Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
An investment in our securities
involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this Report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition,
or results of operations could suffer materially. In such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
Risks Related to Our Business and Operations
We have a limited operating history under
the Flash Sports & Media platform and may not be able to successfully execute our business plan.
The Company completed the
Merger with Flash on February 17, 2026. Flash was incorporated on August 7, 2023 and had not generated any revenue prior to the Merger.
While IPG, which is now a wholly owned subsidiary of Flash and therefore of the Company, has generated revenue from cricket-related operations
since 2020, the combined entity has a limited operating history as a publicly traded sports and media company. There can be no assurance
that we will be able to successfully integrate the operations of Flash, IPG, and the Company, or that we will achieve profitability. Our
prospects must be considered in light of the risks and uncertainties encountered by companies in the early stages of development in rapidly
evolving markets.
We are substantially dependent on a single
contractual relationship with Sri Lanka Cricket for a significant majority of our revenue.
Substantially all of IPG’s
revenue is derived from the commercialization of rights granted under the Master Event Rights Agreement with SLC for the Lanka Premier
League. The loss, non-renewal, or material modification of this agreement would have a material adverse effect on our business, financial
condition, and results of operations. The Event Rights Agreement requires annual payment of an Event Rights Fee or provision of a bank
guarantee by March 15 of each year; failure to make timely payment could result in termination of the Company’s rights for that
year. Although the agreement provides for automatic one-year renewals, IPG’s rights must be secured annually, and there can be no
assurance that the agreement will be renewed on favorable terms, or at all.
We have a going concern qualification and
a history of net losses and accumulated deficits.
Both IPG and Flash have received
going concern qualifications from their respective auditors. As of December 31, 2024, IPG had an accumulated deficit of approximately
$4.6 million and a working capital deficit of approximately $1.9 million. Flash had an accumulated deficit of $500,000 as of December
31, 2024 and had never generated revenue. The Company (legacy urban-gro) had an accumulated deficit of approximately $120.6 million and
a stockholders’ deficit of approximately $40.9 million as of December 31, 2025. There can be no assurance that the combined entity
will achieve or sustain profitability.
Our revenue is concentrated among a limited
number of customers and geographies.
For the year ended December
31, 2024, approximately 82% of IPG’s total revenue was generated from customers based in Sri Lanka, with the remaining 18% derived
from Zimbabwe. In 2023, sales to four customers individually exceeded 10% of IPG’s total revenue, collectively representing approximately
53% of total revenue. The loss of any significant customer or a significant reduction in business from Sri Lanka or Zimbabwe could have
a material adverse effect on our financial performance. The Company continues to focus on efforts to diversify its customer base to mitigate
such risks.
12
Our business is dependent on the continued
popularity and growth of cricket, particularly T20 cricket, in our target markets.
Our revenue is substantially
derived from the commercialization of T20 cricket league rights. Any decline in the popularity of cricket or T20 cricket in Sri Lanka,
or in international markets where we distribute media content, could reduce demand for media rights, sponsorships, franchise ownership,
and ticketing, which would materially and adversely affect our business, financial condition, and results of operations.
We are subject to risks associated with
international operations.
The Company conducts operations
in the United Arab Emirates, Sri Lanka, Zimbabwe, and other international markets, and is subject to risks inherent in international operations,
including political and economic instability, currency fluctuation risk, regulatory uncertainty, foreign tax regimes (including the recently
enacted UAE Corporate Tax), sanctions and trade restrictions, cultural and legal differences, and challenges in enforcing contractual
rights across jurisdictions. Any of these factors could materially and adversely affect our operations and financial results.
We depend on key personnel, including the
founder and chairman of IPG.
The Company’s success
depends in significant part on the continued services and leadership of key individuals, including Anil Mohan Sankhdhar, the founder and
chairman of IPG, who has been instrumental in building the Company’s relationships with SLC, franchise owners, sponsors, and broadcast
partners, and Bradley Nattrass, the Company’s Chairman and Chief Executive Officer. The loss of any of these individuals’
services could have a material adverse effect on our business and operations. We do not currently maintain key-person life insurance on
any of our executives.
Force majeure events, including pandemics,
natural disasters, terrorism, and political unrest, could disrupt our tournament operations.
The LPL and our other cricket
events are live, in-person sporting events that are subject to disruption or cancellation due to force majeure events. Under the Event
Rights Agreement, the full Event Rights Fee remains payable by the Event Rights Partner to SLC even if the whole or any part of the Tournament
is curtailed, cancelled, or abandoned due to any Force Majeure event, after the date of commencement of the Tournament. Force Majeure
events include, but are not limited to, acts of God, war, riot, strike, civil commotion, terrorism, pandemics, epidemics, fire, earthquake,
storm, flood, tsunami, explosion, and acts of Government. Any such disruption could materially and adversely affect our revenue, reputation,
and operations.
Our expansion into new markets and new business
verticals involves significant risks and uncertainties.
We have announced expansion
plans for T20 cricket league operations in Malaysia, Zimbabwe, Bangladesh, and the United Arab Emirates. We are also pursuing potential
strategic combinations and partnerships in the esports and entertainment sectors, including a potential combination with Infinity Esports
& Gaming, a Latin American esports organization that operates gaming centers across multiple countries and holds branded intellectual
properties, and the potential development of Dune Bridge Capital, an investment and strategic capital deployment vertical focused on film,
television, sports, and digital media. Each of these initiatives involves significant execution risk, including the need to negotiate
and execute definitive agreements, secure regulatory approvals, recruit qualified local personnel, obtain adequate financing, and build
local infrastructure. As of the date of this Report, no definitive agreements have been entered into with respect to the esports or entertainment
verticals. There can be no assurance that any of these expansion or diversification initiatives will be completed on the terms anticipated,
or at all, or that they will generate the revenue or returns expected.
13
We face significant competition in the sports
media and entertainment industry.
The sports media and entertainment
industry is highly competitive. We compete for viewership, sponsorship dollars, franchise investment, media rights fees, and talent with
larger, better-capitalized companies and established cricket leagues, including the IPL, BBL, CPL, PSL, and SA20. Many of our competitors
have significantly greater financial, technical, marketing, and other resources than we do. There can be no assurance that we will be
able to compete effectively.
Risks Related to the Merger and Integration
The Merger may not achieve its intended
benefits, and integration of the combined businesses involves significant risks.
The success of the Merger
depends on, among other things, our ability to successfully integrate the operations, technologies, and personnel of Flash, IPG, and the
legacy urban-gro business, achieve anticipated revenue growth, realize cost synergies, and retain key customers, partners, and employees.
Integration may be more difficult, time-consuming, or costly than expected, and there can be no assurance that we will realize the expected
benefits of the Merger.
Following the Merger, former Flash
stockholders are expected to own a minimum of 90% of the combined company, resulting in significant dilution to existing
stockholders.
Under the terms of the Merger
Agreement, Flash stockholders received shares of UGRO common stock equal to 19.99% of the outstanding shares immediately prior to certain
prior issuances, as well as shares of newly created non-voting convertible preferred stock that, upon stockholder approval of the conversion,
would result in former Flash stockholders owning approximately 90% of the combined company on a fully-converted basis. This represents
substantial dilution to the Company’s existing stockholders.
The Company changed its independent auditor
in connection with the Merger, which may increase the risk of accounting errors or restatements.
On March 03, 2026, the Company dismissed Sadler, Gibb & Associates,
LLC as its independent registered public accounting firm and appointed Suri and Co., Chartered Accountants of Chennai, India to
audit the Company’s financial statements for the year ended December 31, 2025. The transition to a new auditor during a period of
significant business transformation increases the risk of accounting errors, delays in financial reporting, or the need for restatements.
Risks Related to Nasdaq Listing and Capital
Structure
We have a history of non-compliance with
Nasdaq listing standards and may be unable to maintain our Nasdaq listing.
The Company has experienced
multiple instances of non-compliance with Nasdaq listing standards, including the minimum bid price requirement, timely filing of periodic
reports, minimum stockholders’ equity requirement, and annual meeting requirement. While the Company regained compliance with these
requirements as of March 2026, Nasdaq has placed the Company on a one-year Discretionary Panel Monitor under Listing Rule 5815(d)(4)(A).
Any future non-compliance could result in delisting, which would materially and adversely affect the liquidity and trading price of our
common stock.
We have limited liquidity and may require
additional financing to fund our operations.
As of December 31, 2025, the
Company had cash of approximately $10,000 and negative working capital of approximately $42.7 million. Our ability to continue operations
is dependent on our ability to generate sufficient revenue and/or obtain financing. There can be no assurance that additional financing
will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required
to reduce the scope of our planned development, which could harm our business, financial condition, and operating results.
14
We have significant outstanding liabilities
and legal proceedings that could adversely affect our financial condition.
The Company has significant
accounts payable, contract liabilities, notes payable, and accrued expenses. Additionally, the Company is subject to various legal proceedings,
including lawsuits by creditors, equipment suppliers, and former contractors. Adverse outcomes in any of these proceedings could materially
affect our financial position and results of operations.
Risks Related to Regulatory and Legal Matters
We are subject to anti-corruption, anti-bribery,
and sports integrity laws and regulations.
The Company and its subsidiaries,
sub-licensees, franchise holders, and team owners are required to comply with anti-corruption and anti-bribery laws in all jurisdictions
in which we operate, as well as ICC anti-corruption codes. Any violation of these laws or codes could result in criminal penalties, fines,
suspension, or termination of our Event Rights, any of which could have a material adverse effect on our business.
Changes in tax laws or regulations, including
the recently enacted UAE Corporate Tax, could increase our tax burden.
IPG is subject to the UAE
Corporate Tax Law effective January 1, 2024, which imposes a 9% tax on taxable income exceeding the exemption threshold. Changes in applicable
tax laws or their interpretation, or the enactment of new taxes in jurisdictions where we operate, could increase our effective tax rate
and adversely affect our financial results.
The Event Rights Agreement is governed by
Sri Lankan law and disputes are subject to international arbitration, which may be costly and time-consuming.
The Event Rights Agreement
is governed by the laws of Sri Lanka, and disputes are subject to arbitration in Colombo under the Rules of the International Chamber
of Commerce. The number of arbitrators shall be three, and each party shall be entitled to select one arbitrator each, with the third
selected jointly to act as Chairman of the Arbitral Tribunal. Enforcing contractual rights through international arbitration may be more
costly, time-consuming, and uncertain than litigation in U.S. courts, and arbitral awards may be difficult to enforce in other jurisdictions.
We had negative cash flow from operations
for the fiscal years ended December 31, 2025 and December 31, 2024.
We had negative cash flow
from operations of $0.1 million and $2.8 million for the years ended December 31, 2025 and 2024, respectively. To the extent that we have
negative cash flow from operations in future periods, we may need to allocate a portion of our cash reserves to fund such negative cash
flow. We may also be required to raise additional funds through the issuance of equity or debt securities. We may not be able to generate
positive cash flow from our operations and additional capital or other types of financing may not be available when needed or on terms
favorable to us.
15
We may continue to incur losses in the near
future, which may impact our ability to implement our business strategy and adversely affect our financial condition.
While we are focused significantly
on controlling our operating expenses by managing variable expenses, employee count, and marketing activities in order to become cash
flow positive, these measures may adversely affect our future operating results if we are unable to support the business effectively.
In turn, this would have a negative impact on our financial condition and potentially our share price.
We may not become profitable
or generate sufficient profits from operations in the future. If our revenues do not continue to grow or our gross profits deteriorate
substantially, we are likely to continue to experience losses in future periods. Collectively, this may impact our ability to implement
our business strategy and adversely affect our financial condition. This potentially would have a negative impact on our share price.
We may be forced to litigate to defend our
intellectual property rights, or to defend against claims by third parties against urban-gro relating to intellectual property rights.
We may be forced to litigate
to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties’
proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business.
The existence and/or outcome of any such litigation could harm our business.
We may not be able to successfully identify,
consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.
Part of our business strategy
includes pursuing synergistic acquisitions. We have expanded, and plan to continue to expand, our business by making strategic acquisitions
and regularly seeking suitable acquisition targets to enhance our growth. Material acquisitions, dispositions and other strategic transactions
involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from
the ongoing oversight of our existing business activities; (iii) incurring indebtedness; (iv) the anticipated benefits and cost savings
of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope
and complexity of our operations; and (vi) the loss or reduction of control over certain of our assets.
The pursuit of acquisitions
may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability.
Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us. We will
incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate
such acquisitions.
16
Additionally, even if we are
able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their operations with ours. Achieving
the anticipated benefits of any acquisition will depend in significant part upon whether we integrate such acquired businesses in an efficient
and effective manner. We may not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our
acquisitions within the anticipated timing or at all. The benefits from any acquisition will be offset by the costs incurred in integrating
the businesses and operations. We may also assume liabilities in connection with acquisitions to which we would not otherwise be exposed.
An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be
encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on
our business, results of operations and financial condition.
Risks Related to Ownership of Our Common Stock
Our failure to meet the continued listing requirements of Nasdaq
could result in the delisting of our Common Stock.
Although we regained compliance
with Nasdaq’s continued listing requirements in March 2026, we are currently subject to a one-year Discretionary Panel Monitor.
If we fail to maintain compliance during the monitoring period, Nasdaq may take steps to delist our common stock. Such a delisting would
likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase our common
stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing
in the future.
There can be no assurance
that we will be able to regain compliance with the Bid Price Rule, the Timely Filing Requirement, or the Stockholders’ Equity Requirement,
or will otherwise be in compliance with other applicable Nasdaq Listing Rules. If we fail to meet the conditions set forth in
our compliance plan or if Nasdaq delists our securities from trading for any other reason, we could face significant material adverse
consequences, including:
●
a limited availability of market quotations for our securities;
●
reduced liquidity with respect to our securities;
●
a determination that our common stock is a “penny stock” which will require brokers trading in our ordinary shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our ordinary shares;
●
a limited amount of news and analyst coverage for our company; and
●
a decreased ability to issue additional securities or obtain additional financing in the future.
17
Our stock price could be extremely volatile.
As a result, shareholders may not be able to re-sell their shares at or above the price they paid for them.
The market price of our common
stock may be highly volatile and could be subject to wide fluctuations. Volatility in the market price of our common stock, as well as
general economic, market or political conditions, may prevent shareholders from being able to sell their shares at or above the price
they paid for their shares and may otherwise negatively affect the liquidity of our common stock. Shareholders may experience a decrease,
which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and
shareholders could lose part or all of their investment. The price of our common stock has been, and could continue to be, subject to
wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as:
●
our ability to generate sufficient revenues to achieve profitability and positive cash flow;
●
competition in our industry and our ability to compete effectively;
●
our ability to attract, recruit, retain and develop key personnel and qualified employees;
●
reliance on significant clients and third-party suppliers;
●
our ability to successfully identify and complete acquisitions and effectively integrate those acquisitions into our operations;
●
our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors;
●
changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other industry participants;
●
developments in our business or operations or our industry sectors generally;
●
any future offerings by us of our common stock;
●
any coordinated trading activities or large derivative positions in our common stock, for example, a “short squeeze” (a short squeeze occurs when a number of investors take a short position in a stock and have to buy the borrowed securities to close out the position at a time that other short sellers of the same security also want to close out their positions, resulting in a surge in stock prices, i.e., demand is greater than supply for the stock sold short);
●
legislative or regulatory changes affecting our industry generally or our business and operations specifically;
●
the operating and stock price performance of companies that investors consider to be comparable to us;
●
announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors;
18
●
actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers;
●
proposed or final regulatory changes or developments;
●
anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and
●
the other factors described under Risk Factors in Part I, Item 1A of this Report.
In response to any one or
more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action
litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could
result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments
to satisfy judgments or to settle litigation.
Shareholders may be diluted by future issuances
of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such
shares in the public market, or the expectations that such sales may occur, could lower our stock price.
Our certificate of incorporation
authorizes us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for
the consideration and on the terms and conditions established by our Board in its sole discretion. We could issue a significant number
of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing
shareholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price
for the shares of our common stock.
The future issuance of shares
of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting
the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders
of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by
the holders of our shares of our common stock.
The future issuance of shares
of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred
stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example,
investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred
stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price,
causing economic dilution to the holders of common stock.
We do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
We currently intend to retain
our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any
dividends to holders of our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made
at the discretion of our Board taking into account various factors, including our business, operating results and financial condition,
current and anticipated cash needs, plans for expansion, any legal or contractual limitations on our ability to pay dividends under our
loan agreements or otherwise. As a result, if our Board does not declare and pay dividends, the capital appreciation in the price of our
common stock, if any, will be our shareholders only source of gain on an investment in our common stock, and shareholders may have to
sell some or all of their common stock to generate cash flow from their investment.
19
If securities or industry analysts do not
publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, its trading price
and volume could decline.
We expect the trading market
for our common stock to be influenced by the research and reports that industry or securities analysts publish about us, our business
or our industry. If no additional securities or industry analysts commence coverage of our company, the trading price for our stock may
be negatively impacted. If one or more of our covering analysts cease coverage of our company or fail to publish reports on us regularly,
we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and our common
stock to be less liquid. Moreover, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable
research about our business, or if our results of operations do not meet their expectations, our stock price could decline.
Provisions of our certificate of incorporation
and bylaws may delay or prevent a take-over that may not be in the best interests of our shareholders.
Provisions of our certificate
of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our shareholders
may be called, and may delay, defer or prevent a takeover attempt.
In addition, our certificate
of incorporation authorizes the issuance of up to 3,000,000 shares of preferred stock with such rights and preferences determined from
time to time by our Board. None of our preferred shares are currently issued or outstanding. Our Board may, without shareholder approval,
issue preferred shares with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or
other rights of the holders of our common stock.
The requirements of being a public company
may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified
Board members.
As a public company, we are
subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities
rules and regulations. Compliance with these rules and regulations involves significant legal and financial compliance costs, may make
some activities more difficult, time-consuming or costly and may increase demand on our systems and resources, particularly after we are
no longer an “emerging growth company,” as defined in the JOBS Act. The Exchange Act requires, among other things, that we
file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among
other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to
maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard,
significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business
concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage
outside consultants, which will increase our costs and expenses.
20
In addition, changing laws,
regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject
to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply
with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion
of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new
laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their
application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected.
As a result of disclosure
of information in this Report and in filings required of a public company, our business and financial condition are highly visible, which
may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business
and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business
and operating results.
We are subject to ongoing regulatory burdens
resulting from our public listing.
We continually work with our
legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems
to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure
controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and
other areas, including our internal controls over financial reporting. However, these and other measures that we might take may not be
sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis. In addition, compliance with
reporting and other requirements applicable to public companies listed on Nasdaq creates additional costs for us and requires the time
and attention of management. The additional costs that we incur, the timing of such costs and the impact that management’s attention
to these matters may adversely affect our business and operating results.
We have identified material weaknesses in
our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not
be able to accurately report our financial results and prevent fraud. As a result, current and potential shareholders could lose confidence
in our financial statements, which would harm the trading price of our common shares.
Companies that file reports
with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires
management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under
the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial
reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies
that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their
regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated
filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.
A report of our management
is included under Item 9A. “Controls and Procedures.” We are a smaller reporting company and, consequently, are not required
to include an attestation report of our auditor in our annual report. However, if and when we become subject to the auditor attestation
requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.
21
During its evaluation of the
effectiveness of internal control over financial reporting as of December 31, 2025, management identified material weaknesses as described
under Item 9A. “Controls and Procedures.” We are undertaking remedial measures, which measures will take time to implement
and test, to address these material weaknesses. There can be no assurance that such measures will be sufficient to remedy the material
weaknesses identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the
future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved
controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in
our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation
reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline
in our share price.
General Risk Factors
We are highly dependent on our management
team, and the loss of our executive officers or other key employees could harm our ability to implement our strategies, impair our relationships
with clients and adversely affect our business, results of operations and growth prospects.
Our insurance may not adequately cover our
operating risk.
We have insurance to protect
our assets, operations and employees. While we believe our insurance coverage addresses all material risks to which we are exposed and
is adequate and customary in our current state of operations, such insurance is subject to coverage limits and exclusions and may not
be available for the risks and hazards to which we are exposed. In addition, such insurance may not be adequate to cover our liabilities
or may not be generally available in the future or, if available, premiums may not be commercially justifiable. If we were to incur substantial
liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at
a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially
adversely affected.
We may be exposed to currency fluctuations.
Although our revenues and
expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent
events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange
rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material
adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion
of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However,
even if we develop a hedging program, there can be no assurance that it will effectively mitigate currency risks.
Changes in accounting standards and subjective
assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
U.S. generally accepted accounting
principles (“U.S. GAAP”) and related pronouncements, implementation guidelines and interpretations with regard to a wide variety
of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions,
and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these
rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change
our reported results.
Our ability to maintain our reputation is
critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common
stock.
Our reputation is a valuable
component of our business. Threats to our reputation can come from many sources, including adverse sentiment about our industry generally,
unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable
or fraudulent activities of our clients. Negative publicity regarding our business, employees, or clients, with or without merit, may
result in the loss of clients, investors and employees, costly litigation, a decline in revenues and increased governmental regulation.
If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results
and the value of our common stock may be materially adversely affected.
22