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Item 1A. Risk Factors

2023-03-14 compared with 2022-03-17 · 104 added, 76 removed, 155 unchanged (54% of the section changed)

ITEM 1A RISK FACTORS

In addition to the other information contained in this Form 10-K and the Company’s other filings with the SEC, the following risk factors should be considered carefully in evaluating the Company’s business.

The Company’s business, financial condition or results of operation could be materially adversely affected by any of these risks or additional risks not presently known to the Company, or by risks the Company currently deems immaterial, which may also adversely affect its business, financial condition, or results of operations.

Additionally, there can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business or that information publicly available with respect to these matters is complete and correct.

The Company’s business is subject to a variety of risks and uncertainties, including, without limitation, the risks and uncertainties described below.

In addition to the other information contained in this Form 10-K and the Company’s other filings with the SEC, these risk factors should be considered carefully in evaluating the Company’s business.

If any of these risks, or any risks not presently known to the Company or currently deemed immaterial by the Company, materialize, the Company’s business, reputation, stock price, financial condition or results of operations could be materially adversely affected, and the Company may not be able to achieve its goals or expectations.

This section should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in Item 8, Financial Statements and Supplementary Data of this Form 10-K.

Risks Related to Our Business

Our financial and operating performance may be adversely affected by epidemics and other health related issues.

As a result of the COVID-19 pandemic, the Company has experienced and could continue to experience disruptions to its business, its operations, the delivery of its products and customer demand for its products, including the following:

Our financial and operating performance has been and may continue to be adversely affected by COVID-19 pandemic and the resulting economic conditions, including inflation, rising interest rates, and potential recessionary pressures, and may be adversely affected by future developments with respect to this or another epidemic.

As a result of the COVID-19 pandemic and its impact on economic conditions, the Company has experienced and could continue to experience disruptions to its business, its operations, the delivery of its products and customer demand for its products, including the following:

The broader economic impact of the COVID-19 pandemic, including resurgences, may continue to result in unfavorable operating earnings and cash flow generation in the months to follow.

Current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in economic slowdowns that have caused and are likely to continue to cause contractions in some or all the markets we serve, which has led to and may continue to lead to decreased demand for the Company’s products, which in turn has, and may continue to negatively impact the Company’s financial condition and operating results.

Other macroeconomic factors also remain dynamic, and any causes of market size contraction, including economic uncertainty related to the United Kingdom’s exit from the European Union, and overall economic slowdowns, could reduce the Company’s sales or erode operating margin, in either case reducing earnings.

This has led to and may continue to lead to decreased demand for the Company’s products, which in turn has negatively impacted, and may continue to negatively impact, the Company’s financial condition and operating results.

Other macroeconomic factors also remain dynamic, and any causes of market size contraction, and overall economic slowdowns could reduce the Company’s sales or erode operating margin, in either case reducing earnings.

In addition, volatile global economic conditions may cause foreign exchange rate fluctuations, which could result in increases or decreases in earnings and may adversely affect the value of the Company’s assets outside the United States.

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Exchange rate fluctuations could also increase pricing pressure and impair the ability of the Company’s products to compete with products imported from regions with favorable exchange rates.

Shutdowns and other restrictions imposed to slow the spread and resurgence of COVID-19 have impacted and may continue to impact the prices and availability of certain of the raw materials used in the production of the Company’s products, which could impair the Company’s ability to procure the required raw materials for its operations or increase the cost of manufacturing its products.

The Company may be unable to pass increases in the cost of raw materials on to its customers and could experience reductions to its profit margins.

Also, any decrease in the availability of raw materials could impair the Company’s ability to meet production requirements in a timely manner or at all.

The Company’s management has been focused on mitigating the impact of the COVID-19 pandemic on our employees and operations, which has required and will continue to require a substantial investment of time and resources.

This has resulted and can be expected to continue to result in a diversion of management attention and resources away from strategic initiatives, new business opportunities, potential acquisitions, and the overall profitability of our business, and the Company cannot predict how long this may continue.

Supply shortages and supply chain disruptions originally triggered by shutdowns and other restrictions imposed to slow the spread and resurgence of COVID-19 have impacted and may continue to impact the prices and availability of certain of the raw materials and components used in the production of the Company’s products, which could impair the Company’s ability to procure the required raw materials and components for its operations or increase the cost of manufacturing its products.

The Company may be unable to pass increases in the cost of raw materials and components on to its customers and could experience reductions to its profit margins.

Also, any decrease in the availability of raw materials and components could impair the Company’s ability to meet production requirements in a timely manner or at all.

The economic downturn has resulted and could continue to result in the carrying value of goodwill or other intangible assets exceeding their fair value, which has required and could continue to require the Company to recognize asset impairment.

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Such an increase in indebtedness could adversely affect the Company’s financial results or ability to incur additional debt and could negatively impact credit ratings.

The continuing impact of the COVID-19 pandemic, including any resurgences, could also negatively impact the Company’s compliance with the financial covenants under the Credit Agreement or the interest rate of borrowings under the Credit Agreement.

In addition, as a result of the risks described above, the Company may in the future be required to raise additional debt or equity financing, and the availability, terms and cost of such financing would depend on, among other things, global economic conditions, conditions in the global financing markets, trading prices of the Company’s common stock, the credit ratings of the Company, and the outlook for the industries in which the Company operates, all of which could be negatively impacted by the COVID-19 pandemic, including the extent of any resurgences.

The continuing economic impact of the COVID-19 pandemic, including any resurgences, could also negatively impact the Company’s compliance with the financial covenants under the Credit Agreement or the interest rate of borrowings under the Credit Agreement.

There can be no assurance that such financing would be available on acceptable terms, in sufficient quantities, or at all.

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To the extent asset returns and interest rates, which are used to discount future plan benefits, change from prior measurement periods, the plan’s funded ratio has the potential to change significantly.

Any of the foregoing effects of the COVID-19 pandemic and resulting economic conditions, if it persists, worsens or recurs, or the future occurrence of any other epidemic, could have a material adverse effect on the Company’s business, financial condition and results of operations.

Indebtedness may affect our business and may restrict our operating flexibility.

As of January 1, 2022, the Company had $71,314,000 in total consolidated indebtedness.

As of December 31, 2022, the Company had $64,147,000 in total consolidated indebtedness.

Subject to restrictions contained in the Credit Agreement, the Company may incur additional indebtedness in the future, including indebtedness incurred to finance acquisitions.

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In addition, there can be no assurance that future borrowings or the issuance of equity would be available to the Company on favorable terms for the payment or refinancing of the Company’s debt.

If the Company is unable to service its indebtedness, the business, financial condition, and results of operation would be materially adversely affected.

The Company’s credit facility contains covenants requiring the Company to achieve certain financial and operations results and maintain compliance with specified financial ratios.

The Company’s ability to meet the financial covenants or requirements in its credit facility may be affected by events beyond our control, and the Company may not be able to satisfy such covenants and requirements.

A breach of these covenants or the Company’s inability to comply with the financial ratios, tests or other restrictions contained in our credit facility could result in an event of default under such credit facility.

Upon the occurrence of an event of default under our credit facility and/or the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under our credit facility, together with accrued interest, to be immediately due and payable.

If the Company were unable to service its indebtedness, the business, financial condition, and results of operation would be materially adversely affected.

The Credit Agreement contains covenants requiring the Company to achieve certain financial and operations results and maintain compliance with specified financial ratios.

The Company’s ability to meet the financial covenants or requirements in the Credit Agreement may be affected by events beyond our control, and the Company may not be able to satisfy such covenants and requirements.

The Credit Agreement also contains a number of restrictive covenants that could adversely affect the Company’s ability to operate its business.

These covenants restrict, among other things, the Company’s ability to:

Merge with or into another company or sell assets;

Incur additional indebtedness;

Make investments or guarantee indebtedness of another person or entity;

Pay dividends, make distributions or repurchase equity;

Engage in certain transactions with affiliates;

Make certain changes to the Company’s business.

A breach of these covenants or the Company’s inability to comply with the financial ratios, tests or other restrictions contained in our Credit Agreement could result in an event of default under the Credit Agreement.

Upon the occurrence of an event of default under the Credit Agreement and/or the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under our credit facility, together with accrued interest, to be immediately due and payable.

If this were to occur, the Company’s assets may not be sufficient to fully repay the amounts due under our credit facility or the Company’s other indebtedness.

In addition, the Company’s growth strategy involves expanding sales of its products into foreign markets.

There is no guarantee that the Company’s products will be accepted by foreign customers or how long it may take to develop sales of the Company’s products in these foreign markets.

The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

On July 27, 2017, the Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

In December 2020, the ICE Benchmark Administration (the “IBA”) announced a market consultation regarding the extension of US dollar LIBOR tenors through June 30, 2023, which the FCA supports.

On March 5, 2021, the IBA released its feedback statement reporting the results of the market consultation.

Pursuant to its feedback statement, the IBA intends to cease publication of all settings of non-US dollar LIBOR and only the one-week and two-month U.S.

The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate such as SOFR, may adversely affect interest rates.

Central banks around the world, including the FRB, are working to implement the transition from the London Interbank Offered Rate (“LIBOR”) to replacement benchmarks including the Secured Overnight Financing Rate (“SOFR”) in the United States.

The ICE Benchmark Administration (the “IBA”) ceased publication of all settings of non-US dollar LIBOR and the one-week and two-month U.S.

dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S.

dollar LIBOR settings being discontinued after June 30, 2023.

The Alternative Reference Rates Committee (ARRC), a financial industry group convened by the Federal Reserve Board, has recommended the use of SOFR to replace LIBOR.

dollar LIBOR settings scheduled to be discontinued after June 30, 2023.

The Adjustable Interest Rate Act (the “LIBOR Act”), which was signed into law on March 15, 2022, provided a replacement framework for outstanding financial contracts tied to LIBOR once LIBOR ceases to be published.

The LIBOR Act provides a statutory mechanism and safe harbor that applies on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR, for certain contracts that reference LIBOR and contain no or insufficient fallback provisions.

The LIBOR Act preempts and supersedes any state or local law, statute, rule, regulation, or standard relating to the selection or use of a benchmark replacement or related changes and allows parties that already have effective fallback provisions to opt out of the legislation.

On December 16, 2022, the Federal Reserve adopted a final rule implementing the LIBOR Act that, among other things, identifies the applicable SOFR-based benchmark replacements under the LIBOR Act for various contact types.

The difference between LIBOR and SOFR is that LIBOR is a forward-looking rate which means the interest rate is set at the beginning of the period with payment due at the end.

SOFR is a backward-looking overnight rate which has implications for how interest and other payments are based.

Changes in the method of calculating the replacement of LIBOR with a fallback rate (effectively SOFR plus a spread adjustment) will become effective in June 2023 unless adopted earlier.

The effect of this change is still unknown and could adversely affect the Company’s results of operations, cash flow, and liquidity.

The change from LIBOR to SOFR may adversely affect interest rates and result in higher borrowing costs.

The effect of this change is still unknown and could materially and adversely affect the Company’s results of operations, cash flows and liquidity.

Risks Related to Competition and Global Operations

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These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business, financial conditions, or results of operations.

The Company is also subject to the impacts of political, economic, and social instability.

For example, the United Kingdom’s withdrawal from the European Union, commonly referred to as “Brexit,” was completed on December 31, 2020.

There remains significant uncertainty about the impact of Brexit on the free movement of goods, services, and people between the United Kingdom and the European Union, and Brexit could result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe.

The uncertainty surrounding the United Kingdom’s withdrawal and its consequences, as well as any deterioration in economic conditions, could adversely impact consumer and investor confidence, and the level of consumer purchases of discretionary items and retail products, including our products.

Any of these effects, among others, could materially adversely affect our business, results of operations, and financial condition.

Additionally, Brexit has contributed to the volatility of the U.S.

dollar against foreign currencies in which the Company conducts business.

Because the Company translates revenue denominated in foreign currency into U.S.

dollars for its financial statements, during periods of a volatile U.S.

dollar, the Company’s reported earnings from foreign operations are affected.

As a result of Brexit, there may be further periods of volatility in the currencies in which the Company conducts business.

Supply chain disruptions, delays in production, and forecast inaccuracies could affect our ability to meet customer demand, lead to higher costs, result in excess inventory, and could have an adverse effect on our results of operations and financial condition.

In addition, the Company’s growth strategy involves expanding sales of its products into foreign markets.

There is no guarantee that the Company’s products will be accepted by foreign customers or how long it may take to develop sales of the Company’s products in these foreign markets.

Supply chain disruptions, delays in production, and forecast inaccuracies have affected and could continue to affect our ability to meet customer demand, lead to higher costs, result in excess inventory, and could have an adverse effect on our results of operations and financial condition.

Raw materials needed to manufacture products are obtained from numerous suppliers.

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The Company competes with other companies that offer comparable products or that produce different products appropriate for the same uses.

To remain profitable and defend market share, the Company must continue to offer high quality custom engineered products on a timely basis, deploy internal engineering resources, maintain cost-effective manufacturing capabilities through its wholly owned Asian subsidiaries, expand its product lines through product development and acquisitions, and maintain sufficient inventory for fast turnaround of customer orders.

To remain profitable and defend market share, the Company must continue to offer high quality custom engineered products on a timely basis, develop new products or update existing products to compete with new or updated products introduced by competitors, deploy internal engineering resources, maintain cost-effective manufacturing capabilities through its wholly owned Asian subsidiaries, expand its product lines through product development and acquisitions, and maintain sufficient inventory for fast turnaround of customer orders.

The Company may not be able to compete effectively on all these fronts and with all its competitors, and the failure to do so could have a material adverse effect on its sales and profit margins.

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Price reductions taken by the Company in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact the Company’s business.

If tariffs on imported Chinese products are further expanded to include additional products and the tariff is reinstated to 25%, our cost of raw materials may increase, which could adversely affect our business, results of operations and financial condition.

The Company obtains raw materials used in the production of its products from domestic, Asian affiliated and nonaffiliated sources.

On January 15, 2020, the U.S.

and China signed the U.S.-China Phase One trade deal which, among other things, rolls back tariffs on $120 billion of Chinese products from 15% to 7.5% effective February 14, 2020.

agreed not to proceed with the 15% tariffs on $160 billion of consumer goods which were scheduled to take effect December 15, 2019.

However, the 25% tariffs on $250 billion of Chinese imports will remain in effect subject to further reductions depending on the progress of future negotiations.

If China does not follow through on its agreed upon commitments and tariffs are reinstated on $550 billion of Chinese products at the 25% rate, it could result in a loss of business and possible reduced margins for the Company if the tariffs cannot be fully offset by higher selling prices.

Tariffs, trade sanctions and political instability may impact the availability or cost of raw materials, which could adversely affect our margins, ability to meet customer demand, business, results of operations and financial condition.

The Company obtains raw materials used in the production of its products from domestic sources, as well as from Company-affiliated and unaffiliated sources in Asia.

Changes in international trade duties and other aspects of international trade policy, both in the United States and abroad, could materially impact the cost of these raw materials.

For example, from March 2018 until March 2021, the United States imposed an additional 25% tariff under Section 232 of the Trade Expansion Act of 1962, as amended, on steel products imported into the United States.

While these tariffs have mostly been lifted on imports from countries other than China, imports from many jurisdictions are subject to limitations on volume, after which substantial tariffs will be reimposed.

The United States also imposed a 10% tariff on all aluminum imports into the United States, with initial exemptions for aluminum imported from certain U.S.

trading partners.

Such actions could increase steel and aluminum costs and decrease supply availability.

In response to the invasion of Ukraine by the military forces of the Russian Federation, the United States, the European Union and other jurisdictions have imposed sanctions that, among other things, prohibit the importation of a wide array of commodities and products from Russia, which is a major global supplier of nickel.

Any increase in nickel, steel and/or aluminum prices that is not offset by an increase in the Company’s prices could have an adverse effect on the Company’s business, financial position, results of operations or cash flows.

In addition, if the Company is unable to acquire timely nickel, steel or aluminum supplies, the Company may need to decline customer orders, which could also have an adverse effect on the business, financial position, results of operations or cash flows of the Company.

In addition to sustained increases in the cost of raw materials, the military conflict between Ukraine and Russia and the related sanctions and trade restrictions have continued to cause supply disruptions with respect to component parts for our products and resulted in higher oil and other commodity prices that have increased shipping and transportation costs.

If the conflict persists or escalates, this may further disrupt global supply chains and could result in shortages of key raw materials or component parts that the Company’s suppliers require to satisfy our needs.

Any increases in the cost, or shortages, of raw materials or energy may continue to create supply issues for critical materials that could constrain the Company’s manufacturing levels, which may lead to inability to meet demand for our products and could result in a loss of business and possible reduced margins for the Company if the cost increases cannot be fully offset by higher selling prices.

Changes in competition in the markets that the Company services could impact revenues and earnings.

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Risks Related to Acquisitions and Organic Growth

The inability to develop new products could limit growth.

Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could adversely affect the Company’s performance and prospects for future growth, and the Company would not be positioned to maintain current levels of revenues and earnings.

The uncertainties associated with developing and introducing new products, such as the market demands and the costs of development and production, may impede the successful development and introduction of new products.

Acceptance of the new products may not meet sales expectations due to several factors, such as the Company’s potential inability to accurately predict market demand or to resolve technical issues in a timely and cost-effective manner.

Additionally, the inability to develop new products on a timely basis could result in the loss of business to competitors.

The inability to develop new or updated products could limit growth.

Demand for new products, or the need to update existing products to compete with new or updated products offered by competitors, could adversely affect the Company’s performance, ability to maintain current levels of revenues and earnings, and prospects for future growth if the Company were unable to develop and introduce new competitive products or updates to existing products at favorable profit margins.

The uncertainties associated with developing and introducing new products or updates to existing products, such as the market demands and the costs of development and production, may impede the successful development and introduction of new products or updates to existing products.

Acceptance of the new or updated products may not meet sales expectations due to several factors, such as the Company’s potential inability to accurately predict market demand or to resolve technical issues in a timely and cost-effective manner.

Additionally, the inability to develop new or updated products on a timely basis could result in the loss of business to competitors.

The inability to identify or complete acquisitions could limit growth.

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In addition to the United States, we have applied for intellectual property protection in other jurisdictions with respect to certain innovations and new products, product features, and processes.

The laws of certain foreign countries in which we do business, or contemplate doing business in the future, do not recognize intellectual property rights or protect them to the same extent as U.S.

The laws of certain foreign countries in which we do business, or may contemplate doing business in the future, do not recognize intellectual property rights or protect them to the same extent as U.S.

As a result, these factors could weaken our competitive advantage with respect to our products, services, and brands in foreign jurisdictions, which could adversely affect our financial performance.

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The Company’s business operations are dependent upon information technology networks and systems to securely transmit, process and store electronic information and to communicate among its locations around the world and with clients and vendors.

A shut-down of, or inability to access, one or more of the Company’s facilities, a power outage, or a failure of one or more of the Company’s information technology, telecommunications or other systems could significantly impair the Company’s ability to perform such functions on a timely basis.

A shut-down of, or inability to access, one or more of the Company’s facilities, a power outage, a ransomware incident, or a failure of one or more of the Company’s information technology, telecommunications or other systems could significantly impair the Company’s ability to perform such functions on a timely basis.

Computer viruses, cyberattacks, other external hazards and human error could result in the misappropriation of assets or sensitive information, corruption of data or operational disruption.

If sustained or repeated, such a business interruption, system failure, service denial or data loss and damage could result in a deterioration of the Company’s ability to write and process orders, provide customer service, or perform other necessary business functions.

A breach in the security of the Company’s software could harm its reputation, result in a loss of current and potential customers, and subject the Company to material claims, which could materially harm our operating results and financial condition.

A breach in the security of the Company’s software or information technology systems could harm its reputation, result in a loss of current and potential customers, and subject the Company to material claims, which could materially harm our operating results and financial condition.

If the Company’s security measures are breached, an unauthorized party may obtain access to the Company’s data or users’ or customers’ data.

In addition, cyber-attacks and similar acts could lead to interruptions and delays in customer processing or a loss or breach of a customer’s data.

In addition, cyberattacks and similar acts could lead to interruptions and delays in operations or customer processing or a loss or breach of the Company’s or a customer’s data.

Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures.

The risk that these types of events could seriously harm the Company’s business is likely to increase as the Company expands the number of web-based products we offer, the services we provide, and our global operations.

Regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection.

The risk that these types of events could seriously harm the Company’s business is likely to increase as the Company expands its reliance on technology for its operations and order processing and enhances the number of web-based products we offer, the services we provide, and our global operations.

Data breaches and other serious cybersecurity incidents have increased globally, along with the methods, techniques and complexity of attacks, including use of viruses, ransomware and other malicious software, phishing and other efforts to discover and exploit any design flaws, bugs or other security vulnerabilities.

Continued geopolitical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of cyberattacks.

We have been, and likely will continue to be, subject to such cyberattacks, although none has had a material impact on our operations.

Also, the same cybersecurity threats exist for the third parties with whom we interact and share information and cyberattacks on third parties that possess or use our customer, personnel and other information could adversely impact us in the same way as would a direct cyberattack on us.

The Company is subject to federal, state, and international laws and regulations relating to the collection, use, retention, security and transfer of personally identifiable information and individual payment data.

The information, security and privacy requirements imposed by such laws and regulations are constantly evolving and are becoming increasingly demanding in the United States and other jurisdictions in which the Company operates.

In addition, the interpretation and application of consumer and data protection laws in the United States and elsewhere are often uncertain and in flux.

It is possible that these laws may be interpreted and applied in a manner that is inconsistent with the Company’s data practices.

If so, in addition to the possibility of fines, this could result in an order requiring that the Company change its data practices, which could have an adverse effect on its business and results of operations.

Any security breaches for which the Company is, or is perceived to be, responsible, in whole or in part, could subject us to legal claims or legal proceedings, including regulatory investigations, which could harm the Company’s reputation and result in significant litigation costs and damage awards or settlement amounts.

If so, in addition to the possibility of fines or other penalties, this could result in an order requiring that the Company change its data practices, which could be costly, divert management attention, and have an adverse effect on the Company’s business and results of operations.

The Company has incurred and may continue to incur significant costs relating to compliance with these laws and regulations, including costs related to updating certain business practices and systems and ensuring continued compliance.

Further, any changes to laws or regulations, including new restrictions or requirements applicable to our business, or an increase in enforcement of existing laws and regulations, could expose the Company to additional costs and liability.

Any security breaches for which the Company is, or is perceived to be, responsible, in whole or in part, or any actual or perceived violations of data privacy laws and regulations, could subject the Company to legal claims or legal proceedings, including regulatory investigations, which could harm the Company’s reputation and result in significant litigation costs and damage awards or settlement amounts.

Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition.

Security breaches also could cause the Company to lose current and potential customers, which could have an adverse effect on our business.

Security breaches also could cause the Company to lose current and potential customers, which could have an adverse effect on the Company’s business.

Moreover, the Company may be required to expend significant financial and other resources to further protect against security breaches or to rectify problems caused by any security breach.

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In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require the Company to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition, and results of operations.

Changes in climate may increase the frequency and intensity of adverse weather patterns and may negatively impact our business.

Natural disasters, changes in climate, and geo-political events may negatively impact our business.

Natural disasters, changes in climate, and geo-political events could materially adversely affect our financial performance.

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The Company is subject to income tax laws of the United States, its states, and municipalities and those of other foreign jurisdictions in which the Company has business operations.

These laws are complex and subject to interpretations by the taxpayer and the relevant governmental taxing authorities.

These laws are complex, evolving, and subject to interpretations by the taxpayer and the relevant governmental taxing authorities.

The Company’s future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws;

(2) composition of earnings in countries with differing tax rates;

or (3) recoverability of our deferred tax assets and liabilities.

Beginning in 2022, the U.S.

Tax Cuts and Jobs Act of 2017 eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

This requirement is expected to reduce our cash flows.

In August 2022, the United States enacted the Inflation Reduction Act of 2022 (the “IRA”) which includes a new 15% corporate minimum tax as well as a 1% excise tax on fair value of corporate stock repurchases made after December 31, 2022.

The IRA could have a negative impact on our tax position.

Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.

Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations.

Significant judgment and interpretation are required in determining the Company’s worldwide provision for income taxes.

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Future operating results used in the assumptions, such as sales or profit forecasts, may not materialize, and the Company has been and could in the future be required to record a significant charge to earnings in the financial statements during the period in which any impairment is determined, resulting in an unfavorable impact on our results of operations.

Approximately $1.0 million of goodwill was impaired and written off in December 2020 in connection with closing the operations of Eberhard Hardware Manufacturing Ltd.

In Ontario, Canada (“Eberhard Hardware”).

The Company may need additional capital in the future, which may not be available on acceptable terms, if at all.

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If the Company is unable to obtain sufficient capital in the future, the Company may not be able to expand or acquire complementary businesses and may not be able to continue to develop new products or otherwise respond to changing business conditions or competitive pressures.

The Company’s stock price may become highly volatile.

The Company’s stock price may become highly volatile, and investors may not be able to sell their shares at their desired prices, or at all.

The Company’s stock price may change dramatically when buyers seeking to purchase shares of the Company’s common stock exceed the shares available on the market, or when there are no buyers to purchase shares of the Company’s common stock when shareholders are trying to sell their shares.

The Company depends on key management and technical personnel, the loss of whom could harm its businesses.

The Company’s common stock has historically been “thinly” traded, meaning that the number of persons interested in purchasing shares of Company common stock at prevailing prices at any given time may be relatively small.

This may contribute to price volatility, as the trading of relatively small quantities of shares by our shareholders may disproportionately influence share price and may prevent investors from selling their shares at or above their purchase price if there is not sufficient demand for the shares at the time of sale.

The Company depends on key management, sales and marketing and technical personnel, the loss of whom could harm its businesses.

The Company depends on key management and technical personnel.

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During 2023, union contracts covering approximately 21% of the Company’s total workforce will expire.

The Company has been successful in negotiating new contracts over the years but cannot guarantee that will continue.

Failure to negotiate new union contracts could result in the disruption of production, inability to deliver product, or a number of unforeseen circumstances, any of which could have an unfavorable material impact on the Company’s results of operations or financial condition.

The Company has been successful in negotiating new contracts over the years but cannot guarantee that will continue and the Company has, in the past experienced, and could in the future experience, temporary work stoppages during negotiation of such contracts.

Failure to negotiate new union contracts, or any work stoppage that is prolonged, could result in the disruption of production, inability to deliver product, or a number of unforeseen circumstances, any of which could have an unfavorable material impact on the Company’s results of operations or financial condition.

Deterioration in the creditworthiness of several major customers could have a material impact on the Company’s business, financial condition, or results of operations.

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Although the Company is not dependent on any one customer, deterioration in several large customers at the same time could have an unfavorable material impact on the Company’s results of operations or financial condition.

One customer exceeded 10% of total accounts receivable for 2021 and one customer exceeded 10% of total accounts receivable for 2020.

One customer exceeded 14% of total accounts receivable for fiscal 2022 and one customer exceeded 10% of total accounts receivable for fiscal 2021.

The Company’s operating results may fluctuate, which makes the results of operations difficult to predict and could cause the results to fall short of expectations.

5 unchanged sentences

New or existing U.S.

or foreign laws could subject the Company to claims or otherwise impact the Company’s business, financial condition, or results of operations.

The Company is subject to a variety of laws in both the U.S.

or foreign laws and regulations could subject the Company to claims or otherwise impact the Company’s business, financial condition, or results of operations.

The Company is subject to a variety of laws, regulations, rules, and policies in both the U.S.

and foreign countries that are costly to comply with, can result in negative publicity and diversion of management time and effort, and can subject the Company to claims or other remedies.

These laws, regulations, rules, and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition.

These laws and regulations may differ in different jurisdictions and are subject to change.

The cost of maintaining compliance under multiple and changing regulatory regimes, and expenditures that may be required to comply with new laws and regulations, may adversely affect the Company’s business, financial condition, and results of operations.

In the event that the Company fails to comply with or violates applicable U.S.

or foreign laws or regulations or customer policies, the Company could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against the Company or its employees, which may adversely affect the Company’s operating results, financial condition, customer relations and ability to conduct its business.

ITEM 1B UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors