Item 1A. Risk Factors
ITEM
1A – RISK FACTORS
Investing
in our common stock involves risk. Before deciding whether to invest in our common stock, you should carefully consider the risks and
uncertainties described below. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors
that could have material adverse effects on our future results. If any of these risks actually occur, our business, business prospects,
financial condition or results of operations could be seriously harmed. This could cause the trading price of our common stock to decline,
resulting in a loss of all or part of your investment. Please also read carefully the section contained in Part II, Item 7, below, entitled
“Cautionary Statement Regarding Forward-Looking Statements.”
We have identified
the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations
in the future. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our
business operations. If any of these risks occur, our business, results of operations or financial condition could suffer, the market
price of our common stock could decline, and you could lose all or part of your investment in our common stock.
The
value of our intangible assets and investments may not be equal to their carrying values .
As of December
31, 2023, we had approximately $20.2 million of net intangible assets. Approximately $18.9 million is associated with the
acquisition of Impact Biomedical, Inc. The Company has completed valuations for certain developed technology assets acquired in the
transaction as well as the non-controlling interest portion of Impact BioMedical, Inc. and its subsidiaries. If licensing efforts
are not successful, the values of these assets could be reduced. We are required to evaluate the carrying value of such intangibles
and goodwill and the fair value of investments whenever events or changes in circumstances indicate that the carrying value of an
intangible asset, including goodwill, and investment may not be recoverable. If any of our intangible assets, goodwill or
investments are deemed to be impaired then it will result in a significant reduction of the operating results in such period.
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We
have secured indebtedness, and a potential risk exists that we may be unable to satisfy our obligations to pay interest and principal
thereon when due or negotiate acceptable extensions or settlements.
We have outstanding
indebtedness (described below), most of which is secured by assets of various DSS subsidiaries and guaranteed by the Company. Given our
history of operating losses and our cash position, there is a risk that we may not be able to repay indebtedness when due. If we were
to default on any of our other indebtedness that require payments of cash to settle such default and we do not receive an extension or
a waiver from the creditor and the creditor were to foreclose on the secured assets, it could have a material adverse effect on our business,
financial condition, and operating results.
As of December 31,
2023, we had the following significant amounts of outstanding indebtedness:
●
Premier
Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”)
to secure financing approximating $3,710,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance
outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. As of December 31, 2023, and
December 31, 2022, the outstanding principal on the BOA Note was $2,932,000 and $3,406,000, respectively and had an interest rate
of 4.63%. As of December 31, 2023, $491,000 was included in the current portion of long-term debt, net, and the remaining balance
of approximately $2,442,000 recorded as long-term debt, The BOA Note contains certain covenants that are analyzed annually. As of
December 31, 2023, Premier is in compliance with these covenants.
●
AMRE
Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”)
with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $6,155,000, with the amount financed approximating $5,105,000.
The Shelton Agreement contains monthly payments of principal and an initial interest of 4.25%. The interest will be adjusted commencing
on July 1, 2026 and continuing for the next succeeding 5-year period shall be determined one month prior to the change date and shall
be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing
advance rate, but in no event less than 4.25% for the term of 120 months with a balloon payment approximating $2,829,000 due at term
end. The net book value of these assets as of December 31, 2023 approximated $6,279,000.
●
$3,000,000
loan agreement with BMIC (“BMIC Loan”), between LVAM and BMIC with interest to be charged at a variable rate to be calculated
at the maturity date. The BMIC Loan matured on October 12, 2022 and both parties agree based on the language of the loan documents
that the loan will keep extending an additional 3 months until either party cancels the extension.
●
$41,331,000
remaining principal balance, net of deferred financing costs, loan agreement (“LifeCare Agreement”) between AMRE LifeCare
Portfolio, LLC (“AMRE LifeCare”) a subsidiary of AMRE, and Pinnacle Bank (“Pinnacle”). The LifeCare Agreement
has a variable interest rate which equated to 9.6% on December 31, 2023. This note is due as of the date of this filing.
●
AMRE
Winter Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered a term loan (“Pinnacle
Loan”) whereas Pinnacle lent to AMRE Winter Haven the principal sum of $2,990,000, maturing on March 7, 2024. Payments are
to be made in equal, consecutive installments based on a 25-year amortization period with interest at 4.28%. The outstanding principal
and interest, net of debt issuance costs of $17,000, approximates $2,977,000 and is included in long-term debt, net on the accompanying
consolidated balance sheet at December 31, 2023. This note is in default and demand was made for final payment to be made
by December 22, 2023. This amount is past due.
Both the Winter
Haven and LifeCare agreements contain various covenants which are tested annually as of December 31. For the year ended December 31,
2023, AMRE Winter Haven and LifeCare were not in compliance with the annual covenants and these loans are in default.
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A
significant amount of our revenue is derived by two customers.
As of December 31,
2022, two customers accounted for approximately 14% and 6% of our consolidated revenue and these two customers accounted for approximately
36% and 17% of our consolidated trade accounts receivable balance. As of December 31, 2023, two customers accounted for approximately
20% and 11% of our consolidated revenue and 39% and 30% of our trade accounts receivable balance. If we were to lose this customer
or if the amount of business we do with this customer declines significantly, our business would be adversely affected.
We
may face intellectual property infringement or other claims against us, our customers or our intellectual property that could be costly
to defend and result in our loss of significant rights.
Although we have
received patents with respect to certain of our core business technologies, there can be no assurance that these patents will afford
us any meaningful protection. Although we believe that our use of the technology and products we have developed, and other trade secrets
used in our operations do not infringe upon the rights of others, our use of the technology and trade secrets we developed may infringe
upon the patents or intellectual property rights of others. In the event of infringement, we could, under certain circumstances, be required
to obtain a license or modify aspects of the technology and trade secrets we developed or refrain from using the same. We may not be
able to successfully terminate any infringement in a timely manner, upon acceptable terms and conditions or at all. Failure to do any
of the foregoing could have a material adverse effect on our operations and our financial condition. Moreover, if the patents, technology,
or trade secrets we developed or use in our business are deemed to infringe upon the rights of others, we could, under certain circumstances,
become liable for damages, which could have a material adverse effect on our operations and our financial condition. As we continue to
market our products, we could encounter patent barriers that are not known today. A patent search may not disclose all related applications
that are currently pending in the United States Patent Office, and there may be one or more such pending applications that would take
precedence over any or all of our applications.
Furthermore, third
parties may assert that our intellectual property rights are invalid, which could result in significant expenditures by us to refute
such assertions. If we become involved in litigation, we could lose our proprietary rights, be subject to damages and incur substantial
unexpected operating expenses. Intellectual property litigation is expensive and time-consuming, even if the claims are subsequently
proven unfounded, and could divert management’s attention from our business. If there is a successful claim of infringement, we
may not be able to develop non-infringing technology or enter into royalty or license agreements on acceptable terms, if at all. If we
are unsuccessful in defending claims that our intellectual property rights are invalid, we may not be able to enter into royalty or license
agreements on acceptable terms, if at all. Moreover, if we are unsuccessful in our pending patent infringement litigation, we could lose
certain patents that have been collateralized by third party funding partners. This could prohibit us from providing our products and
services to customers, which could have a material adverse effect on our operations and our financial condition.
Certain
of our recently developed products are not yet commercially accepted and there can be no assurance that those products will be accepted,
which would adversely affect our financial results.
We’ve acquired
several patents in the bio-health field through our acquisition if Impact Biomedical, Inc. Our business plan includes plans to incur
significant marketing, intellectual property development and sales costs for the bio-health related products. If we are not able to develop
and sell these new products, our financial results will be adversely affected.
The
results of our research and development efforts are uncertain and there can be no assurance of the commercial success of our products.
We believe that we
will need to continue to incur research and development expenditures to remain competitive. The products we are currently developing
or may develop in the future may not be technologically successful. In addition, the length of our product development cycle may be greater
than we originally expected, and we may experience delays in future product development. If our resulting products are not technologically
successful, they may not achieve market acceptance or compete effectively with our competitors’ products.
The
markets in which we operate are highly competitive, and we may not be able to compete effectively, especially against established industry
competitors with greater market presence and financial resources.
Our markets are highly
competitive and characterized by rapid technological change and product innovations. Our competitors may have advantages over us because
of their longer operating histories, more established products, greater name recognition, larger customer bases, and greater financial,
technical and marketing resources. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in
customer requirements and devote greater resources to the promotion and sale of their products. Competition may also force us to decrease
the price of our products and services. We cannot assure you that we will be successful in developing and introducing new technology
on a timely basis, new products with enhanced features, or that these products, if introduced, will enable us to establish selling prices
and gross margins at profitable levels.
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If
we are unable to respond to regulatory or industry standards effectively, our growth and development could be delayed or limited.
Our future success
will depend in part on our ability to enhance and improve the functionality and features of our products and services in accordance with
regulatory or industry standards. Our ability to compete effectively will depend in part on our ability to influence and respond to emerging
industry governmental standards in a timely and cost-effective manner. If we are unable to influence these or other standards or respond
to these or other standards effectively, our growth and development of various products and services could be delayed or limited.
Breaches
in security, whether cyber or physical, and other disruptions and/or our inability to prevent or respond to such breaches, could diminish
our ability to generate revenues or contain costs, compromise our assets, and negatively impact our business in other ways.
We face certain security
threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified information,
and threats to physical and cyber security. Our information technology networks and related systems are critical to the operation of
our business and essential to our ability to successfully perform day-to-day operations. The risks of a security breach, cyber-attack,
cyber intrusion, or disruption, particularly through actions taken by computer hackers, foreign governments and cyber terrorists, have
increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Although
we have acquired and developed systems and processes designed to protect our proprietary and/or classified information, they may not
be sufficient and the failure to prevent these types of events could disrupt our operations, require significant management attention
and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impact on our
financial condition, and weaken our results of operations and liquidity.
Our
investments in Asia are subject to unique risks and uncertainties, including tariffs and trade restrictions.
Our investment in Alset International Limited, presents risks including, but not limited to, changes in share
price of investments, changes in local regulatory requirements, changes in labor laws, local wage laws, environmental regulations, taxes
and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices Act, uncertainties as to
application and interpretation of local laws and enforcement of contract and intellectual property rights, currency restrictions, currency
exchange controls, fluctuations of currency, and currency revaluations, eminent domain claims, civil unrest, power outages, water shortages,
labor shortages, labor disputes, increase in labor costs, rapid changes in government, economic and political policies, political or
civil unrest, acts of terrorism, or the threat of boycotts, other civil disturbances and the possible impact of the imposition of tariffs
as a result of the tariff dispute between the U.S. and China as well as any retaliating trade policies or restrictions. Any such disruptions
could depress our earnings and have other material adverse effects on our business, financial condition and results of operations.
Future
growth in our business could make it difficult to manage our resources.
Future business expansion
could place a significant strain on our management, administrative and financial resources. Significant growth in our business may require
us to implement additional operating, product development and financial controls, improve coordination among marketing, product development
and finance functions, increase capital expenditures and hire additional personnel. There can be no assurance that we will be able to
successfully manage any substantial expansion of our business, including attracting and retaining qualified personnel. Any failure to
properly manage our future growth could negatively impact our business and operating results.
If
we fail to retain certain of our key personnel and attract and retain additional qualified personnel, we might not be able to remain
competitive, continue to expand our technology or pursue growth.
Our future success
depends upon the continued service of certain of our executive officers and other key sales and research personnel who possess longstanding
industry relationships and technical knowledge of our products and operations. Although we believe that our relationship with these individuals
is positive, there can be no assurance that the services of these individuals will continue to be available to us in the future. There
can be no assurance that these persons will agree to continue to be employed by us after the expiration dates of their current contracts.
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We
have identified weaknesses in our internal control over financial reporting structure; any material weaknesses may cause errors in our
financial statements that could require restatements of our financial statements and investors may lose confidence in our reported financial
information, which could lead to a decline in our stock price.
Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of
each year, and to include a management report assessing the effectiveness of our internal control over financial reporting in each Annual
Report on Form 10-K. We have had previously identified weaknesses in our internal control over financial reporting following management’s
annual assessment of internal controls over financial reporting and, as a result of that assessment, management had concluded our controls
associated may not prevent or detect misstatements. Projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.
We
do not intend to pay cash dividends.
We do not intend
to declare or pay cash dividends on our common stock in the foreseeable future. We anticipate that we will retain any earnings and other
cash resources for investment in our business. The payment of dividends on our common stock is subject to the discretion of our board
of directors and will depend on our operations, financial position, financial requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors that our board of directors
deems relevant.
We
may seek to develop additional new inventions and intellectual property, which would take time and would be costly. Moreover, the failure
to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.
Part of our business
may include the development of new inventions and intellectual property that we would seek to monetize. However, this aspect of our business
would likely require significant capital and would take time to achieve. Such activities could also distract our management team from
our present business initiatives, which could have a material and adverse effect on our business. There is also the risk that these initiatives
would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such
activities.
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In addition, even
if we are able to develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop
and maintain, and we would heavily rely on, a proprietary position with respect to such inventions and intellectual property. However,
there are significant risks associated with any such intellectual property we may develop principally including the following:
●
patent
applications we may file may not result in issued patents or may take longer than we expect to result in issued patents;
●
we
may be subject to interference proceedings;
●
we
may be subject to opposition proceedings in the U.S. or foreign countries;
●
any
patents that are issued to us may not provide meaningful protection;
●
we
may not be able to develop additional proprietary technologies that are patentable;
●
other
companies may challenge patents issued to us;
●
other
companies may design around technologies we have developed; and
●
enforcement
of our patents may be complex, uncertain and very expensive.
We cannot be certain
that patents will be issued as a result of any future applications, or that any of our patents, once issued, will provide us with adequate
protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries,
we cannot be certain that it will be the first to make our additional new inventions or to file patent applications covering those inventions.
It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require
us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those
patents that we may license or otherwise monetize, our rights will depend on maintaining our obligations to the licensor under the applicable
license agreement, and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would
lead to the loss of our investments in such activities, which would have a material and adverse effect on our business.
Moreover, patent
application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities
to license patents before other competing technologies are developed or introduced into the market.
Changes
in the laws and regulations to which we are subject may increase our costs.
We are subject to
numerous laws and regulations, including, but not limited to, environmental and health and welfare benefit regulations, as well as those
associated with being a public company. These rules and regulations may be changed by local, state, provincial, national or foreign governments
or agencies. Such changes may result in significant increases in our compliance costs. Compliance with changes in rules and regulations
could require increases to our workforce, and could result in increased costs for services, compensation and benefits, and investment
in new or upgraded equipment.
Declines
in general economic conditions or acts of war and terrorism may adversely impact our business.
Demand for printing
services is typically correlated with general economic conditions. The prolonged decline in United States economic conditions associated
with the great recession adversely impacted our business and results of operations and may do so again. The overall business climate
of our industry may also be impacted by domestic and foreign wars or acts of terrorism, which events may have sudden and unpredictable
adverse impacts on demand for our products and services.
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If
we fail to comply with the continued listing standards of the NYSE American LLC Exchange, it may result in a delisting of our common
stock from the exchange.
Our common stock
is currently listed for trading on the NYSE American LLC Exchange (“NYSE American”), and the continued listing of our common
stock on the NYSE American is subject to our compliance with a number of listing standards.
If our common stock
were no longer listed on the NYSE American, investors might only be able to trade our shares on the OTC Bulletin Board ® or in the
Pink Sheets ® (a quotation medium operated by Pink Sheets LLC). This would impair the liquidity of our common stock not only in the
number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity, but also through
delays in the timing of transactions and reduction in media coverage.
If
we are delisted from the NYSE American, your ability to sell your shares of our common stock may be limited by the penny stock restrictions,
which could further limit the marketability of your shares.
If our common stock
is delisted from the NYSE American, it could come within the definition of a “penny stock” as defined in the Exchange Act
and could be covered by Rule 15g-9 of the Exchange Act. That rule imposes additional sales practice requirements on broker-dealers who
sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer
must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction
prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers
to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These
additional procedures could also limit our ability to raise additional capital in the future.
If
our common stock is not listed on a national securities exchange, compliance with applicable state securities laws may be required for
certain offers, transfers and sales of the shares of our common stock.
Because our common
stock is listed on the NYSE American, we are not required to register or qualify in any state the offer, transfer or sale of the common
stock. If our common stock is delisted from the NYSE American and is not eligible to be listed on another national securities exchange,
sales of stock pursuant to the exercise of warrants and transfers of the shares of our common stock sold by us in private placements
to U.S. holders may not be exempt from state securities laws. In such event, it will be the responsibility of us in the case of warrant
exercises or the holder of privately placed shares to register or qualify the shares for any offer, transfer or sale in the United States
or to determine that any such offer, transfer or sale is exempt under applicable state securities laws.
If
securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding
our stock adversely, our stock price and trading volume could decline.
The trading market
for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.
Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more
of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage
of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
Because
certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions
requiring stockholder approval.
As of March 1,2024,
our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and their respective affiliates,
beneficially own approximately 59% of our outstanding shares of common stock. As a result, these stockholders, acting together, could
have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and
any merger, consolidation or sale of all or substantially all of our assets. As such, these stockholders, acting together, could have
the ability to exert influence over the management and affairs of our company. Accordingly, this concentration of ownership might harm
the market price of our common stock by: delaying, deferring or preventing a change in corporate control; impeding a merger, consolidation,
takeover or other business combination involving us; or discouraging a potential acquirer from making a tender offer or otherwise attempting
to obtain control of us.
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Additional
financing or future equity issuances may result in future dilution to our shareholders.
We expect that we
will need to raise additional funds in the future to finance our internal growth, our merger and acquisition plans, investment activities,
continued research and product development, and for other reasons. Any required additional financing may not be available on terms acceptable
to us, or at all. If we raise additional funds by issuing equity securities, you may experience significant dilution of your ownership
interest and the newly issued securities may have rights senior to those of the holders of our common stock. The price per share at which
we sell additional securities in future transactions may be higher or lower than the price per share in this offering. Alternatively,
if we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants
or other restrictions on our business that could impair our operational flexibility and would also require us to fund additional interest
expense. If adequate additional financing is not available when required or is not available on acceptable terms, we may be unable to
successfully execute our business plan.