Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
An investment in our securities involves a
high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this
Annual Report, before making an investment decision. Our business, financial condition, results of operations, and future prospects could
be materially and adversely affected by any of the following risks. The trading price of our common stock could decline due to any of
these risks, and you may lose all or part of your investment. The risks described below are not the only risks facing our company. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect
our business operations.
Risks Relating to Our Business and Operations
We have a limited operating history in our
current business segments, which makes it difficult to evaluate our business and future prospects.
We have a limited operating history in our current
businesses. We were initially pursuing a biotech platform and, through our acquisition of RPM in December 2025, have pivoted to primarily
operating as an AI company. Because of this limited history, it is difficult to evaluate our proposed business and future prospects, including
our ability to plan for and model future growth, and there is no guarantee that our AI platform or Keto Air businesses will result in
profit or growth. Investors should consider the risks, expenses, and difficulties frequently encountered by companies in the early stage
of development. There can be no assurance that we will successfully address any of these risks.
We have a history of net losses and an
accumulated deficit, which raises substantial doubt about our ability to continue as a going concern.
Our results of operations have not resulted in
profitability. We incurred net losses from continuing operations of approximately $17.5 million and $7.0 million for the years ended
December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of approximately $105.9 million. There
is no assurance that we will be successful in executing our business plan or that we will be able to curtail our losses. There is substantial
doubt about our ability to continue as a going concern. Our independent registered public accounting firm has included an explanatory
paragraph in its audit report expressing substantial doubt about our ability to continue as a going concern. Our ability to continue
as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce
expenditures, and ultimately generate revenue.
We have not generated sustainable revenue since
inception, and we may not be able to generate sufficient revenue to achieve or maintain profitability.
We have not yet developed a meaningful customer
base and have not generated sustainable revenue since inception. We are subject to the substantial risk of failure facing businesses seeking
to develop and commercialize new products and technologies, and maintaining and improving our platform will require significant capital.
Our Keto Air product has generated minimal revenue to date, and we anticipate that it will take approximately one year from the date of
this Annual Report for us to begin generating meaningful revenue from our RPM platform. There can be no assurance that we will generate
revenue at the levels we anticipate, or at all, and our failure to do so could have a material adverse effect on our business, financial
condition, and results of operations.
We may not be successful in commercializing
our AI platform or our Keto Air product, either of which would materially harm our business.
We may not be successful in our AI vodcasting
and podcasting platform businesses or our sales of Keto Air. Market acceptance of AI-driven offerings is uncertain, and we will rely on
other companies, developers, and partners to build our product offerings. Additionally, evolving laws and regulations in areas such as
privacy, intellectual property, safety, competition, content regulation, and consumer protection may delay or impede the development of
our products and services. Our Keto Air product is currently operating as an early-stage commercial activity, and we are continuing to
evaluate the future strategic direction of the Keto Air product line as we assess its commercial performance. There can be no assurance
that either of our current business segments will achieve market acceptance or commercial viability.
Our RPM platform is in an early stage of
development and is based on new and evolving AI technologies, which are subject to significant uncertainty.
Our Catch-Up Vodcast and Podcast Platform is
currently under development and is based on new and evolving AI systems and technologies. This exposes us to risks including failure
to gain market acceptance, inability to secure sufficient intellectual property rights, proprietary rights of third parties limiting
our marketing efforts, failure to obtain sufficient user exposure, superior competing products, and the unpredictability of AI
technology. Our platform is currently in beta testing with a limited number of users, and Phase 2 of the platform — which will
expand our addressable market beyond podcasters — is currently in development and expected to launch in Q3 of 2026. There can be no assurance that Phase 2 will be completed on schedule or that it will achieve the
commercial results we anticipate.
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We face intense competition in both of our
business segments, and many of our competitors have substantially greater resources than we do.
We face intense competition from numerous technology
companies seeking to enter the generative AI-powered vodcasting and podcasting businesses. Many of our current and potential competitors
have significantly larger market presence, greater name recognition, access to more potential customers, and substantially greater financial,
technical, sales, marketing, management, support, and other resources than we do. In our consumer health technology segment, we compete
with manufacturers and distributors of urine-based ketone test strips and other breath-based ketone monitoring devices, many of which
have established retail distribution networks and marketing infrastructure that we currently lack. Our failure to compete effectively
in either segment could have a material adverse effect on our business, financial condition, and results of operations.
Our business is subject to rapid technological
change, and if we fail to adapt, our business may be negatively impacted.
Our industry is subject to rapid technological
change, and if we do not adapt to and appropriately allocate resources among emerging technologies and business models, our business may
be negatively impacted. Competitors may adapt to emerging technologies or business models more quickly or effectively than we do. The
generative AI industry in particular is evolving at an exceptionally rapid pace, and technologies, platforms, and distribution channels
that are relevant to our business today may be superseded or disrupted in ways that we cannot currently anticipate.
We may encounter difficulties associated
with early-stage companies that could adversely affect our operations.
We may encounter numerous difficulties frequently
encountered by early-stage companies, including implementing our growth strategy, countering competitors, pursuing new users, maintaining
adequate expense control, attracting and retaining qualified personnel, reacting to user preferences, successfully launching products,
and maintaining regulatory compliance. Failure to address any of these factors could have a material adverse effect on our business, financial
condition, results of operations, and future prospects.
Our success depends on the continued services
of our key personnel, the loss of whom could materially harm our business.
Our success depends on the continuing
services of Wenzhao Lu, our Chairman, Meng Li, Luisa Ingargiola, our Chief Financial Officer, our other executive officers, and
Michael Mathews, the Chief Executive Officer of RPM. The loss of any of these individuals could have a material and adverse effect
on our business operations. The supply of qualified technical, professional, managerial, and other personnel is currently
constrained, and competition for qualified employees is intense. In particular, our former Chief Executive Officer, David Jin, was
instrumental in sourcing our Keto Air distribution rights through his personal industry relationships, and the loss of his services
could adversely affect the continuation and development of that segment.
Our strategy of continuing to evaluate
additional possible acquisitions to supplement our operations involves significant risks, and we may not be able to identify, complete,
or successfully integrate any such acquisitions.
We are actively evaluating complementary possible artificial intelligence
acquisitions that we believe could generate near-term revenue to supplement our current operations. Strategic transactions, including
mergers, acquisitions, joint ventures, and investments, involve risks including the ability to integrate personnel, labor models, financial,
information technology, and other systems successfully; disruption of ongoing business; distraction of management; and the possibility
of material impairments of goodwill or other assets. We may not realize the anticipated benefits from such transactions and may be exposed
to additional liabilities of any acquired business. We have previously pursued and terminated multiple acquisition transactions, including
our proposed merger with YOOV Group Holding Limited, and there can be no assurance that future acquisition efforts will result in completed
transactions or, if completed, that such transactions will deliver the anticipated strategic or financial benefits.
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We depend on third parties for supplies
and services critical to our Keto Air business, and any disruption could adversely affect our operations.
We depend on third parties to provide supplies
and services critical to our Keto Air business and are heavily reliant on third-party ground and air travel for transport of supplies.
Disruptions to supply and services could have a material adverse effect on our Keto Air business. We source the Keto Air device from a
single Hong Kong-based technology group pursuant to an exclusive distribution agreement, and any disruption to that supply relationship
— whether due to manufacturing issues, geopolitical developments, shipping disruptions, or other factors — could impair our
ability to fulfill customer orders and sustain revenue from this segment.
The termination of our proposed merger with
YOOV Group Holding Limited may continue to adversely affect our business, financial condition, and stock price.
The termination of the proposed merger with YOOV
Group Holding Limited may adversely affect our stock price, business, financial condition, and ability to raise capital; result in unrecoverable
costs; harm our reputation and relationships with investors, business partners, customers, vendors, and employees; create strategic uncertainty;
and expose us to potential litigation or regulatory proceedings. The three-year non-disparagement covenant in the Mutual Termination and
Release Agreement may also limit certain communications relating to the proposed merger and its termination.
Risks Relating to Artificial Intelligence and
Technology
The use of AI in our platform may give rise
to legal liability, reputational harm, and regulatory scrutiny.
Our use of AI in our vodcasting and podcasting
platform may give rise to risks related to harmful content, inaccuracies, discrimination, intellectual property infringement or misappropriation,
defamation, data privacy, and cybersecurity. We intend to deploy open-source third-party AI systems that are relatively new to the commercial
market and may at times generate inaccurate or low-quality content, which could lead to reputational harm and legal liability. Unintended
consequences of AI tools may negatively affect human rights, privacy, employment, or other social concerns, resulting in claims, lawsuits,
brand or reputational harm, and increased regulatory scrutiny.
Our RPM platform's AI avatar feature, which
replicates individual voices and likenesses, exposes us to significant legal risks under right of publicity, biometric privacy, and related
laws.
The RPM platform generates AI-produced video content
featuring avatars that replicate the voice and likeness of content creators. This functionality implicates state right of publicity laws
across the United States, which protect individuals against the unauthorized commercial use of their name, image, voice, and likeness.
Laws governing AI-generated synthetic media depicting real individuals vary significantly across states and are rapidly evolving, with
particularly robust statutory frameworks in California, New York, and Texas, among others. Several states have recently enacted or are
actively considering legislation specifically addressing AI-generated synthetic media and voice cloning.
Additionally, the collection and processing of
voice and likeness data through our platform's avatar generation feature may implicate obligations under state biometric data privacy
laws, including the Illinois Biometric Information Privacy Act ("BIPA") and similar statutes in other states, which impose specific
consent, notice, retention, and data security requirements on the collection and use of biometric identifiers, including voiceprints.
Failure to comply with applicable right of publicity or biometric privacy laws could result in significant legal liability, regulatory
enforcement actions, and reputational harm. There can be no assurance that the consent and authorization process we have implemented for
our platform's beta users will be sufficient to satisfy all applicable legal requirements as such laws continue to develop.
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The content generated by our platform may
infringe the intellectual property rights of third parties, which could expose us to significant liability.
Our platform's content sourcing feature automatically
scrapes and curates video content from the internet for inclusion in AI-generated videos. This process may result in the reproduction
or republication of content that is protected by copyright or other intellectual property rights of third parties. While we intend to
implement appropriate content identification and licensing measures, there can be no assurance that all content sourced by our platform
will be free of third-party intellectual property claims. If third parties claim that we infringe their intellectual property, it may
result in costly litigation. We may not be able to adequately protect our proprietary technology, and competitors may be able to offer
similar products and services. Any such claims, regardless of their merit, could result in significant legal costs, distract management,
and adversely affect our business.
We may not be able to protect our intellectual
property rights, which could impair our competitive position.
We may face uncertainty and difficulty in obtaining
and enforcing our patents and other proprietary rights. Patent applications may not result in issued patents, and even if issued, they
may not provide meaningful protection. The Leahy-Smith America Invents Act introduced procedures that may make it easier for third parties
to challenge issued patents. Filing, prosecuting, and defending patents in all countries would be prohibitively expensive, and intellectual
property rights in some countries outside the United States may be less extensive. We have filed three provisional patent applications
in connection with our RPM platform, and there can be no assurance that any patents will issue from these applications, or that any issued
patents will provide meaningful competitive protection. Additionally, certain patents in our cellular therapy portfolio are co-owned with
MIT and Arbelli, and our ability to license or enforce such patents unilaterally may be limited by the terms of our co-ownership arrangements.
Laws and regulations governing artificial
intelligence are rapidly evolving, and compliance may be costly and uncertain.
Laws and regulations affecting AI are continually
evolving. Compliance with new laws can be costly and time-consuming, and we could be subject to regulatory enforcement actions or litigation
if we fail to comply. There is substantial uncertainty about the nature, direction, severity, and granularity of future AI regulation.
Government bodies have implemented laws and are considering further regulating AI and machine learning, which could negatively impact
our ability to use these technologies. New and changed rules regarding privacy, data protection, and cross-border transfers of customer
information could cause us to delay planned uses and disclosures of data. The European Union's Artificial Intelligence Act, which entered
into force in 2024, may impose specific obligations on AI systems that generate synthetic media depicting real individuals. To the extent
our platform is accessed by users in the European Union, we may become subject to these obligations, compliance with which could require
significant operational and legal resources.
Our platform's content may be restricted
or removed by major social media and content distribution platforms, which could significantly impair the utility and commercial appeal
of our product.
The RPM platform is designed to generate content
for distribution across major social media and content platforms, including YouTube, TikTok, Instagram, and others. Each of these platforms
maintains content policies governing the disclosure and permissibility of AI-generated content, synthetic media, and avatar-based representations
of real individuals. These policies are subject to frequent revision and vary across platforms. Failure to comply with applicable platform
content policies could result in the removal of content generated through our platform, the suspension or termination of creator accounts
on those platforms, or other restrictions that could adversely affect the utility and commercial appeal of our platform to content creators,
and in turn our ability to generate revenue.
Our business depends on the reliable performance
of third-party cloud and infrastructure providers, and any disruption to these services could adversely affect our operations.
We intend to rely on third-party providers for
computing infrastructure, secure network connectivity, and other technology-related services. Any disruption in services provided by such
third-party providers could adversely affect our business. These providers may take actions beyond our control, including discontinuing
or limiting access to their cloud platform, increasing pricing terms, terminating contractual relationships, or establishing more favorable
relationships with our competitors.
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Cybersecurity breaches or incidents could
damage our reputation and adversely affect our business.
Security breaches and attacks against our systems
and network could damage our reputation and negatively impact our business. As a small company with limited resources, our cybersecurity
measures may not detect or prevent all attempts to compromise our systems, including distributed denial-of-service attacks, viruses, malicious
software, phishing attacks, and social engineering. Breaches could result in unauthorized access, misappropriation of information, deletion
or modification of user or consumer information, or denial-of-service interruptions. Our current data footprint is limited — consisting
primarily of email communications, consumer purchase data collected through Keto Air sales, and content creator data gathered through
our limited RPM beta program — but will expand significantly as our platform scales commercially. Any material cybersecurity incident
could adversely affect our reputation, expose us to regulatory enforcement, and result in significant costs.
We are subject to data privacy and security
laws that impose significant compliance obligations, and any failure to comply could result in material liability.
We are subject to laws and regulations concerning
privacy, information security, data protection, consumer protection, and protection of minors, including the California Consumer Privacy
Act, as amended by the California Privacy Rights Act, and similar state laws. Compliance has required significant operational resources
and expenses. Any failure or perceived failure to comply with privacy-related obligations may result in governmental enforcement actions,
investigations, litigation, or public statements against us, and could cause users to lose trust in our products and services. The collection
and processing of voice and likeness data through our RPM platform's avatar generation feature may also implicate obligations under applicable
biometric data privacy laws, including the Illinois Biometric Information Privacy Act and similar state statutes, and we are continuing
to evaluate our compliance obligations in this area.
Risks Relating to Our Capital Structure and
Nasdaq Listing
We will need to raise additional capital
to fund our operations and growth, and we may not be able to do so on acceptable terms, or at all.
We are currently operating at a loss and expect
our operating costs to increase significantly. As of December 31, 2025, we had cash from continuing operations of approximately $0.1 million.
We will need to raise additional capital or generate substantial revenue to support our development and commercialization efforts. We
have no arrangements or credit facilities currently in place as a source of funds, and there can be no assurance that we will be able
to raise sufficient additional capital on acceptable terms, or at all. If we are unable to raise additional capital as needed, we may
be required to curtail or cease our operations, delay or reduce the scope of our development activities, or relinquish rights to certain
of our assets or technologies.
We have outstanding indebtedness that could
adversely affect our financial condition and liquidity.
As of December 31, 2025, we had approximately
$1.1 million of outstanding indebtedness (excluding $5.8 million of outstanding indebtedness from discontinued operations). If we are
unable to generate sufficient cash to repay our debt obligations when they become due, we may not be able to obtain additional debt or
equity financing on favorable terms. If we breach any undertakings or default on any obligations under our agreements with lenders, our
outstanding indebtedness could become immediately due and payable.
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Future sales and issuances of our securities
could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations,
including research and development, increased marketing, hiring new personnel, commercializing our products, and continuing activities
as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience
substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices
and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than
one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing
stockholders, and new investors could gain rights superior to our existing stockholders.
Future issuances of our securities, including
upon conversion of our outstanding preferred stock, will dilute the ownership interests of our existing stockholders and may depress the
trading price of our common stock.
Stockholders may experience dilution of their
ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are
convertible into or exercisable for common or preferred stock. As of the date of filing, we have issued 3,800 shares of Series C Preferred
Stock, 5,000 shares of Series D Preferred Stock, and 19,500 shares of Series E Preferred Stock. The future issuance of any such additional
shares may create downward pressure on the trading price of our common stock. As of December 31, 2025, we had: 41,169 shares issuable
upon exercise of outstanding stock options; 95,746 shares issuable upon exercise of outstanding stock warrants; 1,576,763 shares issuable
upon conversion of outstanding Series C Preferred Stock; 2,074,689 shares issuable upon conversion of outstanding Series D Preferred Stock;
13,000,000 shares issuable upon conversion of outstanding Series E Preferred Stock; and 788,283 shares issuable upon conversion of outstanding
convertible notes and related accrued interest. If these shares are sold or perceived to be sold in the public market, the price of our
common stock could decline.
Our Series E Non-Voting Convertible Preferred
Stock is subject to an Exchange Cap and requires stockholder approval under Nasdaq Listing Rule 5635 prior to conversion, and there can
be no assurance that we will obtain such approval.
Our Series E Preferred Stock is convertible into
shares of our common stock at a conversion price of $1.50 per share, subject to: (i) a beneficial ownership cap of 4.99% applicable to
each holder; (ii) an Exchange Cap that prevents the issuance of shares of common stock upon conversion in excess of the number of shares
we may issue without breaching our obligations under applicable Nasdaq listing rules and regulations; and (iii) the receipt of stockholder
approval in accordance with Nasdaq Listing Rule 5635. We intend to seek this stockholder approval at our annual meeting of stockholders
currently scheduled to be held on or before May 12, 2026. There can be no assurance that our stockholders will approve the conversion
of the Series E Preferred Stock. If such approval is not obtained, the Series E Preferred Stock will remain unconverted, which could adversely
affect our ability to raise additional capital, may require us to redeem the Series E Preferred Stock, and could have a material adverse
effect on our business and financial condition.
We must maintain compliance with Nasdaq
continued listing standards, and there can be no assurance that we will be able to do so.
We are required to comply with certain Nasdaq
rules including those regarding minimum stockholders' equity, minimum share price, and certain corporate governance requirements. If we
fail to comply with these rules and are delisted, we could face significant consequences including limited availability of market quotations,
reduced liquidity, a determination that our common stock is a "penny stock," limited news and analyst coverage, and a decreased
ability to issue additional securities or obtain additional financing. We previously received a deficiency notice from Nasdaq relating
to our minimum stockholders' equity, and while we believe the completion of the RPM acquisition has resolved that deficiency, there can
be no assurance that Nasdaq will confirm such resolution or that we will not face future listing deficiencies. If we are unable to maintain
listing of our securities on The Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for stockholders
to sell their securities, and a delisting is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability
to raise additional financing.
Significant related party transactions,
including the sale of our Route 9 property to a director, create conflicts of interest and could adversely affect stockholder confidence
in our corporate governance.
On February 18, 2026, we completed the sale of
100% of the membership interests of Avalon RT 9 Properties, LLC to Wenzhao Lu, the Chairman of our Board of Directors, for a total aggregate
purchase price of approximately $9,000,000. This transaction, as well as other related party transactions in our history — including
the exchange of Series A Preferred Stock for Series D Preferred Stock by our Chairman — involve members of our board of directors
or their affiliates. Although all such transactions have been reviewed and approved by our Board of Directors, with the participation
of disinterested directors, and in accordance with our related party transaction policy, related party transactions present inherent conflicts
of interest and could adversely affect stockholder confidence in our corporate governance practices and the integrity of our financial
disclosures.
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Our officers, directors, and significant
stockholders collectively hold a significant percentage of our outstanding common stock, which may limit the ability of other stockholders
to influence corporate decisions.
Our officers, directors, and 5% stockholders and
their affiliates beneficially own a significant percentage of our outstanding common stock. As a result, these stockholders have significant
influence and may be able to determine all matters requiring stockholder approval, including elections of directors, amendments of our
organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. This concentration of ownership
may make it difficult for other stockholders to influence significant corporate decisions, may discourage potential acquirors from pursuing
a business combination with us, and may have a depressive effect on the trading price of our common stock.
Provisions in our charter documents and
Delaware law may have anti-takeover effects that could prevent a change of control that stockholders may consider favorable.
Our Board of Directors is authorized to issue
up to 10,000,000 shares of preferred stock with powers, rights, and preferences designated by it, which could be used to create voting
impediments or frustrate persons seeking to effect a takeover. Delaware law also prohibits corporations from engaging in a business combination
with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless the Board of Directors
approves the transaction. These provisions, together with our outstanding preferred stock, could have the effect of delaying, deferring,
or preventing a change of control that stockholders might otherwise consider to be in their best interests.
Our common stock price has been and may
continue to be highly volatile, and stockholders could suffer substantial losses.
The price of our common stock has been, and is
expected to continue to be, volatile. The stock market in general, and the market for smaller technology and healthcare companies in particular,
has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Factors that may
cause volatility in our stock price include, among others, our quarterly financial results, announcements regarding our platform development,
changes in analyst estimates, developments in the AI industry, and broader market conditions. Stockholders may not be able to sell their
shares at or above the price at which they purchased them.
Risks Relating to General Economic and Market
Conditions
Adverse economic conditions could reduce
demand for our products and services and harm our business.
Our business is susceptible to market conditions
and risks associated with the digital entertainment and consumer health industries. Economic conditions that negatively impact discretionary
consumer spending, including inflation, slower growth, unemployment levels, tax rates, interest rates, energy prices, declining consumer
confidence, recession, and other macroeconomic conditions, including those resulting from geopolitical issues and uncertainty, could have
a material adverse impact on our business and results of operations. Demand for consumer health products such as Keto Air, and for subscription-based
content creation tools such as our RPM platform, may be disproportionately affected by economic downturns that reduce consumer and business
discretionary spending.
Geopolitical developments and trade restrictions,
including those affecting our supply chain for the Keto Air device, could adversely affect our operations.
We source the Keto Air breathalyzer device from
a Hong Kong-based technology group and rely on international shipping and logistics for delivery of inventory to North America. Geopolitical
tensions, trade restrictions, tariffs, export controls, or other regulatory developments affecting U.S.-China or U.S.-Hong Kong trade
could disrupt our supply chain, increase our costs, or prevent us from sourcing sufficient inventory to meet customer demand. Any such
disruption could have a material adverse effect on our consumer health technology segment.
Changes in government spending priorities
and regulatory policy could affect our business in ways we cannot predict.
Our ability to obtain reimbursement or funding
from federal programs may be impacted by possible reductions in federal spending. The U.S. federal budget remains subject to significant
uncertainty, and government cost reduction initiatives may impact the ability of relevant agencies such as the FDA to continue to function
at current levels. Additionally, changes in federal regulatory priorities with respect to artificial intelligence, data privacy, or consumer
protection could result in new or more stringent requirements being imposed on our business, which could require significant compliance
resources and adversely affect our operations.
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