Item 1A. Risk Factors
Item 1A. Risk Factors.
As of the date of this Quarterly Report, there have been no material
changes to the risk factors previously disclosed in our Form 10-K filed on March 11, 2026, and our Closing Form 8-K filed on June 26,
2025, other than as provided below. Any of these factors could have a material adverse effect on our results of operations or financial
condition. Additional risks not currently known to us or that we presently consider immaterial may also adversely affect our business
or results of operations.
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The issuance of shares of our Common Stock to White Lion under
the Common Stock Purchase Agreement will dilute the ownership interest of our existing stockholders.
We may sell up to $10,000,000 of our Common Stock to White Lion Capital,
LLC (“White Lion” or the “Selling Securityholder”) under the Common Stock Purchase Agreement. The shares will
be sold to White Lion at a discount to the then-prevailing market price. To the extent we sell shares to White Lion under the Common Stock
Purchase Agreement dated April 17, 2026 between us and White Lion (the “Common Stock Purchase Agreement” or “ELOC Agreement”),
additional shares of our Common Stock will be issued, which will result in dilution to the holders of our Common Stock. In addition, the
lower our stock price is at the time we elect to sell shares, the more shares we would need to issue for any given dollar amount of proceeds,
resulting in greater dilution to our existing stockholders. Our existing stockholders may experience substantial dilution as a result
of issuances of shares under the Common Stock Purchase Agreement, and such dilution could cause the trading price of our Common Stock
to decline.
It is not possible to predict the actual number of shares we
will sell to White Lion under the ELOC Agreement, or the actual gross proceeds resulting from those sales. We may not have access to the
full amount available under the ELOC Agreement.
On April 17, 2026, we entered into the Common Stock Purchase Agreement
with White Lion, pursuant to which White Lion committed to purchase up to $10,000,000 of our Common Stock, subject to certain limitations
and conditions set forth in the Common Stock Purchase Agreement. The Common Stock that may be issued under the Common Stock Purchase Agreement
may be sold by us to White Lion at our discretion, from time to time, over a period ending December 31, 2028, commencing on the date of
the ELOC Agreement. We generally have the right to control the timing and amount of any sales of our Common Stock to White Lion under
the ELOC Agreement. Sales of our Common Stock to White Lion under the ELOC Agreement will depend upon market conditions as well as other
factors to be determined by us. We may ultimately decide to sell to White Lion all or a portion of the shares of our Common Stock that
may be available pursuant to the ELOC Agreement, or decide to terminate the ELOC Agreement or not sell to White Lion any Common Stock
that may be available for us to sell to White Lion thereunder.
Because the purchase price per share to be paid by the White Lion for
the shares of Common Stock that we may elect to sell to White Lion under the ELOC Agreement will fluctuate based on the market prices
of our Common Stock during the applicable pricing period for each purchase, it is not possible for us to predict the number of Common
Stock that we will sell to White Lion under the ELOC Agreement, the purchase price per share that the White Lion will pay for shares purchased
from us under the ELOC Agreement, or the aggregate gross proceeds that we will receive from those purchases by the White Lion under the
ELOC Agreement.
Although the ELOC Agreement provides that we may sell up to an aggregate
of $10,000,000 of shares of Common Stock to White Lion, only 15,000,000 shares of Common Stock that may be issued to White Lion under
the ELOC Agreement are registered for resale by White Lion.
If we elect to sell to White Lion all of the 15,000,000 shares of Common
Stock registered for resale by White Lion, depending on the market prices of our Common Stock during the applicable pricing period for
each purchase made pursuant to the ELOC Agreement, the actual gross proceeds from the sale of all such shares may be substantially less
than the $10,000,000 total commitment originally available to us under the ELOC Agreement.
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In addition, White Lion will not be required to purchase any shares
of Common Stock if such sale would result in White Lion’s beneficial ownership exceeding 4.99% of the then-outstanding voting power
or shares of Common Stock; provided, that the beneficial ownership limitation may be increased to 9.99% upon the mutual written agreement
of the Company and White Lion, effective not less than sixty-one (61) days after such mutual written agreement. Any issuance and sale
by us under the ELOC Agreement of a substantial amount of shares of our Common Stock in addition to the 15,000,000 shares of Common Stock
registered for resale by White Lion could cause additional substantial dilution to our stockholders. The number of shares of Common Stock
ultimately offered for resale by White Lion is dependent upon the number of shares of Common Stock we ultimately sell to White Lion under
the ELOC Agreement. Our inability to access a portion or the full amount available under the ELOC Agreement, in the absence of any other
financing sources, could have a material adverse effect on our business.
The issuance of certain securities under the Common Stock Purchase
Agreement, the common stock purchase warrant issued to White Lion (the “Commitment Warrant”), and the Note Purchase Agreement
is contingent upon us obtaining stockholder approval pursuant to Nasdaq Rule 5635 (“Stockholder Approval”). If we do not obtain
the Stockholder Approval, these securities may never become issuable and/or exercisable.
If it becomes necessary for us to issue and sell to White Lion Common
Stock in excess of the exchange cap under the Common Stock Purchase Agreement in order to receive aggregate gross proceeds equal to $10,000,000
under the Common Stock Purchase Agreement, then for so long as the Exchange Cap continues to apply to issuances and sales of Common Stock
under the Common Stock Purchase Agreement, we must first obtain Stockholder Approval. In addition, no tranche of the convertible notes
may be funded until Stockholder Approval has been obtained. If we are unable to obtain the required Stockholder Approval, these securities
will not be issuable and/or exercisable, and will have little to no value.
The Company has agreed to use commercially reasonable efforts to duly
call, give notice of, convene, and hold a stockholder meeting (the “Stockholder Meeting”) as soon as reasonably practicable,
but in no event later than May 15, 2026, for the purposes of obtaining Stockholder Approval. If the Company fails to hold a Stockholder
Meeting by May 15, 2026, it shall pay liquidated damages to White Lion, as more fully described in the Common Stock Purchase Agreement.
In the event Stockholder Approval is not obtained at the first Stockholder Meeting, the Company is obligated to cause an additional Stockholder
Meeting to be held every one hundred eighty (180) days during the period beginning on such date and continuing seven hundred twenty (720)
days thereafter, until Stockholder Approval is obtained.
Investors who buy shares at different times will likely pay different
prices.
Pursuant to the ELOC Agreement, we will have discretion, subject to
market demand, to vary the timing, prices, and numbers of shares sold to the White Lion. If and when we do elect to sell shares of Common
Stock to the White Lion under the ELOC Agreement, after the White Lion has acquired such shares, the White Lion may resell all or a portion
of such shares at any time or from time to time in its discretion and at different prices. As a result, investors who purchase shares
from the White Lion at different times will likely pay different prices for those shares, and so may experience different levels of dilution
and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value
of the shares they purchase from the White Lion as a result of future sales made by us to the White Lion at prices lower than the prices
such investors paid for their shares.
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The sale and issuance of our Common Stock to the Selling Securityholder
will cause dilution to our existing stockholders, and the sale of the shares acquired by the Selling Securityholder, or the perception
that such sales may occur, could cause the price of our Common Stock to decline.
Sales of a substantial number of shares of our Common Stock in the
public market could occur at any time, subject to the restrictions and limitations described below. If our shareholders sell, or the market
perceives that our shareholders intend to sell, substantial amounts of shares of our Common Stock in the public market following this
offering, the market price of shares of our Common Stock could decline significantly.
The Selling Securityholder can resell up to 51,000,000 shares. After
the Selling Securityholder has acquired the shares, the Selling Securityholder may resell all, some, or none of those shares at any time
or from time to time in its discretion. Therefore, sales to the Selling Securityholder by us could result in substantial dilution to the
interests of other holders of our Common Stock. Additionally, sales of a substantial number of shares of our Common Stock in the public
market by the Selling Securityholder and/or by our other existing stockholders, or the perception that those sales might occur, could
depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities
in the future at a time and at a price that we might otherwise wish to effect sales.
We have broad discretion in the use of the net proceeds we receive
from the sale of shares to the Selling Securityholder and may not use them effectively.
Our management will have broad discretion in the application of the
proceeds we receive from the Selling Securityholder pursuant to sales of Common Stock under the Common Stock Purchase Agreement, if any,
and you will not have the opportunity as part of your investment decision to assess whether our management is using the proceeds appropriately.
Because of the number and variability of factors that will determine our use of our proceeds from the Selling Securityholder, their ultimate
use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could result
in financial losses that could have a material adverse effect on our business and cause the price of our Common Stock to decline. Pending
their use, we may invest the proceeds from the Selling Securityholder in short-term, investment-grade, interest-bearing securities. These
investments may not yield a favorable return to our stockholders.
The convertible notes issuable to White Lion will be secured
by substantially all of our assets, and a default could result in White Lion foreclosing on our assets.
Our obligations under the convertible notes will be secured by a security
interest in all of our assets and personal property, including our intellectual property. If we default under the convertible notes, White
Lion could foreclose on our assets, which could force us to curtail or cease our operations.
White Lion has the right to require us to apply a portion of
our financing proceeds toward repayment of the convertible notes.
Under the terms of the Note Purchase Agreement with White Lion, White
Lion has the right to require us to apply up to 10% of all cash proceeds received from the issuance of securities pursuant to the Common
Stock Purchase Agreement, the exercise of the Commitment Warrant, or the issuance of any other securities of the Company, toward repayment
of the convertible notes. This could reduce the amount of proceeds available to us for working capital and other corporate purposes.
The exercise price of the Commitment Warrant is subject to full
ratchet anti-dilution adjustment, which could result in additional dilution to our stockholders.
The Commitment Warrant issued to White Lion includes a full ratchet
anti-dilution provision, pursuant to which the exercise price of the Commitment Warrant will be reduced to the effective price per share
of any new issuance of Common Stock or Common Stock equivalents below the then-current exercise price (subject to exceptions for exempt
issuances). Because the exercise price is initially set at 99% of the closing sales price of the Common Stock on the trading day prior
to the exercise date and is subject to downward adjustment, any future dilutive issuance by the Company could result in a reduction of
the exercise price and a corresponding increase in the number of shares issuable upon exercise, resulting in additional dilution to our
existing stockholders.
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