{"url_path":"/sec/pola/10-q/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-20","source_url":"https://www.sec.gov/Archives/edgar/data/1622345/0001493152-26-024680-index.html","accession_number":"0001493152-26-024680","cik":"0001622345","ticker":"POLA","issuer_name":"Polar Power, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1622345/0001493152-26-024680-index.html","primary_entity_key":"0001622345","primary_entity_name":"Polar Power, Inc."},"word_count":12257,"has_tables":true,"body_markdown":"**ITEM\n1A. Risk Factors**\n\n \n\n*Before\ndeciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other\ninformation contained in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including subsequent reports on Forms\n10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently\nknown to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties\nactually occurs with material adverse effects on us, our business, financial condition, results of operations and/or liquidity could\nbe seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.*\n\n \n\n**Risks\nRelated to Our Business and Industry**\n\n \n\n**We have been evicted from our headquarters facility\nand may face eviction from our warehouse facility; it we fail to have appropriate facilities to operate our business, our operations,\nfinancial condition and results of operations will be adversely affected.**\n\n** **\n\nOn May 11, 2026, we entered into\na Settlement Agreement with the landlord for each of our headquarters facility and our warehouse facility that became effective as of\nMay 7, 2026. The Settlement Agreement addressed the matter of delinquent rents and an expired lease. Regarding our headquarters facility,\nwe agreed to make immediate payment of $400,000 towards past due rents, and the landlord agreed to cease eviction procedures. The landlord\nalso agreed to extend the property lease from June 1, 2026, to April 1, 2027, and reduce the monthly rent from $84,000 to $55,000. Regarding\nthe warehouse facility, we agreed to vacate the facility by August 31, 2026 and leave the premises in the condition required by the relevant\nlease agreement; in exchange, the landlord agreed to waive rents for the months of June, July, and August 2026. Each landlord reserved\nthe right to charge for any waived rents or continue with eviction action should we fail to meet the requirements listed in the Settlement\nAgreement. We also may have to pay liquidated damages if we fail to vacate the properties in the event either or both landlords decide\nto exercise their rights for eviction.\n\n \n\nOn May 19, 2026, the landlord\nfor our headquarters facility evicted us from that facility. The headquarters facility is where we, among other things, have our offices,\nconduct design work, and assemble and tests our products. We are currently relocating these activities to our warehouse facility. We are\ncontinuing our operations, but expect there to be disruptions and difficulties with this change. Further, if the landlord for the warehouse\nfacility were to evict us from that facility, we could have difficulty finding an appropriate location from which to operate our business,\nwhich would have a material adverse effect on our operations, financial results and financial condition.\n\n \n\nAs of the date hereof, we are\npursuing third-party financing that we would use to pay the landlords and certain other expenses. There is no guarantee that we will raise\nsufficient capital to pay the delinquent rent or that the landlord for the headquarters facility would agree to let us use that facility\nif we were to pay the rent. It is possible that we will be forced to vacate from both facilities, and if that happens, we may have difficulty\nsecuring new headquarters, or new manufacturing or warehouse facilities that are adequate. Our production could be significantly delayed,\naccess to our inventory could be impaired, and our operations could halt for a significant period of time.\n\n \n\n**Rising\ninflation in the economies in which we operate may adversely affect our operating margins and our results of operation.**\n\n** **\n\nIn\ngeneral, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have\nbeen able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements\nthat may provide for price increases and continued focus on improvements of operational productivity. However, the current inflationary\nenvironment, we believe, has impacted the Company’s business in 2025 and 2026, including as a result of increased energy costs,\nincrease materials costs due to higher tariffs on key components which may not be able to pass to customers as well as increasing wages\nin the labor markets in which we compete. Inflation could continue to pressure our margins in future periods. Adverse economic conditions\nresulting from inflationary pressures, U.S. Federal Reserve actions, geopolitical issues or otherwise are difficult to predict and may\nhave a material adverse impact on our business, results of operations and financial condition.\n\n \n\n**Terrorist\nattacks and threats of war may impact all aspects of our operations, revenues, costs and stock price in unpredictable ways.**\n\n \n\nThe\nimpacts of war and other geopolitical events, including but not limited to Russia’s invasion of Ukraine and the military conflicts\nbetween U.S., Israel, and Iran, are difficult to predict. The resulting geopolitical uncertainty are likely to have a significant impact\non the European Union, the United Kingdom and other countries, including the U.S. The threat that these military operations may expand\nbeyond Ukraine, Israel, and the Gaza Strip may have a negative impact as well. Significant increases in the price of oil and natural\ngas have occurred and are likely to continue putting additional inflationary pressures on central banks, including Federal Reserve System\n(the “FRB”). It is possible that interest rate hikes by the FRB will continue to occur in 2026, but the amount, timing, and\nfrequency of such increases are not fully known at this time. As a result of these conflicts, the threat of cyberattacks has increased\nwhich could affect banks in the U.S. and their customers. Additionally, the United States and European nations have imposed very significant\nfinancial sanctions on the Russian Federation, including targeted sanctions on Russian banks and wealthy individuals as well as halting\ncertification of the Nord Stream 2 gas pipeline. They have denied Russian banks access the Society for Worldwide Interbank Financial\nTelecommunications or SWIFT which is expected to slow international trade and make such transactions costlier to accomplish which could\nalso negatively affect banks in the U.S. and their customers. In response to the Russian military actions, many businesses headquartered\nin the Eurozone and the United States have stopped doing business with Russia, which may negatively affect the profitability of those\ncompanies. The international turmoil has already had and may continue to have a negative impact on the stock market generally and, in\nturn, on our stock price.\n\n \n\n19\n\n \n\n \n\nThe\ncontinuation or escalation of events like the U.S.-Israel-Iran conflict may also disrupt business operations of our suppliers and/or\ncustomers, causing supply chain constraints or delayed spending by our customers. The full impact of such events are not known at this\ntime, but they could have a material adverse impact on our business, financial condition, results of operations, and stock price.\n\n \n\n**We\nhave incurred significant losses in the past and we may incur losses in the future, which may hamper our operations and impede us from\nexpanding our business.**\n\n \n\nWe\nhave incurred significant losses in the past. For the years ended December 31, 2025 and 2024, we incurred net losses of approximately\n$9.1 million and $4.6 million, respectively. For the three months ended March 31, 2026, we realized a net loss of approximately $178. We may incur net and gross losses in the future. We expect to rely on cash on hand, cash, if any, generated from our operations,\nborrowing availability under our line of credit and proceeds from our future financing activities, if any, to fund all of the cash requirements\nof our business. Additional losses may hamper our operations and impede us from expanding our business.\n\n \n\n**We\nare dependent on, and derive substantially all of our revenue from, sales of our DC base power systems to one customer within the U.S.\ntelecommunications market. Our efforts to expand our customer base, our product portfolio or markets within which we operate may not\nsucceed and may reduce our revenue growth rate.**\n\n \n\nWe\nderive substantially all our revenues from sales of our DC base power systems to one Tier-1 customer within the telecommunications market.\nThe volume of sales to them may vary significantly from year to year. Any factor adversely affecting sales of these power systems to\nthis customer or to other customers within this market, including market acceptance, product competition, performance and reliability,\nreputation, price competition and economic and market conditions, could adversely affect our business and results of operations.\n\n \n\nIn\naddition, any unfavorable change in our business relationship with our Tier-1 telecommunications wireless carrier customers, or delays\nin customer implementation and deployment of our products, could have a material adverse effect on our results of operation and financial\ncondition. Our plans to invest in the development of electric vehicle chargers, residential and commercial power products and higher\ncapacity DC hybrid solar systems may not result in an anticipated growth in sales and may reduce our revenue growth rate.\n\n \n\n**Many\nof our DC power systems involve long design and sales cycles, which could have an adverse impact on our results of operations and financial\nperformance.**\n\n \n\nThe\ndesign and sales cycle for our DC power systems, from initial contact with our potential customer to the shipments of our product, may\nbe lengthy. Customers generally consider a wide range of factors before making a purchase decision. Prior to purchasing our products,\nmany of our customers often require a significant technical review, tests and evaluations over long periods of time (i.e., three to twenty-four\nmonths), assessments of competitive products and approval at a number of management levels within their organization. During the time\nour customers are evaluating our products, we may incur substantial sales and service, engineering and research and development expenses\nto customize our products to meet customer’s application needs. We may also expend significant management efforts, increase manufacturing\ncapacity, order long-lead-time components or purchase significant amounts of components and other inventory prior to receiving an order.\nEven after this evaluation process, a potential customer may not purchase our products.\n\n \n\nThe\nproduct development time before a customer agrees to purchase our DC power systems can be considerable. Our process for developing an\nintegrated solution may require use of significant engineering resources, including design, prototyping, modeling, testing and application\nengineering. The length of this cycle is influenced by many factors, including the difficulty of the technical specification and complexity\nof the design and the customer’s procurement processes. A significant period may elapse between our investment of time and resources\nin designing and developing a product for a customer and receipt of revenue from sales of that product. The length of this process, combined\nwith unanticipated delays in the development cycles and the effects of the COVID-19 pandemic and recovery on our ability to demonstrate\nour products to current and potential customers could materially affect our results of operations and financial conditions.\n\n \n\n20\n\n \n\n \n\n**We\ndo not have long-term commitments for significant revenues with most of our customers and may be unable to retain existing customers,\nattract new customers or replace departing customers with new customers that can provide comparable revenues and profits.**\n\n \n\nBecause\nwe generally do not obtain firm, long-term volume purchase commitments from our customers, most of our sales are derived from individual\npurchase orders. We remain dependent upon securing new purchase orders in the future in order to sustain and grow our revenues. Accordingly,\nthere is no assurance that our revenues and business will grow in the future. Our failure to maintain and expand our customer relationships\ncould materially and adversely affect our business and results of operations.\n\n \n\n**The\ncurrent high concentration of our sales within the telecommunications market could result in a significant reduction in sales and negatively\naffect our profitability if demand for our DC power systems declines within this market before we are able to make significant inroads\nwith our diversification of markets and customers.**\n\n \n\nCurrently,\nwe are predominately focused on the manufacturing, marketing and sales of DC power systems to telecommunications companies. We may be\nunable to shift our business focus away from these activities to other potential markets for our products. Accordingly, the emergence\nof new competing DC power products or lower-cost alternative technologies within the telecommunications market may reduce the demand\nfor our products. A downturn in the demand for our DC power systems within this market could materially and adversely affect our sales\nand results of operations.\n\n \n\n**We\nface inventory risk and may be required to write-off additional inventory in the future.**\n\n \n\nWe\nvalue inventories at the lower of cost or net realizable value. If the estimated net realizable value is determined to be less than the\nrecorded cost of the inventory, a provision is made to reduce the carrying amount of the inventory item to the lower net realizable value\ndetermination. Determination of the net realizable value may be complex, and therefore, requires management to make assumptions and to\napply a high degree of judgment. In order for management to make the appropriate determination of net realizable value, the following\nitems are commonly considered: inventory turnover statistics, inventory quantities on hand in our facilities, unfilled customer order\nquantities, forecasted consumer demand, current prices, competitive pricing, seasonality factors, consumer trends and performance of\nsimilar products or accessories. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded write-downs.\n\n \n\nIf\nour estimates regarding net realizable value are inaccurate, including our estimates regarding our inventory, or changes in customer\ndemand for our products in an unforeseen manner, we may experience additional write-downs of our inventory.\n\n \n\n**The\nunavailability or shortage, or increase in the cost, of raw materials and components could have an adverse effect on our sales and profitability.**\n\n \n\nOur\noperations require raw materials, such as aluminum, copper, engines, electronics, and permanent magnets. Commodities such as aluminum\nand copper are known to have significant price volatility based on global economic conditions. An increase in global economic outlook\nmay result in significant price increases in the cost of our raw materials. In addition, we use Neodymium permanent magnets in our alternators,\nfor which there are a limited number of global suppliers that can meet our standards. Increase in manufacturing of electric vehicles\nworldwide can have an adverse effect on the cost or supply of these magnets. At our current production volumes, we are unable to secure\nlarge quantities of these commodities at fixed prices; however, we do have multiple sources of supply for our raw materials to meet our\nnear term forecasted needs. Various factors could reduce the availability of raw materials and components and shortages may occur from\ntime to time in the future. An increase in lead times for the supply of raw materials due to a global increase in demand for commodities\nor other reasons may significantly increase the timing of receipt of such materials and/or increase the material costs of our products.\nFor example, if production was interrupted due to unavailability or shortage of raw materials and we were not able to find alternate\nthird-party suppliers or re-engineer our products to accommodate different components or materials, we could experience disruptions in\nmanufacturing and operations including product shortages, higher freight costs and re-engineering costs. If our supply of raw materials\nor components are disrupted or our lead times extended, our business, results of operations or financial condition could be materially\nadversely affected.\n\n21\n\n \n\n \n\n**The\nmarkets within which we compete are highly competitive. Many of our competitors have greater financial and other resources than we do\nand one or more of these competitors could use their greater financial and other resources to gain market share at our expense.**\n\n \n\nIf\nour business continues to develop as expected, we anticipate that we will grow our revenues in the near future. If, due to capital constraints\nor otherwise, we are unable to fulfill our existing backlog in a timely manner and/or procure and timely fulfill our anticipated future\nbacklog, our customers and potential customers may decide to use competing DC power systems or continue the use of AC power systems.\nIf we are unable to fulfill the demand for products and services in a timely manner, our customers and potential customers may choose\nto purchase products from our competitors. Some of our larger competitors may be willing to reduce prices and accept lower margins in\norder to compete with us. In addition, we could face new competition from large international or domestic companies with established\nindustrial brands and distribution networks that enter our end markets. Demand for our products may also be affected by our ability to\nrespond to changes in design and functionality, to respond to downward pricing pressure, and to provide shorter lead times for our products\nthan our competitors. If we are unable to respond successfully to these competitive pressures, we could lose market share, which could\nhave an adverse impact on our results. We cannot assure that we will be able to compete successfully in our markets or compete effectively\nagainst current and new competitors as our industry continues to evolve.\n\n \n\n**Rapid\ntechnological changes may prevent us from remaining current with our technological resources and maintaining competitive product and\nservice offerings.**\n\n \n\nThe\nmarkets in which we and our customers operate are characterized by rapid technological change, especially within the telecommunications\nmarket. Significant technological changes could render our existing and potential new products, services and technology obsolete. Our\nfuture success will depend, in large part, upon our ability to:\n\n \n\n \n●\neffectively\nidentify and develop leading energy efficient technologies;\n\n \n \n \n\n \n●\ncontinue\nto develop our technical expertise;\n\n \n \n \n\n \n●\nenhance\nour current products and services with new, improved and competitive technology; and\n\n \n \n \n\n \n●\nrespond\nto technological changes in a cost-effective and timely manner.\n\n \n\nIf\nwe are unable to successfully respond to technological change or if we do not respond to it in a cost-effective and timely manner, then\nour business will be materially and adversely affected. We cannot assure you that we will be successful in responding to changing technology.\nIn addition, technologies developed by others may render our products, services and technology uncompetitive or obsolete. Even if we\ndo successfully respond to technological advances, the integration of new technology may require substantial time and expense, and we\ncannot assure you that we will succeed in adapting our products, services and technology in a timely and cost-effective manner.\n\n \n\n**If\nwe are unable to continue to develop new and enhanced products and services that achieve market acceptance in a timely manner, our competitive\nposition and operating results could be harmed.**\n\n \n\nOur\nfuture success will depend on our ability to continue to develop new and enhanced DC power systems and related products and services\nthat achieve market acceptance in a timely and cost-effective manner. The markets in which we and our customers operate are characterized\nby frequent introductions of new and enhanced products and services, evolving industry standards and regulatory requirements, government\nincentives and changes in customer needs. The successful development and market acceptance of our products and services depends on a\nnumber of factors, including:\n\n \n\n \n●\nthe\nimpact of a global crisis such as the COVID-19 pandemic on the global markets;\n\n \n \n \n\n \n●\nthe\nchanging requirements and preferences of the potential customers in our markets;\n\n \n \n \n\n \n●\nthe\naccurate prediction of market requirements, including regulatory issues;\n\n \n \n \n\n \n●\nthe\ntimely completion and introduction of new products and services to avoid obsolescence;\n\n \n \n \n\n \n●\nthe\nquality, price and performance of new products and services;\n\n \n \n \n\n \n●\nthe\navailability, quality, price and performance of competing products and services;\n\n \n\n \n●\nour\ncustomer service and support capabilities and responsiveness;\n\n \n \n \n\n \n●\nthe\nsuccessful development of our relationships with existing and potential customers; and\n\n \n \n \n\n \n●\nchanges\nin industry standards.\n\n \n\n22\n\n \n\n \n\nWe\nmay experience financial or technical difficulties or limitations that could prevent us from introducing new or enhanced products or\nservices. Furthermore, any of these new or enhanced products and services could contain problems that are discovered after they are introduced.\nWe may need to significantly modify the design of these products and services to correct problems. Rapidly changing industry standards\nand customer preferences and requirements may impede market acceptance of our products and services.\n\n \n\nDevelopment\nand enhancement of our products and services will require significant additional investment and could strain our management, financial\nand operational resources. The lack of market acceptance of our products or services or our inability to generate sufficient revenues\nfrom this development or enhancement to offset their development costs could have a material adverse effect on our business. In addition,\nwe may experience delays or other problems in releasing new products and services and enhancements, and any such delays or problems may\ncause customers to forego purchases of our products and services and to purchase those of our competitors.\n\n \n\nWe\ncannot provide assurance that products and services that we have recently developed or that we develop in the future will achieve market\nacceptance. If our new products and services fail to achieve market acceptance, or if we fail to develop new or enhanced products and\nservices that achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected.\n\n \n\n**Natural\ndisasters and other events beyond our control could materially adversely affect us.**\n\n \n\nNatural\ndisasters or other catastrophic events, including the COVID-19 pandemic and recovery, may cause damage or disruption to our operations,\ninternational commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject\nto interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis\nmanagement and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers\nand could decrease demand for our services.\n\n \n\n**We\nare dependent on relationships with our key material suppliers, and the partial or complete loss of one of these key suppliers, or the\nfailure to find replacement suppliers or manufacturers in a timely manner, could adversely affect our business.**\n\n \n\nWe\nhave established relationships with third-party engine suppliers and other key suppliers from which we source components for our power\nsystems. We purchase standard configurations of engines for our DC power systems and are substantially dependent on timely supply from\nour key engine suppliers, Yanmar Engines Company, Toyota Corporation, and Engine Distributors Inc. (for Ford engines). Engines from Yanmar\nEngines Company, Toyota Corporation, and Engine Distributors Inc. (for Ford engines) represented approximately 74%, 2%, and 21% of our\ntotal engines sold as a component of our DC power systems during the three months ended March 31, 2026, respectively, and represented\napproximately 88%, nil%, and 13% of our total engines sold as components of our DC power systems during the three months ended March\n31, 2025, respectively. We also use engines from Perkins, Isuzu, Kubota and, to a lesser extent, Volvo Penta. We do not have any long-term\ncontracts or commitments with any of these suppliers or other key suppliers from which we source components for our power systems. We\ncurrently have past due accounts with many of our key suppliers. If any of these engine suppliers or key component suppliers were to\nfail to provide qualified engines or components in a timely manner or fail to supply engines or components that meet our quality, quantity\nor cost requirements, or were to discontinue manufacturing any engines or components we source from them or discontinue providing any\nof these engines or components to us, or the supply chain is interrupted or delayed as a result of a pandemic or unprecedented event,\nor if suppliers decide stop supplying engines or components due to past due accounts if we do not bring these accounts current or negotiate\na payment plan in a timely manner, and we were unable to obtain substitute sources in a timely manner or on terms acceptable to us, our\nability to manufacture our products could be materially adversely affected.\n\n \n\n23\n\n \n\n \n\n**Price\nincreases in some of the key components in our DC power systems could materially and adversely affect our operating results and cash\nflows.**\n\n \n\nThe\nprices of some of the key components of our DC power systems are subject to fluctuation due to market forces beyond our control, including\nchanges in the costs of raw materials incorporated into these components. Such price increases occur from time to time due to spot shortages\nof commodities, increases in labor costs or longer-term shortages due to market forces. In particular, the prices of engines can fluctuate\nfrequently and often significantly. We do not have any long-term contracts or commitments with our two key engine suppliers. Substantial\nincreases in the prices of raw materials used in components which we source from our suppliers may result in increased prices charged\nby our suppliers. If we incur price increases from our suppliers for key components in our DC power systems, our production costs will\nincrease. Given competitive market conditions, we may not be able to pass all or any of those cost increases on to our customers in the\nform of higher sales prices. To the extent our competitors do not suffer comparable component cost increases, we may have even greater\ndifficulty passing along price increases and our competitive position may be harmed. As a result, increases in costs of key components\nmay adversely affect our margins and otherwise adversely affect our operating results and cash flows.\n\n \n\n**A\nportion of our key components are sourced in foreign countries, exposing us to additional risks that may not exist in the U.S.**\n\n \n\nA\nportion of our key components, such as engines, magnets and cooling systems, are purchased from suppliers located overseas, primarily\nin Asia. Our international sourcing subjects us to a number of potential risks in addition to the risks associated with third-party sourcing\ngenerally. These risks include:\n\n \n\n \n●\ninflation\nor changes in political and economic conditions;\n\n \n \n \n\n \n●\nunstable\nregulatory environments;\n\n \n \n \n\n \n●\nchanges\nin import and export duties;\n\n \n \n \n\n \n●\ncurrency\nrate fluctuations;\n\n \n \n \n\n \n●\ntrade\nrestrictions;\n\n \n \n \n\n \n●\nlabor\nunrest;\n\n \n \n \n\n \n●\nlogistical\nand communications challenges; and\n\n \n \n \n\n \n●\nother\nrestraints and burdensome taxes.\n\n \n\nThese\nfactors may have an adverse effect on our ability to source our purchased components overseas. In particular, if the U.S. dollar were\nto depreciate significantly against the currencies in which we purchase raw materials from foreign suppliers, our cost of goods sold\ncould increase materially, which would adversely affect our results of operations.\n\n \n\n**The\nunavailability or shortage, or increase in the cost, of raw materials and components could have an adverse effect on our sales and profitability.**\n\n \n\nOur\noperations require raw materials, such as aluminum, copper and permanent magnets. Commodities such as aluminum and copper are known to\nhave significant price volatility based on global economic conditions. An increase in global economic outlook may result in significant\nprice increases in the cost of our raw materials. In addition, we use Neodymium permanent magnets in our alternators, for which there\nare a limited number of global suppliers that can meet our standards. Increase in manufacturing of electric vehicles worldwide can have\nan adverse effect on the cost or supply of these magnets. At our current production volumes, we are unable to secure large quantities\nof these commodities at fixed prices; however, we do have multiple sources of supply for our raw materials to meet our near term forecasted\nneeds. Various factors could reduce the availability of raw materials and components and shortages may occur from time to time in the\nfuture. An increase in lead times for the supply of raw materials due to a global increase in demand for commodities outlined may significantly\nincrease material costs of our products. If production was interrupted due to unavailability or shortage of raw materials and we were\nnot able to find alternate third-party suppliers or re-engineer our products to accommodate different components or materials, we could\nexperience disruptions in manufacturing and operations including product shortages, higher freight costs and re-engineering costs. If\nour supply of raw materials or components is disrupted or our lead times extended, our business, results of operations or financial condition\ncould be materially adversely affected.\n\n \n\n24\n\n \n\n \n\n**We\nmanufacture and assemble a majority of our products at two facilities. Any prolonged disruption in the operations of this facility would\nresult in a decline in our sales and profitability.**\n\n \n\nWe\nmanufacture and assemble our DC power systems at our two production facilities located in Gardena, California. Any prolonged disruption\nin the operations of our manufacturing and assembly facilities, whether due to the COVID-19 pandemic and recovery, equipment or information\ntechnology infrastructure failure, labor difficulties, destruction of or damage to one or both of these facilities as a result of an\nearthquake, fire, flood, other catastrophes, and other operational problems would result in a decline in our sales and profitability.\nIn the event of a business interruption at our facilities, we may be unable to shift manufacturing and assembly capabilities to alternate\nlocations, accept materials from suppliers or meet customer shipment needs, among other severe consequences. Such an event could have\na material and adverse impact on our financial condition and results of our operations.\n\n \n\n**Our\nbusiness operations are subject to substantial government regulation.**\n\n \n\nOur\nbusiness operations are subject to certain federal, state, local and foreign laws and regulations. For example, our products, services\nand technologies are subject to regulations relating to building codes, public safety, electrical connections, security protocols, and\nlocal and state licensing requirements. The regulations to which we are subject may change, additional regulations may be imposed, or\nexisting regulations may be applied in a manner that creates special requirements for the implementation and operation of our products\nor services that may significantly impact or even eliminate some of our revenues or markets. In addition, we may incur material costs\nor liabilities in complying with any such regulations. Furthermore, some of our customers must comply with numerous laws and regulations,\nwhich may affect their willingness and ability to purchase our products, services and technologies.\n\n \n\nThe\nmodification of existing laws and regulations or interpretations thereof or the adoption of future laws and regulations could adversely\naffect our business, cause us to modify or alter our methods of operations and increase our costs and the price of our products, services\nand technology. In addition, we cannot provide any assurance that we will be able, for financial or other reasons, to comply with all\napplicable laws and regulations. If we fail to comply with these laws and regulations, we could become subject to substantial penalties\nor restrictions that could materially and adversely affect our business.\n\n \n\n**Certain\nof our products are used in critical communications networks which may subject us to significant liability claims.**\n\n \n\nBecause\ncertain of our products for customers in the telecommunications industry are used in critical communications networks, we may be subject\nto significant liability claims if our products do not work properly. We warrant to our customers that our products will operate in accordance\nwith our product specifications. If our products fail to conform to these specifications, our customers could require us to remedy the\nfailure or could assert claims for damages. The provisions in our agreements with customers that are intended to limit our exposure to\nliability claims may not preclude all potential claims. In addition, any insurance policies we have may not adequately limit our exposure\nwith respect to such claims. Liability claims could require us to spend significant time and money in litigation or to pay significant\ndamages. Any such claims, whether or not successful, would be costly and time-consuming to defend, and could divert management’s\nattention and seriously damage our reputation and our business.\n\n \n\n25\n\n \n\n** **\n\n**We\ncould be adversely affected by our failure to comply with the laws applicable to our foreign activities, including the U.S. Foreign Corrupt\nPractices Act and other similar worldwide anti-bribery laws.**\n\n \n\nThe\nU.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions prohibit U.S.-based companies and\ntheir intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We may pursue\nopportunities in certain parts of the world that experience government corruption, and in certain circumstances, compliance with anti-bribery\nlaws may conflict with local customs and practices. Our policies mandate compliance with all applicable anti-bribery laws. Further, we\nrequire our partners, subcontractors, agents and others who work for us or on our behalf to comply with the FCPA and other anti-bribery\nlaws. Although we have policies and procedures, and have conducted training, designed to ensure that we, our employees, our agents and\nothers who work with us in foreign countries comply with the FCPA and other anti-bribery laws, there is no assurance that such policies,\nprocedures or training will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and\nintermediaries. If we are found to be liable for FCPA violations (either due to our own acts or inadvertence, or due to the acts or inadvertence\nof others), we could suffer from severe criminal or civil penalties or other sanctions, which could have a material adverse effect on\nour reputation, business, results of operations or cash flows. In addition, detecting, investigating and resolving actual or alleged\nFCPA violations is expensive and could consume significant time and attention of our senior management.\n\n \n\n**We\nare exposed to risks related to our international sales, and the failure to manage these risks could harm our business. If we fail to\nexpand our business into international markets, our revenues and results of operations may be adversely affected**.\n\n \n\nIn\naddition to our sales to customers within the U.S., we may become increasingly dependent on sales to customers outside the U.S. as we\npursue expanding our business with customers worldwide. During the three months ended March 31, 2026 and 2025, our sales to international\ncustomers accounted for 5% and 18%, respectively, of total revenue. We continue to expect that a significant portion of our future revenues\nwill be from international sales to customers in less developed or developing countries. As a result, the occurrence of any international,\npolitical, economic, or geographic event including changes in trade policy, tariffs, and/or export/import laws and regulations could\nresult in a significant increase in the cost of materials used in our production and/or a significant decline in revenue.\n\n \n\nDuring\n2025, the U.S. government imposed tariffs on many products imported from many countries, which many of these countries have imposed retaliatory\ntariffs or threatened to impose tariffs on goods they import from the U.S. While we obtain most of our raw materials from domestic sources,\nmany of our suppliers source materials from various countries and may pass tariffs they pay on to us. As of the date of this report,\nwe have not been materially affected by tariffs, but it is difficult to determine the impact of these tariffs on our business for the\nrest of 2026 and beyond.\n\n \n\nThere\nare significant risks associated with conducting operations internationally, requiring significant financial commitments to support such\noperations. These operations present a number of challenges including oversight of daily operating practices in each location, handling\nemployee benefits and employee behavior. In addition, compliance with complex foreign and U.S. laws and regulations that apply to our\ninternational operations increases our cost of doing business in international jurisdictions. These numerous and sometimes conflicting\nlaws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such\nas the FCPA, and other local laws prohibiting corrupt payments to governmental officials, and anti-competition regulations, among others.\n\n \n\nViolations\nof these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions\non the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially\naffect our brand, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results.\nAlthough we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance\nthat our employees, contractors, or agents will not violate our policies.\n\n \n\nSome\nof the risks and challenges of conducting business internationally include:\n\n \n\n \n●\nthe\nimpact of a global crisis such as the COVID-19 pandemic on the global markets and the power generation market within the international\ntelecommunications markets;\n\n \n \n \n\n \n●\nrequirements\nor preferences for domestic products or solutions, which could reduce demand for our products;\n\n \n \n \n\n \n●\nunexpected\nchanges in regulatory requirements;\n\n \n \n \n\n \n●\nimposition\nof tariffs and other barriers and restrictions;\n\n \n \n \n\n \n●\nrestrictions\non the import or export of critical technology;\n\n \n\n26\n\n \n\n \n\n \n●\nmanagement\ncommunication and integration problems resulting from cultural and geographic dispersion;\n\n \n \n \n\n \n●\nthe\nburden of complying with a variety of laws and regulations in various countries;\n\n \n \n \n\n \n●\ndifficulties\nin enforcing contracts;\n\n \n \n \n\n \n●\nthe\nuncertainty of protection for intellectual property rights in some countries;\n\n \n \n \n\n \n●\napplication\nof the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and relatively high-rate jurisdictions,\nto our sales and other transactions, which results in additional complexity and uncertainty;\n\n \n \n \n\n \n●\ntariffs\nand trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell products;\n\n \n \n \n\n \n●\ngreater\nrisk of a failure of foreign employees to comply with both U.S. and foreign laws, including export and antitrust regulations, the\nFCPA and any trade regulations ensuring fair trade practices;\n\n \n \n \n\n \n●\nheightened\nrisk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact\nfinancial results and result in restatements of, or irregularities in, financial statements;\n\n \n \n \n\n \n●\npotentially\nadverse tax consequences, including multiple and possibly overlapping tax structures;\n\n \n \n \n\n \n●\ngeneral\neconomic and geopolitical conditions, including war and acts of terrorism;\n\n \n \n \n\n \n●\nlack\nof the availability of qualified third-party financing; and\n\n \n \n \n\n \n●\ncurrency\nexchange controls.\n\n \n\nWhile\nthese factors and the impacts of these factors are difficult to predict, any one or more of them could adversely affect our business,\nfinancial condition and results of operations in the future.\n\n \n\n**Cyberattacks\nthrough security vulnerabilities could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to\nour reputation or competitive position.**\n\n \n\nSecurity\nvulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external\nparties gaining access to our networks, data centers, cloud data centers, corporate computers, manufacturing systems, and/or access to\naccounts we have at our suppliers, vendors, and customers. External parties may gain access to our data or our customers’ data,\nor attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused\nby inadequate account security practices such as failure to timely remove employee access when terminated. To mitigate these security\nissues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology\npolicies and user account policies. However, there can be no assurance these measures will be sufficient to avoid cyberattacks. If any\nof these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners\nand customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation\nand possible significant liability.\n\n \n\nFurther,\nif we fail to adequately maintain our information technology infrastructure, we may have outages and data loss. Excessive outages may\naffect our ability to timely and efficiently deliver products to customers or develop new products. Such disruptions and data loss may\nadversely impact our ability to fulfill orders and interrupt other processes. Delayed sales or lost customers resulting from these disruptions\ncould adversely affect our financial results, stock price and reputation.\n\n \n\n27\n\n \n\n \n\nThe\nState of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2020. Our and our business\npartners’ or contractors’ failure to fully comply with the CCPA and other laws could lead to significant fines and require\nonerous corrective action. In addition, data security breaches experienced by us or our business partners or contractors could result\nin the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally\nidentifiable information (including sensitive personal information) of our employees, customers, suppliers, contractors and others.\n\n \n\nUnauthorized\nuse or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems,\nbreach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse,\nor otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to\noccur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and\ninvestigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying\naffected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating\nto the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to,\nor use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers\nand have an adverse impact on our business, financial condition and results of operations.\n\n \n\n**Risks\nRelated to Our Intellectual Property**\n\n \n\n**If\nwe fail to adequately protect our intellectual property rights, we could lose important proprietary technology, which could materially\nand adversely affect our business.**\n\n \n\nOur\nsuccess and ability to compete depends, in substantial part, upon our ability to develop and protect our proprietary technology and intellectual\nproperty rights to distinguish our products, services and technology from those of our competitors. The unauthorized use of our intellectual\nproperty rights and proprietary technology by others could materially harm our business.\n\n \n\nHistorically,\nwe have relied primarily on a combination of trademark, copyright and trade secret laws, along with non-competition and confidentiality\nagreements, contractual provisions, licensing arrangements and proprietary software and manufacturing processes, to establish and protect\nour intellectual property rights. Although we hold several unregistered copyrights in our business, we believe that the success of our\nbusiness depends more upon our proprietary technology, information, processes and know-how than on patents or trademark registrations.\nIn addition, much of our proprietary information and technology may not be patentable; if we decided to apply for patents and/or trademarks\nin the future, we might not be successful in obtaining any such future patents or in registering any marks.\n\n \n\nDespite\nour efforts to protect our intellectual property rights, existing laws afford only limited protection, and our actions may be inadequate\nto protect our rights or to prevent others from claiming violations of their proprietary rights. Unauthorized third parties may attempt\nto copy, reverse engineer or otherwise obtain, use or exploit aspects of our products and services, develop similar technology independently,\nor otherwise obtain and use information that we regard as proprietary. We cannot assure you that our competitors will not independently\ndevelop technology similar or superior to our technology or design around our intellectual property. In addition, the laws of some foreign\ncountries may not protect our proprietary rights as fully or in the same manner as the laws of the U.S.\n\n \n\nWe\nmay need to resort to litigation to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity\nand scope of other companies’ proprietary rights in the future. However, litigation could result in significant costs and in the\ndiversion of management and financial resources. We cannot assure you that any such litigation will be successful or that we will prevail\nover counterclaims against us. Our failure to protect any of our important intellectual property rights or any litigation that we resort\nto in order to enforce those rights could materially and adversely affect our business.\n\n \n\n28\n\n \n\n \n\n**If\nwe face claims of intellectual property infringement by third parties, we could encounter expensive litigation, be liable for significant\ndamages or incur restrictions on our ability to sell our products and services.**\n\n \n\nAlthough\nwe are not aware of any present infringement of our products, services or technology on the intellectual property rights of others, we\ncannot be certain that our products, services and technologies do not or in the future will not infringe on the valid intellectual property\nrights held by third parties. In addition, we cannot assure you that third parties will not claim that we have infringed their intellectual\nproperty rights.\n\n \n\nIn\nrecent years, there has been a significant amount of litigation in the U.S. involving patents and other intellectual property rights.\nIn the future, we may be a party to litigation as a result of an alleged infringement of others’ intellectual property. Successful\ninfringement claims against us could result in substantial monetary liability, require us to enter into royalty or licensing arrangements,\nor otherwise materially disrupt the conduct of our business. In addition, even if we prevail on these claims, this litigation could be\ntime-consuming and expensive to defend or settle and could result in the diversion of our time and attention and of operational resources,\nwhich could materially and adversely affect our business. Any potential intellectual property litigation also could force us to do one\nor more of the following:\n\n \n\n \n●\nstop\nselling, incorporating or using our products and services that use the infringed intellectual property;\n\n \n \n \n\n \n●\nobtain\nfrom the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not\nbe available on commercially reasonable terms, or at all; or\n\n \n \n \n\n \n●\nredesign\nthe products and services that use the technology.\n\n \n\nIf\nwe are forced to take any of these actions, our business may be seriously harmed. Although we carry general liability insurance, our\ninsurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.\n\n \n\n**Risks\nRelated to Our Common Stock**\n\n \n\n**Our\noperating results can fluctuate significantly from period to period, which makes our operating results difficult to predict and can cause\nour operating results in any particular period to be less than comparable periods and expectations from time to time.**\n\n \n\nOur\noperating results have fluctuated significantly from quarter-to-quarter, period-to-period and year-to-year during our operating history\nand are likely to continue to fluctuate in the future due to a variety of factors, many of which are outside of our control. Certain\nfactors that may affect our operating results include, without limitation, those set forth under “Management’s Discussion\nand Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our most recently filed\nAnnual Report on Form 10-K.\n\n \n\nBecause\nwe have little or no control over many of these factors, our operating results are difficult to predict. Any adverse change in any of\nthese factors could negatively affect our business and results of operations.\n\n \n\nOur\nrevenues, net income and other operating results are heavily dependent upon the size and timing of customer orders and projects, and\nthe timing of the completion of those projects. The timing of our receipt of large individual orders, and of project completion, is difficult\nfor us to predict. Because our operating expenses are based on anticipated revenues over the mid- and long-term and because a high percentage\nof our operating expenses are relatively fixed, a shortfall or delay in recognizing revenues can cause our operating results to vary\nsignificantly from quarter-to-quarter and can result in significant operating losses or declines in profit margins in any particular\nquarter. If our revenues fall below our expectations in any particular quarter, we may not be able, or it may not be prudent for us,\nto reduce our expenses rapidly in response to the revenue shortfall, which can result in us suffering significant operating losses or\ndeclines in profit margins in that quarter.\n\n \n\nDue\nto these factors and the other risks discussed in our most recently filed Annual Report on Form 10-K, you should not rely on quarter-to-quarter,\nperiod-to-period or year-to-year comparisons of our results of operations as an indication of our future performance. Quarterly, period\nand annual comparisons of our operating results are not necessarily meaningful or indicative of future performance. As a result, it is\nlikely that, from time to time, our results of operations or our revenue backlog could fall below historical levels or the expectations\nof public market analysts and investors, which could cause the trading price of our common stock to decline significantly.\n\n \n\n29\n\n \n\n \n\n**Our\nChairman, President and Chief Executive Officer owns a significant percentage of our common stock and will exercise significant influence\nover matters requiring stockholder approval, regardless of the wishes of other stockholders.**\n\n \n\nOur\nChairman, President, Chief Executive Officer and Secretary, Arthur D. Sams, beneficially owns approximately 22% of our outstanding shares\nof common stock. Mr. Sams therefore has significant influence over management and significant control over matters requiring stockholder\napproval, including the annual election of directors and significant corporate transactions, such as a merger or other sale of our company\nor our assets, for the foreseeable future. This concentrated control may limit stockholders’ ability to influence corporate matters\nand, as a result, we may take actions that our stockholders do not view as beneficial. As a result, the market price of our common stock\ncould be adversely affected.\n\n \n\n**The\nprice of our shares of common stock is volatile, and you could lose all or part of your investment.**\n\n \n\nThe\ntrading price of our shares of common stock is volatile and could be subject to wide fluctuations in response to various factors,\nsome of which are beyond our control, including limited trading volume. In addition to the factors discussed in the “Risk\nFactors” section and elsewhere in this Quarterly Report on Form 10-Q and in our most recently filed Annual Report on Form\n10-K, these factors include, without limitation:\n\n \n\n \n●\ncompetition\nfrom existing technologies and products or new technologies and products that may emerge;\n\n \n \n \n\n \n●\nthe\nloss of significant customers, including AT&T and Verizon Wireless;\n\n \n \n \n\n \n●\nactual\nor anticipated variations in our quarterly operating results;\n\n \n \n \n\n \n●\nfailure\nto meet the estimates and projections of the investment community or that we may otherwise provide to the public;\n\n \n \n \n\n \n●\nour\ncash position;\n\n \n \n \n\n \n●\nannouncement\nor expectation of additional financing efforts;\n\n \n \n \n\n \n●\nissuances\nof debt or equity securities;\n\n \n \n \n\n \n●\nour\ninability to successfully enter new markets or develop additional products;\n\n \n \n \n\n \n●\nactual\nor anticipated fluctuations in our competitors’ operating results or changes in their respective growth rates;\n\n \n \n \n\n \n●\nsales\nof our shares of common stock by us, or our stockholders in the future;\n\n \n \n \n\n \n●\ntrading\nvolume of our shares of common stock on The Nasdaq Capital Market;\n\n \n \n \n\n \n●\nmarket\nconditions in our industry;\n\n \n \n \n\n \n●\noverall\nperformance of the equity markets and general political and economic conditions;\n\n \n \n \n\n \n●\nintroduction\nof new products or services by us or our competitors;\n\n \n \n \n\n \n●\nadditions\nor departures of key management, scientific or other personnel;\n\n \n\n30\n\n \n\n \n\n \n●\npublication\nof research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities\nor industry analysts;\n\n \n \n \n\n \n●\nchanges\nin the market valuation of similar companies;\n\n \n \n \n\n \n●\ndisputes\nor other developments related to intellectual property and other proprietary rights;\n\n \n \n \n\n \n●\nchanges\nin accounting practices;\n\n \n \n \n\n \n●\nsignificant\nlawsuits, including stockholder litigation; and\n\n \n \n \n\n \n●\nother\nevents or factors, many of which are beyond our control.\n\n \n\nFurthermore,\nthe public equity markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market\nprices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance\nof those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as\nrecessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our shares of common\nstock.\n\n \n\n**A\ndecline in the price of our common stock could affect our ability to raise further working capital, which could adversely impact our\nability to continue operations.**\n\n \n\nA\nprolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in\nour ability to raise capital. We may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations\nthrough the sale of equity securities; thus, a decline in the price of our common stock could be detrimental to our liquidity and our\noperations because the decline may adversely affect investors’ desire to invest in our securities. If we are unable to raise the\nfunds we require for all of our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant\nnegative effect on our business plan and operations, including our ability to develop new products or services and continue our current\noperations. As a result, our business may suffer, and we may be forced to reduce or discontinue operations. We also might not be able\nto meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to reduce\nor discontinue operations.\n\n \n\n**We\ndo not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.**\n\n \n\nWe\nhave never declared or paid cash dividends on our capital stock. We intend to retain a significant portion of our future earnings, if\nany, to finance the operations, development and growth of our business. Any future determination to declare dividends will be made at\nthe discretion of our board of directors, subject to applicable laws, and will depend on number of factors, including our financial condition,\nresults of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of\ndirectors may deem relevant. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return\nto stockholders.\n\n \n\n**Our\nfailure to satisfy certain listing requirements may result in our common stock being delisted from the Nasdaq Capital Market, which may\nmake it more difficult for our shareholders to sell shares of our common stock.**\n\n \n\nOur\ncommon stock is listed on Nasdaq. Nasdaq has several quantitative and qualitative requirements companies must comply with to maintain\nthis listing, including a $1.00 minimum bid price per share (the “Bid Price Rule”). On November 24, 2023, we received a deficiency\nletter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that our common stock\nis subject to potential delisting from the Nasdaq because for a period of 30 consecutive business days, the bid price of our common stock\nhas closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 5550(a)(2) (the “Bid\nPrice Rule”).\n\n \n\n31\n\n \n\n \n\nOn\nNovember 18, 2024, the Company effected a 1:7 Reverse Stock Split of its shares of common stock. On December 23, 2024, the Company received\na letter from Nasdaq informing the Company that the Company regained compliance with the Bid Price Rule and that the Company is therefore\nin compliance with the Nasdaq’s listing requirements. Our common stock continues to trade on The Nasdaq Capital Market under the\nsymbol “POLA” at this time.\n\n \n\nWhile\nwe have been back in compliance with Nasdaq Listing Rules, there can be no assurance that we will continue to be in compliance with Nasdaq\nListing Rules. If the stock is delisted, we may trade on the over-the-counter market, or even in the pink sheets, which would significantly\ndecrease the liquidity of an investment in our common stock.\n\n \n\n**If\nsecurities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research or reports about our\nbusiness, our share price and trading volume could decline.**\n\n \n\nThe\ntrading market for our shares of common stock depends, in part, on the research and reports that securities or industry analysts publish\nabout us or our business. We do not have any control over these analysts. If no securities or industry analysts undertake coverage of\nour company, the trading price for our shares of common stock may be negatively impacted. If we obtain securities or industry analyst\ncoverage and if one or more of the analysts who covers us downgrades our shares of common stock, changes their opinion of our shares\nor publishes inaccurate or unfavorable research about our business, our share price would likely decline. If one or more of these analysts\nceases coverage of us or fails to publish reports on us regularly, demand for our shares of common stock could decrease and we could\nlose visibility in the financial markets, which could cause our share price and trading volume to decline.\n\n** **\n\n**We\nare not subject to the provisions of Section 203 of the Delaware General Corporation Law, which could negatively affect your investment.**\n\n \n\nWe\nelected in our certificate of incorporation, as amended (the “certificate of incorporation”) to not be subject to the provisions\nof Section 203 of the Delaware General Corporation Law, or Section 203. In general, Section 203 prohibits a publicly held Delaware corporation\nfrom engaging in a “business combination” with an “interested stockholder” for a period of three years after\nthe date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed\nmanner. A “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the\ninterested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns (or, in\ncertain cases, within three years prior, did own) 15% or more of the corporation’s voting stock. Our decision not to be subject\nto Section 203 will allow, for example, Arthur D. Sams, our Chairman, President, Chief Executive Officer and Secretary (who beneficially\nowns approximately 22% of our common stock) to transfer shares in excess of 15% of our voting stock to a third-party free of the restrictions\nimposed by Section 203. This may make us more vulnerable to takeovers that are completed without the approval of our board of directors\nand/or without giving us the ability to prohibit or delay such takeovers as effectively.\n\n \n\n**Some\nprovisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others,\neven if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our\ncurrent management.**\n\n \n\nProvisions\nin our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party\nto acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders. These provisions include:\n\n \n\n \n●\na\nrequirement that special meetings of stockholders be called only by the board of directors, the president or the chief executive\nofficer;\n\n \n \n \n\n \n●\nadvance\nnotice requirements for stockholder proposals and nominations for election to our board of directors; and\n\n \n \n \n\n \n●\nthe\nauthority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval\nand which preferred stock may include rights superior to the rights of the holders of common stock.\n\n \n\nThese\nanti-takeover provisions and other provisions in our certificate of incorporation and bylaws could make it more difficult for stockholders\nor potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of\ndirectors and could also delay or impede a merger, tender offer or proxy contest involving us. These provisions could also discourage\nproxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other\ncorporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause\nthe market price of our common stock to decline.\n\n \n\n32\n\n \n\n \n\n**Our\ncertificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types\nof actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable\njudicial forum for disputes with us or our directors, officers or other employees.**\n\n \n\nOur\ncertificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery\nof the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii)\nany action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders,\n(iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation\nor our bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine.\n\n \n\nFor\nthe avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act or\nthe Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or\nliability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent\njurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the\nrules and regulations thereunder.\n\n \n\nThe\nchoice of forum provision in our bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find\nfavorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our\ndirectors, officers, employees and agents even though an action, if successful, might benefit our stockholders. The applicable courts\nmay also reach different judgments or results than would other courts, including courts where a stockholder considering an action may\nbe located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.\nWith respect to the provision making the Delaware Court of Chancery the sole and exclusive forum for certain types of actions, stockholders\nwho do bring a claim in the Delaware Court of Chancery could face additional litigation costs in pursuing any such claim, particularly\nif they do not reside in or near Delaware. Finally, if a court were to find this provision of our bylaws inapplicable to, or unenforceable\nin respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving\nsuch matters in other jurisdictions, which could have a material adverse effect on us.\n\n \n\n**If\nwe fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial\nresults or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm\nour business and the trading price of our common stock.**\n\n \n\nEffective\ninternal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure\ncontrols and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered\nin their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection\nwith Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal\ndeficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective\nor retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls\ncould also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading\nprice of our common stock.\n\n \n\nWe\nare required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to\nassess the effectiveness of these controls annually. However, for as long as we are a “non-accelerated filer” under SEC rules,\nour independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial\nreporting pursuant to Section 404. An independent assessment of the effectiveness of our internal controls could detect problems that\nour management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement\nrestatements and require us to incur the expense of remediation.\n\n** **\n\n33\n\n \n\n** **\n\n**We\nincur significant costs as a result of operating as a public company and our management expects to devote substantial time to public\ncompany compliance programs.**\n\n \n\nAs\na public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations\napplicable to us, including compliance with the Sarbanes-Oxley Act as well as rules implemented by the SEC and Nasdaq. The SEC and other\nregulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance.\nIn July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant\ncorporate governance and executive compensation related provisions in the Dodd-Frank Act that have required the SEC to adopt additional\nrules and regulations in these areas. Stockholder activism, the current political environment, and the current high level of government\nintervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance\ncosts and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel\ndevote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and, as a result\nof the new corporate governance and executive compensation related rules, regulations, and guidelines prompted by the Dodd-Frank Act\nand further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to\ncomply with such compliance programs and rules. These rules and regulations cause us to incur significant legal and financial compliance\ncosts and make some activities more time-consuming and costly.\n\n \n\nTo\ncomply with the requirements of being a public company, we may need to undertake various activities, including implementing new internal\ncontrols and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective\ndisclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure\ncontrols and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file\nwith the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information\nrequired to be disclosed in reports under the Exchange Act, is accumulated and communicated to our principal executive and financial\nofficers. Our current controls and any new controls that we develop may become inadequate and weaknesses in our internal control over\nfinancial reporting may be discovered in the future.\n\n \n\nAny\nfailure to develop or maintain effective controls could adversely affect the results of periodic management evaluations and annual independent\nregistered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting which\nwe may be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our\noperating results, cause us to fail to meet our reporting obligations, or result in a restatement of our prior period financial statements.\nIn the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting\nis perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in\nour operating results and the price of our common stock could decline. In addition, if we are unable to continue to meet these requirements,\nwe may not be able to remain listed on the Nasdaq Capital Market.\n\n \n\nWe\nare not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet\nrequired to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. However,\nwe are required to comply with certain of these rules, which require management to certify financial and other information in our quarterly\nand annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing\nwith our next annual report. This assessment will need to include the disclosure of any material weaknesses in our internal control over\nfinancial reporting identified by our management or our independent registered public accounting firm. We are just beginning the costly\nand challenging process of compiling the system and processing documentation needed to comply with such requirements. We may not be able\nto complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we\nidentify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal\ncontrol over financial reporting is effective.\n\n \n\n34\n\n \n\n \n\n**Raising\nadditional capital, including through future sales and issuances of our common stock, the exercise of warrants or the exercise of rights\nto purchase common stock pursuant to our equity incentive plan could result in additional dilution of the percentage ownership of our\nstockholders, could cause our share price to fall and could restrict our operations.**\n\n \n\nWe\nexpect that significant additional capital will be needed in the future to continue our planned operations, including any potential acquisitions,\npurchasing of capital equipment, hiring new personnel, and continuing activities as an operating public company. To the extent we seek\nadditional capital through a combination of public and private equity offerings and debt financings, our stockholders may experience\nsubstantial dilution. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership\ninterest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect\nthe rights of our stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase\nshares of our common stock, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness\nwould result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our\nability to incur additional debt and other operating restrictions that could adversely impact our ability to conduct our business. A\nfailure to obtain adequate funds may cause us to curtail certain operational activities, including sales and marketing, in order to reduce\ncosts and sustain the business, and would have a material adverse effect on our business and financial condition.\n\n \n\nUnder\nour 2016 Omnibus Stock Incentive Plan, as amended, or 2016 Plan, we may grant equity awards covering up to 250,627 shares of our common\nstock. As of March 31, 2026, we had granted options to purchase an aggregate of 20,002 shares of common stock, among which 7,144 options\nhad terminated, and issued 25,729 shares of common stock as stock-based compensation to officers, employees and consultants under the\n2016 Plan. Sales of shares issued upon exercise of options or granted under our 2016 Plan may result in material dilution to our existing\nstockholders, which could cause our share price to fall.\n\n \n\n**Our\nissuance of shares of preferred stock could adversely affect the market value of our common stock, dilute the voting power of common\nstockholders and delay or prevent a change of control.**\n\n \n\nOur\nboard of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 5,000,000 shares\nof preferred stock in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences,\nprivileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices\nand liquidation preferences of such series.\n\n \n\nThe\nissuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to\nthe holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock\nless attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price\nof a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common\nstock at the lower conversion price causing economic dilution to the holders of common stock.\n\n \n\nFurther,\nthe issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes\nof voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or\nby giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action\nwere approved by the holders of our other classes of voting stock. The issuance of shares of preferred stock may also have the effect\nof delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders\nare offered a premium for their shares.\n\n \n\n35"}