TOMI Environmental Solutions, Inc. 10-K

Item 1A. Risk Factors Our business routinely encounters and attempts to address risks, some of which will cause our future results to differ, sometimes materially, from those originally anticipated. Below, we have described our present view of certain important risks. The risk factors set forth below are not the only risks that we may face or that could adversely affect us. If any of the risks discussed in this Annual Report on Form 10-K actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to occur, the trading price of our securities could decline significantly. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in our other filings with the SEC. Risk Related to Our Company and Business We have a history of losses and may not be able to achieve profitability in the future. We generated a net loss of approximately $3.7 million and $4.5 million for the years ended December 31, 2025 and 2024, respectively. We also had an accumulated deficit of $58.1 million as of December 31, 2025. Prior to 2020, we did not generate any profit from our business operations. The increase in our revenue and net income during 2020 was primarily due to a significant increase in demand for our products as protective measures against the spread of the COVID-19 disease during the pandemic. Such demand subsided in 2021 as the pandemic gradually came under control, which caused us to incur a net loss in 2021 and such trend has continued. In addition, if we decrease our headcount and expenses, we may be unable to support our continued product development and planned growth, and we may not be able to achieve profitability. 10 Table of Contents Our SteraMist® family of products currently accounts for the majority of our revenue, and our success is almost completely dependent on the success of our SteraMist® brand. Our SteraMist ® family of products is currently our primary product offering, and we are completely dependent on its success. Successfully commercializing products such as ours is a complex and uncertain process. Our commercialization efforts will depend on the efforts of our management and sales team, our third-party manufacturers and suppliers and general economic conditions, among other factors, including the following: · the effectiveness of our marketing and sales efforts in the United States and internationally, · our third-party manufacturers and suppliers’ ability to manufacture and supply the components of our SteraMist ® products in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements, and to remain in good standing with regulatory agencies, · the availability, perceived advantages, relative cost, relative safety, and relative efficacy of alternative and competing disinfection products, · our ability to obtain, maintain, and enforce our intellectual property rights in and to our SteraMist ® products, · the emergence of competing technologies and other adverse market developments, and our need to enhance our SteraMist ® products and/or develop new products to maintain market share in response to such competing technologies or market developments, · our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of our SteraMist ® products; and · our ability to achieve and maintain compliance with all regulatory requirements applicable to our SteraMist ® products. We have hired and trained additional sales personnel. Despite this growth in sales personnel, we expect that our additional sales force will require lead time in the field to grow their network of accounts and achieve the productivity levels we expect them to reach in any individual vertical and or territory. Furthermore, the use of our products will often require or benefit from direct support from us. If our sales representatives do not achieve the productivity levels, we expect them to reach, our revenue will not grow at the rate we expect, and our financial performance will suffer. We do not have long-term customer contracts, and our sales history or backlog cannot be relied upon as an indicator of our future sales. We do not have long-term contracts with any of our customers, and our sales history or backlog cannot be relied upon as a future indicator of our revenues. Our contracts and purchase commitments with customers may be canceled under certain circumstances. As a result, we are exposed to competitive price pressures on every order, and our agreements with customers do not provide assurance of future sales. Our customers are not required to make minimum purchases and may cease purchasing our products at any time without penalty. As such, our unfilled orders and previously completed sales should not be relied on as a measure of anticipated demand or future revenue. Our agreements with restoration industry specialists are not exclusive, which may allow our competitors to sell their products and services to such specialists. Our agreements with restoration industry specialists under our TOMI Service Network program, which allows certain restoration specialists to use and sell our products, are not exclusive. This lack of exclusivity allows our competitors to sell products to the same restoration specialists, which could reduce our sales if our competitors’ products are used in lieu of our products. Additionally, the use of our and our competitors’ products by a restoration specialist may create market confusion between our products and the products of our competitors, which may adversely affect our brand reputation and business. Our success depends upon broad market acceptance of our technology that has not yet been achieved in the Hospital-Healthcare market. Our BIT technology as a Hospital-Healthcare disinfectant has been proven successful in reducing infections in hospital ICU, BIT having received full Hospital registration for Clostridium difficile spores from the EPA in mid-2017. Our sales are dependent upon broad market acceptance of our technology that replaces long-standing failing manual cleaning techniques such as quaternary ammonium compounds and bleach for disinfection, with our no-touch mechanical process. The failure to obtain broad market acceptance inevitably leads to substantially increased lead times for sales until our prospective customers, particularly in the Hospital-Healthcare market, are accustomed to the use of newer mechanical technology. The inability to timely meet our sales goals could adversely affect our financial condition and results of operations. There is substantial doubt about the Company’s ability to continue as a going concern. For the years ended December 31, 2025 and 2024, our net loss was approximately $3.7 million and $4.5 million, respectively, and the cash used in operations was approximately $1.2 million and $1.4 million, respectively. As of December 31, 2025, we had approximately $88,000 of cash and cash equivalents and an accumulated deficit of $58.1 million. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. We intend to fund ongoing activities by utilizing our current cash on hand, the cash generated from operations, and by raising additional capital through equity or debt financing. We continue to pursue various options to raise capital to enhance our cash position, including more recently by issuing convertible notes to accredited investors. In November 2025, we entered into an ELOC, pursuant to which we have the right, but not the obligation, to sell up to $20,000,000 of shares of our common stock over a 24-month period subject to certain conditions. However, the availability of ELOC and our ability to sell stock depends substantially on the trading price and volume of our stock, which may materially limit our ability to utilize the ELOC to raise capital. 11 Table of Contents There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us, as our ability to raise capital may be affected by various factors, including general market conditions, volatility of our stock price, investor interests and expectations, and our financial performance. We are subject to a variety of risks associated with doing business internationally. We sell our products internationally through exclusive and non-exclusive sales representatives and distributors in Canada, Mexico, Europe, Asia Pacific and Latin America. As a result, we are subject to a number of risks and complications associated with international sales and other operations. These include: risks associated with currency exchange rate fluctuations; requirements or preferences for domestic products or solutions, which could reduce demand for our products; difficulties in enforcing agreements and collecting receivables through some foreign legal systems; unexpected legal or regulatory changes; enhanced credit risks in certain countries and emerging market regions; significant variations in tax rates among the countries in which we do business, and tax withholding obligations in respect of our earnings; exchange controls or other trade restrictions including, constraints on our supply chain and the industries in which we operate; customs clearance and shipping delays; general economic and political conditions in countries where end users of our products are situated; natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, travel, social distancing and quarantine policies, boycotts, curtailment of trade, and other business restrictions affecting our ability to sell our products; difficulties in enforcing intellectual property rights or weaker intellectual property right protections in some countries; and difficulties associated with compliance with a variety of laws and regulations governing international trade. The recent imposition by the United States of tariffs, sanctions or other restrictions on goods exported from the United States or imported into the United States, or countermeasures imposed in response to such government actions, could increase the cost of goods for our products or reduce our ability to sell products globally, which may adversely affect our operating results and financial condition. We are subject to risks associated with international conflicts, geopolitical instability, and related economic disruptions . Our business and operations may be adversely affected by geopolitical events and international conflicts, including armed conflicts, wars, terrorism, and political instability in regions where we operate or where our customers, suppliers, or distributors are located. Such events can cause significant disruptions to global supply chains, energy markets, financial markets, and international trade, any of which could adversely affect our ability to source products, serve international customers, and operate our business. Current and ongoing geopolitical tensions, including conflicts in the Middle East and Eastern Europe, the imposition of economic sanctions, trade restrictions, and countermeasures by affected nations, have contributed to elevated energy costs, supply chain disruptions, and financial market volatility. The duration, scope, and ultimate resolution of these conflicts and related diplomatic and economic measures cannot be predicted, and the consequences for global commerce, energy supply, and financial stability remain uncertain. These and any related geopolitical events could have a material adverse effect on our business, results of operations, financial condition, and cash flows. If our procedures to ensure compliance with export control laws are ineffective, our business could be harmed. Our sales to foreign entities are subject to far-reaching and complex export control laws and regulations. Violations of those laws and regulations could have material negative consequences for us including large fines, criminal sanctions, prohibitions on participating in certain transactions and government contracts, sanctions on other companies if they continue to do business with us and adverse publicity. Climate-related risks, evolving environmental regulations, and increased focus on environmental, social and governance matters could adversely affect our business, financial condition and results of operations. Our operations and those of our customers and suppliers may be subject to increased regulatory requirements related to climate change, greenhouse gas emissions, and environmental sustainability. Federal, state and foreign governmental authorities continue to consider and implement new or more stringent environmental regulations, including potential requirements relating to carbon emissions, energy consumption, chemical usage, and product lifecycle impacts. Compliance with any such new or expanded regulations could increase our operating costs, require modification of our manufacturing or distribution processes, or require changes to our product formulations, any of which could have a material adverse effect on our business, financial condition and results of operations. Also, natural disasters, extreme weather events, floods, droughts and other disruptions — could adversely affect our operations, our suppliers' ability to deliver materials and components in a timely manner, and our customers' ability to operate their facilities. Such disruptions could reduce demand for our products, impair our supply chain, or require us to incur additional costs to maintain business continuity. 12 Table of Contents Separately, investors, customers, regulators and other stakeholders are increasingly focused on environmental, social and governance (“ESG”) matters. We may face pressure to adopt or report on ESG initiatives, set emissions reduction targets, or meet third-party sustainability standards. Failure to meet evolving ESG expectations, whether or not mandated by regulation, could harm our reputation, make it more difficult for us to attract or retain customers and employees, or adversely affect our access to capital. Responding to ESG demands may also require us to divert management attention and incur costs that could adversely affect our operating results. We cannot predict the ultimate scope or timing of future climate-related or ESG regulatory requirements, and our failure or inability to comply with applicable requirements or meet stakeholder expectations could have a material adverse effect on our business, financial condition and results of operations. Our reliance upon third-party contractors, suppliers and manufacturers for the manufacture of our products increases the risk that we will not have enough of our products or such quantities at an acceptable cost, and reduces our control over the manufacturing process. We rely upon third parties to supply us with our products. We outsource the manufacturing of our SteraMist® line of equipment to a single manufacturing company and use contract manufacturers to build our BIT-based systems, as we do not maintain our own manufacturing facilities. Our dependence on a single manufacturer for our primary equipment line means that any disruption to that relationship, whether due to financial difficulties, operational failures, loss of key personnel, or disagreements over terms, could have an immediate and material impact on our ability to fulfill customer orders and generate revenue. If we fail to maintain our relationship with our current primary manufacturer, we may not be able to effectively commercialize and market our products due to risks including increased product costs, limited inventory, and the possible misappropriation of our proprietary information, such as our trade secrets and know-how. Alternative production facilities may not be available in the event of a disruption. The number of third-party suppliers with the necessary manufacturing capability, regulatory expertise, and quality standards to produce our products is limited. Arranging for and qualifying an alternative supplier would be expensive and time-consuming, potentially requiring many months, during which period we could be unable to fulfill customer orders. This risk is amplified by the fact that a significant portion of our revenue is concentrated among a small number of customers; a supply disruption affecting our ability to deliver products could therefore have a disproportionate impact on our revenue and customer relationships. Additionally, supply chain disruptions, component shortages, and input cost inflation, including those attributable to U.S. tariff policy and countermeasures imposed by foreign governments, have previously impacted our suppliers' ability to deliver products to us in a timely manner and at acceptable costs, and may continue to do so. Because of our reliance upon third parties to supply us with our products, we do not have control over the manufacturing process and are dependent on such suppliers for compliance with all regulations applicable to our products. This includes compliance with the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and EPA registration requirements that govern the manufacture of SteraMist® and its active ingredients. Third-party suppliers may fail, or be unable, to comply with applicable regulatory requirements, which could result in sanctions being imposed on us or our suppliers, including fines, injunctions, civil penalties, delays, suspension or withdrawal of regulatory approvals, seizures or recalls, and operating restrictions, any of which could significantly and adversely harm our business and results of operations. The loss of an EPA registration or a supplier's regulatory standing could require us to cease sales of affected products until the matter is resolved, which could take an extended period of time. If we are unable to accurately forecast customer demand or effectively manage our inventory, our results of operations could be materially harmed. We rely on demand forecasts to place orders with our third-party suppliers. Accurately predicting demand is inherently uncertain and may be adversely affected by factors outside our control, including competitive product introductions, shifts in customer preferences and changes in general economic conditions. If we overestimate demand, we may accumulate excess inventory, resulting in inventory write-downs, write-offs, or obsolescence charges that would reduce our gross margins and adversely affect our financial results. As of December 31, 2025, our reserve for obsolete inventory was $500,000, compared to $1.1 million as of December 31, 2024, resulting from write-offs of inventory identified as obsolete, damaged, or no longer saleable during the year. Future demand shortfalls or product changes could require additional reserves or write-downs. If we underestimate demand, we may be unable to fulfill customer orders in a timely manner, which could be potentially damaging to our customer relationships. In periods of rapidly increasing demand, our third-party suppliers may lack the capacity necessary to scale production quickly, further limiting our ability to meet demand. Either outcome could have a material adverse effect on our revenue, gross margins, and results of operations. 13 Table of Contents Our success depends on our ability to adequately protect our intellectual property. Our commercial success depends, in part, on our ability to obtain, maintain, defend, file new or enforce our existing patents, trademarks, trade secrets and other intellectual property rights covering our technologies and products throughout the world. We may, however, be unable to adequately preserve such rights due to several reasons, including the following: · our rights could be invalidated, circumvented, challenged, breached or infringed upon, · we may not have sufficient resources to adequately prosecute or protect our intellectual property right, · upon expiration of our patents, certain of our key technology may become widely available; or · third parties may be able to develop or obtain patents for similar or competing technology. Although we devote resources to the establishment and protection of our patents and trademarks, the actions we have taken or will take in the future may not be adequate to prevent violation of our patents, trademarks and proprietary rights by others or prevent others from seeking to block sales of our products as an alleged violation of their patents, trademarks and proprietary rights. In the future, litigation may be necessary to enforce our trademarks or proprietary rights, and we may be forced to defend ourselves against claimed infringement or the rights of others. Any such litigation could result in adverse determinations that could have a material adverse effect on our business, financial condition or results of operations. In addition, we rely in part upon unpatented trade secrets, unpatented know-how, and continuing technological innovation which may not yet, or may never be, patented, to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees, third party manufacturers, and consultants. We also have agreements with our employees and consultants that oblige them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. In addition, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. To the extent that our commercial partners, collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Further, our trade secrets could otherwise become known or be independently discovered by our competitors, which would harm our business. The risk of loss of the Company’s intellectual property, trade secrets or other sensitive business information or disruption of operations could negatively impact the Company’s financial results. The Company has sensitive information, including intellectual property, trade secrets, and other sensitive, business critical information as well as on-premises and cloud-based business applications critical to conducting business. In addition, our research and development facility uses modern computer systems. Cyber-incidents affecting the Company, its supply chain or customers could compromise confidential, business critical information, cause a disruption in the Company’s operations, harm the Company's reputation, or endanger the environment if the Company, its suppliers or customers do not effectively prevent, detect and recover from these or other security breaches. While the Company has not encountered cyber security challenges that have materially impaired our operations or financial condition it may be the target of cyber security related incidents. Although management believes the Company has not experienced any cyber security related incident or losses to date related to these cyber security incidents, there can be no assurance that such losses will not be suffered in the future. The Company seeks to actively manage the risks within its control that could lead to business disruptions and cyber security incidents through a comprehensive cyber security program. As cyber security threats present themselves, the Company may be required to expend significant resources to enhance its control environment, processes, practices, and other protective measures. Despite these efforts, such events could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. We may be unable to enforce our intellectual property rights throughout the world. Our ability to protect our intellectual property rights internationally is also subject to significant uncertainty. As part of our growth strategy, we are continuing to expand our operations internationally. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. To the extent that we have obtained or are able to obtain patents, trademarks or other intellectual property rights in any foreign jurisdiction, it may be difficult to stop the infringement of our patents, trademarks or the misappropriation of other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the availability of certain types of patent rights and enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide only limited or no benefit. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, efforts to protect our intellectual property rights in such countries may be inadequate. In addition, future changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and products and the enforcement of intellectual property rights. We face significant competition in our industry, some of which have longer operating histories, more established products or greater resources than we have currently. The decontamination and environmental infectious disease control industry is extremely competitive. The competition includes remediators and disinfection/decontamination companies such as Steris, Bioquell (Eco-lab) and Clorox, various miscellaneous hydrogen peroxide companies, ultraviolet companies and hundreds of quad ammonia-chemical companies. These competitors may have longer operating histories, greater name recognition, larger installed customer bases, a greater ability to provide similar products and services at a lower cost and substantially greater financial and marketing resources than us to develop new products and commercialize existing products. We believe that the principal factors affecting competition in our markets include name recognition, customer familiarity with products, effective marketing, competitive pricing strategies and the ability to receive referrals based on client confidence in the service. There are no significant barriers of entry that could keep potential competitors from opening similar facilities. Our ability to compete successfully in the industry will depend, in large part, upon our ability to market and sell our indoor decontamination and infectious disease control products and services. We may not be able to compete successfully in the remediation industry. Further, if one or more competitors successfully develops a decontamination product that is more effective, better tolerated, results in a better customer experience, is easier to use or otherwise more attractive than our products, our ability to continue to commercialize our products could be significantly and adversely affected due to a lack of ability to compete, which would have a material adverse effect on our business, financial condition and results of operations. 14 Table of Contents If the quality of our products do not meet the expectations of our customers, then our brand and reputation or our business could be adversely affected. In the course of conducting our business, we must adequately address quality issues that may arise with our products, including defects in third-party components and inventory. We may not be able to eliminate or mitigate occurrences of these issues and associated liabilities. In addition, even in the absence of quality issues, we may be subject to claims and liability if the performance of products do not meet the expectations of our customers. If the quality of our products does not meet the expectations of customers, then our brand and reputation, and our ability to receive referral customer business, could be adversely affected. Our long-term growth depends, in part, on our ability to enhance, develop, market and sell new products, and if we fail to do so we may be unable to compete effectively. It is important to our business and our long-term growth that we continue to enhance and develop new products. We intend to continue to invest in research and development activities focused on improvements and enhancements to our existing intellectual property and product offerings. Our development goals include the development and commercialization of a variety of sanitizing robotic devices and backpack units. Despite our reasonable efforts, it may not be possible for us to innovate in a way to keep us competitive with other companies due to financial and time constraints which will negatively impact on our business. The development and initial production and enhancement of the decontamination systems we produce is often accompanied by design and production delays and related costs. If we are unable to introduce new products on our anticipated timeframe or financial cost, our business, financial condition and results of operations may suffer due to failing to remain competitive in our market. We have a limited management team size which may reduce our ability to effectively manage our business operations as it grows. Despite our current hiring efforts for non-management employees and redefining job descriptions, we have a limited management team size. This limited management team may reduce our ability to effectively manage our business as it grows or responds to significant demand from customers. As we expand, we expect to increase the size of our management team. However, our management team may not be able to adequately manage our business, and any failure to do so could lead to a general negative impact to our business. Our operations, and those of our suppliers, are subject to a variety of business continuity hazards and risks, any of which could interrupt production or operations or otherwise adversely affect our performance and results. We are subject to business continuity hazards and other risks, including natural disasters, utility and other mechanical failures, labor difficulties, inability to obtain necessary licenses, permits or registrations, disruption of communications, data security and preservation, disruption of supply or distribution, safety regulation and labor difficulties. The occurrence of any of these or other events might disrupt or shut down operations, or otherwise adversely impact the production or profitability of a particular facility, or our operations as a whole. We may also be subject to certain liability claims in the event of an injury or loss of life, or damage to property and equipment, resulting from such events. Although we maintain property and casualty insurance, as well as other forms of insurance that we believe are customary for our industries, our insurance policies include limits and, as such, our coverage may be insufficient to protect against all potential hazards and risks incident to our business. Should any such hazards or risks occur, or should our insurance coverage be inadequate or unavailable, our business, prospects, financial condition and results of operations might be adversely affected. Our products are subject to potential product liability claims which, if successful, could have a material adverse effect on our business, financial condition and results of operations. We are exposed to significant risks for product liability claims if death, personal injury or property damage results from the use of our products. While we currently maintain insurance against product liability claims, we may experience material product liability losses in the future. Our insurance coverage may not continue to be available on terms that we accept, if at all, and our insurance coverage also may not adequately cover liabilities that we incur. A successful claim against us that exceeds our insurance coverage level or that is not covered by insurance, or any product recall, could have a material adverse effect on our business, financial condition and results of operations. In addition, product liability and other claims can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. Further, claims of this nature may cause our customers to lose confidence in our products and us. As a result, an unsuccessful defense of a product liability or other claim could have a material adverse effect on our financial condition, results of operations and cash flows. 15 Table of Contents The misuse of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business. Customers, technicians, or service providers could use our products in a manner that is inconsistent with the products’ intended use. We train our marketing personnel and sales representatives to not promote our products for uses outside of the intended use, however, we cannot otherwise prevent all instances of misuse. Further, the marketing and sales representatives that we have hired to help meet the demand for our products may not have received proper training or have the working knowledge needed to adequately advise our customers how to safely use our products. Misuse of our products may cause an increased risk of injury to customers, which could harm our reputation in the marketplace, as well as lead to potential product liability lawsuits. If we are unable to develop and maintain an effective system of internal controls over financial reporting, or if the requirements of being a public company strain our resources, we may not be able to accurately report our financial results in a timely manner. Our management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP. A material weakness is a deficiency, or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Any failure to maintain effective internal controls could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines that we have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could decline. As disclosed in Item 9A of this Form 10-K, we concluded that as of December 31, 2025, material weaknesses existed because: (I) there are limited resources within the finance and accounting departments with sufficient knowledge and experience in applying U.S. GAAP, including developing appropriate accounting estimates, reserves, and allowances in a timely manner and maintaining proper segregation of duties; and (II) policies and procedures with respect to the review, supervision, and monitoring of our accounting and SEC reporting functions were either not fully designed and in place or not operating effectively. For a detailed description of the material weaknesses and the remediation actions taken during fiscal year 2025, please see Item 9A, Controls and Procedures. While we have taken a number of remediation actions during fiscal year 2025, the material weaknesses had not been fully remediated as of December 31, 2025, and there is no guarantee that our remediation efforts will be successfully completed or that new control deficiencies will not arise. Failure to remediate these material weaknesses, or the identification of additional deficiencies, could result in inaccurate financial reporting, regulatory sanctions, or a loss of investor confidence in our financial statements. In addition, as a public company subject to SOX, the Exchange Act, and Dodd-Frank, we incur significant legal, accounting, and compliance costs. These requirements consume substantial management time, may make it more difficult to attract and retain qualified board members and executive officers, and could expose us to sanctions, regulatory investigations, or litigation if we fail to maintain effective controls. Our compliance with Section 404 of SOX requires ongoing investment as we work to complete the remediation of the identified material weaknesses. Risk Related to Our Securities Our stock price is volatile and there is a limited market for our shares. The stock markets generally have experienced, and will probably continue to experience, extreme price and volume fluctuations that have affected the market price of the shares of many small-cap companies. Factors that may affect the volatility of our stock price include the following: · anticipated or actual fluctuations in our quarterly or annual operating results; · our success, or lack of success, in developing and marketing our products and services; · changes in general economic, political and market conditions in either of the regions in which we conduct our business; · changes in financial estimates by us or of securities or industry analysts; · the issuance of new or updated research reports by securities or industry analysts; · the announcement of new products, services, or technological innovations by us or our competitors; · the announcement of new customers, partners or suppliers; · the ability to collect our outstanding accounts receivable; · changes in our executive leadership; · regulatory developments in our industry affecting us, our customers or our competitors; competition; · actual or purported “short squeeze” trading activity; and · the sale or attempted sale of a large amount of common stock, including sales of common stock following exercises of outstanding warrants. 16 Table of Contents We do not intend to pay dividends for the foreseeable future. We have not paid dividends on our common stock since inception. The continued operation and expansion of our business will require substantial funding. Accordingly, we currently intend to retain earnings, if any, for use in the business and we do not anticipate that we will pay any cash dividends on shares of our common stock at this time. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. Investors seeking cash dividends should not purchase our common stock. Accordingly, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. We have a substantial number of options, warrants, convertible notes and convertible preferred stock outstanding, which could give rise to additional issuances of our common stock and potential dilution of ownership to existing shareholders. As of December 31, 2025, we had outstanding convertible notes, options, warrants, convertible preferred stock and restricted stock units representing approximately 6.0 million potential shares of our common stock. Additionally, 66,666 RSUs remain unvested and will result in automatic share issuance upon vesting through May 2027, with no exercise price. To the extent any of these securities are exercised, converted or vest, existing shareholders will experience dilution. Our outstanding convertible notes impose financial obligations, carry risks of dilution upon conversion, and may adversely affect our ability to raise additional capital. As of December 31, 2025, we had outstanding convertible notes payable with an aggregate principal amount of approximately $3.1 million, net of amortized debt discount of approximately $222,000, resulting in a carrying value of approximately $2.9 million on our balance sheet. These notes bear interest at a rate of 12% per annum, payable in equal monthly installments, and are convertible into shares of our common stock at the option of the holder at a conversion price of $1.25 per share, subject to adjustment. The notes mature on the fifth anniversary of their respective issuance dates. The interest payments required under our convertible notes represent a recurring cash obligation that could strain our liquidity, particularly given our going concern conditions and our current cash position of approximately $88,000 as of December 31, 2025. Our failure to make required interest payments when due could constitute an event of default under the applicable securities purchase agreements, which could result in the acceleration of the outstanding principal balance and materially and adversely affect our financial condition and results of operations. If the holders of our convertible notes elect to convert some or all of their notes into shares of our common stock at the $1.25 per share conversion price, existing shareholders would experience dilution. As of December 31, 2025, the outstanding convertible notes were convertible into approximately 2,508,000 shares in the aggregate. Because our common stock has recently traded significantly below the $1.25 conversion price, voluntary conversion is currently unattractive to holders. However, if our stock price recovers above the conversion price, the likelihood of conversion and the resulting dilutive impact on existing shareholders would increase materially. In addition, we have the right to require holders to convert the notes if our common stock maintains a closing bid price at or above $1.55 per share for any twenty trading days within a thirty consecutive trading day period. Given the recent trading price of our common stock, there is no assurance that such forced conversion conditions will be met within a timeframe sufficient to reduce our debt obligations. Furthermore, the existence of our outstanding convertible notes, and any future issuances of convertible debt, may make it more difficult for us to obtain additional equity or debt financing on acceptable terms, as potential investors or lenders may view the conversion and dilution risk as an impediment to investment. Our inability to raise additional capital when needed could have a material adverse effect on our business, financial condition and results of operations. Substantial future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. Our common stock is traded on the NASDAQ Capital Market (“Nasdaq”) and, despite certain increases of trading volume from time to time, there have been periods when our common stock could be considered thinly traded, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small. Equity or equity-related financing transactions that result in a large amount of newly issued shares that become readily tradable, or sales of significant numbers of shares by current shareholders, have placed, and in the future could place, downward pressure on the trading price of our stock. In addition, during times of lower trading volume, a shareholder who desires to sell a large number of shares of common stock may need to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. 17 Table of Contents If our shareholders sell, or the market perceives that our shareholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. In the event that the price of our stock falls, we may become involved in securities class action litigation that could divert management’s attention and harm our business. In the future, we may also issue our securities if we need to raise additional capital or in connection with acquisitions. The number of shares of our common stock issued in connection with a financing or acquisition could constitute a material portion of our then-outstanding shares of our common stock. We may not be able to maintain compliance with Nasdaq’s listing standards, which could limit shareholders’ ability to trade our common stock. As a listed company on Nasdaq, we are required to meet certain financial, public float, bid price, and liquidity standards on an ongoing basis. If we fail to meet these continued listing requirements, our common stock may be subject to delisting, which could materially impact its liquidity and make it more challenging for shareholders to buy and sell our shares. We are currently subject to two concurrent Nasdaq deficiency proceedings. On November 17, 2025, we received a deficiency notice that our closing bid price had been below the minimum $1.00 per share requirement (Nasdaq Listing Rule 5550(a)(2)) for 30 consecutive business days. We have until May 18, 2026 to regain compliance, which may include a potential reverse stock split subject to shareholder approval. Additionally, as of December 31, 2025, the Company's total stockholders' equity of $588,504 is below the $2,500,000 minimum required under Nasdaq Listing Rule 5550(b)(1). On November 21, 2025, the Company received a deficiency letter from the Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market notifying the Company that, based on its Form 10-Q for the period ended September 30, 2025, which reported stockholders' equity of $2,206,482, the Company no longer complies with the minimum stockholders' equity requirement for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(1), and that the Company does not meet the alternatives of market value of listed securities or net income from continuing operations. We submitted a compliance plan within the required 45-day period; if accepted, Nasdaq may grant an extension of up to 180 days from November 21, 2025. Both deficiencies are subject to concurrent review by Nasdaq. There is no guarantee that we will be able to regain compliance with either requirement within the applicable timeframes, and failure to do so may subject us to delisting proceedings. We are a “smaller reporting company” under the U.S. federal securities laws, and the reduced reporting requirements applicable to smaller reporting companies could make our common stock less attractive to investors. We are a “smaller reporting company” under U.S. federal securities laws. For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies. Investors may not find our common stock attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change in control would be beneficial to our shareholders. Provisions of our articles of incorporation, as amended, and amended by laws as well as provisions of Florida law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our shareholders. These include: maintaining authorized but unissued shares of our capital stock that could be issued by our Board to increase the number of outstanding shares and thwart a takeover attempt; no provision for the use of cumulative voting for the election of directors; maintaining a staggered board, limiting the speed at which our shareholders may replace our entire Board, and limiting the ability of our shareholders to call special meetings. In addition, Florida Business Corporation Act, or FBCA, § 607.0902 generally provides that shares acquired in excess of certain specified thresholds, without first obtaining the approval of our Board, will not possess any voting rights unless such voting rights are approved by a majority of our disinterested shareholders. Additionally, FBCA § 607.0901 requires that, subject to certain exceptions, any affiliated transaction with a shareholder that owns more than 15% of the voting shares of the corporation, referred to as an “interested shareholder,” receive the approval of either the corporation’s disinterested directors or a supermajority vote of disinterested shareholders, or, absent either such approval, that a statutory “fair price” be paid to the shareholders in the transaction. The shareholder vote requirement is in addition to any shareholder vote required under any other section of the FBCA or our articles of incorporation, as amended. 18 Table of Contents The concentration of our common stock ownership with our executive officers, directors and affiliates will limit your ability to influence corporate matters. Our executive officers, directors and owners of 5% or more of our outstanding common stock and their respective affiliates beneficially owned, in the aggregate approximately 22.8% of our outstanding common stock as of March 11, 2026. This percentage includes outstanding shares of common stock, convertible preferred stock, warrant and stock options that are vested and exercisable as of that date. These shareholders will therefore have significant influence over management and affairs and over all matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentrated control will limit our shareholders’ ability to influence corporate matters and, as a result, we may take actions that our shareholders do not view as beneficial. This ownership could negatively affect the value of our common stock.