{"url_path":"/sec/sckt/10-q/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors.**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/944075/0000944075-26-000040-index.html","accession_number":"0000944075-26-000040","cik":"0000944075","ticker":"SCKT","issuer_name":"SOCKET MOBILE, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/944075/0000944075-26-000040-index.html","primary_entity_key":"0000944075","primary_entity_name":"SOCKET MOBILE, INC."},"word_count":5080,"has_tables":true,"body_markdown":"**Item 1A. Risk Factors.**\n\n \n\n*Ownership of the Company’s securities involves\na number of risks and uncertainties. Potential investors should carefully consider the risks and uncertainties described below and the\nother information in this Quarterly Report on Form 10-Q and our other public filings with the Securities and Exchange Commission before\ndeciding whether to invest in the Company’s securities. The Company’s business, financial condition or results of operations\ncould be materially adversely affected by any of these risks. The risks described below are not the only ones facing the Company. Additional\nrisks that are currently unknown to the Company or that the Company currently considers immaterial may also impair its business or adversely\naffect its financial condition or results of operations.*\n\n \n\n**We may not return to profitability.**\n\n \n\nTo return to profitability, we must accomplish numerous\nobjectives, including achieving continued growth in our business, providing ongoing support to registered App providers whose applications\nsupport the use of our data capture products, and developing successful new products. We cannot foresee with any certainty whether we\nwill be able to achieve these objectives in the future. Accordingly, we may not generate sufficient revenue or control our expenses enough\nto maintain ongoing profitability. If we cannot return to profitability, we will not be able to support our operations from positive cash\nflows, and we would be required to use our existing cash to support operating losses. If we are unable to secure the necessary capital\nto replace that cash, we may need to suspend some or all of our current operations.\n\n \n\n**We may require additional capital in the future, but that capital may\nnot be available on reasonable terms, if at all, or on terms that would not cause substantial dilution to investors’ stock holdings.**\n\n** **\n\nWe may need to raise capital to fund our growth or\noperating losses in future periods. Our forecasts are highly dependent on factors beyond our control, including market acceptance of our\nproducts and delays in deployments by businesses of applications that use our data capture products. Even if we maintain profitable operating\nlevels, we may need to raise capital to provide sufficient working capital to fund our growth. If capital requirements vary materially\nfrom those currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will\nbe available in sufficient amounts or on terms acceptable to us, if at all.\n\n \n\n**In order to maintain the availability of our bank lines of credit we\nmust remain in compliance with the covenants as specified under the terms of the credit agreements and the bank may exercise discretion\nin making advances to us.**\n\n** **\n\nOur credit agreements with our bank require us to\nremain in compliance with the covenants specified under the terms of the agreement. The agreements also contain customary affirmative\nand negative covenants, including covenants that limit or restrict our ability to, among other things, grant liens, make investments,\nincur indebtedness, merge or consolidate, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock,\nenter into transactions with affiliates and enter into restrictive agreements, in each case subject to customary exceptions for a credit\nfacility of this size and type. The agreements also contain customary events of default including, among others, payment defaults, breaches\nof covenants, bankruptcy and insolvency events, cross defaults with certain material indebtedness, judgment defaults, and breaches of\nrepresentations and warranties. Upon an event of default, our bank may declare all or a portion of our outstanding obligations payable\nto be immediately due and payable and exercise other rights and remedies provided for under the agreement. During the existence of an\nevent of default, interest on the obligations could be increased. The agreements may be terminated by us or by our bank at any time. Upon\nsuch termination, our bank would no longer make advances under the credit agreement and outstanding advances would be repaid as receivables\nare collected. All advances are at our bank’s discretion and our bank is not obligated to make advances.\n\n \n\n 21 \n\n[Index](#Index) \n\n** **\n\n**If app providers are not successful in their efforts to develop, market\nand sell the applications into which our software and products are incorporated, we may not achieve our sales projections.**\n\n** **\n\nWe are dependent upon App providers to integrate our\nscanning and software products into their applications designed for mobile workers using smartphones, tablets and mobile computers, and\nto successfully market and sell those application products and solutions into the marketplace. We focus on serving the needs of App providers\nas sales of our data capture products are application driven. However, these providers may take considerable time to complete the development\nof their applications, may experience delays in their development timelines, may develop competing applications, may be unsuccessful in\nmarketing and selling their application products and solutions to customers, or may experience delays in customer deployments and implementations,\nwhich would adversely affect our ability to achieve our revenue projections.\n\n \n\n**A deterioration in global economic conditions may have adverse impacts\non our business and financial condition in ways that we currently cannot predict and may limit our ability to raise additional funds.**\n\n** **\n\nIf global economic conditions deteriorate, it may\nimpact our business and our financial condition. We may face significant challenges if conditions in the financial markets worsen. The\nimpact of such future developments on our business, including the ongoing military action in Ukraine by Russia, is highly uncertain and\ncannot be predicted. If the overall economy continues to decline for an extended period, our results of operations, financial position\nand cash flows may be materially adversely affected. In addition, a severe prolonged economic downturn could result in a variety of risks\nto the business, including impairing our ability to pursue potential opportunities and limiting our ability to raise additional capital\nwhen needed on acceptable terms, if at all.\n\n** **\n\n**Failure to maintain effective internal controls could have a material\nadverse effect on our business, operating results, and stock price.**\n\n** **\n\nWe have evaluated and will continue to evaluate our\ninternal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires an annual management\nassessment of the design and effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our\ninternal controls, as such standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we can\nconclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley\nAct. Moreover, effective internal controls, particularly those related to revenue recognition and access to assets, are necessary for\nus to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial\nreports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial\ninformation, and the trading price of our stock could drop significantly.\n\n \n\n 22 \n\n[Index](#Index) \n\n** **\n\n**Despite security protections, our business records and information could\nbe hacked by unauthorized personnel.**\n\n \n\nWe protect our business records and information from\naccess by unauthorized personnel and are not aware of any instances where such data has been compromised. We maintain adequate segregation\nof duties in safeguarding our assets and related records and monitor our systems to detect any attempts to bypass our controls and procedures\nwhich we evaluate and update from time to time. We are aware that unauthorized efforts to access our business records and information\nwith sophisticated tools could bypass our controls and procedures and we remain alert to that possibility.\n\n** **\n\n**We may be unable to manufacture our products because we are dependent\non a limited number of qualified suppliers for our components.**\n\n \n\nSeveral of our component parts are produced by one\nor a limited number of suppliers. Shortages or delays could occur in these essential components due to an interruption of supply or increased\ndemand in the industry. Suppliers may choose to restrict credit terms or require advance payment causing delays in the procurement of\nessential materials. If we are unable to procure certain component parts, we could be required to reduce our operations while we seek\nalternative sources for these components, which could have a material adverse effect on our financial results. To the extent that we acquire\nextra inventory stocks to protect against possible shortages, we would be exposed to additional risks associated with holding inventory,\nsuch as obsolescence, excess quantities, or loss.\n\n** **\n\n**If we fail to develop and introduce new products rapidly and successfully,\nwe will not be able to compete effectively, and our ability to generate sufficient revenues will be negatively affected.**\n\n \n\nThe market for our products is prone to rapidly changing\ntechnology, evolving industry standards and short product life cycles. If we are unsuccessful at developing and introducing new products\nand services on a timely basis that include the latest technologies, conform to the newest standards, and that are appealing to end users,\nwe will not be able to compete effectively, and our ability to generate significant revenues will be seriously harmed.\n\n \n\nThe development of new products and services can be\nvery difficult and requires high levels of innovation. The development process is also lengthy and costly. Short product life cycles for\nsmartphones and tablets expose our products to the risk of obsolescence and require frequent new product upgrades and introductions. We\nwill be unable to introduce new products and services into the market on a timely basis and compete successfully if we fail to:\n\n·invest significant resources in research and development, sales and marketing, and customer support;\n\n \n\n 23 \n\n[Index](#Index) \n\n \n\n \n\n·identify emerging trends, demands and standards in the field of mobile computing products;\n\n·enhance our products by adding additional features;\n\n·maintain superior or competitive performance in our products; and\n\n·anticipate our end users’ needs and technological trends accurately.\n\n \n\nWe cannot be sure that we will have sufficient resources\nto make adequate investments in research and development or that we will be able to identify trends or make the technological advances\nnecessary to be competitive.\n\n \n\n**We may not be able to collect receivables from customers who experience\nfinancial difficulties**.\n\n \n\nOur accounts receivable is derived primarily from\ndistributors. We perform ongoing credit evaluations of our customers’ financial conditions but generally require no collateral from\nour customers. Reserves are maintained for potential credit losses, and such losses have historically been within such reserves. However,\nmany of our customers may be thinly capitalized and may be prone to failure in adverse market conditions. Although our collection history\nhas been good, from time to time a customer may not pay us because of financial difficulty, bankruptcy or liquidation. If global financial\nconditions have an impact on our customer’s ability to pay us in a timely manner, consequently, we may experience increased difficulty\nin collecting our accounts receivable, and we may have to increase our reserves in anticipation of increased uncollectible accounts.\n\n \n\n**We could face increased competition in the future, which would adversely\naffect our financial performance.**\n\n** **\n\nThe market in which we operate is very competitive.\nOur future financial performance is contingent on a number of unpredictable factors, including that:\n\n \n\n·some of our competitors have greater financial, marketing, and technical resources than we do;\n\n·we periodically face intense price competition, particularly when our competitors have excess inventories and discount their prices\nto clear their inventories; and\n\n·certain manufacturers of tablets and mobile phones offer products with built-in functions, such as Bluetooth wireless technology or\nbarcode scanning, that compete with our products.\n\n \n\nIncreased competition could result in price reductions,\nfewer customer orders, reduced margins, and loss of market share. Our failure to compete successfully against current or future competitors\ncould harm our business, operating results, and financial condition.\n\n \n\n**If we do not correctly anticipate demand for our products, our operating\nresults will suffer.**\n\n** **\n\nThe demand for our products depends on many factors\nand is difficult to forecast as we introduce and support more products, and as competition in the markets for our products intensifies.\nIf demand is lower than forecasted levels, we could have excess production resulting in higher inventories of finished products and components,\nwhich could lead to write-downs or write-offs of some or all of the excess inventories, and reductions in our cash balances. Lower than\nforecasted demand could also result in excess manufacturing capacity at our third-party manufacturers and in our failure to meet minimum\npurchase commitments, each of which may lower our operating results.\n\n \n\n 24 \n\n[Index](#Index) \n\n \n\nIf demand increases beyond forecasted levels, we will\nhave to rapidly increase production at our third-party manufacturers. We depend on suppliers to provide additional volumes of components,\nand suppliers might not be able to increase production rapidly enough to meet unexpected demand. Even if we were able to procure enough\ncomponents, our third-party manufacturers might not be able to produce enough of our devices to meet our customer demand. In addition,\nrapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components\nand other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing yields\ncould decline, which may also lower operating results.\n\n \n\n**We rely primarily on distributors to distribute our products, and our\nsales would suffer if any of these distributors stopped distributing our products effectively.**\n\n** **\n\nBecause we distribute and fulfill resellers’\norders for our products primarily through distributors, we are subject to risks associated with channel distribution, such as risks related\nto their inventory levels and support for our products. Our distribution channels may build up inventories in anticipation of growth in\ntheir sales. If such growth in their sales does not occur as anticipated, the inventory build-up could contribute to higher levels of\nproduct returns. The lack of sales by any one significant participant in our distribution channels could result in excess inventories\nand adversely affect our operating results and working capital liquidity. During the three months ended March 31, 2026 and 2025, Ingram\nMicro® and BlueStar Inc. and ScanSource, Inc together represented approximately 53% and 42%, respectively, of our worldwide sales.\nWe expect that a significant portion of our sales will continue to depend on sales to a limited number of distributors.\n\n \n\nOur agreements with distributors are generally nonexclusive\nand may be terminated on short notice by them without cause. Our distributors are not within our control, are not obligated to purchase\nproducts from us, and may offer competitive lines of products simultaneously. Sales growth is contingent in part on our ability to enter\ninto additional distribution relationships and expand our sales channels. We cannot predict whether we will be successful in establishing\nnew distribution relationships, expanding our sales channels or maintaining our existing relationships. A failure to enter into new distribution\nrelationships, expand our sales channels, or maintain our existing relationships could adversely impact our ability to grow our sales.\n\n \n\nWe allow our distribution channels to return a portion\nof their inventory to us for full credit against other purchases. In addition, in the event we reduce our prices, we credit our distributors\nfor the difference between the purchase price of products remaining in their inventory and our reduced price for such products. Actual\nreturns and price protection may adversely affect future operating results and working capital liquidity by reducing our accounts receivable\nand increasing our inventory balances, particularly since we seek to continually introduce new and enhanced products and are likely to\nface increasing price competition.\n\n \n\n 25 \n\n[Index](#Index) \n\n \n\n**We depend on alliances and other business relationships with third parties,\nand a disruption in these relationships would hinder our ability to develop and sell our products.**\n\n** **\n\nWe depend on strategic alliances and business relationships\nwith leading participants in various segments of the mobile applications market to help us develop and market our products. Our strategic\npartners may revoke their commitment to our products or services at any time in the future or may develop their own competitive products\nor services. Accordingly, our strategic relationships may not result in sustained business alliances, successful product or service offerings,\nor the generation of significant revenues. Failure of one or more of such alliances could result in delay or termination of product development\nprojects, failure to win new customers or loss of confidence by current or potential customers.\n\n \n\nWe have devoted significant research and development\nresources to design products to work with a number of operating systems used in mobile devices including Apple® (iOS), Google™\n(Android™) and Microsoft® (Windows®). Such design activities have diverted financial and personnel resources from other\ndevelopment projects. These design activities are not undertaken pursuant to any agreement under which Apple, Google or Microsoft is obligated\nto collaborate or to support the products produced from such collaboration. Consequently, these organizations may terminate their collaborations\nwith us for a variety of reasons, including our failure to meet agreed-upon standards or for reasons beyond our control, such as changing\nmarket conditions, increased competition, discontinued product lines, and product obsolescence.\n\n** **\n\n**Our intellectual property and proprietary rights may be insufficient\nto protect our competitive position.**\n\n \n\nOur business depends on our ability to protect our\nintellectual property. We rely primarily on patent, copyright, trademark, trade secret laws, and other restrictions on disclosure to protect\nour proprietary technologies. We cannot be sure that these measures will provide meaningful protection for our proprietary technologies\nand processes. We cannot be sure that any patent issued to us will be sufficient to protect our technology. The failure of any patents\nto provide protection for our technology would make it easier for our competitors to offer similar products. In connection with our participation\nin the development of various industry standards, we may be required to license certain of our patents to other parties, including our\ncompetitors that develop products based upon the adopted standards.\n\n \n\nWe also generally enter into confidentiality agreements\nwith our employees, distributors, and strategic partners, and generally control access to our documentation and other proprietary information.\nDespite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our products, services, or technology\nwithout authorization, develop similar technology independently, or design around our patents.\n\n \n\nAdditionally, effective copyright, trademark, and\ntrade secret protection may be unavailable or limited in certain foreign countries.\n\n \n\n**We may become subject to claims of intellectual property rights infringement,\nwhich could result in substantial liability.**\n\n** **\n\nIn the course of operating our business, we may receive\nclaims of intellectual property infringement or otherwise become aware of potentially relevant patents or other intellectual property\nrights held by other parties. Many of our competitors have large intellectual property portfolios, including patents that may cover technologies\nthat are relevant to our business. In addition, many smaller companies, universities, and individuals have obtained or applied for patents\nin areas of technology that may relate to our business. The industry is moving towards aggressive assertion, licensing, and litigation\nof patents and other intellectual property rights.\n\n \n\n 26 \n\n[Index](#Index) \n\n \n\nIf we are unable to obtain and maintain licenses on\nfavorable terms for intellectual property rights required for the manufacture, sale, and use of our products, particularly those products\nwhich must comply with industry standard protocols and specifications to be commercially viable, our results of operations or financial\ncondition could be adversely impacted.\n\n \n\nIn addition to disputes relating to the validity or\nalleged infringement of other parties’ rights, we may become involved in disputes relating to our assertion of our own intellectual\nproperty rights. Whether we are defending the assertion of intellectual property rights against us or asserting our intellectual property\nrights against others, intellectual property litigation can be complex, costly, protracted, and highly disruptive to business operations\nby diverting the attention and energies of management and key technical personnel. Plaintiffs in intellectual property cases often seek\ninjunctive relief, and the measures of damages in intellectual property litigation are complex and often subjective or uncertain. Thus,\nany adverse determinations in this type of litigation could subject us to significant liabilities and costs.\n\n \n\n**New industry standards may require us to redesign our products, which\ncould substantially increase our operating expenses.**\n\n \n\nStandards for the form and functionality of our products\nare established by standards committees. These independent committees establish standards, which evolve and change over time, for different\ncategories of our products. We must continue to identify and ensure compliance with evolving industry standards so that our products are\ninteroperable and we remain competitive. Unanticipated changes in industry standards could render our products incompatible with products\ndeveloped by major hardware manufacturers and software developers. Should any major changes, even if anticipated, occur, we would be required\nto invest significant time and resources to redesign our products to ensure compliance with relevant standards. If our products are not\nin compliance with prevailing industry standards for a significant period of time, we would miss opportunities to sell our products for\nuse with new hardware components from mobile computer manufacturers and OEMs, thus affecting our business.\n\n \n\n**Undetected flaws and defects in our products may disrupt product sales\nand result in expensive and time-consuming remedial action**\n\n** **\n\nOur hardware and software products may contain undetected\nflaws, which may not be discovered until customers have used the products. From time to time, we may temporarily suspend or delay shipments\nor divert development resources from other projects to correct a particular product deficiency. Efforts to identify and correct errors\nand make design changes may be expensive and time-consuming. Failure to discover product deficiencies in the future could delay product\nintroductions or shipments, require us to recall previously shipped products to make design modifications, or cause unfavorable publicity,\nany of which could adversely affect our business and operating results.\n\n \n\n 27 \n\n[Index](#Index) \n\n \n\n**The loss of one or more of our senior personnel could harm our existing\nbusiness.**\n\n \n\nA number of our officers and senior managers have\nbeen employed for more than twenty years by us, including our President, Chief Financial Officer, Chief Information Officer, Vice President\nof Operations and Vice President of Engineering/Chief Technical Officer. Our future success will depend upon the continued service of\nkey officers and senior managers. Competition for officers and senior managers is intense, and there can be no assurance that we will\nbe able to retain our existing senior personnel. The loss of one or more of our officers or key senior managers could adversely affect\nour ability to compete.\n\n \n\n**The expensing of stock options and restricted stocks will continue to\nreduce our operating results such that we may find it necessary to change our business practices to attract and retain employees.**\n\n** **\n\nWe have been using stock options and restricted stocks\nas key components of our employee compensation packages. We believe that stock options and restricted stocks provide an incentive to our\nemployees to maximize long-term stockholder value and, through the use of vesting, encourage valued employees to remain with us. The expensing\nof employee stock options and restricted stocks adversely affects our net income and earnings per share, will continue to adversely affect\nfuture quarters, and will make profitability harder to achieve. In addition, we may decide in response to the effects of expensing stock\noptions and restricted stocks on our operating results to reduce the number of stock options or restricted stocks granted to employees\nor to grant to fewer employees. This could adversely affect our ability to retain existing employees or attract qualified candidates,\nand also could increase the cash compensation we would have to pay to them.\n\n \n\n**If we are unable to attract and retain highly skilled sales and marketing\nand product development personnel, our ability to develop and market new products and product enhancements will be adversely affected.**\n\n** **\n\nWe believe our ability to achieve increased revenues\nand to develop successful new products and product enhancements will depend in part upon our ability to attract and retain highly skilled\nsales and marketing and product development personnel. Our products involve a number of new and evolving technologies, and we frequently\nneed to apply these technologies to the unique requirements of mobile products. Our personnel must be familiar with both the technologies\nwe support and the unique requirements of the products to which our products connect. Competition for such personnel is intense, and we\nmay not be able to attract and retain such key personnel. In addition, our ability to hire and retain such key personnel will depend upon\nour ability to raise capital or achieve increased revenue levels to fund the costs associated with such key personnel. Failure to attract\nand retain such key personnel will adversely affect our ability to develop and market new products and product enhancements.\n\n \n\n**Our operating results could be harmed by economic, political, regulatory\nand other risks associated with export sales.**\n\n \n\nOur operating results are subject to the risks inherent\nin export sales, including:\n\n·longer payment cycles;\n\n·unexpected changes in regulatory requirements, import and export restrictions and tariffs;\n\n \n\n 28 \n\n[Index](#Index) \n\n \n\n \n\n·difficulties in managing foreign operations;\n\n·the burdens of complying with a variety of foreign laws;\n\n·greater difficulty or delay in accounts receivable collection;\n\n·potentially adverse tax consequences; and\n\n·political and economic instability (such as Russia’s military action against Ukraine).\n\n \n\nOur export sales are primarily denominated in Euros\nfor our sales to European distributors and in British pounds for our sales to UK distributors. Accordingly, an increase in the value of\nthe United States dollar relative to the Euro or British pound could make our products more expensive and therefore potentially less competitive\nin European markets. Declines in the value of the Euro or pound relative to the United States dollar may result in foreign currency losses\nrelating to the collection of receivables denominated if left unhedged.\n\n** **\n\n**Our facilities or operations could be adversely affected by events outside\nour control, such as natural disasters or health epidemics.**\n\n** **\n\nOur corporate headquarters is located in a seismically\nactive region in Northern California. If major disasters such as earthquakes occur, or our information system or communications network\nbreaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay\nproduction and shipment of our products. In addition, we may be affected by health epidemic or pandemics, or geopolitical instability,\nsuch as Russia’s military action against Ukraine. We may incur expenses or delays relating to such events outside of our control,\nwhich could have a material adverse impact on our business, operating results and financial condition.\n\n \n\n**Our quarterly operating results may fluctuate in future periods, which\ncould cause our stock price to decline.**\n\n** **\n\nWe expect to experience quarterly fluctuations in\noperating results in the future. Quarterly revenues and operating results depend on the volume and timing of orders received, which sometimes\nare difficult to forecast. Historically, we have recognized a substantial portion of our revenue in the last month of the quarter. This\nsubjects us to the risk that even modest delays in orders or in the manufacture of products relating to orders received, may adversely\naffect our quarterly operating results. Our operating results may also fluctuate due to factors such as:\n\n·the demand for our products;\n\n·the size and timing of customer orders;\n\n·unanticipated delays or problems in our introduction of new products and product enhancements;\n\n·the introduction of new products and product enhancements by our competitors;\n\n·the timing of the introduction and deployment of new applications that work with our products;\n\n·changes in the revenues attributable to royalties and engineering development services;\n\n·product mix;\n\n·timing of software enhancements;\n\n \n\n 29 \n\n[Index](#Index) \n\n \n\n \n\n·changes in the level of operating expenses;\n\n·competitive conditions in the industry including competitive pressures resulting in lower average selling prices;\n\n·timing of distributors’ shipments to their customers;\n\n·delays in supplies of key components used in the manufacturing of our products; and\n\n·general economic conditions and conditions specific to our customers’ industries.\n\n \n\nBecause we base our staffing and other operating expenses\non anticipated revenues, unanticipated declines or delays in the receipt of orders can cause significant variations in operating results\nfrom quarter to quarter. As a result of any of the foregoing factors, or a combination, our results of operations in any given quarter\nmay be below the expectations of public market analysts or investors, in which case the market price of our common stock would be adversely\naffected.\n\n \n\n**The sale of a substantial number of shares of our common stock could\ncause the market price of our common stock to decline.**\n\n \n\nSales of a substantial number of shares of our common\nstock in the public market could adversely affect the market price for our common stock. The market price of our common stock could also\ndecline if one or more of our significant stockholders decided for any reason to sell substantial amounts of our common stock in the public\nmarket.\n\n \n\nAs of May 8, 2026, we had 8,240,958 shares of\ncommon stock outstanding. Substantially all of these shares are freely tradable in the public market, either without restriction or\nsubject, in some cases, only to Form S-3 prospectus delivery requirements and, in other cases, only to the manner of sale, volume,\nand notice requirements of Rule 144 under the Securities Act.\n\n \n\nAs of May 8, 2026, we had 1,296,634 shares of common\nstock subject to outstanding options under our stock option plans, 733,194 shares of restricted stock outstanding, and 584,347 shares\nof common stock available for future issuance under the plans. We have registered the shares of common stock subject to outstanding options\nand restricted stock and reserved them for issuance under our stock option plans. Accordingly, the shares of common stock underlying\nvested options and unvested restricted stock will be eligible for resale in the public market as soon as the options are exercised or\nthe restricted stock vests, as applicable.\n\n \n\n**Volatility in the trading price of our common stock could negatively\nimpact the price of our common stock.**\n\n** **\n\nDuring the period from January 1, 2025 through the\ndate of the report, our common stock price fluctuated between a high of $1.72 and a low of $0.82. We have experienced low trading volumes\nin our stock, and thus relatively small purchases and sales can have a significant effect on our stock price. The trading price of our\ncommon stock could be subject to wide fluctuations in response to many factors, some of which are beyond our control, including general\neconomic conditions and the outlook of securities analysts and investors on our industry. In addition, the stock markets in general, and\nthe markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating\nperformance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.\n\n \n\n 30 \n\n[Index](#Index)"}