Tao Synergies (TAOX) Risk Analysis

As of December 31, 2023, we had an aggregate of 24,089,646 shares of Common Stock outstanding. Except for 192,015 shares, all of those shares are freely tradable without restriction or registration under the Securities Act of 1933, as amended (the "Securities Act"). On January 21, 2021, we entered into Securities Purchase Agreements (the "January Purchase Agreement") with certain accredited investors (the "January Purchasers") to issue (a) an aggregate of 2,333,884 shares of our Common Stock and/or pre-funded warrants to purchase shares of our Common Stock at an exercise price of $0.01 per share (the "January Pre-Funded Warrants"), (b) Series E warrants to purchase 2,333,908 shares of Common Stock, with an exercise price of $8.51 per share (subject to adjustment), for a period of twelve months from the date of an effective registration statement (the "Series E Warrants") and (c) Series F warrants to purchase up to an aggregate of 2,333,908 shares of Common stock, with an exercise price of $6.90 per share (subject to adjustment), for a period of five years from the date of issuance (the "Series F Warrants" and together with the Series E Warrants, the "January Warrants") at a combined purchase price of $6.00 per share of Common Stock and January Warrants (the "January Offering"). In connection with the January Purchase Agreement, we entered into a Registration Rights Agreement with the Purchasers (the "January Registration Rights Agreement") on January 21, 2021. Under the terms of the January Registration Rights Agreement, we filed a registration statement on Form S-1 to register the resale of the shares underlying the securities sold in the January Offering, which registration statement was declared effective by the SEC on April 29, 2021. On June 14, 2021, we entered into Securities Purchase Agreements (the "June Purchase Agreement") with certain accredited investors (the "June Purchasers") to issue (a) an aggregate of 1,653,281 shares of the Company's Common Stock and/or prefunded warrants to purchase shares of Common Stock at an exercise price of $0.01 per share (the "June Pre-Funded Warrants") and (b) Series G warrants to purchase up to an aggregate of 1,653,281 shares of Common stock, with an exercise price of $8.51 per share (subject to adjustment), for a period of five years from the date of issuance (the "June Warrants") at a combined purchase price of $7.547 per share of Common Stock and June Warrants (the "June Offering"). In connection with the June Purchase Agreement, we entered into a Registration Rights Agreement with the June Purchasers (the "June Registration Rights Agreement") on June 14, 2021. Under the terms of the June Registration Rights Agreement, we filed a registration statement on Form S-1 to register the resale of the shares underlying the securities sold in the June Offering, which registration statement was declared effective by the SEC on July 6, 2021. On November 17, 2022, we entered into a Securities Purchase Agreement (the "November Purchase Agreement") with certain accredited investors (the "November Investors"), pursuant to which we agreed to sell to the November Investors (i) an aggregate of 15,000 shares of the Company's newly-designated Series B convertible preferred stock with a stated value of $1,000 per share (the "Series B Preferred Stock"), initially convertible into up to 1,935,485 shares of Common Stock (the "Preferred Shares") at an initial conversion price of $7.75 per share (the "Conversion Price"), and (ii) warrants (including those issued to the Placement Agent) to acquire up to an aggregate of 1,993,549 shares of Common Stock (the "November Warrants") (collectively, the "November 2022 Private Placement"). The Conversion Price of the Series B Preferred Stock is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then applicable Conversion Price (subject to certain exceptions). We are required to redeem the Preferred Shares in 15 equal monthly installments, which commenced on June 1, 2023. The amortization payments due upon such redemption are payable, at our election, in cash, or subject to certain limitations, in shares of Common Stock valued at the lower of (i) the conversion price then in effect and (ii) the greater of (A) a 15% discount to the average of the three lowest closing prices of the Company's common stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) the lower of $1.25 and 20% of the Minimum Price (as defined in Rule 5635 of the Rule of the Nasdaq Stock Market) on the date of receipt of Nasdaq Stockholder Approval (as defined below); provided that if the amount set forth in clause B is the lowest effective price, we will be required to pay the amortization payment in cash. In certain situations, we may require holders to convert their Series B Preferred Stock into Preferred Shares. Further, the holders of the Series B Preferred Stock are entitled to dividends of 7% per annum, compounded monthly, which is payable in cash or shares of Common Stock at our option. To the extent the number of shares of Common Stock issued in connection with the November 2022 Private Placement is greater than anticipated, the market price of our Common Stock could decline further. We are unable to predict whether large amounts of our Common Stock will be sold in the open market. We are also unable to predict whether a sufficient number of buyers of our Common Stock to meet the demand to sell shares of our Common Stock at attractive prices would exist at that time. It is possible that our stockholders will sell the shares of our Common Stock for various reasons. For example, such stockholders may not believe that our business profile or our level of market capitalization as an independent company fits their investment objectives. The sale of significant amounts of our Common Stock or the perception in the market that this will occur may lower the market price of our Common Stock.

The Certificate of Designations contains a number of affirmative and negative covenants regarding matters such as the payment of dividends, maintenance of our properties and assets, transactions with affiliates, and our ability to issue other indebtedness. Our ability to comply with these covenants may be adversely affected by events beyond our control, and we cannot assure you that we can maintain compliance with these covenants. The financial covenants could limit our ability to make needed expenditures or otherwise conduct necessary or desirable business activities.

If not converted, we are required to redeem some or all of the outstanding shares of Series B Preferred Stock for cash under certain circumstances. These obligations could have important consequences on our business. In particular, they could: - limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;- increase our vulnerability to general adverse economic and industry conditions; and - place us at a competitive disadvantage compared to our competitors. As of the date of filing this Annual Report on Form 10-K, the trading price of our Common Stock is below the "floor price" set by the certificate of designations for the Series B Preferred Stock (as amended, the "Certificate of Designations") for purposes of calculating amortization payments thereunder, and as a result we are limited in our ability to make monthly amortization payments in stock. No assurances can be given that we will be successful in making the required payments to the holders of the Series B Preferred Stock or that we will be able to comply with the financial or other covenants contained in the Certificate of Designations. If we are unable to make the required cash payments or otherwise comply with the Certificate of Designations: - dividends will accrue on the Series B Preferred Stock at 15% per annum;- the holders of the Series B Preferred Stock could foreclose against our assets; and/or - we could be forced into bankruptcy or liquidation.

Our common stock is currently traded on the Nasdaq. Nasdaq requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock, including that we maintain a minimum closing bid price of $1.00 per share (the "Minimum Bid Price Requirement"). On April 24, 2023, we received written notice from the Nasdaq Listing Qualifications Department (the "Staff") notifying us that for the preceding 30 consecutive business days, our Common Stock did not maintain a minimum closing bid price of $1.00 per share as required by the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we received an initial grace period of 180 calendar days, or until October 23, 2023, to regain compliance with the Minimum Bid Price Requirement (the "Initial Compliance Period"). We did not regain compliance with the Minimum Bid Price Requirement within the Initial Compliance Period, and on October 24, 2023, we received a second written notice from the Staff granting us an additional grace period of 180 calendar days, or until April 22, 2024, to regain compliance with the Minimum Bid Price Requirement (the "Additional Compliance Period"). Compliance can be achieved automatically and without further action if the closing bid price of our Common Stock is at or above $1.00 for a minimum of 10 consecutive business days at any time during the Additional Compliance Period, in which case the Staff will notify us of our compliance and the matter will be closed. If, however, we do not achieve compliance with the Minimum Bid Price Requirement within the Additional Compliance Period, the Staff will notify us that our Common Stock is subject to delisting. At such time, we may appeal the delisting determination to a panel, but there can be no guarantee that such an appeal would be successful. There can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement during the Additional Compliance Period or that we will be able to maintain compliance with the other requirements for continued listing of our common stock on Nasdaq. If our common stock is delisted and we are unable to list our common stock on another U.S. national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. Furthermore, if our common stock were delisted it could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

The market price of our Common Stock has fluctuated substantially due to a number of factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Common Stock since you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following: - price and volume fluctuations in the overall stock market from time to time;- volatility in the trading prices and trading volumes of stocks in our industry;- changes in operating performance and stock market valuations of other companies generally, or those in our industry in particular;- sales of shares of our Common Stock by us or our stockholders;- failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;- the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;- announcements by us or our competitors of new offerings or features;- the public's reaction to our press releases, other public announcements and filings with the SEC;- rumors and market speculation involving us or other companies in our industry;- actual or anticipated changes in our results of operations or fluctuations in our results of operations;- actual or anticipated developments in our business, our competitors' businesses or the competitive landscape generally;- litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;- developments or disputes concerning our intellectual property or other proprietary rights;- announced or completed acquisitions of businesses, services or technologies by us or our competitors;- new laws or regulations or new interpretations of existing laws or regulations applicable to our business;- changes in accounting standards, policies, guidelines, interpretations or principles;- any significant change in our management; and - general economic conditions and slow or negative growth of our markets. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.

Any future issuance of our equity or equity-backed securities will dilute then-current stockholders' ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As described above, we will need additional financing to continue our operations and may raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options and other equity compensation issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our Articles of Incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of our common or preferred stock or other securities may create downward pressure on the trading price of our Common Stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of our Common Stock are then traded.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: - not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act of 2002;- not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;- providing only two years of audited financial statements in addition to any required unaudited interim financial statements and a correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure in our initial registration statement;- reduced disclosure obligations regarding executive compensation; and - exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may choose to take advantage of some, but not all, of the available exemptions. We will continue to take advantage of these reduced reporting requirements for as long as we remain an emerging growth company. We cannot predict whether investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Provisions of our articles of incorporation, bylaws, shareholder rights plan or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to change the composition of our Board or to replace or remove our management. These provisions include: - limitations on the removal of directors;- advance notice requirements for stockholder proposals and nominations;- limitations on the ability of stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;- limitations on the liability of, and the provision of indemnification to, our director and officers; and - the ability of our Board to authorize the issuance of blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Common Stock. In addition, we are subject to Section 203 of the DGCL, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date such person becomes an interested stockholder, unless the business combination or the transaction in which such person becomes an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person that, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15.0% or more of a corporation's voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our Board and the anti-takeover effect includes discouraging attempts that might result in a premium over the market price for the shares of our Common Stock. In addition, our amended and restated certificate of incorporation, to the fullest extent permitted by law, provides that the Court of Chancery of the State of Delaware will be the exclusive forum for any stockholder (including a beneficial owner) to bring: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee, to us or to our stockholders, (iii) any action or proceeding asserting a claim against us or any current or former director, officer or other employee arising out of or pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our bylaws (in each case, as they may be amended from time to time), (iv) any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our bylaws (including any right, obligation, or remedy thereunder); (v) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; or (vi) any action asserting a claim governed by the internal affairs doctrine against us or any of our directors, officers or other employees, in all cases to the fullest extent permitted by law and subject to the court's having personal jurisdiction over the indispensable parties named as defendants. Notwithstanding the foregoing, this exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal district courts of the United States of America shall be the sole and exclusive forum. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that investors could receive a premium for their shares of our Common Stock in an acquisition.