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.
14
Summary of Risk Factors
Risks Related to the Company’s Business,
Operations, and Industry
● We may not meet our growing production and delivery plans, which could harm our business.
● We rely heavily on a few key vendors in China for vehicle components.
● Trade tensions, especially between the U.S. and China, may negatively impact our operations.
● We depend on third parties for quality control on China-sourced parts.
● Our ability to produce vehicles at scale and with consistent quality is unproven.
● Supply chain changes may increase costs and hurt our financial performance.
● Rising material costs or shortages, including from global conflicts, could disrupt production.
● Our vehicles may not meet customer expectations.
● Growth depends on consumer adoption of electric vehicles (EVs).
● We operate in a complex and evolving regulatory environment.
● We may struggle to control operational costs effectively.
● Weak brand recognition may impact customer acceptance and sales.
● Our limited operating history makes it hard to predict future performance.
● There is substantial doubt about our ability to continue as a going concern.
● Material weaknesses exist in our internal controls over financial reporting.
● We face intense competition in a young and fast-evolving market.
● Product liability claims could significantly harm our financial position.
● We rely on key executives; their loss could impact operations.
● Our management lacks experience running a public company.
● We may face costly and time-consuming intellectual property disputes.
● Inadequate protection of IP could lead to litigation and brand damage.
● Cybersecurity threats could compromise our systems and data.
● We may fail to develop new products or improve existing ones to meet demand.
● Limited experience with vehicle servicing may harm customer satisfaction.
● Warranty claims or recalls could have a major financial impact.
● Aftermarket modifications may impair vehicle performance and harm our reputation.
15
Risks Related to Our Securities
● A stable and active market for our stock may not develop or be maintained.
● Stock price may be highly volatile and unpredictable.
● Directors and officers hold significant control, limiting shareholder influence.
● Public company status increases compliance costs.
● Lack of analyst coverage or negative analyst opinions may reduce stock value.
● “Emerging growth company” status may deter investors due to reduced disclosures.
● As a “smaller reporting company,” we may provide less public information.
● Future issuance of preferred stock could deter takeovers and affect stock value.
● We do not expect to pay cash dividends in the near future.
● Future stock sales may dilute ownership and lower the stock price.
● Directors and executive officers’ 18.7% control may block beneficial actions for shareholders.
● Delaware laws and corporate bylaws may hinder mergers or takeovers.
● Public company compliance diverts management focus from core operations.
● We may fail to meet Nasdaq listing requirements.
● FINRA rules may restrict buying/selling of our stock.
● Warrant holders have no stockholder rights until conversion.
● Lack of analyst reports or negative changes in coverage could harm our stock.
16
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 demand
of our products in domestic and overseas markets, we plan to open more stores overseas while focusing on developing more wholesale domestic
customers. 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.
We are dependent on a limited number of
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 a limited number
of 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, 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.
The current tensions in international trade
policies and rising political tensions, particularly between the United States and China, may adversely impact our business and operating
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
may adversely impact the industry supply chain. The U.S. government has implemented policies restricting international trade and
investment, such as tariffs, export controls, economic or trade sanctions, and foreign investment filing and approval requirements. These
actions may materially and adversely affect international trade, global financial markets, and the stability of the global economic condition.
In the past, the U.S. government has imposed higher tariffs on certain products imported from China to penalize China for what it
characterizes as unfair trade practices. China has responded by imposing higher tariffs on certain products imported from the United States.
In particular, in April 2025
the United States announced an across-the-board 10% tariff on all countries and individualized higher tariffs on certain countries, including
China. A great deal of uncertainty surrounds the state of tariffs and other trade measures worldwide. While the current U.S. administration
has been actively focused on trade, the exact implementation, amount, scope and nature of these tariffs remains unclear. It also remains
unclear how other countries will respond to the United States’ trade proposals and actions.
17
As of now, high reciprocal
tariffs are in effect between China and the United States and the United States has announced, but temporarily paused the effective date
of, tariffs on goods imported from many other countries, including Mexico, Canada, Taiwan and the European Union. Significant trade partners
such as Mexico, Canada and the European Union have announced retaliatory tariffs. Further, while the United States has exempted certain
technology products such as semiconductors and electronics from the reciprocal tariffs announced on April 2, 2025 such that our products
are not subject to the announced tariffs, it has also initiated Section 232 investigations on such products, possibly leading to the imposition
of specific tariffs on these products or on products that incorporate them.
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 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.
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 Maspeth, 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.
18
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.
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.
19
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;
● 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.
20
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.
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;
21
● 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.
There is substantial doubt about our ability
to continue as a going concern.
We believe there is substantial
doubt about our ability to continue as a going concern as of the date of this annual report. The going concern may be included in our
future reports and could materially limit our ability to raise additional funds through the issuance of new debt or equity securities
or otherwise.
As of March 31, 2025, we had
cash of $0.8 million. We had working capital of $1.3 million and $0.3 million as of March 31, 2025 and March 31, 2024,
respectively. We had net loss of $5.3 million and net income of $1.9 million for the year ended March 31, 2025 and 2024, respectively.
During the year ended March 31, 2025, net cash used in operating activities of the Company was approximately $10.1 million. As of
March 31, 2025, we had a current portion of contractual obligation of approximately $8.9 million. We plan to alleviate the going
concern risk through (i) equity financing to support the Company’s working capital; (ii) other available sources of financing
(including debt) from banks and other financial institutions; and (iii) financial support from the Company’s related parties.
There is no assurance that we will be successful in implementing the foregoing plans or that additional financing will be available to
us on commercially reasonable terms, or at all. Our inability to secure needed financing when required could require material changes
to our business plans and could have a material adverse effect on our ability to continue as a going concern and results of operations.
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, 2025, 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.
22
In
response to the material weaknesses identified for the year ended March 31, 2025, 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, once completed, 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.
23
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
any member of our management team, including 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 affected. 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 receive communications from holders of patents or trademarks regarding their proprietary rights, including
in publicly available court filings. 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.
24
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.
25
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.
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.
26
Risks Related to Our Securities
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 18.7% of our outstanding common stock as of the date of this annual report. As a result, these stockholders
may 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.
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;
27
● 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 incur increased costs as a result of
being a publicly traded company.
As a company with publicly traded securities,
we 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.
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.
28
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.
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 July 15, 2025, there
are 3,432,000shares of restricted common stock, which constitute approximately 32.3% 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 3,366,000shares have signed lock-ups for period of 180 days from the closing of the registered
direct offering, which expires on December 1, 2025, release from the lock-up restriction at the discretion of the placement agent for
the registered direct offering. If placement agent for the registered direct 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.
29
Because our directors and executive officers
own or have the right to vote approximately 18.7% 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 July 15, 2025, our
directors and executive officers beneficially own approximately 18.7% 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.
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.
30
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.
There can be no assurance that we will
be able to comply with the continued listing standards of Nasdaq.
Our eligibility for listing
on Nasdaq depends on our ability to comply with Nasdaq’s continued listing requirements. On October 2, 2024, we received written
notice from Nasdaq indicating that the bid price for our common stock for the last 31 consecutive business days, had closed below
the minimum $1.00 per share and, as a result, we are not in compliance with the $1.00 minimum bid price requirement for the continued
listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2).
In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until March 31, 2025, to regain compliance with
the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share
for a minimum of 10 consecutive business days during this 180 day period. On April 2, 2025, Nasdaq notified us that, although
the Company has not regained compliance with the minimum bid price requirement, the Company is eligible to receive an additional 180
calendar day period or until September 29, 2025, to regain compliance with the minimum bid price requirement, pursuant to Nasdaq
Listing Rule 5810(c)(3)(A). We will monitor the closing bid price of our common stock and may, if appropriate, consider implementing
available options, including, but not limited to, implementing a reverse share split of our common stock, to regain compliance with the
minimum bid price requirement under the Nasdaq Listing Rules. On June 16, 2025, our board of directors approved a one-for-five (1:5)
reverse stock split of our issued and outstanding shares of common stock. On July 3, 2025, we filed with the Secretary of State of the
State of Delaware a Certificate of Amendment to our Certificate of Incorporation to effect the 2025 Reverse Stock Split. The 2025 Reverse
Stock Split became effective on July 3, 2025, and our common stock began trading on a split-adjusted basis on Nasdaq on July 7, 2025.
However, there can be no assurance that we will be able to regain such compliance.
If Nasdaq delists our common
stock from trading on its exchange, we and our stockholders could face significant material adverse consequences including:
● limited availability
of market quotations for our securities;
● a determination
that our common stock is a “penny stock,” which will require brokers trading
in our common stock to adhere to more stringent rules, possibly resulting in a reduced level
of trading activity in the secondary trading market for our common stock;
● a limited amount
of analyst coverage; and
● decreased ability
to issue additional securities or obtain additional financing in the future.
FINRA sales practice requirements may limit
a stockholder’s ability to buy and sell our common stock.
The Financial Industry Regulatory
Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that
there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements
make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the effect of reducing
the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our common stock,
reducing a stockholder’s ability to resell shares of our common stock.
31
Holders of the Warrants will have no rights
as a common stockholder until they acquire our common stock.
Until holders of the Warrants
acquire shares of our common stock upon exercise of the Warrants, the holders will have no rights with respect to shares of our common
stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the holder will be entitled to exercise the rights of a
common stockholder as to the security exercised only as to matters for which the record date occurs after the exercise.
If securities or industry analysts do not
publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding
our securities adversely, our stock price and trading volume could decline.
The trading market for our
common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market
or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide
more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us
were to cease coverage of our company or fail 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.