to pay at our option, securities rather than cash in consideration for services provided to us. We include these provisions in agreements to allow us to preserve cash. We anticipate that we will continue to do so in the future. All such issuances preserve our cash reserve but are also dilutive to our stockholders because they increase (and will increase in the future) the total number of shares of our common stock issued and outstanding, even though such arrangements assist us with managing our cash flow. These issuances also increase the expense amount recorded.
Our stockholders face further potential dilution in any new financing.
During the year ended December 31, 2025, we issued approximately 16 million shares of our common stock. Our private securities offerings typically offer convertible securities, including notes and warrants. Those warrants often include provisions that require investors to pay for the underlying shares with cash, which if executed would generate working capital for the company. Any additional capital that we raise would dilute the interest of the current stockholders and any persons who may become stockholders before such financing. Given the price of our common stock, such dilution in any financing of a significant amount could be substantial.
Our stockholders face further potential adverse effects from the terms of any preferred stock that may be issued in the future.
Our certificate of incorporation authorizes 50 million shares of preferred stock. None are outstanding as of the date hereof. In order to raise capital to meet expenses or to acquire a business, our board of directors may issue additional stock, including preferred stock. Any preferred stock that we may issue may have voting rights, liquidation preferences, redemption rights and other rights, preferences and privileges. The rights of the holders of our common stock will be subject to, and in many respects subordinate to, the rights of the holders of any such preferred stock. Furthermore, such preferred stock may have other rights, including economic rights, senior to our common stock that could have a material adverse effect on the value of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, can also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company.
Risks Related to Privacy, Cybersecurity, and Our Technology
Our business involves the use, transmission and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational harm.
We may at times collect, store, and transmit information of, or on behalf of, our clients that may include certain types of confidential information that may be considered personal or sensitive, and that are subject to laws that apply to data breaches. We believe that we take reasonable steps to protect the security, integrity, and confidentiality of the information we collect and store, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts to protect this information, including through a cyber-attack that circumvents existing security measures and compromises the data that we store. If such unauthorized disclosure or access does occur, we may be required to notify persons whose information was disclosed or accessed. Most states have enacted data breach notification laws and, in addition to federal laws that apply to certain types of information, such as financial information, federal legislation has been proposed that would establish broader federal obligations with respect to data breaches. We may also be subject to claims of breach of contract for such unauthorized disclosure or access, investigation and penalties by regulatory authorities and potential claims by persons whose information was disclosed. The unauthorized disclosure of information, or a cyber-security incident involving data that we store, may result in the termination of one or more of our commercial relationships or a reduction in client confidence and usage of our services. We may also be subject to litigation alleging the improper use, transmission, or storage of confidential information, which could damage our reputation among our current and potential clients and cause us to lose business and revenue.
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