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Item 1A. Risk Factors

2021-03-08 compared with 2020-03-09 · 119 added, 47 removed, 74 unchanged (69% of the section changed)

Risk Factors.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are including the following cautionary statements identifying important factors that could significantly and adversely affect the Company and cause actual results to differ materially from those projected in forward looking statements made by, or on behalf of, the Company.

The risks and uncertainties described below should be considered carefully, and with all the other information contained in this Report, in evaluating the Company and its business.

You should carefully consider and evaluate these risk factors, as any of them could materially and adversely affect our business, financial condition and results of operations, which, in turn, can adversely affect the price of our securities.

Competition and Economic Risks

We face significant competition in our asset liquidation business.

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Despite the accompanying variability of direct asset liquidation costs, quarterly fixed costs that are largely composed of salaries and benefits could exceed our gross profit.

There can therefore be no assurance that we can achieve or sustain profitability on a quarterly or annual basis.

There can therefore be no assurance that we can sustain profitability on a quarterly or annual basis.

The adverse effect of these issues could be increased due to concentration of our revenue, at times,

with one or more major customers.

This concentration of customers and revenue affects our overall risk profile, since a significant portion of our customers would be similarly affected by changes in economic, political, regulatory, and other industry conditions.

An abrupt or unforeseen change in conditions in these industries could adversely affect demand for our services, which could negatively impact our results of operations.

Operational and Governmental Risks

We are subject to the risks associated with managing growth.

Since the establishment of our asset liquidation business in 2009, we have experienced significant growth.

This has occurred through the acquisitions of Equity Partners in 2011, HGP in 2012, NLEX in 2014 and the creation of HGC in 2019.

Since the establishment of our asset liquidation business in 2009, we have experienced significant growth including through acquisitive transactions and organic expansion.

This growth requires an increased investment in personnel, systems and facilities.

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If we ceased entering into Joint Ventures, or our Joint Venture partners decide not to partner with us, the pool of potential transactions would be reduced.

Further, upon entering into Joint Ventures,

we become exposed to the uncertainties of the activities of our partners.

This could negatively impact our ability to obtain a continuous supply of assets for resale, and could have a material adverse effect upon our us e of working capital and our results of operations.

Further, upon entering into Joint Ventures, we become exposed to the uncertainties of the activities of our partners.

This could negatively impact our ability to obtain a continuous supply of assets for resale, and could have a material adverse effect upon our use of working capital and our results of operations.

We are dependent upon key personnel.

Our operations are substantially dependent on the knowledge, skills and performance of several of our executive officers, particularly our Chief Executive Officer and President, President of Financial Assets and President of Industrial Assets.

The loss of any of these officers could damage key relationships and result in the loss of essential information and expertise.

As our operations expand, we will be required to hire additional employees and may face competition for them.

Therefore, either the loss of the services of the above existing officers, or the inability to attract and retain appropriately skilled new employees, could have a material adverse effect upon our business and results of operations.

Disruptions to information systems and those of certain third-party service providers utilized by us could adversely impact our operations, reputation and brand.

The protection of client, employee and company data is extremely important to us.

The regulatory environment surrounding information security and privacy is becoming increasingly demanding and frequently changing in the jurisdictions in which we do business.

Clients and employees have expectations that we will protect their information from cyber-attacks and other security breaches.

We have implemented systems and processes that are designed to protect personal and company information and to prevent data losses, however, these measures cannot provide absolute security, and our systems may be vulnerable to cyber-security breaches such as viruses, hacking, and similar disruptions from unauthorized intrusions.

As part of our information systems infrastructure, we rely increasingly upon third-party service providers to perform services related to our asset liquidation services.

Any failure on our part or by these third-party service providers to maintain the security of our confidential data and our client and employee personal information could result in business disruption, damage to reputation, financial obligations, lawsuits, sizable fines and costs, and loss of employee and client confidence in our Company, and thus could have a material adverse impact on our business and financial condition, and adversely affect our results of operations.

A significant security breach could require future expenditures to implement additional security measures to protect against new privacy threats or to comply with state, federal and international laws aimed at addressing those threats.

The auction portion of our asset liquidation business may be subject to a variety of additional costly government regulations.

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Any remediation and related costs could have a material adverse effect upon our business and results of operations.

We are dependent upon key personnel.

Our operations are substantially dependent on the knowledge, skills and performance of several of our executive officers, particularly our Chief Executive Officer, Chief Operating Officer/President, and President of NLEX.

The loss of any of these officers could damage key relationships and result in the loss of essential information and expertise.

As our operations expand, we will be required to hire additional employees and may face competition for them.

Disruptions to information systems and those of certain third-party service providers utilized by us could adversely impact our operations, reputation and brand.

The protection of client, employee and company data is extremely important to us.

The regulatory environment surrounding information security and privacy is becoming increasingly demanding and frequently changing in the jurisdictions in which we do business.

Clients and employees have expectations that we will protect their information from cyber-attacks and other security

We have implemented systems an d processes that are designed to protect personal and company information and to prevent data losses, however, these measures cannot provide absolute security, and our systems may be vulnerable to cyber-security breaches such as viruses, hacking, and simil ar disruptions from unauthorized intrusions.

As part of our information systems infrastructure, we rely increasingly upon third-party service providers to perform services related to our asset liquidation services.

Any failure on our part or by these third -party service providers to maintain the security of our confidential data and our client and employee personal information could result in business disruption, damage to reputation, financial obligations, lawsuits, sizable fines and costs, and loss of emp loyee and client confidence in our Company, and thus could have a material adverse impact on our business and financial condition, and adversely affect our results of operations.

Changes in tax laws or their interpretations, or becoming subject to additional foreign, U.S.

federal, state or local taxes, could negatively affect our business, financial condition and results of operations.

We are subject to extensive tax liabilities, including U.S.

federal and state taxes.

Changes in tax laws or their interpretations could decrease the amount of earnings we retain, the value of any tax loss carry forwards and tax credits recorded on our balance sheet and the amount of our cash flow, and have a material adverse impact on our business, financial condition and results of operations.

Some of our tax liabilities are subject to periodic audits by the respective taxing authority which could increase our tax liabilities.

If we are required to pay additional taxes, our costs would increase and our net income would be reduced, which could have a material adverse effect on our effective tax rate, business, financial condition and results of operations.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.

Any failure to implement required

new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.

In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.

Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Capitalization and General Market Risks

We may require additional financing in the future, which may not be available, or may not be available on favorable terms.

We may need additional funds to finance the operations of our asset liquidation business, to make additional investments, or to acquire complementary businesses or assets.

We may need additional funds to finance the operations of our asset liquidation business, to make additional investments, to expand our specialty financing division, or to acquire complementary businesses or assets.

We may be unable to generate these funds from our operations.

If funds are not available, or not available on acceptable terms, we could experience a material adverse effect upon our business.

Provisions in our Articles of Incorporation, as amended, could prevent or delay stockholders’ attempts to replace or remove current management.

Our Articles of Incorporation, as amended, provide for staggered terms for the members of our Board of Directors (the “Board”).

The Board is divided into three staggered classes, and each director serves a term of three years.

This means that only one class of directors can be replaced at a single annual stockholders’ meeting.

These provisions may tend to preserve our current management and the Board in a hostile tender offer, and may have an adverse impact on stockholders who may want to participate in such a tender offer, or who may want to replace some or all of the members of the Board.

Provisions in our organizational documents and Florida or certain other state laws could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

Provisions in our Articles of Incorporation, as amended (the “Articles”), and Restated Bylaws and anti-takeover provisions of the Florida Business Corporation Act (“FBCA”), could discourage, delay or prevent an unsolicited change in control of the Company, which could adversely affect the price of our common stock.

These provisions may also have the effect of making it more difficult for third parties to replace our current management without the consent of the Board of Directors of the Company (the “Board”).

Provisions in our Articles and Restated Bylaws that could delay or prevent an unsolicited change in control include:

• a staggered board of directors;

• limitations on persons authorized to call a special meeting of stockholders;

• the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval.

The Company is a Florida corporation and is therefore subject to certain anti-takeover provisions that apply to public corporations under Florida law.

Pursuant to Section 607.0901 of the FBCA, a publicly held Florida corporation may not engage in a broad range of extraordinary corporate transactions with an interested shareholder within three years of when the shareholder became an interested shareholder without the approval of the holders of two-thirds of the voting shares of the corporation (excluding shares held by the interested shareholder), unless, among other exceptions:

• the transaction is approved by a majority of disinterested directors;

• the interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at least three years preceding the announcement date of any such extraordinary corporate transaction;

• the interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors;

• the consideration paid to the holders of the corporation’s voting stock is at least equal to certain fair price criteria.

Subject to certain exceptions, an interested shareholder is defined as a person who beneficially owns more than 15% of a corporation’s outstanding voting shares.

Although permitted by the FBCA, we have not elected in our Articles to opt out of the terms of Section 607.0901.

This statutory provision may prevent takeover attempts that might result in a premium over the market price for shares of our common stock.

Our Board of Directors may issue additional shares of preferred stock without stockholder approval.

Our Articles of Incorporation, as amended, authorize the issuance of up to 10,000,000 shares of preferred stock, $10.00 par value per share.

The Board is authorized to determine the rights and preferences of any additional series or class of preferred stock.

The Board may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights that are senior to our shares of common stock or that could adversely affect the voting power or other rights of the existing holders of outstanding shares of preferred stock or common stock.

Our Articles authorize the issuance of up to 10,000,000 shares of preferred stock, $10.00 par value per share.

Of the 10,000,000 shares of preferred stock authorized under our Articles, the Company has designated 20,000 shares as Series N Preferred Stock.

There are 568 shares of Series N Preferred Stock issued and outstanding.

Our Board is authorized to determine the rights and preferences of any additional series or class of preferred stock.

Our Board may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights that are senior to our shares of common stock or that could adversely affect the voting power or other rights of the existing holders of outstanding shares of preferred stock or common stock.

The issuance of additional shares of preferred stock may also hamper or discourage an acquisition or change in control of the Company.

We may conduct future offerings of our common stock and preferred stock and pay debt obligations with our common and preferred stock that may diminish our investors’ pro rata ownership and depress our stock price.

We reserve the right to make future offers and sales, either public or private, of our securities including shares of our preferred stock, common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued.

In the event that any such future sales of securities are affected or we use our common or preferred stock to pay principal or interest on our debt obligations, an investor’s pro rata ownership interest may be reduced to the extent of any such issuances and, to the extent that any such sales are effected at consideration which is less than that paid by the investor, the investor may experience dilution and a diminution in the market price of the common stock.

There is a limited public trading market for our common stock;

the market price of our common stock has been volatile and could experience substantial fluctuations.

Our common stock is currently traded in the OTC market in the United States and has a limited public trading market in the United States.

Our common stock is traded on the Canadian Securities Exchange, and the market there is similarly limited.

Without an active trading market, there can be no assurance regarding the liquidity or resale value of the common stock.

In addition, the market price of our common stock has been, and may continue to be, volatile.

Such price fluctuations may be affected by general market price movements or by reasons unrelated to our operating performance or prospects such as, among other things, announcements concerning us or our competitors, technological innovations, government regulations, and litigation concerning proprietary rights or other matters.

We may conduct future offerings of our common stock and preferred stock that may diminish our investors’ pro rata ownership and depress our stock price.

Our Articles authorize us to issue shares of our preferred stock, common stock or securities convertible into common stock for the consideration and on the terms and conditions established by our Board of Directors in its sole discretion, including at prices differing from the price of the common stock previously issued.

We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions.

Any of these issuances could dilute our existing stockholders, and such dilution could be significant.

Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.

The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.

The future issuance of shares of additional preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive.

For example, investors in common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.

The market price of our common stock may be volatile and this may adversely affect our stockholders.

The price at which our common stock trades may be volatile.

The stock market has recently experienced significant price and volume fluctuations that have affected the market prices of all securities, including securities of companies like us.

The market price of our common stock may be influenced by many factors, including:

• our operating and financial performance;

• variances in our quarterly financial results compared to expectations;

• the depth and liquidity of the market for our common stock;

• we have a relatively small base of registered shares of common stock that could result in significant stock price movements upward or downward based on low levels of trading volume in our common stock;

• future sales of common stock or debt or the perception that sales could occur;

• investor perception of our business and our prospects;

• developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein;

• general economic and stock market conditions.

In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies in our industry.

These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

In the past, securities class-action litigation has often been brought against companies following periods of volatility in the market price of their respective securities.

We may become involved in this type of litigation in the future.

Litigation of this type is often expensive to defend and may divert our management team’s attention as well as resources from the operation of our business.

We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

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Current accounting standards require that goodwill be periodically evaluated for impairment based on the fair value of the reporting unit.

A significant percentage of our total assets represents goodwill.

As of December 31, 2020 approximately 14% of our total assets represents goodwill.

Declines in our profitability or the value of comparable companies may impact the fair value of our reporting units, which could result in a write-down of goodwill and a reduction in net income.

During 2019 we recorded a $0.6 million goodwill impairment charge in connection with the separation of Equity Partners at the end of 2019.

Changes in tax laws or their interpretations, or becoming subject to additional foreign, U.S.

federal, state or local taxes, could negatively affect our business, financial condition and results of operations.

We are subject to extensive tax liabilities, including U.S.

federal and state taxes.

Some of our tax liabilities are subject to periodic audits by the respective taxing authority which could increase our tax liabilities.

We may not be able to utilize income tax loss carry forwards.

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These stockholders may take these actions even if they are opposed by our other investors.

There is a limited public trading market for our common stock.

Our stock price could be extremely volatile and may decline substantially from the public offering price.

As a result, you may not be able to resell your shares at or above the price you paid for them.

Our common stock is listed on The Nasdaq Capital Market (“Nasdaq”) and has a limited public trading market in the United States.

Without an activ e trading market, there can be n o assurance regarding the liquidity or resale value of the common stock.

In addition, the market price of our common stock has been, and may continue to be, volatile.

Volatility in the market price of our common stock, as well as general economic, market or political conditions, may prevent a holder of our common stock from being able to sell their shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common stock.

Holders of our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and a holder of our common stock could lose part or all of their investment.

The price of our common stock could be subject to wide fluctuations in response to a number of factors.

We could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.

Our common stock is currently listed on Nasdaq, which has qualitative and quantitative listing criteria.

However, we cannot assure you that our common stock will continue to be listed on Nasdaq in the future.

In order to continue listing our common stock on Nasdaq, we must maintain certain financial, distribution and stock price levels.

Generally, we must maintain a minimum amount in stockholders’ equity and a minimum number of holders of our common stock.

If we cease to be eligible to trade on Nasdaq, the following may occur:

• We may have to pursue trading on a less recognized or accepted market, such as the OTC Bulletin Board or the “pink sheets.”

• The trading price of our common stock could suffer, including an increased spread between the “bid” and “asked” prices quoted by market makers.

• Shares of our common stock could be less liquid and marketable, thereby reducing the ability of stockholders to purchase or sell our shares as quickly and as inexpensively as they have done historically.

If our stock is traded as a “penny stock,” transactions in our stock would be more difficult and cumbersome.

• We may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock.

This may also cause the market price of our common stock to decline.

The financial reporting obligations of being a public company in the United States are expensive and time consuming and place significant additional demands on our management.

The obligations of being a public company in the United States place additional demands on our management and require significant expenditures, including costs resulting from public company reporting obligations under the Exchange Act;

the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act and the Dodd Frank Wall Street Reform and Consumer Protection Act;

and the listing requirements for Nasdaq.

Our management and other personnel devote a substantial amount of time to ensure that we comply with these requirements.

Moreover, despite reforms made possible by the Jumpstart Our Business Startups Act of 2012 and the 2015 Fixing America’s Surface Transportation Act, the reporting requirements, rules, and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly, particularly if we were No longer to qualify as a smaller reporting company.

Any changes that we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.

These rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

These factors also could make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, particularly to serve on our Audit Committee and Compensation Committee, or as executive officers.

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