Item 1A. Risk Factors
Item 1A. Risk Factors
An investment in our common stock involves
a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information
in this annual report, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes before making a decision to invest in our common stock. Our business, operating
results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties. If any
of these risks actually occurs, the trading price of our common stock could decline and you might lose all or part of your investment.
Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known
to us or that we currently do not believe are material.
Risks Related to the Company’s Business,
Operations, and Industry
We may be unable to meet our growing production
plans and delivery plans, any of which could harm our business and prospects.
In order to meet the increasing demand of our
products, we plan to open more stores in the future. Our plans call for achieving and sustaining increases in vehicles production and
deliveries. Our ability to achieve these plans will depend upon a number of factors, including our suppliers’ ability to support
our needs and our ability to utilize our current assembling capacity, achieve the planned production yield and further increase capacity
as planned while maintaining our desired quality levels and optimize design and production changes. If we are unable to realize our plans,
our brand, business, prospects, financial condition and operating results could be materially damaged.
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We are dependent on certain principal vendors
in China for a significant portion of our vehicle components, and the inability of these vendors to deliver necessary components of our
products according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage
these components, could have a material adverse effect on our financial condition and operating results.
We source a significant portion of our vehicle
components from China and then assemble these parts into our products in the United States. We rely on certain principal vendors
who help us source and supply parts used in our vehicles from various suppliers in China. We currently do not maintain long-term contracts
with our suppliers and vendors. While we believe our contract management processes are strong, we nevertheless could experience difficulties.
If our principal vendors decide to terminate their
partnership with us, experience sourcing failures, or otherwise become unable to provide us with the necessary components in sufficient
quantities, in a timely manner, and on acceptable terms, we may have to delay the production and sale of our products or find an alternative
vendor. Any significant unanticipated demand would require us to procure additional components in a short amount of time. While we believe
that we will be able to secure additional or alternate sources of supply for most of our components in a relatively short time frame,
there is no assurance that we will be able to do so or develop our own replacements for certain highly customized components of our products.
In addition, as a result of COVID-19, normal economic
life throughout China was sharply curtailed and there were disruptions to normal operation of businesses in various areas. For example,
in 2022, when China rigorously enforced its “Zero-COVID” policy, some manufacturing facilities were closed and work at other
facilities was curtailed in many places where we sourced our vehicle components. Some of our vendors had to temporarily close a facility
for disinfecting after employees tested positive for COVID-19, and others faced staffing shortages from employees who were sick or apprehensive
about coming to work. Further, the ability of our vendors to ship their goods to us became difficult as transportation networks and distribution
facilities reduced capacity, all of which caused an increase in shipping costs and time and affected the availability of inventories to
meet our sales demand.
Although the anti-pandemic policies have been
lifted in China since the beginning of 2023, it is uncertain whether the Chinese government will mandate similar restrictive policies
and measures again in the future. Furthermore, the lingering impacts of the global pandemic may continue adversely affecting our supply
chain, which in turn may materially and adversely affect our business and results of operations. Although our business operations were
not materially impacted because of measures we took during the lockdown period in 2022 in China, which included increasing order quantities
for vehicle components and maintaining higher inventory levels, as well as avoiding heavy reliance on a single vendor, there can be no
assurance as to whether and to what extent these mitigation measures will be effective in the event of future supply chain disruptions.
Maintenance of high inventories can increase our costs and involve other risks. See “ Item 1A. Risk Factors — Risks
Related to the Company’s Business, Operations, and Industry — Changes in our supply chain may result in increased
cost. If we are unsuccessful in our efforts to control and reduce supplier costs and manage inventory at optimal levels, our operating
results will suffer .” In addition, if we encounter unexpected difficulties with our principal vendors, and if we are unable
to fill these needs from other vendors in a timely manner, we could experience production delays and potential loss of access to important
technology and parts for producing, servicing and supporting our vehicles. The loss of any vendors or the disruption in the supply of
components from these vendors could lead to design changes and delays in product deliveries to our customers, which could hurt our relationships
with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects,
financial condition and operating results.
We rely on third parties for quality control
on the parts sourced from China.
We rely on one of our principal vendors in China
to monitor the factories manufacturing the parts sourced from China for use in our vehicles. We have limited control over the ability
of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If our principal vendor
fails to perform its duties, including proper inspections on sample products before mass production, the third-party manufacturers may
fail to manufacture our product components according to our schedule and requirements or at all. The quality of our products is crucial
to our continued growth. If our principal vendor fails to perform its supervising and inspecting duties properly, our final products could
have quality issues, which could result in product recall, return of products and potential lawsuits against us if our products cause
any injuries or damages due to the quality issues. Any occurrence of the foregoing could hurt our relationship with our customers and
result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and
operating results.
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Our success will depend on our ability to
economically produce our vehicles at scale, and our ability to produce vehicles of sufficient quality and appeal to customers on schedule
and at scale is unproven.
Our business success will depend in large part
on our ability to economically produce, market and sell our vehicles at sufficient capacity to meet the demands of our customers. We will
need to scale our production capacity in order to successfully implement our growth strategy.
We currently have one facility in which we assemble
all of our products in Brooklyn, New York. We have no experience in large-scale production of our vehicles, and we do not know whether
we will be able to develop efficient, automated, low-cost production capabilities and processes, such that we will be able to meet the
quality, price and production standards, as well as the production volumes, required to successfully market our vehicles and meet our
business objectives and customer needs. Any failure to develop and scale our production capability and processes could have a material
adverse effect on our business, prospects, financial condition and operating results.
Changes in our supply chain may result in
increased cost. If we are unsuccessful in our efforts to control and reduce supplier costs and manage inventory at optimal levels, our
operating results will suffer.
As we plan to continue expanding our business,
we expect to include more products and their components in our inventory, which will make it more challenging for us to manage our inventory
effectively and will put more pressure on our warehousing system. Maintaining excessive inventory levels beyond customer demand can lead
to higher inventory carrying costs. High inventory levels may also require us to commit substantial capital resources, preventing us from
using that capital for other important purposes. On the other hand, if we underestimate customer demand or encounter delays from our vendors
in supplying vehicle components promptly, we may face inventory shortages. This could potentially compel us to procure vehicle components
at higher costs, leading to a backorder situation or unfulfilled customer orders, which could lead to potential cancellations or loss
of customers to competitors and negatively impact our brand image and reputation.
There is no assurance that our suppliers will
ultimately be able to meet our cost, quality and volume needs, or do so on a timely basis. Furthermore, as the volume of our sales increases,
we will need to accurately forecast, purchase and warehouse components at much higher volumes than we have experience with. If we are
unable to accurately match the timing and quantities of component purchases to our actual needs, or successfully implement automation,
inventory management and other systems to accommodate the increased complexity in our supply chain, we may incur unexpected production
disruption, or storage, transportation and write-off costs. Any of the above could have a material adverse effect on our business, prospects,
financial condition and operating results.
Increases in costs, disruption of supply,
or shortage of materials used to manufacture the component parts used in our vehicles, including potential risks stemming from the conflict
between Russia and Ukraine, could harm our business.
We may experience increases in the cost or a sustained
interruption in the supply or shortage of materials. Any such increase, supply interruption or shortage could materially and negatively
impact our business, prospects, financial condition and operating results. The prices for these materials fluctuate, and their available
supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production
of similar products by our competitors, and could adversely affect our business and operating results. These risks include:
● an increase in the cost, or decrease in the available supply,
of materials used in the battery packs;
● tariffs on the materials we source in China; and
● fluctuations in the value of the Chinese Renminbi against
the U.S. dollar as our purchases for the components of our products are denominated in Chinese Renminbi.
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Disruption in our supply chain and rising prices
of raw materials as a result of the conflict between Russia and Ukraine may also negatively impact our businesses. In February 2022, Russian
military forces launched a military action in Ukraine. The ongoing military action between Russia and Ukraine, sanctions and other measures
imposed against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk
People’s Republic by the U.S. and other countries and bodies around the world, as well as the existing and potential further responses
from Russia or other countries to such sanctions, tensions and military actions, has in the past and in the future could continue to adversely
affect the global economy and financial markets and could adversely affect our business, prospects, financial condition and operating
results. Additional potential sanctions and penalties have also been proposed and/or threatened. Although our operations have not experienced
a material adverse impact on supply chain or other aspects of our business from the ongoing conflict between Russia and Ukraine, during
times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks
that could materially disrupt our operations, supply chain, and ability to produce, sell and distribute our products. We cannot predict
the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government
reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market
disruptions could be significant, could result in increases in commodity, freight, logistics and input costs and could potentially have
substantial impact on the global economy and our business for an unknown period of time.
Substantial increases in the prices for our materials
or prices charged to us would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through
increased prices. Any attempts to increase prices in response to increased material costs could result in cancellations of vehicle orders
and therefore materially and adversely affect our brand, business, prospects, financial condition and operating results.
Our vehicles may not perform in line with
customer expectations.
Our vehicles may not perform in line with customers’
expectations. For example, our vehicles may not have the durability or longevity of other vehicles in the market, and may not be as easy
and convenient to repair as other vehicles on the market. Any product defects or any other failure of our vehicles to perform as expected
could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm
to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, prospects,
financial condition and operating results.
In addition, the range of our vehicles on a single
charge declines principally as a function of usage, time and charging patterns as well as other factors. For example, a customer’s
use of his or her electric vehicle as well as the frequency with which he or she charges the battery can result in additional deterioration
of the battery’s ability to hold a charge. Furthermore, our vehicles may contain defects in design and manufacture that may cause
them not to perform as expected or that may require repair. If any of our vehicles fail to perform as expected, we may need to delay deliveries,
initiate product recalls and provide servicing or updates under warranty at our expenses, which could materially and adversely affect
our brand, business, prospects, financial condition and operating results.
Our future growth is dependent on the demand
for, and upon consumers’ willingness to adopt electric vehicles.
Demand for our products depends to a large extent
on general, economic, political and social conditions in a given market and the introduction of new electric vehicles and technologies.
As our business grows, economic conditions and trends will impact our business, prospects and operating results as well.
Demand for our electric vehicles may also be affected
by factors directly impacting the price or the cost of purchasing and operating electric vehicles such as sales and financing incentives,
prices of raw materials, parts and components and governmental regulations, including tariffs, import regulation and other taxes. Volatility
in demand may lead to lower vehicle unit sales, which may result in further downward price pressure and adversely affect our business,
prospects, financial condition and operating results.
In addition, the demand for our vehicles and services
will highly depend upon the adoption by consumers of new energy vehicles in general and electric vehicles in particular. The market for
new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, price and other competition, evolving government
regulation and industry standards and changing consumer demands and behaviors.
Other factors that may influence the adoption
of new energy vehicles, and specifically electric vehicles, include:
● perceptions about electric vehicle quality, safety, design,
performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles,
whether or not such vehicles are produced by us or other companies;
● perceptions about vehicle safety in general;
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● the limited range over which electric vehicles may be driven
on a single battery charge and the speed at which batteries can be recharged;
● the decline of an electric vehicle’s range resulting
from deterioration over time in the battery’s ability to hold a charge;
● the availability of service for electric vehicles;
● the environmental consciousness of consumers;
● the availability of tax and other governmental incentives
to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and
● macroeconomic factors.
Any of the factors described above may cause current
or potential customers not to purchase our electric vehicles and use our services. If the market for electric vehicles does not develop
as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be affected.
The electric mobility industry is subject to rapidly changing
and often complex regulatory environments.
The electric mobility industry is subject to rapidly
changing and often complex regulatory environments at local, state, national, and international levels. Evolving regulations related to
safety standards, emissions, licensing, and operational requirements can have a substantial impact on our business operations and profitability.
Compliance with these changing regulations may necessitate costly modifications to our products, business processes, or market strategies,
which could lead to increased expenses and delays in product development and market entry. Failure to navigate and adhere to evolving
regulations adequately could result in legal and financial liabilities, damage to our reputation, and potential market restrictions. Furthermore,
inconsistency in regulations between different jurisdictions may create challenges in maintaining uniform business practices and product
offerings, increasing our exposure to regulatory risks. Furthermore, a significant portion of our customer base comprises food delivery
workers, and if leading food delivery platforms like Uber Eats and DoorDash impose new requirements on the type of electric vehicles they
allow, non-compliance on our part could result in the loss of these customers. While we believe we are presently in compliance with applicable
laws and regulations in our operating regions, there can be no assurance that we can always promptly adapt to the rapidly changing regulatory
environment. If we fail to effectively adjust to the changing regulatory landscape and comply with applicable laws and regulations in
our operating regions, our business, prospects, financial condition and operating results would be materially and adversely affected.
We may be unable to adequately control the
costs associated with our operations.
We expect to incur significant costs which will
impact our profitability, including research and development expenses as we roll out new models and improve existing models, raw material
procurement costs and selling and distribution expenses as we build our brand and market our vehicles. Our ability to remain profitable
in the future will not only depend on our ability to successfully market our vehicles and other products and services but also to control
our costs. If we are unable to cost efficiently design, manufacture, market, sell and distribute and service our vehicles and services,
our business, prospects, financial condition and operating results would be materially and adversely affected.
We may not succeed in establishing, maintaining
and strengthening our brand, which could materially and adversely affect customer acceptance of our products, which could in turn materially
affect our business, results of operations or financial condition.
Our business and prospects heavily depend on our
ability to develop, maintain and strengthen the Fly E-Bike brand. If we are unable to establish, maintain and strengthen our brand, we
may lose the opportunity to build and maintain a critical mass of customers. Our ability to develop, maintain and strengthen our brand
will depend heavily on the success of our marketing efforts. Failure to develop and maintain a strong brand could materially and adversely
affect customer acceptance of our vehicles, could result in suppliers and other third parties being less likely to invest time and resources
in developing business relationships with us, and could materially adversely affect our business, prospects, financial condition and operating
results.
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We have a relatively short operating history,
which makes it difficult to evaluate our future prospects, forecast financial results, and assess the risks and challenges we may face.
Our business is relatively new and rapidly evolving.
We first launched our business in 2018 and have a limited operating history. We have encountered in the past, and will encounter in the
future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing industries.
Risks and challenges we have faced or expect to face as a result of our relatively limited operating history and evolving business model
include our ability to:
● make operating decisions and evaluate our future prospects
and the risks and challenges we may encounter;
● forecast our revenue and budget for and manage our expenses;
● attract new customers and retain existing customers in a
cost-effective manner;
● comply with existing and new or modified laws and regulations
applicable to our business;
● manage our business assets and expenses;
● plan for and manage capital expenditures for our current
and future offerings and manage our supply chain and supplier relationships related to our current and future offerings;
● anticipate and respond to macroeconomic changes and changes
in the markets in which we operate;
● maintain and enhance the value of our reputation and brand;
● effectively manage our growth and business operations;
● successfully expand our geographic reach;
● hire, integrate and retain talented people at all levels
of our organization; and
● successfully develop new features, offerings and services
to enhance the experience of customers.
If our assumptions regarding these risks and uncertainties,
which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results
of operations could differ materially from our expectations and our business, prospects, financial condition and operating results could
be adversely affected.
We identified material weaknesses in our
internal control over financial reporting. If we are unable to remediate these material weaknesses, or identify additional material weaknesses
in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report
our financial condition or results of operations, which may adversely affect our business and stock price.
In connection with the preparation and audit of
our consolidated financial statements for the year ended March 31, 2024, we identified material weaknesses in our internal control
over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will
not be prevented or detected on a timely basis. The material weaknesses that have been identified included our lack of (i) sufficient
financial reporting and accounting personnel with appropriate knowledge of generally accepted accounting principles in the United States
of America (the “U.S. GAAP”) and SEC reporting requirements to properly address complex U.S. GAAP accounting issues
and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting
requirements, (ii) formal internal control policies and internal independent supervision functions to establish formal risk assessment
process and internal control framework, and (iii) sufficient controls designed and implemented in IT environment and IT general control
activities, which are mainly associated with areas of logical access management, change management, computer operation, service organization
management as well as cyber security management.
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In response to the material weaknesses identified
for the year ended March 31, 2024, we are in the process of implementing a number of measures to address the material weaknesses
identified, including but not limited to (i) hiring additional qualified accounting and financial personnel with appropriate knowledge
and experience in U.S. GAAP accounting and SEC reporting; (ii) organizing regular training for our accounting staff, especially
training related to U.S. GAAP and SEC reporting requirements; and (iii) regularly conducting checks on the IT software we utilize
to ensure its proper functionality, and arranging training sessions for our IT staff. We also plan to adopt additional measures to improve
our internal control over financial reporting, including, among others, creating a U.S. GAAP accounting policies and procedures manual,
which will be maintained, reviewed and updated, on a regular basis, to the latest U.S. GAAP accounting standards, strengthening corporate
governance as well as general control over our information technology. While we believe these efforts will remediate the material
weaknesses, we may not be able to complete our evaluation, testing or any required remediation in a timely fashion, or at all. We cannot
assure you that the measures we have taken to date and may take in the future, will be sufficient to remediate the control deficiencies
that led to our material weaknesses in internal control over financial reporting, to prevent the identification of significant deficiencies
in the future or that they will prevent or avoid potential future material weaknesses. The effectiveness of our internal control over
financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions
about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to remediate the material
weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the
time periods required of public companies could be adversely affected which, in turn, may adversely affect our reputation and business
and the market price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or
other regulatory authorities, loss of investor confidence, delisting of our securities and harm our reputation and financial condition,
or diversion of financial and management resources from the operation of our business.
The markets in which we operate are in their
infancy and highly competitive, and we may not be successful in competing in this industry.
The market of electric two-wheel vehicles is in
its infancy, and we expect it will become more competitive in the future. There is no assurance that our vehicles will be successful in
the respective markets in which they compete. A significant and growing number of established and new companies, as well as other companies,
have entered or are reported to have plans to enter the electric vehicle market. Most of our current and potential competitors have significantly
greater financial, technical, manufacturing, marketing, sales networks and other resources than we do and may be able to devote greater
resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition
could result in lower vehicles sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm
our business, prospects, financial condition and operating results.
An adverse determination in any significant
product liability claim against us could materially adversely affect our business, results of operations or financial condition.
The development, production, marketing, sale and
usage of our vehicles will expose us to significant risks associated with product liability claims. As a provider of consumer products,
we are, from time to time, subject to civil litigation regarding those products, including in publicly-available court filings. Our business
is vulnerable to product liability claims, and we may face inherent risk of exposure to claims in the event our vehicles do not perform
or are claimed to not have performed as expected. If our products are defective, malfunction or are used incorrectly by our customers,
it may result in bodily injury, property damage or other injury, including death, which could give rise to product liability claims against
us. For example, our certain EVs use lithium-ion batteries, which, if not appropriately managed and controlled, can rapidly release energy
by venting smoke and flames that can ignite nearby materials. Furthermore, there is some risk of electrocution if individuals who attempt
to repair battery packs do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to product
liability claims against us and potentially a safety recall. Any losses that we may suffer from any liability claims and the effect that
any product liability litigation may have upon the brand image, reputation and marketability of our products could have a material adverse
impact on our business, results of operations or financial condition. No assurance can be given that material product liability claims
will not be made in the future against us, or that claims will not arise in the future in excess or outside of our insurance coverage
and contractual indemnities with suppliers and manufacturers. We may not be able to obtain adequate product liability insurance for our
existing or new products or the cost of doing so may be prohibitive. Adverse determinations of material product liability claims made
against us could also harm our reputation and cause us to lose customers and could have a material adverse effect on our business, prospects,
financial condition and operating results.
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We are dependent upon our executives for
their services and any interruption in their ability to provide their services could cause us to cease operations.
The loss of the services of our CEO could have
a material adverse effect on us. We do not maintain any key man life insurance on our executives, including our CEO. The loss of
the services of any of our executive management could impair our ability to execute our business plan and growth strategy, as we may not
be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. Our
future success will also depend on our ability to attract, retain and motivate other highly skilled employees. Competition for personnel
in our industry is intense. We may not be able to retain our key employees or attract, assimilate or retain other highly qualified employees
in the future. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business, prospects,
financial condition and operating results will be adversely affected.
Our management team does not have any experience
in operating a publicly traded company.
While our management team has a wide breadth of
business experience, none of our executive officers have held an executive position at a publicly traded company. Given the onerous compliance
requirements to which public companies are subject, there is a chance our executive officers will fail to perform at a level expected
of public company officers. In such an event, the Company’s share price could be adversely effected. The management team’s
limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in
that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted
to the management and growth of the company. We may not have adequate personnel with the appropriate level of knowledge, experience and
training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States.
In addition, the development and implementation of the standards and controls necessary for us to achieve the level of accounting standards
required of a public company in the United States may require costs greater than expected. It is possible that we will be required
to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating
costs in future periods.
We may need to defend ourselves against
patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations or individuals, including
our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability
to make, use, develop, sell or market our vehicles, which could make it more difficult for us to operate our business. From time to time,
we may receive communications from holders of patents or trademarks regarding their proprietary rights. Companies holding patents or other
intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined
to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:
● cease selling, incorporating certain components into, or
using vehicles or offering goods or services that incorporate or use the challenged intellectual property;
● pay substantial damages;
● seek a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable terms or at all;
● redesign our vehicles or other goods or services; or
● establish and maintain alternative branding for our products
and services.
In the event of a successful claim of infringement
against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business,
prospects, operating results and financial condition could be materially and adversely affected. In addition, any litigation or claims,
whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
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If we are unable to adequately establish,
maintain, protect and enforce our intellectual property and proprietary rights, our reputation may be harmed, we may be subject to litigation,
and our business may be adversely affected.
Our future success and competitive position depend
on our ability to establish, maintain, protect and enforce our intellectual property and proprietary rights. We currently hold one trademark
in the United States. Other than that, we do not own any issued patents, copyright nor other intellectual property registrations in the
United States. We also seek to protect our trade secrets and other proprietary information through common law copyright and trademark
principles, but these actions may be inadequate. The steps we have taken and will take may not prevent unauthorized use, reverse engineering
or misappropriation of our technologies and we may be unable to detect any of the foregoing. Our lack of intellectual property protection
in the United States may restrict our ability to protect our technologies and processes from competition. Defending and enforcing
our intellectual property rights may result in litigation, which can be costly and divert management attention and resources. We plan
to apply for patents, additional trademarks and other intellectual property registrations in the United States in the future to protect
our brand and technologies. However, the intellectual property application process is complex and can be time-consuming. Even after investing
significant resources in preparing and filing an application, there is no guarantee that it will be granted. If our efforts to protect
our technologies and intellectual property are inadequate, the value of our brand and other intangible assets may be diminished and competitors
may be able to mimic our cloud services. Any of these events could have a material adverse effect on our business, prospects, financial
condition and operating results.
Improper activities by third parties, exploitation
of encryption technology, new data-hacking tools and discoveries and other events or developments may result in future intrusions into
or compromise of our networks and technology systems.
Our systems, website, data (wherever stored),
software or networks and those of third-party suppliers and service providers, are vulnerable to security breaches, including unauthorized
access, computer viruses or other malicious code and other cyber threats that could have a security impact. We, our third-party suppliers
and service providers may not be able to anticipate evolving techniques used to effect security breaches (which change frequently and
may not be known until launched), or prevent attacks by hackers, including phishing or other cyber-attacks, or prevent breaches due to
employee error or malfeasance, in a timely manner or at all. Cyber-attacks have become far more prevalent in the past few years, potentially
leading to the theft or manipulation of confidential and proprietary information or loss of access to, or destruction of, data on our
or third-party systems, as well as interruptions or malfunctions in our or third parties’ operations. If a breach occurs within
the supply chain, disjointed or delayed response efforts can exacerbate the impact, prolong recovery time, and increase potential damage
to our operations and reputation. In addition, at present, there are no existing contractual agreements delineating cybersecurity responsibilities
between our company and our suppliers or service providers. This absence of clear terms poses a risk wherein disputes regarding liability
and accountability in the event of a security breach may emerge. Such disputes could potentially result in legal complexities, financial
losses, and impeded incident resolution within our supply chain.
We have taken and are taking steps to monitor
and enhance the security of our information technology systems. Furthermore, our board of directors schedules periodic discussions with
management regarding significant risk exposures, including risks related to data privacy and cybersecurity, and assists in taking steps
to mitigate the risk of cyberattacks on us. However, the techniques used by cyber criminals change frequently and often cannot be recognized
until launched against a target; accordingly, we may not be able to anticipate these frequently changing techniques, implement adequate
preventive measures for all of them or remediate any unauthorized access on a timely basis. All preventive measures, as well as additional
measures that may be required to comply with rapidly evolving security standards and protocols imposed by law, regulation, industry standards
or contractual obligations, may cause us to incur substantial expenses. Any unauthorized access into our customers’ sensitive information,
data belonging to us or our vendors or employee data, even if we are compliant with industry security standards, could put us at a competitive
disadvantage, result in deterioration of our customers’, vendors’ and employees’ confidence in us and subject us to
investigations, required notifications, potential litigation, liability, fines and penalties and consent decrees, resulting in a possible
material adverse impact on our brand, business, prospects, financial condition and operating results.
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Potential tariffs and other restrictions
on trade could increase our costs and could further increase the cost of our products, which could adversely impact the competitiveness
of our products and our financial results.
We source a significant portion of our vehicle
components from China. The application of sanctions, trade restrictions or tariffs by the U.S. or other countries or the impact of public
health concerns, may adversely impact the industry supply chain. For example, in 2019, the U.S. government increased tariffs on U.S. imports
with China as their country of origin. We cannot predict what additional actions, if any, may be taken with respect to tariffs or trade
relations between the United States and China, what products may be subject to such actions, or what actions may be taken by the
China in retaliation. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related
to tariffs, trade agreements or related policies have the potential to adversely impact our supply chain and access to equipment, our
costs and our product margins. The additional tariffs imposed on components or equipment that we source from China will increase our costs
and could have an adverse impact on our operating results and financial conditions in future periods.
We may be unable to improve our existing
products and develop and market new products that respond to customer needs and preferences and achieve market acceptance.
We may not be able to compete as effectively with
our competitors, and ultimately satisfy the needs and preferences of our customers unless we can successfully enhance existing products,
develop new innovative products and distinguish our products from our competitors’ products through innovation and design. Product
development requires significant financial, technological and other resources. There can be no assurance that we will be able to incur
a level of investment in research and development that will be sufficient to successfully make us competitive in product innovation and
design. In addition, even if we are able to successfully enhance existing products and develop new products, there is no guarantee that
the markets for our existing products and new products will progress as anticipated. If any of the markets in which our existing products
compete do not develop as expected, our business, prospects, financial condition and operating results could be materially adversely affected.
We have limited experience servicing our
vehicles, and if we are unable to address the service requirements of our customers, our business could be materially and adversely affected.
We have limited experience servicing or repairing
our vehicles. Servicing electric vehicles is different than servicing traditional vehicles and requires specialized skills, including
training and servicing techniques for electric vehicles. If we are unable to successfully address the servicing requirements of our customers
or establish a market perception that we maintain high-quality support, our reputation could be harmed, we may be subject to claims from
our customers, and our business, prospects, financial condition and operating results may be materially and adversely affected.
Significant product repair and/or replacement
due to product warranty claims or product recalls could have a material adverse impact on our business, results of operations or financial
condition.
We provide a three-month warranty against defects
for our EVs and three-month warranty on the battery. Our warranty will generally require us to repair or replace defective products during
such warranty periods at no cost to the consumer. We will record provisions based on an estimate of product warranty claims, but there
is the possibility that actual claims may exceed these provisions and therefore negatively impact our results of operations or financial
condition.
In addition, we may in the future be required
to make product recalls or could be held liable in the event that some of our products do not meet safety standards or statutory requirements
on product safety, even if the defects related to any such recall or liability are not covered by our limited warranty. The repair and
replacement costs that we could incur in connection with a recall could have a material adverse effect on our business, results of operations
or financial condition. Product recalls could also harm our reputation and cause us to lose customers, particularly if recalls cause consumers
to question the safety or reliability of our products, which could have a material adverse effect on our business, prospects, financial
condition and operating results.
21
If our vehicle owners customize our vehicles
or change the charging infrastructure with aftermarket products, the vehicle may not operate properly, which may create negative publicity
and could harm our business.
Electric vehicle enthusiasts may seek to “hack”
our vehicles to modify their performance, which could compromise vehicle safety systems. Also, customers may customize their vehicles
with after-market parts that can compromise driver safety. We do not test, nor do we endorse, such changes or products. In addition, the
use of improper external cabling or unsafe charging outlets can expose our customers to injury from high voltage electricity. Such unauthorized
modifications could reduce the safety of our vehicles and any injuries resulting from such modifications could result in adverse publicity
which would negatively affect our brand and harm our business, prospects, financial condition and operating results.
Risks Related to Our Common Stock
An active, liquid and orderly trading market
for our common stock may not develop or be maintained, and our stock price may be volatile.
We cannot predict the nature of the market for
our common stock, and we cannot assure you that an active, liquid or orderly trading market for our common stock will be maintained. To
the extent that an active market does not develop, you may have difficulty in selling any shares of our common stock. If there is no active,
liquid or orderly market for our common stock, the reported bid and asked price at the time you seek to purchase or sell shares may not
reflect the price at which you could either buy or sell shares of our common stock.
Our directors and executive officers will
continue to exercise significant control over us, which will limit your ability to influence corporate matters and could delay or prevent
a change in corporate control.
The existing holdings of our directors and executive
officers is in the aggregate, approximately 68.5% of our outstanding common stock as of the date of this annual report. As a result, these
stockholders will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for
approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets.
The concentration of voting power among one or more of these stockholders may have an adverse effect on the price of our common stock.
In addition, this concentration of ownership might
adversely affect the market price of our common stock by: (1) delaying, deferring or preventing a change of control of our company;
(2) impeding a merger, consolidation, takeover or other business combination involving our company; or (3) discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control of our company.
Our management will have broad discretion
in application of the net proceeds of the IPO and may not use these proceeds effectively.
Our management will have considerable discretion
in the application of the net proceeds of the IPO. As a result, investors will be relying upon management’s judgment with only limited
information about our specific intentions for the use of the net proceeds of the IPO. We may use the net proceeds for purposes that do
not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds
from the IPO in a manner that does not produce income or that loses value.
A portion of the compensation to our senior
executive officers may not be deductible, which may increase our taxes.
Section 162(m) of the Internal Revenue Code limits
the deduction that public companies may take for annual compensation paid to its chief executive officer, chief financial officer and
the three other most highly compensated officers, who are referred to as “covered employees.” All compensation in excess of
$1.0 million paid to a covered employee, including post termination compensation and death benefits, may be nondeductible for federal
income tax purposes. In the event that the compensation we pay to any covered employee exceeds $1.0 million, such excess may not be deductible
which, if our operations are profitable, could increase our income taxes and reduce our net income, which could negatively affect the
price of our stock.
22
As an emerging growth company, we are exempt
from the requirements under the Sarbanes-Oxley Act that a public accounting firm attest as to internal controls, and we lack the financial
controls and safeguards required of public companies.
We do not have the internal infrastructure necessary,
and are not required, to complete an attestation about our financial controls that would be required under Section 404 of the Sarbanes
Oxley Act of 2002. There can be no assurance that there are no significant deficiencies or material weaknesses in the quality
of our financial controls. We expect to incur additional expenses and diversion of management’s time if and when it becomes necessary
to perform the system and process evaluation, testing and remediation required in order to comply with the management certification and
auditor attestation requirements.
We may not meet continued listing standards
on the Nasdaq Capital Market.
The Nasdaq Capital Market requires companies to
fulfill specific requirements in order for their shares to continue to be listed. In order to qualify for continued listing on the Nasdaq
Capital Market, we must meet certain criteria, including the following:
● Our stockholders’ equity must be at least $2,500,000;
or the market value of our listed securities must be at least $35,000,000; or our net income from continuing operations in our last fiscal
year (or two of the last three fiscal years) must have been at least $500,000;
● The market value of our publicly held shares must be at least
$1,000,000;
● The minimum bid price for our shares must be at least $1.00
per share;
● We must have at least 300 stockholders;
● We must have at least 500,000 publicly held shares;
● We must have at least 2 market makers; and
● We must have adopted Nasdaq-mandated corporate governance
measures, including a board of directors comprised of a majority of independent directors, an Audit Committee comprised solely of independent
directors and the adoption of a code of ethics among other items.
If our shares are delisted from the Nasdaq Capital
Market at some later date, our stockholders could find it difficult to sell our shares. In addition, if our common stock is delisted from
the Nasdaq Capital Market at some later date, we may apply to have our common stock quoted on the Bulletin Board or in the “pink
sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered
to be less efficient markets than the Nasdaq Capital Market. In addition, if our common stock is not so listed or are delisted at some
later date, our common stock may be subject to the “penny stock” regulations. These rules impose additional sales practice
requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited
investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the
ability or willingness of broker-dealers to sell or make a market in our common stock might decline. If our common stock is not so listed
or is delisted from the Nasdaq Capital Market at some later date or become subject to the penny stock regulations, it is likely that the
price of our shares would decline and that our stockholders would find it difficult to sell their shares.
23
The price of our common stock may be volatile
and fluctuate substantially and rapidly, which could result in the loss of a significant part of your investment.
The market price of our common stock may fluctuate
substantially and rapidly and may be higher or lower than the public offering price. The stock market, in general, and the market for
smaller companies such as ours, in particular, have experienced extreme price and volume fluctuations. Such volatility, including any
stock-run up, may be unrelated or disproportionate to the actual or expected operating performance and financial condition or prospects
of those companies, making it difficult for the investors to assess the rapidly changing value of our common stock. These fluctuations
may be even more pronounced in the trading market for our common stock shortly following the listing of our common stock on Nasdaq as
a result of the limited public float available following the IPO. The market price for our common stock may be influenced by many factors,
including:
● limited trading volume;
● our success in commercializing our products;
● developments with respect to competitive products or technologies;
● developments or disputes concerning patent applications,
issued patents or other intellectual property or proprietary rights;
● the recruitment or departure of key personnel;
● actual or anticipated changes in estimates as to financial
results, commercialization timelines or recommendations by securities analysts;
● variations in our financial results or the financial results
of companies that are perceived to be similar to us;
● sales of common stock by us, our executive officers, directors
or principal stockholders or others;
● general economic, industry and market conditions, such as
the impact of the COVID-19 pandemic on our industry;
● the publication of unfavorable research reports and updates
thereto by financial analysts; and
● the other factors described in this “Risk Factors”
section.
In the past, many companies that have experienced volatility in the
market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in
the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other
business concerns, which could seriously harm our business.
We will incur increased costs as a result
of being a publicly traded company.
As a company with publicly traded securities,
we will incur additional legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules promulgated by the SEC and the national
securities exchange on which we list, requires us to adopt corporate governance practices applicable to U.S. public companies. These
rules and regulations will increase our legal and financial compliance costs.
If securities or industry analysts do not
publish research or reports about us, or if they adversely change their recommendations regarding our common stock, then our stock price
and trading volume could decline.
The trading market for our common stock will be
influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst
elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price
could be adversely affected. As a small-cap company, we are more likely than our larger competitors to lack coverage from securities analysts.
In addition, even if we receive analyst coverage, if one or more analysts ceases coverage of us or fails to regularly publish reports
on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one
or more analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, our
stock price could decline.
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We are an “emerging growth company”
and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common
stock less attractive to investors.
We are an “emerging growth company,”
as defined in the federal securities laws, and we may take advantage of certain exemptions and relief from various reporting requirements
that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging
growth company”, (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of
the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotations
or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes
on executive compensation or stockholder approval of any golden parachute payments not previously approved. We will take advantage of
these exemptions. In addition, an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards,
meaning that the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be
subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We may remain an “emerging growth company”
until the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be
an “emerging growth company” earlier under certain circumstances, including (1) if we become a large accelerated filer,
(2) if our gross revenue exceeds $1.235 billion in any fiscal year, or (3) if we issue more than $1.0 billion in non-convertible
notes in any three year period. We cannot assure you that we will be able to take advantage of all of the benefits of the available to
emerging growth companies.
We are a “smaller reporting company” and, even if
we no longer qualify as an emerging growth company, we may still be subject to reduced reporting requirements.
We are a “smaller reporting company”
as defined in the Securities Exchange Act of 1934, as amended. Smaller reporting companies may choose to present only the two most recent
fiscal years of audited financial statements in their annual reports on Form 10-K and have reduced disclosure obligations regarding executive
compensation and, if a smaller reporting company has less than $100 million in annual revenue, it would not be required to obtain an attestation
report on internal control over financial reporting issued by its independent registered public accounting firm. We will remain a smaller
reporting company until the last day of any fiscal year for so long as either: (i) the market value of our shares of common stock held
by non-affiliates does not equal or exceed $250 million measured on the last business day of our second fiscal quarter; or (ii) our annual
revenues is less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates
is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of such reduced
disclosure obligations, it may make the comparison of our financial statements with other public companies difficult or impossible.
We may issue shares of preferred stock in
the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common
stock, which could depress the price of our common stock.
Our certificate of incorporation authorizes us
to issue one or more series of preferred stock. Our board of directors will have the authority to determine the preferences, limitations
and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such
series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend
and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in
control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price
and the voting and other rights of the holders of our common stock.
We have never declared or paid any cash
dividends or distributions on our capital stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable
future.
We have never declared or paid any cash dividends
or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance
expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
The declaration, payment and amount of any future
dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations,
cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant.
There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount
of any such dividend. As a result, investors will be reliant upon capital appreciation for any returns on their investment in the shares
of our common stock.
25
Future sales of our common stock in the
public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities
may dilute your ownership in us.
As of June 27, 2024, there are 17,160,000 shares of restricted common
stock, which constitute approximately 69.8% of our outstanding common stock, may be eligible for sale pursuant to Rule 144 at
various times, subject to limitations provided by Rule 144 and lock-up agreements which our stockholders, including our directors
and officers, who hold 16,830,000 shares have signed lock-ups for period of 180 days from the closing of the IPO, which expires on December
2, 2024, release from the lock-up restriction at the discretion of the underwriters. If the managing underwriter of our initial public
offering, waives or releases parties to the lock-up, the market price for our common stock could be adversely impacted.
We intend to file a registration statement with
the SEC on Form S-8 providing for the registration of shares of our common stock issued or reserved for issuance under our equity incentive
plan or pursuant to stock options. Subject to the satisfaction of vesting conditions and the expiration of lock-up agreements, shares
registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction
other than those restrictions imposed on sales by affiliates pursuant to Rule 144.
We cannot predict the size of future issuances
of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our
common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued
in connection with any acquisition we may make), or the perception that such sales, including sales by our existing stockholders pursuant
to Rule 144, could occur, may adversely affect prevailing market prices of our common stock.
Because our directors and executive officers
own or have the right to vote approximately 68.5% of our outstanding common stock, they may be able to elect all directors, approve all
matters requiring stockholder approval and block any action which may be beneficial to stockholders.
As of June 27, 2024, our directors and executive officers beneficially
own approximately 68.5% of our outstanding common stock. Our bylaws provide that a majority of the aggregate voting power of the stock
issued and outstanding and entitled to vote constitutes a quorum for a meeting of stockholders. As a result, they may have the ability
to elect all of our directors and to approve actions requiring stockholder approval as well as to prevent any action from being taken
which they oppose even if such action would benefit stockholders.
Delaware law and
provisions in our amended and restated certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult,
thereby depressing the trading price of our common stock.
Our amended and restated
certificate of incorporation (as amended) and bylaws contain provisions that could depress the trading price of our common stock by acting
to discourage, delay or prevent a change of control of us or changes in its management that the stockholders may deem advantageous. These
provisions include the following:
● establish a classified board of directors so that not all
members of our board of directors are elected at one time;
● permit the board of directors to establish the number of
directors and fill any vacancies and newly-created directorships;
● provide that directors may only be removed for cause;
● require super-majority voting to amend some provisions in
our bylaws;
● prohibit stockholder action by written consent, which requires
all stockholder actions to be taken at a meeting of the stockholders;
● provide that the board of directors is expressly authorized
to amend or repeal our bylaws;
● restrict the forum for certain litigation against the Company
to Delaware; and
● establish advance notice requirements for nominations for
election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Any provision of our
amended and restated certificate of incorporation (as amended) or bylaws or Delaware law that has the effect of delaying or deterring
a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could
also affect the price that some investors are willing to pay for our common stock.
26
Our management
is required to devote a substantial amount of time to comply with public company regulations.
As a public company,
we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank
Wall Street Reform and Consumer Protection Act as well as rules implemented by the SEC and Nasdaq, impose various requirements on public
companies, including those related to corporate governance practices. Our management and other personnel will need to devote a substantial
amount of time to these requirements. Certain members of our management do not have significant experience in addressing these requirements.
Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming
and costly.
Among other things, our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our compliance with these requirements
will require that it incur substantial accounting and related expenses and expend significant management efforts. We will need to hire
additional accounting and financial staff to comply with public company regulations. The costs of hiring such staff may be material and
there can be no assurance that such staff will be immediately available to us.
Moreover, because we
have identified deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investors could
lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline and we could
be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.