ITEM 1A. RISK FACTORS.
An investment in our securities involves a
high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information
contained or referred to in this report, before making an investment decision with respect to our securities. If any of the following
events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected.
In that event, the market price of our shares could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
Changes to trade regulation, quotas, duties,
tariffs or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China,
may materially harm our revenue and results of operations, such as by increasing our costs and/or limiting the amount of products that
we can import.
Our operations are subject to various international
trade agreements and regulations. Generally, these trade agreements and regulations benefit our business by reducing or eliminating the
quotas, duties and/or tariffs assessed on products manufactured in a particular country. However, trade agreements and regulations can
also impose requirements that have a material adverse effect on our business, revenue and results of operations, such as limiting the
countries from which we can purchase raw materials, limiting the products that qualify as duty free, and setting quotas, duties and/or
tariffs on products that may be imported into the United States from a particular country. Certain inbound products to the United States
are subject to tariffs assessed on the manufactured cost of goods at the time of import. For example, during the prior Trump administration,
increased tariffs were implemented on goods imported into the U.S., particularly from China, Canada, and Mexico. The current Trump administration
has implemented additional tariffs, some of which apply to goods imported from China and other countries from which we import goods. As
a result, we have had to increase prices for certain products and may be required to raise those prices further, or raise our prices on
other products, which may result in the loss of customers and harm our operating performance. In response, in part, to tariffs levied
on products imported from China we have shifted away from Chinese or other foreign manufacturers of some of our products and may seek
to increase this shift due to U.S. tariffs or other aspects of U.S. trade policy, which may result in additional costs and disruption
to our operations.
The countries in which our products are manufactured
or into which they are imported may from time-to-time impose new quotas, duties, tariffs and requirements as to where raw materials must
be purchased to qualify for free or reduced duty. These countries also may create additional workplace regulations or other restrictions
on our imports or adversely modify existing restrictions. Adverse changes in these costs and restrictions could harm our business. We
cannot assure that future trade agreements or regulations will not provide our competitors an advantage over us or increase our costs,
either of which could have a material adverse effect on our business, results of operations or financial condition. Nor can we assure
that the changing geopolitical and U.S. political environments will not result in a trade agreement or regulation being altered which
adversely affects our company. The U.S. government may decide to impose or alter existing import quotas, duties, tariffs or other restrictions
on products or raw materials sourced from those countries, which include countries from which we import raw materials or in which we manufacture
our products. Any such quotas, duties, tariffs or restrictions could have a material adverse effect on our business, results of operations
or financial condition.
Shortages of supply of merchandise from
suppliers, interruptions in our manufacturing, and local conditions in the countries in which we source goods and materials could adversely
affect our results of operations.
Along with
many companies that source goods and raw materials from abroad, we are currently experiencing continued supply disruptions and delays
due to a variety of reasons. These changes are partially driven by interruptions in global supply chains (including as a result of port
congestion, canal blockages and disruptions, and trucking shortages) and partially by a shift in customer buying habits to e-commerce,
which has the effect of increasing demand for shipping capacity from Asia, leading to capacity constraints. Both factors have increased
shipping times as well as the price of shipping, whether by sea, air, rail, or vehicle. Shipping delays combined with significant increases
in orders for our products have recently created, and are expected to continue to create, inventory pressure for us.
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As a distributor, we buy merchandise both from
multiple supply sources and from a network of factories in which we have developed direct relationships around the globe over the past
30 years. However, an unexpected interruption in any of the sources or facilities may temporarily adversely affect our results of operations
until alternate sources or facilities can be secured. We rely on the supply of different types of raw materials as well as textiles, including
plastic, glass, fabric and metal for our promotional products. Further, our suppliers generally source or manufacture finished goods in
parts of the world that may be affected by economic uncertainty, political unrest, labor disputes, health emergencies, or the imposition
of duties, tariffs or other import regulations by the United States.
Increases in the price of merchandise and
raw materials used to manufacture our products could materially increase our costs and decrease our profitability.
The principal components in our promotional products
are plastic, glass, fabric and metal. The prices we pay for these fabrics and components and our merchandise are dependent on the market
price for the raw materials used to produce them, primarily cotton and chemical components of synthetic fabrics including raw materials
such as chemicals and dyestuffs. These finished goods and raw materials are subject to price volatility caused by weather, supply conditions,
government regulations, economic and political climate, currency exchange rates, labor costs, and other unpredictable factors. Fluctuations
in petroleum prices also may influence the prices of related items such as chemicals, dyestuffs and polyester yarn.
During the years ended December 31, 2024 and 2023,
many promotional products companies saw increases in the cost of finished goods and raw materials purchased, as well as in the average
cost of finished goods and raw materials purchased, as compared to the prior year, driven by rising inflation rates and shipping costs.
Our shipping costs for importing raw materials
from overseas increased significantly after the emergence of COVID-19 and the general inflation in the prices of goods and services that
has occurred since that time. Any increase in raw material prices or shipping costs increases our cost of sales and can decrease our profitability
unless we are able to pass the costs on to our customers in the form of higher prices. In addition, if one or more of our competitors
is able to reduce their production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements,
we may face pricing pressures from those competitors and may be forced to reduce our prices or face a decline in revenues, either of which
could have a material adverse effect on our business, results of operations and financial condition.
Furthermore, significant or sustained inflation
could have an adverse impact on our operating and general and administrative expenses. During inflationary periods, these costs could
increase at a rate higher than our ability to offset them via customer-facing pricing adjustments, alternative supply sources or other
measures. Inflation could also have an adverse effect on consumer spending, which could adversely impact demand for our products and services.
If our operating and other expenses increase faster than anticipated due to inflation, our financial condition, results of operations
and cash flow could be materially adversely affected.
Our customers may cancel or decrease the
quantity of their orders, which could negatively impact our operating results.
Sales to many of our customers are on an order-by-order
basis. If we cannot fill customers’ orders on time, orders may be cancelled and relationships with customers may suffer, which could
have an adverse effect on us, especially if the relationship is with a major customer. Furthermore, if any of our customers experience
a significant downturn in their business, or fail to remain committed to our programs or brands, the customer may reduce or discontinue
purchases from us. The reduction in the amount of our products purchased by customers could have a material adverse effect on our business,
results of operations or financial condition.
In addition, some of our customers have experienced
significant changes and difficulties, including consolidation of ownership, increased centralization of buying decisions, buyer turnover,
restructurings, bankruptcies and liquidations. A significant adverse change in a customer relationship or in a customer’s financial
position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s
receivables or limit our ability to collect amounts related to previous purchases by that customer, all of which could have a material
adverse effect on our business, results of operations or financial condition.
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We may be unable to identify or to complete
acquisitions or to successfully integrate the businesses we acquire.
We have evaluated, and may continue to evaluate,
potential acquisition transactions. We attempt to address the potential risks inherent in assessing the attractiveness of acquisition
candidates, as well as other challenges such as retaining the employees and integrating the operations of the businesses we acquire. Integrating
acquired operations involves significant risks and uncertainties, including maintenance of uniform standards, controls, policies and procedures;
diversion of management’s attention from normal business operations during the integration process; unplanned expenses associated
with integration efforts; and unidentified issues not discovered in due diligence, including legal contingencies. Acquisition valuations
require us to make certain estimates and assumptions to determine the fair value of the acquired entities (including the underlying assets
and liabilities). If our estimates or assumptions to value the acquired assets and liabilities are not accurate, we may be exposed to
losses, and/or unexpected usage of cash flow to fund the operations of the acquired operations that may be material.
Even if we are able to acquire businesses on favorable
terms, managing growth through acquisitions is a difficult process that includes integration and training of personnel, combining facility
and operating procedures, and additional matters related to the integration of acquired businesses within our existing organization. Unanticipated
issues related to integration may result in additional expense and disruption to our operations, and may require a disproportionate amount
of our management’s attention, any of which could negatively impact our ability to achieve anticipated benefits, such as revenue
and cost synergies. Growth of our business through acquisitions generally increases our operating complexity and the level of responsibility
for both existing and new management personnel. Managing and sustaining our growth and expansion may require substantial enhancements
to our operational and financial systems and controls, as well as additional administrative, operational and financial resources. We may
be required to invest in additional support personnel, facilities and systems to address the increased complexities associated with business
or segment expansion. These investments could result in higher overall operating costs and lower operating profits for the business as
a whole. There can be no assurance that we will be successful in integrating acquired businesses or managing our expanding operations.
In addition, although we conduct due diligence
investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities
of an acquired business for which we may be responsible as a successor owner or operator. The failure to identify suitable acquisitions,
successfully integrate these acquired businesses, successfully manage our expanding operations, or to discover liabilities associated
with such businesses in the diligence process, could adversely affect our business, results of operations or financial condition.
In order to finance such acquisitions, we may
need to obtain additional funds either through public or private financings, including bank and other secured and unsecured borrowings
and/or the issuance of equity or debt securities. There can be no assurance that such financings would be available to us on reasonable
terms. Any future issuances of equity securities or debt securities with equity features may be dilutive to our stockholders.
If our information technology systems suffer
interruptions or failures, including as a result of cyberattacks, our business operations could be disrupted and our reputation could
suffer.
We rely on information technology systems to process
transactions, communicate with customers, manage our business and process and maintain information. The measures we have in place to monitor
and protect our information technology systems might not provide sufficient protection from catastrophic events, power surges, viruses,
malicious software (including ransomware), attempts to gain unauthorized access to data or other types of cyberattacks. As cyberattacks
become more frequent, sophisticated, damaging and difficult to predict, any such event could negatively impact our business operations,
such as by product disruptions that result in an unexpected delay in operations, interruptions in our ability to deliver products and
services to our customers, loss of confidential or otherwise protected information, corruption of data and expenses related to the repair
or replacement of our information technology systems. Compromising and/or loss of information could result in loss of sales or legal or
regulatory claims which could adversely affect our revenues and profits or damage our reputation.
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We rely on software and services from other
parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the
quality of our products.
We rely on technologies from third parties to
operate critical functions of our business, including cloud infrastructure services, payment processing services, certain aspects of distribution
center automation and customer relationship management services. Our business would be disrupted if any of the third-party software or
services we utilize, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are
no longer available on commercially reasonable terms or prices. In each case, we would be required to either seek licenses to software
or services from other parties and redesign our business and marketplace to function with such software or services or develop these components
ourselves, which would result in increased costs and could result in delays in the launch of new offerings on our marketplace until equivalent
technology can be identified, licensed or developed, and integrated into our business and marketplace. Furthermore, we might be forced
to limit the features available in our current or future products. These delays and feature limitations, if they occur, could harm our
business, results of operations and financial condition.
Failure to comply with data privacy and
security laws and regulations could adversely affect our operating results and business.
In the ordinary course of our business, we might
collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business
information and that of our customers, suppliers and business collaborators, as well as personal information of our customers and employees.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number
and sophistication of attempted attacks and intrusions that companies have experienced from third parties has increased over the past
few years. Despite our security measures, it is impossible for us to eliminate this risk.
U.S. federal data privacy laws include the CAN-SPAM
Act, which, among other things, restricts data collection and use in connection with CAN-SPAM Act’s opt-out process requirements
for senders of commercial emails; and COPPA, which regulates the collection of information by operators of websites and other electronic
solutions that are directed to children under 13 years of age, although our website and app user terms of service and privacy policy expressly
prohibit children under 13 from submitting information to or on our website or app. These laws and regulations promulgated under these
laws restrict our collection, processing, storage, use and disclosure of personal information, may require us to notify individuals of
our privacy practices and provide individuals with certain rights to prevent the use and disclosure of protected information, and mandate
certain procedures with respect to safeguarding and proper description of stored information.
Moreover, certain laws and regulations of U.S.
states and the EU impose similar or greater data protection requirements and may also subject us to scrutiny or attention from regulatory
authorities. For example, the EU and California have passed comprehensive data privacy laws, the EU GDPR and the CCPA and regulations
promulgated under the CCPA, respectively, which impose data protection obligations on enterprises, including limitations on data uses
and constraints on certain uses of sensitive data. Of particular importance, the CCPA, which became effective on January 1, 2020, limits
how we may collect and use personal information, including by requiring companies that process information relating to California residents
to make disclosures to consumers about their data collection, use and sharing practices, provide consumers with rights to know and delete
personal information and allow consumers to opt out of certain data sharing with third parties. The CCPA also creates an expanded definition
of personal information, imposes special rules on the collection of consumer data from minors, and provides for civil penalties for violations,
as well as a private right of action for data breaches that is expected to increase the likelihood and cost of data breach litigation.
The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and policies and
incur substantial costs and expenses in compliance and potential ligation efforts. Effective January 1, 2023, we also became subject to
the CPRA in California, which expands upon the consumer data use restrictions, penalties and enforcement provisions under the CCPA, and
the VCDPA in Virginia, another comprehensive data privacy law, and regulations promulgated under the CPRA and the VCDPA.
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In addition, similar consumer data privacy laws
have been passed and either are in effect or will become effective within the next 12 months in many other states, including Colorado
(CPA, effective July 1, 2023); Connecticut (CDPA, effective July 1, 2023); Utah (UCPA, effective December 31, 2023); Texas (TDPSA, effective
July 1, 2024); Oregon (OCPA, effective July 1, 2024); Montana (MCDPA, effective October 1, 2024); Iowa (ICPA, effective January 1, 2025);
Delaware (DPDPA, effective January 1, 2025); Nebraska (NEDPA, effective January 1, 2025); New Hampshire (NHDPA, effective January 1, 2025);
New Jersey (NJDPA, effective January 15, 2025); Minnesota (MCDPA, effective July 1, 2025); Tennessee (TIPA, effective July 1, 2025); Maryland
(MODPA, effective October 1, 2025); Indiana (ICDPA, effective January 1, 2026); Kentucky (KCDPA, effective January 1, 2026); and Rhode
Island (RIDTPPA, effective January 1, 2026). Further, there are several legislative proposals in the United States, at both the federal
and state level, that could impose new privacy and security obligations. We cannot yet determine the impact that these laws and regulations
may have on our business.
Outside of the U.S., data protection laws, including
the GDPR, also might apply to some of our operations or business collaborators. Legal requirements in the European Union and United Kingdom
relating to the collection, storage, processing and transfer of personal data/information continue to evolve. The GDPR imposes, among
other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer
EU personal data/information, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain
circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater
of 20 million Euros or 4% of total company revenue). Other governmental authorities around the world have enacted or are considering similar
types of legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws
and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement and maintain
adequate compliance programs. Failure to comply with U.S. and international data protection laws and regulations could result in government
enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and
could negatively affect our operating results and business.
The Consumer Product Safety Improvement
Act and other existing or future government regulation could harm our business or may cause us to incur additional costs associated with
compliance.
We are subject to various federal, state and local
laws and regulations, including but not limited to, laws and regulations relating to labor and employment, U.S. customs and consumer product
safety, including the CPSIA. The CPSIA created more stringent safety requirements related to lead and phthalates content in children’s
products. The CPSIA regulates the future manufacture of these items and existing inventories and may cause us to incur losses if we offer
for sale or sell any non-compliant items. Failure to comply with the various regulations applicable to us may result in damage to our
reputation, civil and criminal liability, fines and penalties and increased cost of regulatory compliance. These current and any future
laws and regulations could harm our business, results of operations and financial condition.
We are subject to international, federal,
national, regional, state, local and other laws and regulations, and failure to comply with them may expose us to potential liability.
We are subject to international, federal, national,
regional, state, local and other laws and regulations affecting our business, including those promulgated under the Occupational Safety
and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission, the Food, Drug, and Cosmetic Act, the rules and regulations of the Food and Drug
Administration, the FCPA, various securities laws and regulations including but not limited to the Securities Act, the Exchange Act, the
Nasdaq Listing Rules, various labor, workplace and related laws, and environmental laws and regulations. Failure to comply with such laws
and regulations may expose us to potential liability and have an adverse effect on our results of operations.
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Implementation of technology initiatives
could disrupt our operations in the near term and fail to provide the anticipated benefits.
As our business grows, we continue to make significant
investments in our technology, including in the areas of warehouse management, enterprise risk management and product design. The costs,
potential problems and interruptions associated with the implementation of technology initiatives could disrupt or reduce the efficiency
of our operations in the near term. They may also require us to divert resources from our core business to ensure that implementation
is successful. In addition, new or upgraded technology might not provide the anticipated benefits, might take longer than expected to
realize the anticipated benefits, might fail or might cost more than anticipated.
Inability to attract and retain key management
or other personnel could adversely impact our business.
Our success is largely dependent on the skills,
experience and efforts of our senior management and other key personnel, including Andrew Shape, our Chief Executive Officer and President,
Andrew Stranberg, our Executive Chairman, David Browner, our Chief Financial Officer, Ian Wall, our Chief Information Officer, and John
Audibert, our Vice President of Growth and Strategic Initiatives. If, for any reason, one or more senior executives or key personnel were
not to remain active in our company, or if we were unable to attract and retain senior management or key personnel, our results of operations
could be adversely affected.
Failure to preserve positive labor relationships
with our employees could adversely affect our results of operations.
Our operations rely heavily on our employees,
and any labor shortage, disruption or stoppage caused by poor relations with our employees could reduce our operating margins and income.
While we believe that our employee relations are good, have no knowledge of any employees as subject to collective bargaining agreements,
and unions have not traditionally been active in the U.S. marketing industry, unionization of our workforce could increase our operating
costs or constrain our operating flexibility.
We are exposed to the risk of non-payment
by our customers on a significant amount of our sales.
We allow many of our customers to pay us within
30 days of service, also known as net 30 credit terms. For certain customers who are considered low credit risks, we have extended the
credit term to 90 days, though in such cases we may also request a personal guaranty of payment from the principal owner of the customer
business. Our extension of credit involves considerable judgment and is based on an evaluation of each customer’s financial condition
and payment history. We monitor our credit risk exposure by periodically obtaining credit reports and updated financials on our customers.
We generally see a heightened amount of bankruptcies by our customers during economic downturns and financial crises. While we maintain
an allowance for doubtful receivables for potential credit losses based upon our historical trends and other available information, in
times of economic turmoil, there is heightened risk that our historical indicators may prove to be inaccurate. The inability to collect
on sales to significant customers or a group of customers could have a material adverse effect on our results of operations.
There is a risk of dependence on one or
a group of customers.
During the fiscal year ended December 31, 2024,
our top ten customers accounted for 38.1% of revenues, and our top customer accounted for 8.4% of revenues. During the fiscal year ended
December 31, 2023, our top ten customers accounted for 46.1% of revenues, and our top customer accounted for 14.4% of revenues. If we
are unable to retain our current customers or find new major customers or gain major new engagements from existing customers to replace
any nonrecurring contracts, there may be material adverse effects on our financial condition or results of operations. If on the other
hand we successfully source major new contracts, the risk that we may become dependent on one or a few customers may increase. This potential
dependency could threaten the sustainability of our growth and have a material adverse effect on our financial condition or results of
operations if we are unable to retain such major contracts or replace them with similarly major contracts on a regular basis.
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Our business incurs significant freight
and transportation costs. Any changes in our shipping arrangements or any interruptions in shipping could harm our business, results of
operations and financial condition.
We incur transportation expenses to ship our products
to our customers. Significant increases in the costs of freight and transportation could have a material adverse effect on our results
of operations, as there can be no assurance that we could pass on these increased costs to our customers. Government regulations can and
have impacted the availability of drivers, which will be a significant challenge to the industry. Costs to employ drivers have increased
and transportation disruptions have become more prevalent.
If we are not able to negotiate acceptable pricing
and other terms with these vendors or they experience performance problems or other difficulties, it could negatively impact our business
and results of operations and negatively affect the experiences of our customers, which could affect the degree to which they continue
to do business with us. Disruption to delivery services due to inclement weather, climate change, or political instability, among other
causes, could result in delays that could adversely affect our reputation, business and results of operations. If our products are not
delivered in a timely fashion or are damaged or lost during the supply or the delivery process, our customers could become dissatisfied
and cease doing business with us, which could adversely affect our business and results of operations.
Our business may be impacted by unforeseen
or catastrophic events, including the emergence of pandemics or other widespread health emergencies, terrorist attacks, extreme weather
events or other natural disasters and other unpredicted events.
The occurrence of unforeseen or catastrophic events,
such as the emergence of pandemics or other widespread health emergencies (or concerns over the possibility of such pandemics or emergencies),
terrorist attacks, extreme weather events or other natural disasters or other unpredicted events, could create economic and financial
disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to source and supply
products and services and manage our businesses, and could negatively impact our customers’ ability or willingness to purchase our
products and services.
For example, our corporate headquarters is located
in Massachusetts, which experiences natural hazards such as flooding and coastal erosion; should any unforeseen or catastrophic events
occur, the possibly resulting infrastructure damage and disruption to the area could negatively affect our company, such as by damage
to or total destruction of our headquarters, surrounding transportation infrastructure, network communications and other forms of communication.
Some of our other locations and those of our suppliers also are exposed to hurricanes, earthquakes, floods and other extreme weather events;
the damage that such events could produce could affect the supply of our products and services.
We face intense competition within our industry
and our revenue and/or profits may decrease if we are not able to respond to this competition effectively.
Customers in the
promotional products, tradeshow and event marketplace, loyalty and program management business process outsourcing industries choose distributors
primarily based upon the quality, price and breadth of products and services offered. We encounter competition from a number of companies
in the geographic areas we serve. The majority of our revenue is derived from the sale of promotional products. Our major competitors
include companies such as 4Imprint Group plc (LSE: FOUR.L), Brand Addition Limited (The Pebble Group plc) (LSE: PEBB), BAMKO LLC (Superior
Group of Companies, Inc.) (Nasdaq: SGC), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.), Custom Ink,
Cimpress plc (Nasdaq: CMPR), HALO Branded Solutions, Inc., Imagine This (Shye West, Inc.), Power Promotions, Inc. and Global Promotional
Sourcing, LLC. We also compete with a multitude of foreign, regional and local competitors that vary by market. If our existing or future
competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect
our operating results. Similarly, if customers or potential customers perceive the products
or services offered by our existing or future competitors to be of higher quality than ours or part of a broader product mix, our revenues
may decline, which would adversely affect our operating results.
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We face intense competition to gain market
share, which may lead some competitors to sell substantial amounts of goods at prices against which we cannot profitably compete.
Our marketing strategy is to differentiate ourselves
by providing quality service and quality products to our customers. Even if this strategy is successful, the results may be offset by
reductions in demand or price declines due to competitors’ pricing strategies or other micro- or macroeconomic factors. We face
the risk of our competition following a strategy of selling its products at or below cost in order to cover some amount of fixed costs,
especially in stressed economic times.
Global, national or regional economic slowdowns,
high unemployment levels, fewer jobs, changes in tax laws or cost increases might have an adverse effect on our operating results.
Our primary products within our promotional products
are used by workers and, as a result, our business prospects are dependent upon levels of employment and overall economic conditions on
a global, national and regional level, among other factors. Our revenues are impacted by our customers’ opening and closing of locations
and reductions and increases in headcount, including from voluntary turnover and increased automation. If we are unable to offset these
effects, such as through the addition of new customers, the penetration of existing customers with a broader mix of product and service
offerings, or decreased production costs that can be passed on in the form of lower prices, our revenue growth rates will be negatively
impacted. Likewise, increases in tax rates or other changes in tax laws or other regulations can negatively affect our profitability.
While we do not believe that our exposure is greater
than that of our competitors, we could be adversely affected by increases in the prices of fabric, natural gas, gasoline, wages, employee
benefits, insurance costs and other components of product cost unless we can recover such increases through proportional increases in
the prices for our products and services. Competitive and general economic conditions might limit our ability and that of our competitors
to increase prices to cover any increases in our product cost.
The promotional products, trade show and
events marketplace, loyalty and program management business industries are subject to pricing pressures that may cause us to lower the
prices we charge for our products and services that adversely affect our financial performance.
Many of our competitors also source their product
requirements from developing countries to achieve a lower cost operating environment, possibly with lower costs than our offshore facilities,
and those manufacturers may use these cost savings to reduce prices. Some of our competitors have more purchasing power than we do, which
may enable them to obtain products at lower costs. To remain competitive, we may adjust our product and service prices and margins from
time to time in response to these industry-wide pricing pressures. Additionally, increased customer demands for allowances, incentives
and other forms of economic support could reduce our margins and affect our profitability. Our financial performance will be negatively
affected by these pricing pressures if we are forced to reduce our prices and we cannot reduce our product costs proportionally or if
our product costs increase and we cannot increase our prices proportionally.
The apparel industry, including corporate
identity apparel, is subject to changing fashion trends and if we misjudge consumer preferences, the image of one or more of our brands
may suffer and the demand for our products may decrease.
The apparel industry, including corporate identity
apparel for promotional products, is subject to shifting customer demands and evolving fashion trends and our success is also dependent
upon our ability to anticipate and promptly respond to these changes. Failure to anticipate, identify or promptly react to changing trends
or styles may result in decreased demand for our products, as well as excess inventories and markdowns, which could have a material adverse
effect on our business, results of operations and financial condition. In addition, if we misjudge consumer preferences, our brand image
may be impaired.
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Our success depends upon the continued protection
of our intellectual property rights and we may be forced to incur substantial costs to maintain, defend, protect and enforce our intellectual
property rights.
Our owned intellectual property and certain of
our licensed intellectual property have significant value and are instrumental to our ability to market our products. We cannot assure
that our owned or licensed intellectual property or the operation of our business does not infringe on or otherwise violate the intellectual
property rights of others. We cannot assure that third parties will not assert claims against us on any such basis or that we will be
able to successfully resolve such claims. In addition, the laws of some foreign countries do not allow us to protect, defend or enforce
our intellectual property rights to the same extent as the laws of the United States. We could also incur substantial costs to defend
legal actions relating to use of our intellectual property or prosecute legal actions against others using our intellectual property,
either of which could have a material adverse effect on our business, results of operations or financial condition. There also can be
no assurance that we will be able to negotiate and conclude extensions of existing license agreements on similar economic terms or at
all.
Climate change impacts including supply
chain disruptions, operational impacts, and geopolitical events may impact our business operations.
We source a large number of raw materials from
third-party suppliers globally. These products include both natural and synthetic materials derived from plants, animal products, and
organic and petroleum-based raw materials. Disruptions to the global supply chain due to climate-related impacts or geopolitical events
are possible and exist as external risk factors that we can respond to but not control. These events could limit our supply of key raw
materials, or could have significant impacts to pricing. We work with multiple raw material suppliers to mitigate lack of availability
from a single supplier, however in some cases products with limited numbers of suppliers may become difficult to obtain.
Some of our vendors have manufacturing operations
in areas vulnerable to coastal storms which may increase in magnitude and impact due to climate change. Increasingly large and unprecedented
weather events may pose a risk to business operations in vulnerable areas. Storms could cause business interruptions, incur additional
restoration costs, and impact product availability and pricing.
Increased focus by governments, vendors,
stockholders, and customers on sustainability issues, including those related to climate change, may have a material adverse effect on
our business and operations.
Federal, state and local governments, as well
as some of our vendors and customers, are beginning to respond to climate change and other sustainability issues. This increased focus
on sustainability may result in new legislation or regulations and vendor and customer requirements that could negatively affect us as
we may incur additional costs or be required to make changes to our operations in order to comply with any new regulations or vendor,
customer, or stockholder requirements. Legislation or regulations that potentially impose restrictions, caps, taxes, or other controls
on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in the trucks of our
logistics vendors, may have a material adverse effect on our business and operations. For example, if the logistics vendors we contract
with become subject to increasingly restrictive laws protecting the environment, including those relating to climate change, we expect
that they would incur increased shipment costs and may pass such costs on to us, which could have a material adverse effect on our business.
If our customers or stockholders were to require us to use vendors that source, manufacture, or supply their products in accordance with
certain sustainability standards, we expect that such standards would likewise force us to incur additional costs and we may fail to pass
such additional costs on to our customers, which could also have a material adverse effect on our business.
27
On March 6, 2024, the SEC adopted rules that will
require us to disclose:
We will be exempt from the SEC rules’ requirements
to disclose certain information about our greenhouse gas emissions and comply with related auditor assurance requirements as long as we
remain a “smaller reporting company” (as described below under —Risks Related to our Common Stock and Publicly-Traded
Warrants – We are a ’smaller reporting company’ within the meaning of the Exchange Act, and if we take advantage of
certain exemptions from disclosure requirements available to smaller reporting companies, this could make our securities less attractive
to investors and may make it more difficult to compare our performance with other public companies.”) or an “emerging
growth company” (as described below under “—Risks Related to our Common Stock and Publicly-Traded Warrants –
We are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging
growth companies and our stockholders could receive less information than they might expect to receive from more mature public companies.”).
In addition, these disclosure rules will not require compliance by us until our fiscal year beginning in 2027, with certain requirements
not becoming effective until our fiscal year beginning in 2028, if we remain a smaller reporting company or emerging growth company.
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A number of petitions have been filed in federal
courts seeking to challenge the SEC’s climate disclosure rules. On April 4, 2024, the SEC issued an order staying the rules. The
SEC’s administrative stay will remain in place until the completion of litigation filed in the federal courts that challenges the
agency’s authority to adopt the rules. The outcome of this litigation cannot be determined.
Assuming that the SEC climate disclosure rules
are ultimately upheld in their present form, and even in light of the exemptions and accommodations made for smaller reporting companies
and emerging growth companies described above, the costs to adopt the necessary disclosure controls and procedures to disclose all required
information, the potential costs to make changes in our operations to allow us to improve our climate change-related disclosures, or the
potential loss of revenues from these disclosure requirements due to investor, customer, or vendor requirements to disclose and meet certain
climate change-related targets pursuant to these disclosure rules, may still have a material adverse effect on our business and operations.
Some
of the products that we design or otherwise assist customers with producing create exposure to potential product liability, warranty liability
or personal injury claims and litigation.
Some of
the products that we design or otherwise assist customers with producing are used in applications and situations that involve risk of
personal injury and death. Our services expose us to potential product liability, warranty liability, and personal injury claims and litigation
relating to the use or misuse of our products including allegations of defects in manufacturing, defects in design, a failure to warn
of dangers inherent in the product or activities associated with the product, negligence and strict liability. If successful, such claims
could have a material adverse effect on our business.
Defects
in the products that we design or otherwise assist customers with producing could reduce demand for our products and result in a decrease
in sales and market acceptance and damage to our reputation.
Although we carry certain standard commercial
insurance, including products-completed operations coverage, we do not currently maintain separate product liability insurance, and we
may not be able to obtain and maintain such insurance on acceptable terms, if at all, in the future. Even if we have purchased product
liability insurance in the future, product liability claims may exceed the amount of our insurance coverage. In addition, our reputation
may be adversely affected by such claims, whether or not successful, including potential negative publicity about our products.
We may be subject to periodic litigation
in both domestic and international jurisdictions that may adversely affect our financial position and results of operations.
From time to time we may be involved in legal
or regulatory actions regarding product liability, employment practices, intellectual property infringement, bankruptcies and other litigation
or enforcement matters. These proceedings may be in jurisdictions with reputations for aggressive application of laws and procedures against
corporate defendants. We are impacted by trends in litigation, including class-action allegations brought under various consumer protection
and employment laws. Due to the inherent uncertainties of litigation in both domestic and foreign jurisdictions, we cannot accurately
predict the ultimate outcome of any such proceedings. These proceedings could cause us to incur costs and may require us to devote resources
to defend against these claims and could ultimately result in a loss or other remedies, such as product recalls, which could adversely
affect our financial position and results of operations.
Volatility in the global financial markets
could adversely affect results.
In the past, global financial markets have experienced
extreme disruption, including, among other things, volatility in securities prices, diminished liquidity and credit availability, rating
downgrades of certain investments and declining valuations of others. There can be no assurance that there will not be further change
or volatility, which could lead to challenges in our business and negatively impact our financial results. Any future tightening of credit
in financial markets could adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and
operations and could result in a decrease in orders and spending for our products and services. We are unable to predict the likely duration
and severity of any disruption in financial markets and adverse economic conditions and the effects they may have on our business and
financial condition.
29
We identified material weaknesses in our
internal control over financial reporting as of December 31, 2024. If we fail to remediate the material weaknesses, we may be unable to
accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may be adversely
affected.
To implement Section 404 of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”), the SEC adopted rules requiring public companies to include a report of management
on the company’s internal control over financial reporting in their annual reports on Form 10-K. A report of our management is included
under Item 9A of this Annual Report on Form 10-K. A “material weakness” is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
Our management has identified the following material
weaknesses in our internal control over financial reporting:
We have commenced a plan of remediation to remedy
the material weaknesses. However, the implementation of these measures may not fully address the material weaknesses in our internal control
over financial reporting. Our failure to address any control deficiency could result in inaccuracies in our financial statements and could
also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover,
effective internal control over financial reporting is important to prevent fraud. As a result, our business, financial condition, results
of operations and prospects, as well as the trading price of our shares, may be adversely affected.
Increases in the cost of employee benefits
could impact our financial results and cash flow.
Our expenses relating to employee health benefits
are significant. Unfavorable changes in the cost of such benefits could impact our financial results and cash flow. Healthcare costs have
risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in
significant changes to the U.S. healthcare system. While the Company has various cost control measures in place and employs an outside
consultant to review larger claims, employee health benefits have been and are expected to continue to be a significant cost to the Company.
Medical costs will continue to be a significant expense to the Company and may increase due to factors outside the Company’s control.
30
We have restated our financial statements.
The restatement has consumed a significant amount of management time and resources and may continue to do so. In addition, the restatement
may subject us to a number of additional risks and uncertainties, including the increased possibility of legal proceedings and could adversely
impact our operations.
We have restated certain financial information
in our previously issued financial statements as of and for the fiscal years ended December 31, 2023 and 2022 included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2023 that was filed by the Company with the SEC on March 28, 2024, and filed
the restated financial statements with an amended Annual Report on Form 10-K/A for the year ended December 31, 2023 on January 22, 2025.
The restatement has resulted in substantial costs in the form of accounting, legal fees, and similar professional fees, in addition to
the substantial diversion of time and attention of our senior management and members of our accounting team in preparing the restatement.
Further, as a result of the restatement, we face
the potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws,
contractual claims or other claims arising from the restatement and the preparation of our financial statements. As of the date of this
filing, we have no knowledge of any such litigation or dispute resulting from the restatement. However, we can provide no assurance that
litigation or disputes will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material
adverse effect on our business, results of operations and financial condition.
We may recognize impairment charges, which
could adversely affect our financial condition and results of operations.
We assess our goodwill, intangible assets and
long-lived assets for impairment when required by generally accepted accounting principles in the United States (“U.S. GAAP”).
These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed
their estimated fair values. The estimated fair value of these assets is impacted by general economic conditions in the locations in which
we operate. Deterioration in these general economic conditions may result in a number of adverse consequences, including: Declining revenue,
which can lead to excess capacity and declining operating cash flow; reductions in management’s estimates for future revenue and
operating cash flow growth; and increases in borrowing rates and other deterioration in factors that impact our weighted average cost
of capital. If our assessment of goodwill, intangible assets or long-lived assets indicates an impairment of the carrying value for which
we recognize an impairment charge, this may adversely affect our financial condition and results of operations.
Environmental regulations may impact our
future operating results.
We are subject to extensive and changing federal,
state and foreign laws and regulations establishing health and environmental quality standards, and may be subject to liability or penalties
for violations of those standards. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations
of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination
or liability at any of our facilities, or at facilities we may acquire.
If we are unable to accurately predict our
future tax liabilities, become subject to increased levels of taxation or our tax contingencies are unfavorably resolved, our results
of operations and financial condition could be adversely affected.
Changes in tax laws or regulations in the jurisdictions
in which we do business, including the United States, or changes in how the tax laws are interpreted, could further impact our effective
tax rate, further restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions
on our current practices and reduce our net income and adversely affect our cash flows.
We are also subject to tax audits in the United
States and other jurisdictions and our tax positions may be challenged by tax authorities. Although we believe that our current tax provisions
are reasonable and appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax
exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase
in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on
our business, results of operations and financial condition.
31
Risks Related to our Common Stock and Publicly-Traded
Warrants
The market prices of our securities may
fluctuate, and you could lose all or part of your investment.
The market prices for our securities are likely
to be volatile, in part because our shares and publicly-traded warrants have only been traded publicly since November 9, 2021. In addition,
the market prices of our securities may fluctuate significantly in response to several factors, most of which we cannot control, including:
● actual or anticipated variations in our periodic operating results;
● changes in earnings estimates;
● changes in market valuations of similar companies;
● actions or announcements by our competitors;
● additions or departures of key personnel;
● actions by stockholders;
● speculation in the media, online forums, or investment community; and
Volatility in the market prices of our securities
may prevent investors from being able to sell their securities at or above their purchase price. As a result, you may suffer a loss on
your investment.
We may not be able to maintain a listing
of our common stock and publicly-traded warrants on Nasdaq.
Although our common stock and publicly-traded
warrants are listed on Nasdaq, we must meet certain financial, liquidity, SEC reporting, corporate governance, and other continuing listing
requirements to maintain such listing. If we violate Nasdaq’s listing requirements, or if we fail to meet any of Nasdaq’s
listing standards, our common stock and publicly-traded warrants may be delisted.
On December 17, 2024, the Company received a letter
from the Listing Qualifications staff (the “Staff”) of Nasdaq issuing a Staff delisting determination (the “Staff Determination”).
The Staff Determination noted that the Staff had notified the Company on June 21, 2024, August 23, 2024, and November 21, 2024, that the
Company did not comply with Nasdaq Listing Rule 5250(c)(1) (the “Filing Rule”) because the Company had not filed its Quarterly
Reports on Forms 10-Q for the periods ended March 31, 2024, June 30, 2024, and September 30, 2024 (the “2024 Forms 10-Q”),
with the SEC. The Staff Determination noted that, based on the Staff’s review and the materials submitted on August 20, 2024, the
Staff granted the Company an exception until December 16, 2024, to regain compliance with the Filing Rule. The Staff Determination stated
that the Company had not met the terms of the exception. Specifically, the Company had not filed the 2024 Forms 10-Q as required by the
Filing Rule. The Staff Determination had no immediate effect and did not immediately result in the suspension of trading or delisting
of the Company’s common stock.
32
The Staff Determination notified the Company that
the Company was permitted to request a hearing before a Nasdaq Hearings Panel by December 24, 2024, pursuant to the procedures set forth
in the Nasdaq Listing Rule 5800 Series. Accordingly, on December 24, 2024, the Company submitted a request for a hearing and for an extended
stay before a Hearings Panel. On December 26, 2024, the Company received a letter from the staff of the Office of the General Counsel
of Nasdaq that stated that the Company’s hearing had been scheduled (the “Hearing Notice”). The Hearing Notice further
confirmed that the delisting action referenced in the Staff Determination had been automatically stayed until January 10, 2025.
On January 10, 2025, the Company received a letter
from the Staff notifying it that since the Company has not yet held an annual meeting of stockholders within twelve months of the end
of the Company’s fiscal year end, it no longer complies with Nasdaq Listing Rule 5620(a) (the “Annual Meeting Rule”).
Accordingly, this matter serves as an additional basis for delisting the Company’s securities from Nasdaq. The Staff indicated that
the letter was formal notification that the Hearings Panel would consider this matter in rendering a determination regarding the Company’s
continued listing on The Nasdaq Capital Market.
On January 27, 2025, the Company received a letter
from the Staff notifying the Company that it was not in compliance with the minimum bid price requirement set forth in Nasdaq Listing
Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market tier of Nasdaq (the “Bid Price Rule”). The letter also
indicated that the Company had a compliance period of 180 calendar days, or until July 28, 2025 (the “Compliance Period”),
in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The Notification Letter further provided that if, at any
time during the Compliance Period, the Company’s common stock closing bid price is at $1.00 for a minimum of ten consecutive business
days, the Staff would provide the Company with written confirmation of compliance and this matter would be closed.
At the hearing held on February 11, 2025 by the
Hearings Panel, the Company presented its plan for regaining compliance with the Filing Rule and the Annual Meeting Rule, and requested
a further extension so that the Company may complete the execution of the plan. On March 3, 2025, the Hearings Panel informed the Company
that it determined to grant the Company’s request to continue its listing on Nasdaq subject to three conditions. The first was that
the Company become current on its financial filings. The second was that the Company meet the Nasdaq minimum closing bid price requirement.
The third was that the Company hold its annual shareholder meeting for 2024.
In accordance with the Company’s presentation
at the hearing, on February 11, 2025, the Company filed its Quarterly Reports on Forms 10-Q for the periods ended March 31, 2024 and June
30, 2024. On March 7, 2025, the Company filed its Quarterly Report on Form 10-Q for the period ended September 30, 2024. As a result,
the Company has regained compliance with the Filing Rule. On February 20, 2025, the Company received a written notification from the Staff
notifying the Company that for the last 11 consecutive business days, from February 4, 2025 to February 19, 2025, the closing bid price
of the Company’s common stock has been at $1.00 per share or greater. Accordingly, the Company regained compliance with the Bid
Price Rule. In addition, the Company will schedule its annual meeting for 2024 and 2025 to take place in the second quarter of 2025. Upon