What changed in this filing

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Item 1A. Risk Factors

2024-03-07 compared with 2023-03-09 · 86 added, 37 removed, 827 unchanged (13% of the section changed)

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• Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition;

• We face risks related to our debt covenants if we fail to generate sufficient cash flow to service our debt.

• We face risks related to our debt covenants if we fail to generate sufficient cash flow to service our debt which could arise from changes in our results of operations or general economic conditions.

• If we fail to maintain compliance with the New York Stock Exchange’s (“NYSE”) continued listing standards, the NYSE may delist our common stock.

Risks Relating to Our Business and Strategy

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If any of these events occur, our business, financial condition and results of operations could be materially and adversely affected.

Also, China’s Xinjiang Uyghur Autonomous Region (the “XUAR”) is the source of large amounts of textiles for the global apparel supply chain.

The United States Treasury Department placed sanctions on China’s Xinjiang Production and Construction Corporation (“XPCC”) for serious human rights abuses against ethnic minorities in XUAR.

Additionally, the U.S.’s Uyghur Forced Labor Prevention Act (“UFLPA”), empowers the U.S.

Customs and Border Protection Agency (the “U.S.

CBP”) to withhold release of items produced in whole or in part in the XUAR, or produced by companies included on a UFLPA entity list, creating a presumption that such goods were produced using forced labor.

XPCC controls much of the textile industry in the region, and many large factories in XUAR produce fabrics and yarn for apparel.

Although our brands do not intentionally source any products or materials from the XUAR (either directly or indirectly through our suppliers) and we have no known involvement with XPCC or its subsidiaries and affiliates, we do not have the ability to completely map our product supply chain, and we could be subject to penalties, fines or sanctions if any of our suppliers is found to have dealings, directly or indirectly, with XPCC or entities it controls.

Additionally, our products could be held or delayed by the U.S.

CBP, which would cause delays and unexpectedly affect our inventory levels.

Even if we were not subject to penalties, fines or sanctions, if our products are linked in any way to XPCC, the XUAR, or an entity on the UFLPA entity list, our reputation could be damaged.

The apparel, footwear and accessories industries are subject to rapid changes in consumer preferences, and if we do not accurately anticipate and promptly respond to changes in consumer preferences, we could lose sales, our relationships with customers could be harmed and our brand loyalty could be diminished.

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and foreign laws and regulations that make it more difficult or costly to digitally market, such as the European Union General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act of 2018 (“CCPA”), may adversely impact our ability to maintain brand relevance and drive increased sales.

See “—Risks Relating to Law and Regulation—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.”

See “—Risks Relating to Laws and Regulation—Changes in laws or regulations relating to data privacy and security, or any actual or perceived failure by us to comply with such laws and regulations, or contractual or other obligations relating to data privacy and security, could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our reputation, results of operations, financial condition and cash flows.”

Merchandise returns could harm our business.

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Privacy concerns and regulatory restrictions regarding the collection, use and processing of data could limit our ability to identify and respond to trends and to manage inventory.

In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory due to reduced inventory purchases or disruptions in the supply chain due to a number of factors, including the COVID-19 pandemic.

All of these challenges in our supply chain have affected, and may in the future affect, the quality of our products, the volume of refunds and returns, our brand reputation and our customers’ satisfaction and loyalty.

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Our growth prospects are dependent on our ability to identify and acquire additional brands and integrate them on our platform, and our failure to do so may negatively impact our future growth and, as a result, our results of operations.

Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges, such as the recent impairment charges related to the Culture Kings and Rebdolls reporting unit goodwill (see Note 6, “Goodwill,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K).

Finally, any acquisitions we do make may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges, such as the recent impairment charges related to the Culture Kings and Petal & Pup reporting unit goodwill (see Note 6, “Goodwill,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K).

We also make certain estimates and assumptions in order to determine purchase price allocation and estimate the fair value of assets acquired and liabilities assumed.

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• we may have difficulty recruiting, developing or retaining qualified employees;

• we may not be able to manage our growth effectively, adapt our business model or develop relationships with customers or successfully operate our Culture Kings brick-and-mortar stores, including our first flagship U.S.

• we may not be able to manage our growth effectively, adapt our business model or develop relationships with customers or successfully operate our Culture Kings and Princess Polly brick-and-mortar stores, including our first flagship U.S.

Culture Kings store in Las Vegas, which exposes us to premises liability, such as slip and falls, and may subject us to greater potential labor union activity;

• we may not be successful in opening new brick-and-mortar stores, including the planned Princess Polly locations in the U.S.;

• we may not be successful in securing wholesale partnerships or securing favorable terms;

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Expanding into new countries and regions involves significant risk, particularly if we have no experience in marketing, selling and engaging with customers in the market.

For example, we recently opened our first U.S.

For example, in November 2022, we opened our first U.S.

flagship store for our brand, Culture Kings, in Las Vegas, Nevada.

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If we are unable to cost-effectively expand into new countries and regions, then our growth prospects and competitive position may be harmed and our business, results of operations, and financial condition may suffer.

A growing portion of our revenue is derived from wholesale and third-party marketplace partners, and the loss of any of these wholesale or third-party marketplace partners could reduce our total revenue.

We have entered into a number of wholesale and third-party marketplace partnerships and intend to continue growing these initiatives.

A decision by any of our major wholesale or third-party marketplace partners, whether motivated by marketing strategy, competitive conditions, financial difficulties or otherwise, to significantly decrease the amount of merchandise purchased from us, or to change their manner of doing business with us, could substantially reduce our revenue and have a material adverse effect on our profitability.

Furthermore, our results of operations could be adversely affected if any of these partners fails to satisfy its payment obligations to us when due or no longer takes part in distribution arrangements.

These changes could also decrease our opportunities in the market and decrease our negotiating strength with our wholesale and third-party marketplace partners.

Any of these developments could adversely impact our financial condition and results of operations.

We face risks from our international business.

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Consumer demand and behavior, as well as cultures, and tastes and purchasing trends, may differ, and as a result, sales of our merchandise may not be successful, or the margins on those sales may not be in line with our expectations.

Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine or relations between China and Taiwan), economic, and public health events, such as the COVID-19 pandemic, the manner in which governments respond to such events, as well as the global economy.

Our ability to conduct business internationally may be adversely impacted by geopolitical (such as the Russian invasion of Ukraine, relations between China and Taiwan, or the ongoing conflict in the Middle East), economic, and public health events, the manner in which governments respond to such events, as well as the global economy.

Any challenges that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations.

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For example, shipping delays could delay delivery of products to our customers and increase the time it takes to process customer returns.

Our ability to receive inventory and ship merchandise to customers may be negatively affected by weather, fire, flood, power loss, earthquakes, public health crises such as the COVID-19 pandemic, labor disputes, acts of war or terrorism, port closures, import and export tariffs, complex local laws and other factors.

As a result of COVID-19 and other macroeconomic conditions, in 2021, we experienced meaningful delays and unpredictability with sea freight transportation, resulting in increased reliance on air freight transportation.

Although we were able to begin using more sea freight transportation during 2022, we expect continued volatility in demand and prices for shipping services.

Our ability to receive inventory and ship merchandise to customers may be negatively affected by weather, fire, flood, power loss, earthquakes, public health crises, labor disputes, acts of war or terrorism, including attacks on shipping vessels in the Red Sea, port closures, import and export tariffs, complex local laws and other factors.

Even if such events do not directly affect us or our suppliers, such events may cause disruption or congestion in transportation networks, which could affect us or our suppliers.

We have experienced, and in the future we may experience, meaningful delays and unpredictability with sea freight transportation, resulting in increased reliance on air freight transportation.

Although we have been able to use more sea freight transportation in recent years, we expect continued volatility in demand and prices for shipping services.

While we have been able to offset increased shipping prices in the past to some extent, there can be no assurance that we will continue to be able to do so, or that prices for shipping services will not increase to a level that does not permit us to do so.

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operations increases.

The effects of weather conditions, natural disasters or other unexpected events, including global health crises, such as the COVID-19 pandemic, may disrupt our operations and have a negative impact on our business.

The effects of weather conditions, natural disasters or other unexpected events, including global health crises may disrupt our operations and have a negative impact on our business.

The effects of global climate change, such as extreme weather conditions and natural disasters occurring more frequently or with more intense effects, or the occurrence of unexpected events including wildfires, tornadoes, hurricanes, earthquakes, floods, tsunamis and other severe hazards could adversely affect our business, financial condition, results of operations and cash flows.

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Further, these events and disruptions could increase insurance and other operating costs, including impacting our decisions regarding construction of new facilities to select areas less prone to climate change risks and natural disasters, which could result in indirect financial risks passed through the supply chain or other price modifications to our products and services.

The COVID-19 pandemic created significant volatility, uncertainty and economic disruption, both for our business (and many of customers and suppliers’ businesses) and the U.S.

and global economy more generally.

It has also, both directly and indirectly, led to significant operating challenges, including disruptions to our and our suppliers’ global supply chain and business operations, freight delays, increased labor shortages and logistical challenges.

In response to the challenges presented by the COVID-19 pandemic, we modified our business practices, and may continue to be required to take further actions as required by the potential for new strains or outbreaks of the virus, additional government requirements or mandates or for any other reason that we may deem to be in the best interests of our employees, customers, suppliers or others in the communities in which we do business.

The impact of the COVID-19 pandemic continues to evolve.

Consequently, further adverse impacts on our business, financial condition, results of operations and cash flows may occur, and may also exacerbate other risks and uncertainties described herein this “Risk Factors” section or elsewhere in this Annual Report on Form 10-K.

Global health crises, such as the COVID-19 pandemic or any other actual or threatened epidemic, pandemic, or outbreak and spread of a communicable disease or virus in the countries where we operate or sell products could adversely affect our operations and financial performance.

Further, any national, state or local government mandates or other orders taken to minimize the spread of a global health crisis could restrict our ability to conduct business as usual, as well as the business activities of our key customers and suppliers, including the potential for labor shortages.

In particular, the ultimate extent of the impact of any epidemic, pandemic or other global health crisis on our business, financial condition and results of operations will depend on future developments which are highly uncertain and cannot be predicted, including new information that may emerge concerning the duration and severity of such epidemic, pandemic or other global health crisis, actions taken to contain or prevent their further spread and the pace of global economic recovery following containment of the spread.

If we fail to retain key personnel, including our executive officers and the founders of our brand, or attract additional qualified personnel, effectively manage succession or hire, develop, and motivate our employees, our business, financial condition, and operating results could be adversely affected.

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The Board also appointed Ciaran Long, our Chief Financial Officer, to serve as acting Chief Executive Officer on an interim basis.

Any failure to ensure effective transfer of knowledge and a smooth transition could impact our business strategy, our relations with investors, suppliers and customers and affect employee morale.

On November 7, 2023, we announced that Ms.

Ramsey and our Board determined that Ms.

Ramsey will no longer serve as our Chief Executive Officer.

Long remains our interim Chief Executive Officer while our Board searches for a permanent Chief Executive Officer.

Any failure to identify a suitable permanent Chief Executive Officer candidate and ensure an effective transfer of knowledge and a smooth transition could impact our business strategy, our relations with investors, suppliers and customers and affect employee morale.

We also face significant competition for personnel.

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If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could have a material adverse effect on our business, financial condition and results of operations.

In addition, fluctuations in the price, availability and quality of fabrics, leather or other raw materials used by us in our manufactured products, or of purchased finished goods, could have a material adverse effect on our cost of goods sold or our ability to meet our customers’ demands.

The prices we pay depend on demand and market prices for the raw materials used to produce them.

In addition, fluctuations in the price, availability and quality of fabrics, leather or other raw materials used by our suppliers in our manufactured products, or of purchased finished goods, could have a material adverse effect on our cost of goods sold or our ability to meet our customers’ demands.

The prices we pay to our suppliers depend on demand and market prices for the raw materials used to produce our products.

The price and availability of such raw materials may fluctuate significantly, depending on many factors, including general economic conditions and demand, inflation, wage rates in China and other geographic areas where our suppliers are located, energy prices, weather patterns and public health issues.

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Our balance sheet includes a significant amount of intangible assets and goodwill.

A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent impairment charges related to the Culture Kings and Rebdolls reporting unit goodwill.

A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent goodwill impairment charges related to the Culture Kings and Petal & Pup reporting units.

Our policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.

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If the fair value of an asset is less than its carrying value, we would recognize an impairment charge for the difference.

As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, we determined that the carrying value of our Culture Kings and Rebdolls reporting units exceeded their fair values as of October 31, 2022, and recorded a total non-cash goodwill impairment charge of $173.8 million during the year ended December 31, 2022.

The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping led us to lower our forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, the Company reduced its forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

This reduction was identified as a triggering event and a subsequent quantitative test concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023.

As a result, the Company recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

It is possible that we could have another impairment charge for goodwill or intangible assets in future periods if (i) overall economic conditions in fiscal 2024 or future years vary from our current assumptions (including changes in discount rates), (ii) business conditions or our strategies for a specific business unit change from our current assumptions, (iii) investors require higher rates of return on equity investments in the marketplace, or (iv) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets.

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Other jurisdictions in the U.S.

have also adopted or are proposing privacy and data security laws that are similar or more restrictive than the CCPA, CPRA and GDPR, including t he Virginia Consumer Data Protection Act, which became effective on January 1, 2023, and the Colorado Privacy Act and the Utah Consumer Privacy Act, which were signed into law in July 2021 and March 2022, respectively, and will become effective in July 2023 and December 2023, respectively , further complicating the legal landscape.

have also adopted or are proposing privacy and data security laws that are similar or more restrictive than the CCPA, CPRA and GDPR, including t he Virginia Consumer Data Protection Act, which became effective on January 1, 2023, the Colorado Privacy Act, which became effective in July 2023, and the Utah Consumer Privacy Act, which became effective in December 2023, further complicating the legal landscape.

In addition, laws in all 50 U.S.

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The frequency, intensity, and sophistication of cyber-attacks, ransom-ware attacks and other data security incidents has significantly increased in recent years.

As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and incidents.

As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and incidents, although none have had a material adverse impact on our financial condition or results of operations.

Due to the increased risk of these types of attacks and incidents, we expend significant resources on information technology and data security tools, measures and processes designed to protect our information technology systems, as well as the personal, confidential or sensitive information stored on or transmitted through those systems, and to ensure an effective response to any cyber-attack or data security incident.

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In addition, developments in tax policy, such as the disallowance of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial conditions and results of operations.

Further, our credit facility will likely contain customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

Further, our existing credit facility contains, and any future credit facility will likely contain, customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

We expect to use cash flow from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures.

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We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness.

In addition, the financing documents that govern our credit facility do not restrict our Principal Stockholder from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our credit facility.

In addition, the financing documents that govern our credit facility do not restrict Excelerate, L.P., our principal stockholder, from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our credit facility.

If additional new debt is added to our currently anticipated indebtedness levels, the related risks that we face could intensify.

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Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which would also harm our ability to incur additional indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, implement cost reductions, seek additional capital or seek to restructure or refinance our indebtedness.

Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants.

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• change our fiscal year.

The restrictive covenants in the financing documents governing our credit facility require us to maintain specified financial ratios and satisfy other financial condition tests.

Our ability to meet those financial ratios and tests can be affected by events beyond our control.

A breach of the covenants or restrictions under the financing documents that govern our new credit facility could result in an event of default under such documents.

The restrictive covenants in the financing documents governing our credit facility, which include certain provisions that are not precisely defined and are subject to interpretation, require us to maintain specified financial ratios and satisfy other financial condition tests.

We were in compliance with all debt covenants as of December 31, 2023, and expect to be in compliance beyond 12 months, although our ability to meet those financial ratios and tests can be affected by the interpretation of certain provisions in the financing documents, macro-economic conditions and the seasonality of our business, which is more concentrated in the third and fourth fiscal quarters.

A breach of the covenants or restrictions under the financing documents that govern our credit facility could result in an event of default under such documents.

Such a default may allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.

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Summit controls us, and its interests may conflict with ours or yours in the future.

As of March 6, 2023, Summit beneficially owned approximately 56.3% of our common stock which means that, based on its percentage voting power, Summit controls the vote of all matters submitted to a vote of our Board or stockholders, which enables it to control the election of the members of the Board and all other corporate decisions.

As of March 5, 2024, Summit Partners LP (“Summit”) beneficially owned approximately 57.6% of our common stock which means that, based on its percentage voting power, Summit controls the vote of all matters submitted to a vote of our Board or stockholders, which enables it to control the election of the members of the Board and all other corporate decisions.

In addition, our bylaws provide that Summit has the right to designate the Chairman of the Board for so long as it beneficially owns at least 30% of the voting power of the then outstanding shares of our common stock then entitled to vote generally in the election of directors.

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An active trading market for our common stock may not be sustained.

Although we have listed our common stock on the New York Stock Exchange (“NYSE”) under the symbol “AKA,” an active trading market for our shares may not be sustained.

Although we have listed our common stock on the NYSE under the symbol “AKA,” an active trading market for our shares may not be sustained.

A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control.

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Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

If we fail to maintain compliance with the NYSE’s continued listing standards, the NYSE may delist our common stock, which could materially and adversely affect our company, the market price of our common stock and your ability to sell your shares of our common stock.

Our common stock is currently listed on the NYSE.

To maintain this listing, we must satisfy continued listing requirements and standards.

There can be no assurances that we will be able to continue to comply with the applicable listing requirements and standards.

For example, in April 2023, the NYSE informed us that the average closing price of our common stock over the prior consecutive 30 trading-day period was below $1.00, which is the minimum average closing price required to maintain listing on the NYSE under Section 802.01C of the NYSE Listed Company Manual.

In accordance with the NYSE’s listing rules, we were afforded a period of six months, or until October 12, 2023 (the “Cure Period”), to regain compliance with the minimum price requirement.

In order to regain compliance, the closing share price of our common stock on the last trading day of any calendar month during the Cure Period had to be at least $1.00 and the average closing share price over the 30 trading-day period ending on the last trading day of that month had to be at least $1.00.

On September 29, 2023, we executed a Reverse Stock Split of our common stock at a ratio of one-for-12.

As a result of the Reverse Stock Split, we received notification from the NYSE on October 12, 2023, that we had regained compliance with its minimum price requirement and the matter was closed.

If we are unable to satisfy the NYSE criteria for continued listing in the future, including the minimum price requirement, our common stock would be subject to delisting again.

The delisting of our common stock could materially and adversely affect us by, among other things, reducing the liquidity and market price of our common stock;

reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing;

decreasing the amount of news and analyst coverage of us;

and limiting our ability to issue additional securities or obtain additional financing in the future.

In addition, delisting from the NYSE may negatively impact our reputation and, consequently, our business.

We cannot assure you that our Reverse Stock Split will increase our stock price, marketability or our liquidity.

We cannot predict the long-term effect of the Reverse Stock Split upon the market price for shares of our common stock, and the history of similar Reverse Stock Splits for companies in like circumstances has varied.

Some investors may view a reverse stock split negatively.

We cannot assure you that our common stock will be more attractive to institutional or other long-term investors or that it will attract brokers and investors who trade in lower-priced stocks.

Even if the Reverse Stock Split has a positive effect on the market price for shares of our common stock, the market price and liquidity of our common stock may decrease due to other factors, including our future performance, economic conditions and other factors, some of which may not be under our control.

The percentage market price decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split.

The total market capitalization of our common stock initially declined following the Reverse Stock Split and could decline in the future.

Accordingly, the Reverse Stock Split may not achieve the desired results of increasing the stock price, marketability and liquidity of our common stock, which could materially adversely affect our business, financial condition and results of operations.

We are obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act (“SOX”), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of this Annual Report on Form 10-K.

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Since identifying these material weaknesses, we have been, and are currently in the process of, remediating each of them.

While progress has been made to remediate both of the material weaknesses above, as of December 31, 2023, we were still in the process of developing and implementing enhanced processes and procedures and testing the operating effectiveness of these enhanced controls.

We provided process and controls training and have incorporated ongoing training and monitoring as part of our overall control environment.

We implemented and continue to implement control improvements and have focused on the increased operational effectiveness of our controls.

We selected an enterprise resource planning system, hired an implementation partner and are in the process of implementation which will provide improvements to our IT-dependent and application controls to help prevent and detect errors, enforce segregation of duties and strengthen controls around manual journal entries.

We believe our actions will be effective in remediating the material weaknesses, and we continue to devote significant time and attention to these efforts.

In addition, the material weaknesses will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective.

Although we plan to complete the remediation process as quickly as possible for each material weakness, we cannot at this time estimate when the remediation will be completed.

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In addition, if we are unable to meet the requirements of Section 404 of SOX, we may not be able to remain listed on the NYSE.

The requirements of being a public company with common stock listed on the NYSE will increase certain of our costs and require significant management focus.

The requirements of being a public company with common stock listed on the NYSE will continue to increase certain of our costs and require significant management focus.

As a public company, we incur legal, accounting and other expenses that we did not incur as a private company.

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The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries and the covenants of any future outstanding indebtedness we or our subsidiaries incur.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors