Item 1A. Risk Factors
Item 1A. Risk Factors.
The following risks could materially and adversely
affect our business, financial condition, cash flows, and results of operations, and could cause the trading price of our common stock
to decline. These risk factors do not identify all of the risks that we face. Our operations could also be affected by factors that are
not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and
unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to
anticipate results or trends in future periods. Refer also to the other information set forth in this Report, including in Part II, Item
7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , as well as our Consolidated Financial
Statements and the related notes in Part II, Item 15.
Summary of Risk Factors
The following summarizes the risks and uncertainties
that could materially adversely affect our business, financial condition, results of operation and stock price. You should read this summary
together with the more detailed description of each risk factor contained below.
Risks Related to Our Business, Operations and Industry
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We might not be able to continue as a going concern.
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We discontinued the production of our memory products.
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We have a history of losses, and we will need to raise additional capital.
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Our failure to generate the significant capital necessary or raise additional capital to expand our operations and invest in new products could reduce our ability to compete and could harm our business.
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Our failure to successfully market our products could seriously harm our ability to execute our business strategy and may force us to curtail our research and development plans or existing operations.
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Future revenue growth depends on our winning designs with existing and new customers, retaining current customers, and having those customers design our solutions into their product offerings and successfully selling and marketing such products. If we do not continue to win designs in the short term, our product revenue in the following years will not grow.
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To date, we have not achieved the anticipated benefits of conducting business as a fabless semiconductor company.
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Our main objective is the development and sale of our technologies to OEMS, service providers and other equipment manufacturers and their subsystem and component vendors and, if demand for these products does not grow, we may not achieve revenue growth and our strategic objectives.
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Our failure to continue to develop new products and enhance our products on a timely basis could diminish our ability to attract and retain customers.
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Our products have a lengthy sales cycle, which makes it difficult to predict success in this market and the timing of future revenue.
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The semiconductor industry is cyclical in nature and subject to periodic downturns, which can negatively affect our revenue.
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Our revenue has been highly concentrated among a small number of customers, and our results of operations could be harmed if we lose a key revenue source and fail to replace it.
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Our revenue concentration may also pose credit risks which could negatively affect our cash flow and financial condition.
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Our products must meet exact specifications and defects and failures may occur, which may cause customers to return or stop buying our products.
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Because we sell our products on a purchase order basis and rely on estimated forecasts of our customers’ needs, inaccurate forecasts could adversely affect our business.
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We rely on independent foundries and contractors for the manufacture, assembly, testing and packaging of our integrated circuits and modules, and the failure of any of these third parties to deliver products or otherwise perform as requested could damage our relationships with our customers and harm our sales and financial results.
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Disruptions in our supply chain due to shortages in the global semiconductor supply chain could cause delays for customers and impact revenue.
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Any claim that our products or technology infringe third party IP rights could increase our costs of operation and distract management and could result in expensive settlement costs or the discontinuance of our technology licensing or product offerings. In addition, we may incur substantial litigation expense which would adversely affect our profitability.
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The discovery of defects in our technology and products could expose us to liability for damages.
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We might not be able to protect and enforce our IP rights, which could impair our ability to compete and reduce the value of our technology.
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Our evaluation of strategic alternatives, including Mobix Labs’
proposal, may not result in a transaction or increased value for our stockholders and could create business disruption and stock price
volatility.
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We currently maintain and may expand operations outside of the United States, which exposes us to significant risks.
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International trade policies, including protectionist trade policies, such as tariffs and sanctions, could adversely affect our business, results of operations and financial condition.
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Third parties might attempt to gain unauthorized access to our network or seek to compromise our products and services.
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Risks Related to Our Securities
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There may be future sales of our common stock, which could adversely affect the market price of our common stock and dilute a stockholder’s ownership of common stock.
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Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change-of-control transaction and depress the market price of our stock.
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If we are unable to satisfy the continued listing requirements of the Nasdaq, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.
Risks Related to Our Business, Operations and Industry
We might not be able to continue as a going concern.
Our consolidated financial statements as of December 31, 2025 have
been prepared under the assumption that we will continue as a going concern for the next twelve months. As of December 31, 2025, we had
cash and cash equivalents of $2.9 million and an accumulated deficit of $181.9 million. We believe that our existing cash and cash equivalents
and expected receipts associated with forecasted product sales will enable us to meet our capital needs into the third quarter of 2026.
Our ability to continue as a going concern is dependent upon our ability
to raise additional capital and to achieve sustainable revenues and profitable operations. We will need to increase revenues substantially
beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue
doing business without raising additional capital from time to time. As a result of our expected operating losses and cash burn for
the foreseeable future and recurring losses from operations, if we are unable to raise sufficient capital through additional debt or equity
arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively. As
a result, management has concluded, and our independent registered public accounting firm has agreed with our conclusion that there is
substantial doubt regarding our ability to continue as a going concern for a period of at least 12 months beyond the filing of this Annual
Report on Form 10-K. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.
If we are unable to generate sustainable operating
profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We cannot be certain that raising
additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be
available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities
may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution.
If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs,
cut operating costs, forego future development and other opportunities or even terminate our operations.
Our forecast of the period of time through which our
financial resources will be adequate to support our operating requirements is a forward-looking statement and involves risks and uncertainties,
and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “ Risk Factors ”
section. We have based this estimate on a number of assumptions that may prove to be wrong and changing circumstances beyond our control
may cause us to consume capital more rapidly than we currently anticipate. Our inability to obtain additional funding when we need it
could seriously harm our business.
We discontinued the production of our memory
products.
Taiwan Semiconductor Manufacturing Corporation, or TSMC, the sole foundry
that manufactured the wafers used to produce our memory IC products, discontinued the foundry process used to produce such wafers. As
we were not in a position to transition wafer production to a new foundry and continue to manufacture these products, we initiated an
end-of-life, or EOL, of our memory IC products in 2023, and ceased production of these products in 2024. As of December 31, 2025, we had
no remaining EOL purchase orders from customers. We do not expect to generate any meaningful revenue from shipments of our memory
IC products after December 2025. For the years ended December 31, 2025 and 2024, our memory IC products represented approximately 22%
and 89% of our revenues, respectively. The discontinuation of the production and sale of our memory IC products will negatively impact
our future revenues, results of operations and cash flows.
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Our gross profit may fluctuate due to a variety
of factors, which could negatively impact our results of operations and our financial condition.
Our gross profit may fluctuate due to a number of
factors, including customer and product mix, market acceptance of our new products, yield, wafer pricing, packaging and testing costs,
competitive pricing dynamics, charges for inventory write-downs and geographic and market pricing strategies. To the extent we may offer
or be contractually obligated to offer certain customers favorable prices, it would decrease our average selling prices and likely impact
our gross profit. In the possible event our customers, including our larger customers, exert more pressure with respect to pricing and
other terms, it could put downward pressure on our profit.
Because we do not operate our own wafer fabrication,
assembly, or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities, and
in fact, our costs may even increase, which could further reduce our gross profit. We seek yield improvements and volume-based cost reductions
to enable cost reductions. To the extent that such cost reductions do not occur at a sufficient level and in a timely manner, our business,
financial condition, and results of operations could be adversely affected and may vary from our estimates.
In addition, we maintain an inventory of our products at various stages
of production, as well as an inventory of finished goods. As we are generally a sole-source supplier, we hold these inventories in anticipation
of customer orders. If those customer purchase orders do not materialize in a timely manner or customers do not honor those purchase orders,
we can have excess or obsolete inventory which we would have to write-down, and our gross profit and results of operations would be adversely
affected. During the years ended December 31, 2025 and 2024, we recorded inventory write-downs of approximately $36,000 and $0.4 million,
respectively.
We have a history of losses, and we will need
to raise additional capital.
We incurred net losses of approximately $4.8
million and $10.7 million for the years ended December 31, 2025 and 2024, respectively, and we had an accumulated deficit of approximately
$181.9 million as of December 31, 2025. These and prior-year losses have resulted in significant negative cash flows. To remain competitive
and expand our product offerings to customers, we will need to increase revenues substantially beyond levels that we have attained in
the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional
capital from time to time. Given our history of fluctuating revenues and operating losses, and the challenges we face in securing customers
for our products, we cannot be certain that we will be able to achieve and maintain profitability on either a quarterly or annual basis
in the future. As a result, we may need to raise additional capital in the future, which may or may not be available to us at all or only
on unfavorable terms.
Our failure to generate the significant capital
necessary or raise additional capital to expand our operations and invest in new products could reduce our ability to compete and could
harm our business.
We intend to continue spending to grow our business. If we do not achieve
and maintain profitability, we will need additional financing to pursue our business strategy, develop new products, respond to competition
and market opportunities and acquire complementary businesses or technologies. There can be no assurance that such additional capital,
whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered
on terms and conditions acceptable to us. Adverse market conditions, volatility in the capital markets, declines in our stock price, changes
in investor sentiment, interest rate increases, or factors specific to our business or industry could impair our ability to raise capital
on terms favorable to us or at all. In addition, so long as our public float remains below $75 million, we are subject to the “baby
shelf” limitations under General Instruction I.B.6 of Form S-3, which restricts the amount of securities we may sell under a shelf
registration statement in any 12-month period to one-third of our public float. This limitation may constrain the amount of capital we
can raise through our “at the market” offering program or through registered shelf offerings and may require us to rely on
alternative, potentially more costly or time-consuming offering structures, such as registration statements on Form S-1.
If we were to raise additional capital through sales
of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in debt financing, we may be
required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our
stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating
results and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other
things:
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develop or enhance our products;
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continue to expand our product development and sales and marketing organizations;
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acquire complementary technologies, products or businesses;
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expand operations, in the United States or internationally;
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hire, train and retain employees; or
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respond to competitive pressures or unanticipated working capital requirements.
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Our failure to successfully market our products
could seriously harm our ability to execute our business strategy and may force us to curtail our research and development plans or existing
operations.
Our success depends upon the acceptance by our target
markets of our products and technologies. Our prospective customers, which include original equipment manufacturers, or OEMs, and service
providers, may be unwilling to adopt and design-in our products due to the uncertainties and risks surrounding designing a new IC or module
and/or incorporating new IP into their systems and relying on a small, sole-sourced supplier. Thus, currently, we do not know whether
we will be able to generate adequate profit from making and selling our products and licensing our technologies to sustain our operations.
An important part of our strategy to gain market acceptance
is to penetrate new markets by targeting market leaders to accept our technology solutions. This strategy is designed to encourage other
participants in those markets to follow these leaders in adopting our solutions. If a high-profile industry participant adopts our products
for one or more of its products but fails to achieve success with those products, or is unable to successfully implement our products,
other industry participants’ perception of our solutions could be harmed. Any such event could reduce the amount of future sales
of our products.
Future revenue growth depends on our winning
designs with existing and new customers, retaining current customers, and having those customers design our solutions into their product
offerings and successfully selling and marketing such products. If we do not continue to win designs in the short term, our product revenue
in the following years will not grow.
We sell our ICs and modules to customers that include
our products in their products. Our technology is generally incorporated into products at the design stage, which we refer to as a design
win, and which we define as the point at which a customer has made a commitment to build a board against a fixed schematic for its system,
and this board will utilize our products. As a result, our future revenue depends on our OEM customers designing our products into their
products, and on those products being produced in volume and successfully commercialized. If we fail to retain our current customers or
convince our current or prospective customers to include our products in their products and fail to achieve a consistent number of design
wins, our results of operations and business will be harmed. In addition, if a current or prospective customer designs a competitor’s
offering into its product, it becomes significantly more difficult for us to sell our products to that customer because changing suppliers
involves significant cost, time, effort and risk for the OEM. Even if a customer designs one of our ICs or modules into its product, we
cannot be assured that the OEM’s product will be commercially successful over time, or at all, or that we will receive or continue
to receive any revenue from that customer. Furthermore, the customer product for which we obtain a design win may be canceled before the
product enters production or before or after it is introduced into the market. Because of our extended sales cycle, our revenue in future
years is highly dependent on design wins we are awarded today. Our lack of capital and uncertainty about our future technology roadmap
also may limit our success in achieving additional design wins, as discussed under “ We may experience difficulties in transitioning
to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing
yields, delays in product deliveries and increased costs .”
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The design-win process for our products is generally
lengthy, expensive and competitive, with no guarantee of revenue, and, if we fail to generate sufficient revenue to offset our expenses,
our business and operating results would suffer.
Achieving a design win for one of our products is
typically a lengthy, expensive and competitive process because our customers generally take a considerable amount of time to evaluate
our products. In the markets we serve, the time from initial customer engagement to design win to production volume shipments can range
from one to three years, though it may take longer for new customers or markets we intend to address. In order to win designs, we are
required to both incur design and development costs and dedicate substantial engineering resources in pursuit of a single customer opportunity.
Even though we incur these costs we may not prevail in the competitive selection process, and, even if we do achieve a design win, we
may never generate sufficient, or any, revenue to offset our development expenditures. Our customers have the option to decide whether
or not to put our solutions into production after initially designing our products in the specification. The customer can make changes
to its product after a design win has been awarded to us, which can have the effect of canceling a previous design win. The delays inherent
in our protracted sales cycle increase the risk that a customer will decide to cancel, curtail, reduce or delay its product plans, causing
us to lose anticipated revenue. In addition, any change, delay or cancellation of a customer’s plans could harm our financial results,
as we may have incurred significant expense while generating no revenue.
If our foundries do not achieve satisfactory
yields or quality, our cost of net revenue will increase, our operating margins will decline and our reputation and customer relationships
could be harmed.
We depend not only on sufficient foundry manufacturing
capacity and wafer prices, but also on good production yields (the number of good die per wafer) and timely wafer delivery to meet customer
demand and maintain profit margins. The fabrication of our products is a complex and technically demanding process. Minor deviations in
the manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. From time to
time, our foundries experience manufacturing defects and reduced manufacturing yields. Changes in manufacturing processes or the inadvertent
use of defective or contaminated materials by our foundries could result in lower than anticipated manufacturing yields, which would harm
our revenue or increase our costs. For example, in the past, one of our foundries produced ICs and met its process specification range
but did not meet our customer’s specifications causing us to write off a portion of our production lot. Many of these problems are
difficult to detect at an early stage of the manufacturing process and may be time consuming and expensive to correct. Poor yields from
our foundry, or defects, integration issues or other performance problems in our ICs, could cause us significant customer relations and
business reputation problems, harm our operating results and give rise to financial or other damages to our customers. Our customers might
consequently seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be
time consuming and costly to defend.
We may experience difficulties in transitioning
to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing
yields, delays in product deliveries and increased costs.
We aim to use the most advanced manufacturing process
technology appropriate for our solutions that is available from our foundries. As a result, we periodically evaluate the benefits of migrating
our solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts require us from time to time
to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries.
We are dependent on our foundries to support the production of wafers for future versions of our IC. Such production may require changes
to the foundry’s existing process technology. If the foundry elects to not alter their process technology to support future versions
of our ICs, we would need to identify a new foundry.
As discussed under “ We discontinued the production of our
memory products ,” TSMC, the sole foundry that manufactured the wafers used to produce our memory IC products, discontinued the
foundry process used to produce such wafers. We were not in a position to transition wafer production to a new foundry and continue to
manufacture these products. As a result, we initiated an EOL of our memory IC products. We do not expect to generate any meaningful revenue
from shipments of our memory IC products after December 2025. The discontinuation of the production and sale of our memory IC products
will negatively impact our future revenues, results of operations and cash flows.
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To date, we have not achieved the anticipated
benefits of conducting business as a fabless semiconductor company.
Our primary goal has been to increase our total available
market by creating high-performance ICs and modules for mmWave applications using our proprietary technology and design expertise. Historically,
this development effort required that we add headcount and design resources, such as expensive software tools, which increased our losses
from, and cash used in, operations. Our efforts to increase our revenue and expand our markets have been subject to various risks and
uncertainties, including, but not limited to:
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a lack of working capital;
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customer acceptance;
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difficulties and delays in our product development, manufacturing, testing and marketing activities;
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timeliness of new product introductions;
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the anticipated costs and technological risks of developing and bringing our products to market;
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the willingness of our manufacturing partners to assist successfully with fabrication;
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our ability to qualify our products for mass production and achieve wafer yield levels and the final test results necessary to be price competitive;
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the availability of quantities of our products supplied by our manufacturing partners at a competitive cost;
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our ability to generate the desired gross margin percentages and return on our product development investment;
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competition from established competitors;
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the adequacy of our IP protection for our proprietary IC designs and technologies;
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customer concerns over our financial condition and viability to be a long-term profitable supplier; and
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the vigor and growth of markets served by our current and prospective customers.
If we experience significant delays in bringing our
products to market, if customer adoption of our products is delayed or if our customers’ products that include our products are
not successful, this could have a material adverse effect on our anticipated revenues in upcoming years due to the potential loss of design
wins and future revenues.
Our main objective is the development and sale
of our technologies to OEMs, service providers and other equipment manufacturers and their subsystem and component vendors and, if demand
for these products does not grow, we may not achieve revenue growth and our strategic objectives.
We market and sell our mmWave products and technology
to OEMs, service providers and other equipment manufacturers in the defense and aerospace and consumer product markets and their subsystem
and component vendors. We believe our future business and financial success depends on market acceptance and increasing sales of these
products. To meet our growth and strategic objectives, OEMs, service providers and other equipment manufacturers must incorporate our
products into their systems and the demand for their systems must grow as well. We cannot provide assurance that sales of our products
to these customers will increase substantially in the future or that the demand for our customers’ or their customers’ systems
will increase. Our future revenues from these products may not increase in accordance with our growth and strategic objectives, if, instead,
our customers modify their product designs, select products sold by our competitors or develop their own proprietary technologies. Moreover,
demand for their products that incorporate our technologies may not grow or result in significant sales of such products due to factors
affecting the customers and their business such as industry downturns, declines in capital spending in the enterprise and carrier markets
or unfavorable macroeconomic conditions. Thus, the future success of our business depends in large part on factors outside our control,
and sales of our products may not meet our revenue growth and strategic objectives.
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Our failure to continue to develop new products
and enhance our products on a timely basis could diminish our ability to attract and retain customers.
The existing and potential markets for our products
are characterized by ever-increasing performance requirements, evolving industry standards, rapid technological change and product obsolescence.
These characteristics lead to periodic changes in customer requirements, shorter product life cycles and changes in industry demands and
mandate new product introductions and enhancements to maintain customer engagements and design wins. In order to attain and maintain a
significant position in the market, we will need to continue to enhance and evolve our products and the underlying proprietary technologies
in anticipation of these market trends although we do not have a large engineering staff.
Our future performance depends on a number of factors,
including our ability to:
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identify target markets and relevant emerging technological trends;
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develop and maintain competitive technology by improving performance and adding innovative features that differentiate our products from alternative technologies;
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enable the incorporation of our products into customers’ products on a timely basis and at competitive prices; and
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respond effectively to new technological developments or new product introductions by others.
Our failure to enhance our existing products and develop
future products that achieve broad market acceptance will harm our competitive position and impede our future growth.
Our products have a lengthy sales cycle, which
makes it difficult to predict success in this market and the timing of future revenue.
Our products have a lengthy sales cycle, ranging from
six to 24 months from the date of our initial proposal to a prospective customer until the date on which the customer confirms that it
has designed our product into its system. An even lengthier period could ensue before we would know the volume of products that such customer
will, or is likely to, order. A number of factors can contribute to the length of the sales cycle including technical evaluations of our
products by the customers, the design process required to integrate our products into the customers’ products and the timing of
the customers’ new product announcements. In anticipation of product orders, we may incur substantial costs before the sales cycle
is complete and before we receive any customer payments. As a result, in the event that a sale is not completed or is cancelled or delayed,
we may have incurred substantial expenses, making it more difficult for us to become profitable or otherwise negatively impacting our
financial results. Furthermore, because of this lengthy sales cycle, the recording of revenues from our selling efforts may be substantially
delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.
We cannot provide any assurances that our efforts to build a strong and profitable business based on the sale of ICs will succeed. If
these efforts are not successful, in light of the substantial resources that we have invested, our future operating results and cash flows
could be materially and adversely affected.
The semiconductor industry is cyclical in nature
and subject to periodic downturns, which can negatively affect our revenue.
The semiconductor industry is cyclical and has experienced
pronounced downturns for sustained periods of up to several years. To respond to any downturn, many semiconductor manufacturers and their
customers will slow their research and development activities, cancel or delay new product developments, reduce their workforces and inventories
and take a cautious approach to acquiring new equipment and technologies. As a result, our business has been in the past and could be
adversely affected in the future by an industry downturn which could negatively impact our future revenue and profitability. Also, the
cyclical nature of the semiconductor industry may cause our operating results to fluctuate significantly from year-to-year.
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Our revenue has been highly concentrated among
a small number of customers, and our results of operations could be harmed if we lose a key revenue source and fail to replace it.
Our overall revenue has been highly concentrated,
with a few customers accounting for a significant percentage of our total revenue. For the year ended December 31, 2025 our five largest
customers represented approximately 80% of our total revenue. For the year ended December 31, 2024 our two largest customers represented
approximately 86% of our total revenue. We expect that a relatively small number of customers will continue to account for a substantial
portion of our revenue for the foreseeable future.
As a result of this revenue concentration, our results
of operations could be adversely affected by the decision of a single key customer to cease using our technology or products or by a decline
in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees
or customers.
Our revenue concentration may also pose credit
risks which could negatively affect our cash flow and financial condition.
We might also face credit risks associated with the
concentration of our revenue among a small number of licensees and customers. At December 31, 2025, two customers represented approximately
93% of total trade receivables and at December 31, 2024, three customers represented approximately 91% of total trade receivables. Our
failure to collect receivables from any customer, which represents a large percentage of receivables, on a timely basis, or at all, could
adversely affect our cash flow or results of operations.
Our products must meet exact specifications
and defects and failures may occur, which may cause customers to return or stop buying our products.
Our customers generally establish demanding specifications
for quality, performance and reliability that our products must meet. However, our products are highly complex and may contain defects
and failures when they are first introduced or as new versions are released. If defects and failures occur in our products during the
design phase or after, we could experience lost revenues, increased costs, including warranty and customer support expenses and penalties
for non-performance stipulated in customer purchase agreements, delays in or cancellations or rescheduling of orders or shipments, product
returns or discounts, diversion of management resources or damage to our reputation and brand equity, and in some cases consequential
damages, any of which would harm our operating results. In addition, delays in our ability to fill product orders as a result of quality
control issues may negatively impact our relationship with our customers. We cannot assure you that we will have sufficient resources
to satisfy any asserted claims. Furthermore, any such defects, failures or delays may be particularly damaging to us as we attempt to
establish our reputation as a reliable provider of IC and module products.
Because we sell our products on a purchase order
basis and rely on estimated forecasts of our customers’ needs, inaccurate forecasts could adversely affect our business.
We sell our products pursuant to individual purchase
orders rather than long-term purchase commitments. Therefore, we will rely on estimated demand forecasts, based upon input from our customers,
to determine how much product to manufacture. Because our sales are based primarily on purchase orders, our customers may cancel, delay
or otherwise modify their purchase commitments with little or no notice to us. For these reasons, we will generally have limited visibility
regarding our customers’ product needs. In addition, the product design cycle for our customers can be lengthy and it may be difficult
for us to accurately anticipate when our customers will commence commercial shipments of products that include our products.
Furthermore, if we experience substantial warranty
claims, our customers may cancel existing orders or cease to place future orders. Any cancellation, delay or other modification in our
customers’ orders could significantly reduce our revenue, cause our operating results to fluctuate from period to period and make
it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time
to reduce operating expenses to mitigate the effect of the lost revenue on our business.
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If we overestimate customer demand for our products,
we may purchase products from our manufacturers that we cannot sell. Conversely, if we underestimate customer demand or if sufficient
manufacturing and testing capacity are unavailable, we would forego revenue opportunities and could lose market share in the markets
served by our products and could incur penalties under our customer purchase agreements. In addition, our inability to meet customer
requirements for our products could lead to delays in product shipments, force customers to identify alternative sources, result in certain
of our customers obtaining manufacturing rights to our products and otherwise adversely affect our ongoing relationships with our customers.
We rely on independent foundries and contractors
for the manufacture, assembly, testing and packaging of our integrated circuits and modules, and the failure of any of these third parties
to deliver products or otherwise perform as requested could damage our relationships with our customers and harm our sales and financial
results.
As a fabless semiconductor company, we rely on third
parties for substantially all of our manufacturing operations. We depend on these parties to supply us with material in a timely manner
that meets our standards for yield, cost and quality. We do not have long-term supply contracts with any of our suppliers or manufacturing
service providers, and therefore they are not obligated to manufacture products for us for any specific period, in any specific quantity
or at any specified price except as may be provided in a particular purchase order. Any problems with our manufacturing supply chain could
adversely impact our ability to ship our products to our customers on time and in the quantity required which in turn could damage our
customer relationships and impede market acceptance of our IC products.
Our third-party wafer foundry and testing
and assembly vendors are located in regions at high risk for earthquakes and other natural disasters and adverse consequences related
to the outbreak of contagious diseases, such as COVID-19. Any disruption to the operations of these foundries and vendors resulting from
earthquakes or other natural disasters could cause significant delays in the development, production, shipment and sales of our IC products.
Certain vendors that we utilize to manufacture our
products are located in Asia, as are other foundries we may use in the future. Some of our vendors that provide substrates and wafer sorting
and handle the testing of our products are headquartered in Asia. The risk of an earthquake in the Pacific Rim region is significant due
to the proximity of major earthquake fault lines. The occurrence of earthquakes or other natural disasters could result in the disruption
of the wafer foundry or assembly and test capacity of the third parties that supply these services to us and may impede our research and
development efforts as well as our ability to market and sell our products. We may not be able to obtain alternate capacity on favorable
terms, if at all.
Global pandemics along with outbreaks of new contagious
diseases or the resurgence of existing diseases could disrupt the operations of our key suppliers and manufacturing partners worldwide.
Disruptions in our supply chain due to shortages
in the global semiconductor supply chain could cause delays for customers and impact revenue.
We have experienced and may in the future experience disruptions in
our global semiconductor supply chain, with suppliers increasing lead times or placing products on allocation, including procuring necessary
components, wafers, substrates and assembly services in a timely fashion. In the past, as a result of these supply chain disruptions,
we have had to increase customer order lead times, and we may be required to purchase some products on allocation. We may be unable to
satisfy all of the demand for our products, which may adversely affect customer relationships and impact revenue.
Price increases from our supply chain can adversely
impact revenue or reduce margins.
Our suppliers can increase the price of products and
services provided to us. Finding and qualifying alternate or additional suppliers in response to increased pricing from suppliers can
be a lengthy process and can lead to production delays or additional costs, and such alternatives are sometimes not available. We may
be unable to successfully pass on these costs through price increases. In some cases, our customer agreements only allow us to adjust
pricing on an annual basis. If we are unable to increase the price of our products to our customers in response to increased costs, we
would face reduced margins.
18
Any claim that our products or technology infringe
third party IP rights could increase our costs of operation and distract management and could result in expensive settlement costs or
the discontinuance of our technology licensing or product offerings. In addition, we may incur substantial litigation expense which would
adversely affect our profitability.
The semiconductor industry is characterized by vigorous
protection and pursuit of IP rights or positions which has resulted in often protracted and expensive litigation. We are not aware of
any third party IP that our products or technology would infringe. However, like many companies of our size with limited resources, we
have not searched for all potentially applicable IP in the public databases. It is possible that a third party now has, or may in the
future obtain, patents or other intellectual property rights that our products or technology may now, or in the future, infringe. Our
licensees and IC customers, or we, might, from time to time, receive notice of claims that we have infringed patents or other IP rights
of others. Litigation against us can result in significant expense and divert the efforts of our technical and management personnel whether
or not the litigation has merit or results in a determination adverse to us.
The discovery of defects in our technology and
products could expose us to liability for damages.
The discovery of a defect in our technologies and
products could lead our customers to seek damages from us. Many of our agreements with customers include provisions waiving implied warranties
regarding our technology and products and limiting our liability to our customers. We cannot be certain, however, that the waivers or
limitations of liability contained in our agreements with customers will be enforceable.
We might not be able to protect and enforce
our IP rights, which could impair our ability to compete and reduce the value of our technology.
Our technology is complex and is intended for use
in complex systems. For example, our licensees’ products utilize our embedded memory and/or interface technology and a large number
of companies manufacture and market these products. Because of these factors, policing the unauthorized use of our IP is difficult and
expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from designing
and marketing unauthorized products based on our technology. In the event we identify any past or present infringement of our patents,
copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements, we cannot assure
you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our technology.
Our inability to adequately protect our IP would reduce significantly the barriers of entry for directly competing technologies and could
reduce the value of our technology. Furthermore, we might initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights. Litigation by us could result in significant expense and divert
the efforts of our technical and management personnel whether or not such litigation results in a determination favorable to us.
Our existing patents might not provide us with
sufficient protection of our IP, and our patent applications might not result in the issuance of patents, either of which could reduce
the value of our core technology and harm our business.
We rely on a combination of patents, trademarks, trade
secret laws and confidentiality procedures to protect our IP rights. We cannot be sure that any patents will be issued from any of our
pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued in all countries
where our products can be sold, to provide meaningful protection or any commercial advantage to us. Failure of our patents or patent applications
to provide meaningful protection might allow others to utilize our technology without any compensation to us.
If we fail to retain key personnel, our business
and growth could be negatively affected.
Our business has been dependent to a significant degree
upon the services of a small number of executive officers and technical employees. The loss of key personnel could negatively impact our
technology development efforts, our ability to deliver products under our existing agreements, maintain strategic relationships with our
partners and obtain new customers. We generally have not entered into employment or non-competition agreements with any of our employees
and do not maintain key-man life insurance on the lives of any of our key personnel.
Our evaluation of strategic alternatives, including Mobix Labs’
proposal, may not result in a transaction or increased value for our stockholders and could create business disruption and stock price
volatility.
As described in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” we are evaluating a non-binding acquisition proposal from Mobix
Labs as part of our ongoing exploration of strategic alternatives. There can be no assurance that any definitive agreement will be entered
into, that any transaction will be consummated, or that the terms of any transaction, if completed, will be favorable to us or our stockholders.
If we do not complete a transaction, the fact that we undertook a review of strategic alternatives that are not ultimately consummated
could adversely affect our stock price and business. Conversely, if a transaction is completed, it may involve risks and uncertainties,
including the potential for integration challenges, unforeseen liabilities, or other adverse effects on our business.
The process of reviewing potential strategic alternatives
has been and may continue to be a significant distraction for our board of directors and management, and has required and may continue
to require the expenditure of significant time and resources by us, which may cause concern to our employees, investors, strategic partners,
and other constituencies and may have a material impact on our business and operating results and/or result in increased volatility in
our share price.
The occurrence of any one or more of the above
risks could have a material adverse impact on our business, financial condition, results of operations and cash flows.
19
We currently
maintain and may expand operations outside of the United States, which exposes us to significant risks.
The success
of our business depends, in large part, on our ability to operate successfully from geographically disparate locations and to further
expand our international operations and sales. Operating in international markets requires significant resources and management attention
and subjects us to regulatory, economic, and political risks that are different from those we face in the United States. We cannot be
sure that further international expansion will be successful. In addition, we face risks in doing business internationally that could
expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. The success
and profitability, as well as the expansion, of our international operations are subject to numerous risks and uncertainties, many of
which are outside of our control, such as the following:
●
public health issues, such as pandemics and epidemics, which can result in varying impacts to our business, employees, partners, customers, distributors or suppliers internationally;
●
difficulties, inefficiencies and costs associated with staffing and managing foreign operations;
●
longer and more difficult customer qualification and credit checks;
●
greater difficulty collecting accounts receivable and longer payment cycles;
●
the need for various local approvals to operate in some countries;
●
difficulties in entering some foreign markets without larger-scale local operations;
●
changes in import/export laws, trade restrictions, regulations and customs and duties and tariffs (foreign and domestic);
●
compliance with local laws and regulations;
●
unexpected changes in regulatory requirements;
●
reduced protection for intellectual property rights in some countries;
●
adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States;
●
the effectiveness of our policies and procedures designed to ensure compliance with the Foreign Corrupt Practices Act of 1977 and similar regulations;
●
fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar;
●
new and different sources of competition;
●
political, economic, and social instability;
●
terrorism and acts of war, which could have a negative impact on the operations of our business or the businesses of our customers and vendors; and
●
US Department of Commerce regulations or restrictions on exports of certain semiconductor products and technologies.
Our
failure to manage any of these risks successfully could harm our operations and reduce our revenue.
20
International trade policies, including protectionist trade policies,
such as tariffs and sanctions, could adversely affect our business, results of operations and financial condition.
Due to the interconnectedness of the global economy,
policy changes in one area of the world can have an immediate and material adverse impact on markets around the world. Changes in international
trade policies, including: (i) changes to existing trade agreements; (ii) greater restrictions on free trade generally; and (iii) significant
increases in customs duties and tariffs on goods imported into the United States and reciprocal actions by other countries, could adversely
affect our business, results of operations and financial condition.
Current or future tariffs or other restrictive trade
measures may raise the costs of raw materials, components or finished goods, which may adversely impact both our product offerings and
our operational expenses. Such cost increases may reduce our margins and require us to increase prices, which could harm our competitive
position, reduce customer demand and damage customer relationships.
Trade disputes, trade restrictions, tariffs and other
political tensions between the U.S. and other countries may also exacerbate unfavorable macroeconomic conditions including inflationary
pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns, which may also negatively
impact customer demand for our products or services, delay purchases or renewals, limit expansion opportunities with customers, limit
our access to capital, or otherwise negatively impact our business and operations. Ongoing tariff, trade restrictions and macroeconomic
uncertainty has and may continue to contribute to volatility in the price of our common stock.
Ongoing uncertainty regarding trade policies may also
complicate our short- and long-term strategic planning, and that of our partners and customers, including decisions regarding hiring,
product strategy, capital investment, supply chain design and geographic expansion.
While we continue to monitor trade developments, the
ultimate impact of these risks remains uncertain and any prolonged economic downturn, escalation in trade tensions, or deterioration in
international perception of U.S.-based companies could materially and adversely affect our supply chain, as well as our business, results
of operations and financial condition. In addition, tariffs and other trade developments have and may continue to heighten the risks related
to the other risk factors described in this Report.
Any of the above factors could impact our supply chain,
as well as our operations and business, and adversely affect our results of operations and financial condition.
Our ability to utilize our net operating loss
carryforwards is limited as a result of an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986,
as amended.
As of December 31, 2025, we had approximately $214 million of net operating
loss, or NOL, carryforwards for U.S. federal tax purposes. Under U.S. federal income tax law, we generally can use our NOL carryforwards
(and certain related tax credits) to offset ordinary taxable income, thereby reducing our U.S. federal income tax liability, for up to
20 years from the year in which the losses were generated for the years before 2018, after which time they will expire. Our California
NOL carryforwards (and certain related tax credits) generally may be used to offset future state taxable income for 20 years from the
year in which the losses are generated, depending on the state, after which time they will expire. The rate at which we can utilize our
NOL carryforwards is limited (which could result in NOL carryforwards expiring prior to their use) each time we experience an “ownership
change,” as determined under Section 382 of the Internal Revenue Code. A Section 382 ownership change generally occurs if a shareholder
or a group of shareholders who are deemed to own at least 5% of our common stock increase their ownership by more than 50 percentage points
over their lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 generally would
impose an annual limit on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOL carryforwards
equal to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items
specified in Section 382) and the U.S. federal long-term tax-exempt interest rate in effect at the time of the ownership change. A number
of special and complex rules apply in calculating this Section 382 limitation. While the complexity of Section 382 makes it difficult
to determine whether and when an ownership change has occurred, and a formal study has not been performed, we believe that a Section 382
ownership change occurred as a result of our business combination with Peraso Technologies Inc. in 2021. We believe this Section 382 limitation
will result in substantially all of our federal and state NOLs and federal tax credit carryforwards incurred prior to December 2021 expiring
before they can be utilized. In addition, our ability to use our NOL carryforwards will be limited to the extent we fail to generate enough
taxable income in the future before they expire. Existing and future Section 382 limitations and our inability to generate enough taxable
income in the future could result in a substantial portion of our NOL carryforwards expiring before they are used. We have recorded a
full valuation allowance for our deferred tax assets.
21
Third parties might attempt to gain unauthorized
access to our network or seek to compromise our products and services.
Our business is dependent on the security and efficacy
of our networks and computer and data management systems, and we rely on our internal computer networks for many of the systems we use
to operate our business generally. From time to time, we may face attempts by others to gain unauthorized access through the Internet
or otherwise or to introduce malicious software to our IT systems. We or our products may be a target of computer hackers, organizations
or malicious attackers who attempt to:
●
gain access to our network;
●
steal proprietary information related to our business, products, employees and customers; or
●
interrupt our systems.
From time to time, we may encounter attempts at gaining
unauthorized access to our network, and we periodically run security checks. While we seek to detect and investigate unauthorized attempts
and attacks against our network and products of which we become aware, and to prevent their recurrence where practicable through changes
to our internal processes and tools and/or changes to our products, we remain potentially vulnerable to additional known or unknown threats.
In addition to intentional security breaches, the integrity and confidentiality of company and customer data and our intellectual property
may be compromised as a result of human error, product defects, or technological failures. Different geographic markets may have different
regulations regarding data protection, raising potential compliance risks. Further, retaliatory acts by foreign governments or terrorist
organizations in response to policies of the United States government could include cyber attacks that could disrupt the economy more
generally or that could also impact our operations directly or indirectly.
Any failure or perceived failure by us or our service
providers to prevent information security breaches or other incidents or system disruptions, or any compromise of security that results
in or is perceived or reported to result in unauthorized access to, or loss, theft, alteration, release or transfer of, our information,
or any personal information, confidential information, or other data could result in loss or theft of proprietary or sensitive data and
intellectual property, could harm our reputation and competitive position and could expose us to legal claims, regulatory investigations
and proceedings, and fines, penalties, and other liability. Any such actual or perceived security breach, incident or system disruption
could also divert the efforts of our personnel, and could require us to incur significant costs and operational consequences in connection
with investigating, remediating, eliminating and putting in place additional tools, devices, policies, and other measures designed to
prevent actual or perceived security breaches and other incidents and system disruptions, and in, for example, rebuilding internal systems,
reduced inventory value, providing modifications to our products and services, defending against claims and litigation, responding to
regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties. Moreover, we could be required
or otherwise find it appropriate to expend significant capital and other resources to respond to, notify third parties of, and otherwise
address the incident or breach and its root cause, and to notify individuals, regulatory authorities and others of security breaches involving
certain types of data.
22
Further, we cannot assure that any limitations of
liability provisions in our current or future contracts that may be applicable would be enforceable or adequate or would otherwise protect
us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter.
We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in
sufficient amounts to cover claims related to a security breach or incident, or that the insurer will not deny coverage as to any future
claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance
policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse
effect on our business, including our financial condition, operating results, and reputation.
Acquisitions or other business combinations
that we pursue in the future, whether or not consummated, could result in other operating and financial difficulties.
In the future we may seek to acquire additional product
lines, technologies or businesses in an effort to increase our growth, enhance our ability to compete, complement our product offerings,
enter new and adjacent markets, obtain access to additional technical resources, enhance our IP rights or pursue other competitive opportunities.
If we seek acquisitions or other business combinations, we may not be able to identify suitable candidates at prices we consider appropriate.
We cannot readily predict the timing or size of our future acquisitions or combinations, or the success of any such transactions.
To the extent that we consummate acquisitions, combinations
or investments, we may face financial risks as a result, including increased costs associated with merged or acquired operations, increased
indebtedness, economic dilution to gross and operating profit and earnings per share, or unanticipated costs and liabilities. Acquisitions
may involve additional risks, including:
●
the acquired product lines, technologies or businesses may not improve our financial and strategic position as planned;
●
we may determine we have overpaid for the product lines, technologies or businesses, or that the economic conditions underlying our acquisition have changed;
●
we may have difficulty integrating the operations and personnel of the acquired company;
●
we may have difficulty retaining the employees with the technical skills needed to enhance and provide services with respect to the acquired product lines or technologies;
●
the acquisition may be viewed negatively by customers, employees, suppliers, financial markets or investors;
●
we may have difficulty incorporating the acquired product lines or technologies with our existing technologies;
●
we may encounter a competitive response, including price competition or IP litigation;
●
we may become a party to product liability or IP infringement claims as a result of our sale of the acquired company’s products;
●
we may incur one-time charges, such as for acquired in-process research and development costs, and restructuring charges;
●
we may acquire goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges;
●
our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; and
●
our due diligence process may fail to identify significant existing issues with the target business.
From time to time, we may enter into negotiations
for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management
time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results
and financial condition.
23
War, terrorism, other acts of violence, natural
disasters and global pandemics, such as the COVID-19 pandemic and associated macroeconomic pressures in the markets in could
adversely impact our business.
Geopolitical issues around the world can impact
macroeconomic conditions and could have a material adverse impact on our business. For instance, world unrest due to wars, terrorist attacks
and other disruptive events, such as the COVID-19 pandemic, have led to global economic disruptions, and mounting inflationary cost pressures
and recessionary fears have negatively impacted the global and domestic economy. Given current market conditions, we may be unable to
access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our
existing stockholders and to our business.
Sustained inflation could have a material adverse
effect on our business, financial condition, results of operations and liquidity.
Inflation rates in the markets in which we operate
have increased and may continue to rise. Inflation in recent years has led us to experience higher costs, including, among others, labor,
wafer and transportation. Our suppliers have raised their prices and may continue to raise prices, and, although we have made minimal
price increases thus far, in the competitive markets in which we operate, we may not be able to make corresponding price increases to
preserve our gross margins and profitability. In addition, inflationary pressures could cause customers to delay or reduce purchases of
our products or delay payments to us. If inflation rates continue to rise or remain elevated for a sustained period of time, they could
have a material adverse effect on our business, financial condition, results of operations and liquidity.
Risks Related to Our Securities
There may be future sales of our common stock,
which could adversely affect the market price of our common stock and dilute a stockholder’s ownership of common stock.
We are generally not restricted from issuing additional shares of common
stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive shares of common
stock, provided that we are subject to the listing rules of the Nasdaq Stock Market (which generally require stockholder approval for
any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing
over 20% of our then outstanding shares of stock). Sales of a substantial number of shares of our common stock in the public market or
the perception that such sales might occur could materially adversely affect the market price of the shares of our common stock. Because
our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future offerings. Accordingly, our stockholders bear the risk that our future
offerings will reduce the market price of our common stock and dilute their stock holdings in us. In addition, issuances of our common
stock resulting from the exercise of options or vesting of restricted stock units granted under our equity compensation plan and the exercise
of any warrants, and other issuances of our common stock could have an adverse effect on the market price of the shares of our common
stock.
Potential volatility of the price of our common
stock could negatively affect your investment.
We cannot assure you that there will continue to be
an active trading market for our common stock. Historically, the stock market, as well as our common stock, has experienced significant
price and volume fluctuations. Market prices of securities of technology companies can be highly volatile and frequently reach levels
that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject
to wide variations. If our common stock trades to unsustainably high levels, it is likely that the market price of our common stock will
thereafter experience a material decline. As a result of fluctuations in the price of our common stock, you may be unable to sell your
shares at or above the price you paid for them. In addition, if we seek additional financing, including through the sale of equity or
convertible securities, such sales could cause our stock price to decline and result in dilution to existing stockholders.
24
In addition, the stock markets in general, and the
markets for semiconductor stocks in particular, have experienced significant volatility that has often been unrelated to the financial
condition or results of operations of particular companies. These broad market fluctuations may adversely affect the trading price of
our common stock and, consequently, adversely affect the price at which you could sell the shares that you have purchased. In the past,
following periods of volatility in the market or significant price declines, securities class-action litigation has often been instituted
against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention
and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.
Provisions of our certificate of incorporation
and bylaws or Delaware law might delay or prevent a change-of-control transaction and depress the market price of our stock.
Various provisions of our certificate of incorporation
and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting
to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future
for shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right
of stockholders to call special meetings and establish specific procedures for director nominations by stockholders and the submission
of other proposals for consideration at stockholder meetings.
We are also subject to provisions of Delaware law
that could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular, Section 203 of the
Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder
for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or
preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of
a substantial block of our common stock.
Under our certificate of incorporation, our board
of directors may issue up to a maximum of 20,000,000 shares of preferred stock without stockholder approval on such terms as the board
might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders
of any preferred stock that might be issued in the future.
Certain of our common stock warrants outstanding
at December 31, 2025 are accounted for as liabilities and recorded at fair value with changes in fair value each period reported in earnings,
which may have an adverse effect on the market price of our common stock.
In accordance with generally accepted accounting principles
in the United States, we are required to evaluate our outstanding common stock warrants to determine whether they should be accounted
for as a warrant liability or as equity. At each reporting period (i) the warrants are reevaluated for proper accounting treatment as
a liability or equity and (ii) the fair value of the liability of the warrants is re-measured. The change in the fair value of the liability
will be recorded as other income (expense) in our consolidated statement of operations and comprehensive loss. This accounting treatment
may adversely affect the market price of our securities, as we may incur additional expense. In addition, changes in the inputs and assumptions
for the valuation model we use to determine the fair value of such liability may have a material impact on the estimated fair value of
the warrant liability. As a result, our financial statements and results of operations will fluctuate quarterly, based on various factors,
many of which are outside of our control, including the share price of our common stock. We expect that we will recognize non-cash gains
or losses on our warrants or any other similar derivative instruments in each reporting period and that the amount of such gains or losses
could be material. The impact of changes in fair value on earnings may have an adverse effect on the market price of our common stock.
25
If we are unable to satisfy the continued listing
requirements of the Nasdaq, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.
Our common stock may lose value and could be delisted
from Nasdaq due to several factors or a combination of such factors. While our common stock is currently listed on Nasdaq, we can give
no assurance that we will be able to maintain compliance with the continued listing requirements of Nasdaq, including, but not limited
to, the corporate governance requirements, the minimum closing bid price requirement or the minimum equity requirement. If we fail to
maintain compliance with any such continued listing requirement, there can also be no assurance that we will be able to regain compliance
with any such continued listing requirement in the future or that our common stock will not be delisted in the future.
If we were to be delisted, we would expect our common
stock to be traded in the over-the-counter market which could adversely affect the liquidity of our common stock. Additionally, we could
face significant material adverse consequences, including:
●
a limited availability of market quotations for our common stock;
●
a decreased ability to issue additional securities or obtain additional financing in the future;
●
reduced liquidity for our stockholders;
●
potential loss of confidence by customers, collaboration partners and employees; and
●
loss of institutional investor interest.
In the event of a delisting, we can provide no assurance
that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize
the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price
requirement, or prevent future non-compliance with Nasdaq’s listing requirements.
We are a “smaller reporting company”
and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may
be less attractive to investors.
We are a “smaller reporting company,”
and are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, “smaller reporting
companies” are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of
Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on
the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings,
including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures
in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our operating
results and financial prospects.
Holders of exchangeable shares are expected
to experience a delay in receiving shares of our common stock from the date they request an exchange, which may affect the value of the
shares the holder receives in an exchange.
Holders of exchangeable shares who request to receive
shares of our common stock in exchange for their exchangeable shares will not receive shares of our common stock until several business
days after the applicable request is received. During this period, the market price of our common stock may increase or decrease. Any
such increase or decrease would affect the value of the consideration to be received by such holder of exchangeable shares upon a subsequent
sale of the common stock received in the exchange.