What changed in this filing

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Item 1. Business

2022-01-07 compared with 2021-01-08 · 160 added, 160 removed, 479 unchanged (40% of the section changed)

19 unchanged sentences

We bring a disciplined approach to strategically enter new geographic markets, as appropriate.

We are an industrial technology company that designs, produces, and sells computerized machine tools.

Our strategic plans focus on market expansion to reach more customers with more products on a global basis.

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rather, we have enhanced this strategy through growth both organically and through acquisitions in an effort to attain long-term stability and profitability.

During fiscal 2020, our sales and service fees were $170.6 million, a decrease of $92.8 million, or 35%, compared to fiscal 2019 and included a favorable currency impact of $0.6 million, or less than 1%, when translating foreign sales to U.S.

During fiscal 2021, our sales and service fees were $235.2 million, an increase of $64.6 million, or 38%, compared to fiscal 2020 and included a favorable currency impact of $7.7 million, or 5%, when translating foreign sales to U.S.

Dollars for financial reporting purposes.

For fiscal 2020, we reported a net loss of $6.2 million, or $(0.93) per diluted share, compared to net income of $17.5 million, or $2.55 per diluted share, for fiscal 2019.

The steep decline in sales volume from fiscal 2019 to fiscal 2020 reflected the significant impact of the COVID-19 pandemic and related government-mandated stay-at-home or shelter orders that imposed operating restrictions across the globe during fiscal 2020.

The year-over-year swing from net income to net loss included a one-time, non-cash goodwill impairment charge of $4.9 million that resulted from the prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

Excluding the impact of this one-time charge, earnings per diluted share for fiscal 2020 would have been $0.69 higher than the earnings per diluted share we reported for fiscal year 2020.

While fiscal 2020 presented significant unexpected challenges due to the COVID-19 pandemic, we continued to focus on our long-term sustainable future, preserved by a strong balance sheet, cashflow, and continued investment in products and technologies that will create opportunity for market expansion and the potential for more strategic acquisitions in the near future.

For fiscal 2021, we reported net income of $6.8 million, or $1.01 per diluted share, compared to a net loss of $6.2 million, or $(0.93) per diluted share, for fiscal 2020.

During fiscal 2021, sales increased year-over-year for all product brands and in all regions as countries began to lift the government-mandated COVID-19 stay-at-home orders or other similar operating restrictions put in place in fiscal 2020.

The net loss for fiscal 2020 included a one-time $4.9 million non-cash goodwill impairment charge attributable primarily to the then prolonged ongoing uncertainty in the global markets due to the COVID-19 pandemic.

Machine tool products are considered capital goods, which makes them part of an industry that has historically been highly cyclical.

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A limited amount of information is available for foreign markets, and different reporting methodologies are used by various countries.

Machine tool consumption data, published by Gardner Publications, Inc., calculates machine tool consumption annually by country.

Machine tool consumption data, published by the Association of Manufacturing Technology (“AMT”), calculates machine tool consumption annually by country.

It is important to note that data for foreign countries are based on government reports that may lag 6 to 12 months behind real-time and, therefore, are unreliable for forecasting purposes.

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Manufacturers and suppliers of capital goods, such as our company, are often the first to experience these changes in demand.

Additionally, since our typical order backlog is approximately 45 days, it is difficult to estimate demand with any reasonable certainty.

Additionally, since build to stock and our typical order backlog is approximately 45 days, it is difficult to estimate demand with any reasonable certainty.

Therefore, we do not have the benefit of relying on the common leading indicators that other industries use for market analysis and forecasting purposes.

Our core products consist of general-purpose, computerized machine tools for the metal cutting industry, principally, vertical machining centers (mills) and turning centers (lathes).

The majority of our machine tools are equipped and integrated fully with our proprietary software and computer control systems, while the remaining machine tools are equipped with industry standard controls.

Our core products consist of general-purpose, computerized machine tools for the metal cutting industry, principally, vertical and horizontal machining centers (mills), turning centers (lathes) and toolroom machines.

The majority of our machine tools are equipped with our fully integrated computer control systems that are powered by our proprietary software, while the remaining machine tools are equipped with industry standard controls.

Additionally, we produce and distribute software options, control upgrades, hardware accessories and replacement parts for our machine tool product lines, and we provide operator training and support services to our customers.

We also produce computer control systems and related software for press brake applications that are sold as retrofit units for installation on existing or new press brake machines.

In addition, we own an automation integration company that specializes in job shop automation.

We also produce computer control systems and related software for press brake applications that are sold as retrofit units for installation on existing or new press brake machines and we own an automation integration company that specializes in job shop automation.

The following table sets forth the contribution of each of our product groups and services to our total revenues during each of the past three fiscal years (in thousands):

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Milltronics is the value-based brand for shops that want easy-to-use machines at competitive prices.

The Takumi brand is for customers that need precision and very high speed, high efficiency performance, such as that required in the production, die and mold, aerospace, and medical industries.

The Takumi brand is for customers that need precision and very high speed, high efficiency performance, such as that required in the die and mold, aerospace, and medical industries.

Takumi machines are equipped with industry standard controls instead of the proprietary controls found on Hurco and Milltronics machines.

ProCobots, LLC (“ProCobots”) is our wholly-owned subsidiary that provides practical automation solutions that can be integrated with any machine tool.

ProCobots, LLC (“ProCobots”) is our wholly-owned subsidiary that provides practical automation solutions, such as feeders and collaborative robots (cobots).

In addition, through our wholly-owned subsidiary LCM Precision Technology S.r.l.

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The Hurco, Milltronics, and Takumi product lines represent a comprehensive product portfolio with more than 150 different CNC machine models.

The combined machine tool product lines also provide benefits related to the development of product enhancements, technologies, and models, due to leverage of shared resources and cross-utilization of proven engineering designs, that allow us to achieve manufacturing cost reductions from economies of scale and manufacturing efficiencies.

The combined machine tool product lines provide benefits related to the development of product enhancements, technologies, and models.

Due to leverage of shared resources and cross-utilization of proven engineering designs, we achieve manufacturing cost reductions from economies of scale and manufacturing efficiencies.

Hurco CNC Machine Tools

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With the ability to transfer most CAD data directly into a Hurco program, programming time can be significantly reduced.

Machine tool products today are being designed to meet the demand for machining complex parts with greater part accuracies.

Our proprietary controls with WinMax ® software and high-speed processors efficiently handle the large amounts of data these complex part-making programs require, which enable our customers to create parts with higher accuracy at faster speeds.

Machine tool products must be designed to meet customer demand to machine complex parts with greater part accuracies.

Our proprietary controls with WinMax ® software and high-speed processors efficiently handle the large amounts of data these complex part-making programs require and enable our customers to create parts with higher accuracy at faster speeds.

We continue to add technology to our control design as it becomes available.

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Our offering of Hurco machining centers, currently equipped with either a dual touch-screen console or a single touch-screen console, consists of the following product lines:

HTMi/HTLi Product Line

The HTMi/HTLi product line includes a tool room mill and tool room lathe.

These models are designed for easy access to the table (mill) or chuck (lathe) and are popular in tool room, prototype, and maintenance applications.

There is a 30-inch X-travel mill and an 8-inch chuck lathe.

VMi Product Line

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The design premise of the machining center with a large work cube and a small footprint optimizes the use of available floor space.

The VM line consists of six models in four sizes with X-axis (horizontal) travels of 18, 26 (three models), 40, and 50 inches.

The VM line consists of eight models in three sizes with X-axis (horizontal) travels of 26 (four models), 40 (two models), and 50 inches (two models).

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† Windows ® is a registered trademark of Microsoft Corporation in the United States and other countries.

VMXi Product Line

The VMX product line is our flagship series of machining centers and consists of higher performing vertical machining centers aimed at manufacturers that require faster speeds and greater part accuracy.

The small and medium size models are available with either belted or inline (direct) spindles and the larger models are offered as either #40 or #50 taper.

The small and medium size models are available with either belted or inline (direct drive) spindles and the larger models are offered as either #40 or #50 taper.

The VMX line consists of 14 models in eight sizes with X-axis travels of 24, 26, 30, 42, 50, 60, 64, and 84 inches.

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† Windows ® is a registered trademark of Microsoft Corporation in the United States and other countries.

HSi Product Line

Due to the integral, motorized spindle with a base speed of 18,000 rpm, the HS product line is desirable for the die and mold industry because of that industry’s particular interest in the improvement of surface finish quality and the reduction of cycle time.

Due to the integral, motorized spindle with a maximum speed of 18,000 rpm, the HS product line is desirable for the die and mold industry because of that industry’s particular interest in the improvement of surface finish quality and the reduction of cycle time.

Additionally, this product line offers us the opportunity to expand our customer base to manufacturers that produce larger batches.

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This product line features five-axis trunnion tables integrated onto familiar C-frame style machines, making an easy entry into five-axis for first-time users.

U Series models are offered with 8, 10, 14, and 20-inch diameter rotary tables with both standard and high-speed spindles.

U Series models are offered with 8, 10, and 14-inch diameter rotary tables with either standard (belted) or direct drive (inline) spindles.

SRTi/SWi Product Line

The SRT Series of five-axis machines utilizes a swivel head and a C-axis rotary table embedded into and flush with the machine table, making them among the most flexible machines in the industry.

The SRT Series of five-axis machines utilizes motor spindles and a swivel head with a C-axis rotary table embedded into and flush with the machine table, making them among the most flexible machines in the industry.

The SW model utilizes the swivel head and a traditional machine table that can be then fitted with an A-axis rotary table to machine long five-axis parts.

These models are available in either 42 or 60-inch X-axis travels.

Customers can choose between standard and high-speed spindles.

VCi/VCXi Product Line

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The BX product line is for customers that require higher accuracy parts, as they are built with an extremely rigid double column design that offers superior vibration dampening and excellent thermal characteristics.

Four models are available, two with 40-inch X-travels (a three-axis version and a five-axis version), as well as 53-inch and 63-inch X-travel models.

Four models are available, two with 40-inch X-axis travels (a three-axis version and a five-axis version), as well as 53-inch and 63-inch X-axis travel models.

HMi Product Line

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Two models are available, one with a rotary table and one with a plain table.

They both have X-travels of 67 inches.

They both have X-axis travels of 67 inches.

These products are designed for high-mix, low-volume applications that benefit from a horizontal spindle configuration, but do not require an expensive pallet switching system typically found on competitive horizontal machines.

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DCX machines are the largest models offered by Hurco that feature the powerful and flexible WinMax ® control.

TMi/TMMi Product Line

The TM/TMM product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes.

TMi/TM-Mi Product Line

The TM/TM-M product line of slant-bed lathes (horizontal turning centers) is designed for entry-level job shops and contract manufacturers seeking efficient processing of small to medium lot sizes.

There is one TM model in four sizes, measured by chuck size:

6, 8, 10, and 12 inches.

We added motorized tooling on the lathe turret to further enhance the capability of the TM turning centers and designated it as the TMM product line.

We added motorized tooling on the lathe turret to further enhance the capability of the TM turning centers and designated it as the TM-M product line.

These turning centers with live tooling allow our customers to complete a number of secondary milling, drilling, and tapping operations while the part is still held in the chuck after the turning operations are complete, which provides significant productivity gains.

The TMM product line consists of three models:

TMM8i, TMM10i, and TMM12i.

The TM-M product line consists of three models:

TM8Mi, TM10Mi, and TM12Mi.

TMXi Product Line

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These products are designed for customers who want to reduce part handling and complete complex components that require speed, accuracy, and superior surface finish in a single set-up.

They are available in either 8 or 10 inch main chuck sizes.

Product Development

Since Hurco is the technology and innovation brand of our corporate portfolio, we have focused our attention on product enhancements of existing models in an effort to align the Hurco brand with the newest engineering innovations and components available to compete with other premium brands in the marketplace.

Examples of product enhancements completed in 2020 include an upgrade to the control software on our lathe with live tooling designated as TM6M, TM8M, and TM12M models, new inline spindle options for our trunnion 5-axis machines, and a new proprietary thermal growth compensation system available for 3-axis vertical machining centers.

We also introduced a new, affordable, entry-level model called the VMOne.

Examples of product enhancements completed in 2021 include a new feature for Solid Model Import, which allows customers to create Conversational Data Blocks with 3D attributes and new lathe programming features, such as radius wear offsets for live tools.

New hardware options included expanded capacity automatic tool changers (60 ATC) and 24,000 rpm high-speed spindles for SRT/SW Series.

New models include VMX42UDi and VMX60HSRTi.

We also upgraded our Industry 4.0 websites for Hurco’s UltiMonitor and Milltronics Shop View (MSV) options.

These tools allow users to collect data and optimize efficiency of their machine tools using the Internet of Things (“IoT”).

Milltronics CNC Machine Tools

Our Milltronics line of CNC machine tools is designed for excellent value with more standard features for the price versus competitors.

We manufacture and sell these machine tools with fully integrated interactive computer control systems that are also compatible with G & M Code programs (generated from CAD/CAM software) and conversational visual aid programming.

These straightforward and easy-to-use control systems are available in two versions, the Series 8200-B for our CNC VK knee mills and the more advanced Series 9000 DGI offered on all other models.

We manufacture and sell these machine tools with a fully integrated interactive computer control system called the Milltronics 9000 Series DGI CNC.

The control is compatible with G & M Code programs (generated from CAD/CAM software) and also features onboard conversational visual aid programming.

The Milltronics portfolio consists of the following product lines:

The VK is our CNC knee mill designed for prototype, R&D, maintenance, and other general-purpose applications.

It offers the easy table access of a conventional knee mill, with the power and flexibility of the Milltronics 8200-B CNC control and motion system.

It offers the easy table access of a conventional knee mill, with the power and flexibility of the 9000 DGI CNC control and motion system.

Unlike most competitive models, it is not a retrofit kit but rather designed from the ground up as a CNC.

MB/RH Product Line

Products with the MM/MB or RH designation are part of the tool room bed mill category, which are machines that do not have an enclosure, also referred to as open bed machines.

Typical applications on these machines include general machining, job shops, prototype, or maintenance and repair.

TRQ/TRM Product Line

Products with the TRQ or TRM designation are part of the tool room bed mill category, which are machines that are available without an enclosure, also referred to as open bed machines, that provide easy access to the work table.

Typical applications for these machines include general machining, job shops, prototype, or maintenance and repair.

Available with quill-head or rigid-head designs, there are six models in four sizes with X-axis travels of 30, 40, 60 and 78 inches.

These easy-to-use machines feature the Series 9000 DGI control.

The 60 inch model is also available with a high-torque option.

VM General Purpose (GP) Product Line

The VM-GP product line consists of attractively-priced vertical machining centers designed for job shops, prototype, research and development, and other general machining applications.

These belt-driven models are 40-taper and available in four different sizes – all with the Series 9000 DGI control.

These belt-driven models are 40-taper spindles and are available in four different sizes.

Customers can choose models with X-axis (horizontal) travels of 25, 30, 40, or 50 inches.

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The VM-IL product line consists of moderately-priced performance vertical machining centers for high-speed applications, such as die and mold, aerospace, and medical machining.

Featuring heavier castings, faster motion, and inline spindles, these 40-taper machines include the Series 9000 DGI control and are available in four sizes.

Featuring heavier castings, faster motion, and inline spindles, these 40-taper machines are available in four sizes.

Models include X-axis travels of 30, 42, 50, or 60 inches.

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The VM-XP product line consists of moderately-priced, vertical machining centers for more demanding metal removal applications, such as castings or forgings.

These heavy-duty, 50-taper models are designed for applications that require more power and torque and feature the Series 9000 DGI control.

These heavy-duty, 50-taper models are designed for applications that require more power and torque.

Customers can choose from three different models with X-axis travels of 50, 60, or 84 inches.

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The BR product line consists of high-speed bridge mills that are used in pattern shops and the aerospace industry, in addition to job shops, due to the large table and travels that support a wide range of part sizes.

BR machines have inline spindles and are available as six models in three sizes with X-axis travels of 100, 150, and 200 inches.

BR machines offer the Series 9000 DGI control.

BR machines have inline spindles and are available as six models with up to 200 inches in X-axis travel by 80 inches in Y-axis travel.

ML Product Line

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17, 19, 23, 27, 36, and 39.7 inches.

These flexible machines feature the Series 9000 DGI control.

SL Product Line

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These compact machines are available with chuck sizes of 6, 8, and 10 inches.

These compact machines feature the Series 9000 DGI control.

In fiscal 2020, Milltronics updated its MB/RH Series of tool room mills.

Now called the TRQ/TRM Series, these models feature updated controls, specifications, and sheet metal guarding.

Additionally, all models will now feature the Series 9000 DGI control, instead of certain models having the legacy 8200-B control.

In fiscal 2021, Milltronics launched a new high torque version of its 60 inch TRM model called the TRM30HT.

Hardware upgrades included a new semi-enclosure option for the BR Series and expanded capacity automatic tool changers (24 ATC) for the GP Series.

Takumi CNC Machine Tools

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high-speed, double column vertical machining centers;

and heavy-duty, double-column machining centers, and five-axis machining centers.

and heavy-duty, double-column machining centers, five-axis machining centers and high-speed horizontal machining centers.

Takumi machines are hand built and fitted to exacting standards to produce high accuracies and superior surface finishes.

________________________

*Fanuc® is a registered trademark of G E Fanuc Automation Americas, Inc.

Siemens® is a registered trademark of Siemens AG.

Mitsubishi® is a registered trademark of Mitsubishi Electric Corporation.

Heidenhain® is a registered trademark of HEIDENHAIN CORPORATION, a wholly-owned subsidiary of the German company DR.

JOHANNES HEIDENHAIN GmbH.

The Takumi portfolio consists of the following product lines:

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The VC Series vertical machining centers are fast, three-axis linear guide machining centers designed for customers doing a variety of different parts, including die and mold, medical, automotive, and job shops.

The VC machines are available in four sizes with X-axis travels of 34, 42, and 50 inches.

The VC machines are available in three sizes with X-axis travels of 34, 42, and 50 inches.

An extended Y-axis travel version of the 42-inch model is offered for mold shops making square mold bases.

________________________

*Fanuc® is a registered trademark of G E Fanuc Automation Americas, Inc.

Siemens® is a registered trademark of Siemens AG.

Mitsubishi® is a registered trademark of Mitsubishi Electric Corporation.

Heidenhain® is a registered trademark of HEIDENHAIN CORPORATION, a wholly-owned subsidiary of the German company DR.

JOHANNES HEIDENHAIN GmbH.

The V Series vertical machining centers are heavy-duty, box-way machines built for tough applications such as roughing cast iron.

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These three-axis models feature high-speed, direct-drive spindles, or built-in HSK spindles, with up to 20,000 rpm, in addition to spindle speed options of 24,000 rpm and 36,000 rpm.

The H Series product line consists of 12 models with X-axis travels of 24, 30, 35, 40, 53, 63, 86, 126, 157, and 197 inches, with select models available with extended Y-axis travel.

The H Series product line consists of 11 models with X-axis travels of 24, 40, 49, 63, 86, 126, 157, and 197 inches, with select models available with extended Y-axis travel and/or high-speed spindles.

These machines are specifically targeted for die and mold and aerospace customers.

Designed with trunnion tables and swivel heads, these five-axis simultaneous machining centers provide versatility, as well as reduce setup time and process time.

Designed with trunnion tables or swivel heads, these five-axis simultaneous machining centers provide versatility, as well as reduce setup time and process time.

Most models are offered with a double-column structure for superior stability and performance.

The U Series product line consists of six models, four of which offer trunnion table sizes of 10, 16, 24, and 31.5 inches.

One additional model, the UB, is equipped with a B/C swivel head and an HSK100, 12,000 rpm built-in spindle.

The UB’s double-column design provides a spacious X-axis travel of 126 inches.

A new model called the UR1000 has a two-axis head and a 39-inch rotary table integrated into a double-column machine, designed for large and heavy five-axis parts, such as those found in die and mold, aerospace, and energy applications.

Designed specifically for the machining of graphite or copper electrodes used in electrical discharge machining (EDM), G Series machines offer the same extremely rigid and thermally stable double-column design of the H Series, featuring high-speed, direct-drive spindles, or built-in HSK spindles, with up to 20,000 rpm.

The G Series product line consists of three models with X-axis travels of 22, 30, and 40 inches, and are equipped with a graphite dust extraction system.

The UB version is equipped with a B/C swivel head and a 12,000 rpm built-in spindle.

Its double-column design provides a spacious X-axis travel of 126 inches.

An additional model called the UR1000 has a two-axis head and a 39-inch rotary table integrated into a double-column machine, designed for large and heavy five-axis parts, such as those found in die and mold, aerospace, and energy applications.

Designed specifically for the machining of graphite or copper electrodes used in electrical discharge machining (EDM), G Series machines offer the same extremely rigid and thermally stable double-column design of the H Series with high-speed, direct-drive spindles, or built-in HSK spindles, that have up to 20,000 rpm, but are also equipped with a graphite dust extraction system.

The G Series product line consists of three models with X-axis travels of 22, 30, and 40 inches.

BC Series machines are double column, three-axis machining centers designed for heavy cutting and applications that require high power and torque, such as die and mold.

These models include a heavy cutting, 6,000 rpm geared-head spindle design with X-axis travels of 82 or 122 inches.

These models include a heavy cutting, 6,000 rpm geared-head spindle for maximum cutting power.

The BC Series models are available in eight sizes, including X-axis travels of 83, 122, 126, 157 and 197 inches, with several models featuring different choices of Y-axis travel.

The HMX Series are high-speed horizontal machining centers that are capable of up to 1G acceleration.

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The SL Series includes three models:

the SL200, SL250, and SL300.

In 2020, Takumi introduced the PV Series, a new line of entry-level vertical machining centers for general purpose machining that offers lower cost, yet retains key performance features such as direct-drive spindles and rigid roller ways.

Also in 2020, Takumi began offering four-meter and five-meter versions of its H Series product line, called the H42S and H52S, specifically aimed at die and mold shops and the aerospace industry.

Finally, a new line of high velocity horizontal machining centers was introduced.

Called the HMX Series, these machines are very fast (capable of up to 1G acceleration) and include twin pallets that can be rapidly exchanged to maximize part cutting time.

the SL200, SL250, both available with 10 inch chucks;

and the SL300, which has a 12 inch chuck.

In 2021, Takumi redesigned its popular H12 double column machining center.

Now called the H12E, improvements include faster rapid traverses and trimmed dimensions to reduce shipping cost, as the redesigned model can now fit inside a standard high cube shipping container.

The new H12E is also available with an optional 15,000 rpm high-speed spindle.

Another new model is the H27S, a 106 inch X-axis travel, high-speed, bridge type machining center.

Hardware upgrades include expanded automatic tool changer (32 ATC) for #50 taper models and new high-torque #50 taper options for V-Series box way machines.

Takumi also developed software to become the first CNC machine with a FANUC control that provides a seamless interface with the Renishaw Set & Inspect program to facilitate on-machine inspection probing that doesn’t require macro-programming.

Other Control Systems, Software, and Accessories

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The most common options include:

Advanced Verification Graphics, Swept Surface, DXF Transfer, 3D DXF and Solid Model Import, UltiMonitor, UltiPocket with Helical Ramp Entry and Insert Pockets, Conversational Part and Tool Probing, Tool and Material Library, NC/Conversational Merge, Job List, Job Manager, Stream Load, Active Thermal Compensation, Thread Repair, and Simultaneous Five-Axis Contouring.

Advanced Verification Graphics, Swept Surface, DXF Transfer, 3D DXF and Solid Model Import, UltiMonitor, UltiPocket with Helical Ramp Entry and Insert Pockets, Conversational Part and Tool Probing, Tool and Material Library, NC/Conversational Merge, Job List, Automation Job Manager, Stream Load, Active Thermal Compensation, Thread Repair, and Simultaneous Five-Axis Contouring.

The Advanced Verification Graphics option displays a picture of the rendered part on the screen of the control that can be viewed from any angle.

The detail allows the customer to evaluate how the part is programmed to be machined before cutting commences, which eliminates the need to scrap expensive material.

Solid Model Import with 3D DXF Technology allows the operator to import a solid model directly into the control and provides integrated CAD/CAM and tool path simulation.

Solid Model Import with 3D DXF Technology automatically uses geometry from a 3D CAD model to easily create conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.

Our Swept Surface software option simplifies programming of 3D contours and significantly reduces programming time.

The DXF Transfer software option increases operator productivity because it eliminates manual data entry of part features by transferring AutoCAD ® * drawing files directly into our computer control or into our desktop programming software, WinMax ® Desktop.

3D DXF and Solid Model Import automatically uses geometry from a 3D CAD model to easily create conversational programs for 2D and 3D parts or even 3+2 and 5-sided parts.

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* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S.

and/or other countries.

Designed to take advantage of the Internet of Things (“IoT”), UltiMonitor is a web-based productivity, management, and service tool that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any location where they can access the internet.

Designed to take advantage of the IoT, UltiMonitor is a web-based productivity, management, and service tool that enables customers to monitor, inspect, and receive notifications about their Hurco machines from any location where they can access the internet.

Customers can transfer part designs, receive event notifications via email for text, access diagnostic data, monitor the machine via webcam, and communicate with the machine operator.

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Job List provides an intuitive way to group files together and run them sequentially without operator intervention, which promotes automation, lights-out machining, program stitching, file bundling, and adaptive processes.

Job Manager is a software feature designed specifically for seamless integration of the Hurco control to our automation package called Job Shop Automation, which promotes intuitive programming of collaborative robots for machine tending applications.

Automation Job Manager is a software feature designed specifically for seamless integration of the Hurco control to our automation package called Job Shop Automation, which promotes intuitive programming of collaborative robots for machine tending applications.

Stream Load allows the user to run very large NC files without the need to upload the entire file into the control’s memory to avoid exceeding memory limits.

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Thread Repair is a feature for turning applications that provides an efficient way to repair existing threads, which is especially beneficial for large pipes and other parts manufactured for the oil/energy sector.

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* AutoCAD® is a registered trademark of Autodesk, Inc., and/or its subsidiaries/ affiliates in the U.S.

and/or other countries.

Simultaneous Five-Axis Contouring software enables a five-axis machine to command motion concurrently on all axes.

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ProCobots CNC Automation

Located in the greater Pittsburgh, Pennsylvania area, ProCobots provides automation solutions that can be integrated with any machine tool.

ProCobots integrations include robots, grippers, material handling, and Industry 4.0-capable software and controls.

ProCobots provides automation solutions including collaborative robots (cobots), grippers, material handling, and Industry 4.0-capable software and controls.

Designed to be easy to use, safe, and flexible, ProCobots solutions are standardized systems aimed at customers who are in the high-mix, low-volume manufacturing environment.

Products include portable models, such as the ER5 and Profeeder Light, as well as flexible cell solutions, including the Profeeder and Profeeder Q.

Products include portable models, such as the ER Work and ProFeeder Table, as well as flexible cell solutions, including the ProFeeder, ProFeeder Flex, ProFeeder Compact, and ProFeeder X.

ProCobots solutions are available for any Hurco, Milltronics or Takumi machine.

Non-Hurco Branded Products & Technologies

While our three brands of CNC machine tools are responsible for the vast majority of our revenue, we have added other products to our portfolio that have contributed to our top and bottom line growth and will provide product diversity, market

penetration opportunity – while minimizing the impact of geographic cyclicality – with products priced from entry-level to high performance serving a variety of different industries.

and market penetration opportunity – while minimizing the impact of geographic cyclicality – with products priced from entry-level to high performance serving a variety of different industries.

We believe these non-Hurco branded products help us partially offset the cyclical nature of the machine tool market by diversifying our product offering.

These non-Hurco branded products are comprised primarily of other general-purpose vertical machining centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machining centers, metal cutting saws, and CNC Swiss lathes.

These non-Hurco branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical machining centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machining centers, metal cutting saws, and CNC Swiss lathes.

LCM Machine Tool Components and Accessories

Based in Italy, LCM designs, manufactures, and sells mechanical and electro-mechanical components and accessories for machine tools for a wide variety of machine tool OEMs.

LCM’s direct drive spindle, swivel head, and rotary torque table are used in our SRT line of five-axis machining centers to achieve simultaneous five-axis machining.

LCM’s direct drive spindle, swivel head, and rotary torque table are used in the Hurco SRT line of five-axis machining centers to achieve simultaneous five-axis machining.

CNC Rotary Tables

LCM has five lines of CNC rotary tables for both horizontal and vertical-horizontal positioning.

LCM has several lines of CNC rotary tables for both horizontal and vertical-horizontal positioning.

Customers can choose rotary tables with either hydraulic or pneumatic clamping systems.

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CNC Tilt Tables

LCM has seven lines of CNC tilting rotary tables, of which four lines are intended specifically for five-axis machining centers.

Each of the seven lines is differentiated by the technology used for clamping (hydraulic or pneumatic) and by the type of transmission (either mechanical transmission or torque motor).

LCM has several lines of CNC tilting rotary tables, intended specifically for five-axis machining centers.

Each of the lines is differentiated by the technology used for clamping (hydraulic or pneumatic) and by the type of transmission (either mechanical transmission or torque motor).

Swivel Heads and Electro-spindles

LCM has two primary lines of swivel heads that enable the spindle axis to be tilted with continuous motion and one line of electro-spindles (built-in motors for swivel heads).

LCM has two primary lines of swivel heads that enable the spindle axis to be tilted with continuous motion and several electro-spindle (built-in motors for swivel heads) options.

The two lines of swivel heads are differentiated by the type of transmission (either mechanical transmission or torque motor).

Product Development

In 2020, LCM developed a new high-performance, triple-torque, motor-drive, trunnion table for five-axis machines.

The table has two torque motors on either side of the tilting axis of the trunnion as well as a separate torque motor for the rotary table.

In 2021, LCM developed a new high performance tilting rotary table called BRATT400, with the tilting axis positioned at 45 degrees.

It is powered by new LCM torque motors and designed for specific applications on highly dynamic five-axis machines.

Parts and Service

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Manufacturing

Our computerized metal cutting machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiaries in Taiwan (Hurco Manufacturing Limited (“HML”)) and Waconia, Minnesota (Milltronics USA, Inc.

(“Milltronics”)).

HML and Milltronics conduct final assembly operations and are supported by a network of contract suppliers of components and sub-assemblies that manufacture components for our products.

Our computerized metal cutting machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiaries in Taiwan (Hurco Manufacturing Limited (“HML”)).

HML conducts final assembly operations and is supported by a network of contract suppliers of components and sub-assemblies that manufacture components for our products.

Our facility in Ningbo, China (Ningbo Hurco Machine Tool Co.

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The LCM line of electro-mechanical components and accessories for machine tools is designed and manufactured in Italy.

Our facility in Indianapolis, Indiana, also conducts final assembly operations for certain Hurco VMX machines for the American market and manufactures certain electro-spindle components for LCM.

Our facility in Indianapolis, Indiana, also conducts final assembly operations for certain Hurco VMX machines and Milltronics bridge mills for the American market and manufactures certain electro-spindle components for LCM.

We have a contract manufacturing agreement for computer control systems with Hurco Automation, Ltd.

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We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States , which are among the world’s principal machine tool consuming markets.

Our selling divisions in the United States have responsibility for the Americas, which includes Canada, Mexico, Central America, South America, and the U.S.

Approximately 87% of the worldwide demand for computerized machine tools and computer control systems is outside of the U.S.

In fiscal 2020, approximately 61% of our revenues were derived from customers outside of the Americas, (our U.S.

selling divisions have responsibility for the Americas, which includes Canada, Mexico, Central America, South America, and the U.S.) No single end-user or distributor of our products accounted for more than 5% of our total sales and service fees.

In fiscal 2021, approximately 63% of our revenues were derived from customers outside of the Americas.

No single end-user or distributor of our products accounted for more than 5% of our total sales and service fees.

The end-users of our products are precision tool, die and mold manufacturers, independent job shops, specialized short-run production applications within large manufacturing operations, and manufacturing facilities that focus on medium to high run production, wherein they run large batches of a few types of parts instead of small batches of many different parts.

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Most of our competitors are larger and have greater financial resources than our company.

Major worldwide competitors include DMG Mori Seiki Co., Ltd., Mazak, Haas Automation, Inc., Doosan, Okuma Machinery Works Ltd., Hyundai, and Feeler.

Major worldwide competitors include DMG Mori Seiki Co., Ltd., Mazak Corporation, Haas Automation, Inc., Doosan Corporation, Okuma Machinery Works, Ltd., Fryer Machine Systems, ProtoTRAK CNC Machines, Quick Jet Machine, Co., Ltd., Gentiger Machinery Industrial, Co., Ltd., and Yeong Chin Machinery Industries, Co., Ltd.

Through our subsidiary LCM, we compete with manufacturers of machine tool components and accessories such as IBAG, Kessler, Peron Speed, GSA Technology Co., LTD., and Duplomatic Automation.

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Therefore, investing, developing, and maintaining human capital is critical to our success.

As of October 31, 2020, Hurco had approximately 710 full-time employees, of which approximately 29% are in the Americas, and 71% in other global regions.

As a global industrial technology company, a large number of our employees are engineers or trained trade or technical workers focusing on advance manufacturing, and many of them hold masters’, doctorate, or equivalent or higher degrees.

As of October 31, 2021, Hurco had approximately 706 full-time employees, of which approximately 28% were in the Americas, and 72% in other global regions.

As a global industrial technology company, a large number of our employees are engineers or trained trade or technical workers focusing on advanced manufacturing, and many of them hold masters’, doctorate, or equivalent advanced degrees.

Hurco emphasizes a number of measures and objectives in managing its human capital assets, including, among others, employee safety and wellness, talent acquisition and retention, employee engagement, development, and training, diversity and inclusion, and compensation and pay equity.

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Our global pandemic efforts include leveraging the advice and recommendations of infectious disease experts and organizations to establish appropriate safety standards and secure appropriate levels of personal protective equipment for our workforce.

Based upon this advice and recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline the Company’s policies and procedures designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain other infectious diseases.

Based upon this advice and recommendations, we have adopted and implemented the Hurco COVID-19 Exposure Prevention, Preparedness, and Response Plan (the “Hurco COVID Response Plan”) to outline our policies and procedures designed to mitigate the potential for transmission of COVID-19 and prevent exposure to illness from certain other infectious diseases.

Among other things, the Hurco COVID Response Plan memorializes employee, manager, and company responsibilities related to house-keeping and sanitization, hygiene and respiratory etiquette, use of personal protective equipment, employee and visitor screening procedures, leave policies and accommodations, remote working opportunities and infrastructure, and protocols for not reporting to work and/or when to return to work upon potential and/or confirmed COVID-19 exposure or infection.

In addition to procuring personal protective equipment, automatic screening stations, and other preventative resources, the Company also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco products and distributed the same to Hurco personnel and customers around the world.

Hurco has also implemented a wellness program aimed at engaging employees with healthcare providers to promote the proactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight, and routine blood laboratory analysis.

As part of this program, participants receive a discount to already-low employee premium responsibilities associated with generous medical and/or health insurance coverages.

In addition to procuring personal protective equipment, automatic screening stations, and other preventative resources, we also leveraged Hurco technology and human capital to directly produce personal protective equipment on Hurco products during fiscal 2020 and distributed the same to our personnel and customers around the world.

We have also implemented a wellness program aimed at engaging employees with healthcare providers to promote the proactive evaluation, tracking, and management of major health and wellness indicators, such as blood pressure, weight, and routine blood laboratory analysis.

Employee Engagement, Development, and Training

We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization.

We advance continual learning and career development through ongoing performance and development conversations or evaluations with employees, internally and externally developed

training programs, and educational reimbursement programs.

We advance continual learning and career development through ongoing performance and development conversations or evaluations with employees, internally and externally developed training programs, and educational reimbursement programs.

In connection with the latter, reimbursement is available to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relative to our business or otherwise to the development of the employee’s skill set or knowledge base.

In addition, we routinely invest in seminar, conference, and other training or continuing education events for our employees.

Diversity and Inclusion and Ethical Business Practices

Hurco is committed to fostering work environments that value and promote diversity and inclusion.

This commitment includes providing equal access to, and participation in, equal employment opportunities, programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or assumptions based thereon.

We pride ourselves in the development and fair treatment of our global workforce, including generous healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies, and implementation of affirmative action programs.

Diversity and Inclusion

We are committed to fostering work environments that value and promote diversity and inclusion.

This commitment includes a policy to provide equal access to, and participation in, equal employment opportunities, programs, and services without regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identity, stereotypes or assumptions based thereon.

We pride ourselves on policies and programs designed for the development and fair treatment of our global workforce, including generous healthcare and benefit programs for our employees, equal employment hiring practices and policies, anti-harassment, workforce safety, and anti-retaliation policies, and implementation of affirmative action programs.

We welcome and celebrate our teams’ differences, experiences, and beliefs, and we are investing in a more engaged, diverse, and inclusive workforce.

Hurco also fosters a strong corporate culture that promotes high standards of ethics and compliance for our businesses, including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of Business Conduct and Ethics.

We also maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations or unethical busines conduct on the part of our businesses, employees, officers, directors, or vendors and provide training and education to our global workforce with respect to our Code of Business Conduct and Ethics and anti-corruption and anti-bribery policies.

Ethical Business Practices

We also foster a strong corporate culture that promotes high standards of ethics and compliance for our businesses, including policies that set forth principles to guide employee, officer, director, and vendor conduct, such as our Code of Business Conduct and Ethics.

We also maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations or unethical business conduct on the part of our businesses, employees, officers, directors, or vendors and provide training and education to our global workforce with respect to our Code of Business Conduct and Ethics and anti-corruption and anti-bribery policies.

We intend to disclose any amendment to, or a waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting such information on our website at www.hurco.com .

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Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases have disrupted, and could continue to disrupt, our operations and materially and adversely affect our business, financial condition, and results of operations.

Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could continue to have, a material adverse effect our business, financial condition, and results of operations.

Widespread public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases, such as the COVID-19 pandemic, have had, and could continue to have, a material adverse effect on our business, financial condition, and results of operations.

As a result of the COVID-19 pandemic, governmental authorities in jurisdictions where our facilities, customers, and suppliers are located have imposed mandatory closures, stay-at-home orders, and social distancing protocols that significantly limit the movement of people, goods, and services or otherwise restrict normal business operations or consumption patterns.

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Specifically, many of our sales and service organizations throughout the Americas, Europe, and Asia Pacific have, at one time or another, been subject to temporary closures or otherwise been required to adopt remote work strategies.

And, we may continue to experience additional temporary facility closures in response to government mandates and/or the incidence of additional contagion spread.

We may continue to experience additional temporary facility closures in response to government mandates and/or the incidence of additional spread.

Additionally, the COVID-19 outbreak has disrupted and could in the future disrupt our ability to deliver and/or install machines, our procurement of supplies for our operations, and our customers’ purchasing behavior or decisions.

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Any or all of the foregoing in jurisdictions where we or our customers, suppliers, or business partners are located have had and could continue to have a material adverse effect on our business, results of operations, cash flows, and financial condition.

In addition, fluctuations in demand and other implications associated with the COVID-19 pandemic have resulted in, and could continue resulting in, certain supply chain constraints and challenges.

Specifically, we have begun to experience vendor delays, bottlenecks and significant cost increases in transportation and freight services, and inflationary and similar cost increases for the cost of our materials and components.

These issues could impact our ability to timely ship products to meet customer demand and/or impose pricing pressures on our product margin.

Should these pressures continue for a significant period of time, and if we are unable to pass on cost or inflationary input increases to customers, our future operations, operating results, and cash flows could be materially adversely impacted.

Significant increases in economic and demand uncertainty have led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both our company and our customers and suppliers.

In addition, resulting changes in our access to or cost of capital, expected cash flows, or other factors could cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write down goodwill for the amount of the impairment.

In addition, resulting changes in our access to or cost of capital, expected cash flows, or other factors could cause our intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down the intangible assets for the amount of the impairment.

The duration and scope of the COVID-19 pandemic remains uncertain and, therefore, we cannot reasonably estimate its potential impact on our business, financial condition, or results of operations, but such impact has been, and could continue to be, material.

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Changes in customs requirements, as a result of national security or other constraints put upon these ports, may also have an adverse impact on our results of operations.

Similarly, significant delays at one or more of the ports where our products are shipped or received has impacted, and could continue to impact, the amount of time required to ship our products to customers, which could materially adversely impact our business, demand for our product, our ability to meet quoted delivery dates, our results of operations, future operations, and/or financial condition.

Additionally, we must comply with complex foreign and U.S.

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Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.

Finally, a significant portion of our manufacturing, production, and assembly operations are located in certain limited geographic territories, including the People’s Republic of China (“China”) and the Republic of China (“Taiwan”).

An unplanned interruption in manufacturing or supply, or significant increase in price from third party suppliers, could have a material adverse effect on our business, results of operations, and financial condition.

Such an interruption or increase in price could result from various factors, including a change in the political environment, such as trade wars or tariffs, a natural disaster, such as an earthquake, typhoon, or tsunami, or vulnerabilities in our technology or cyber-attacks against our information systems, such as ransomware attacks.

Also, any interruption in service by one of our key component suppliers, if prolonged, could have a material adverse effect on our business, results of operations and financial condition.

Additionally, the geopolitical environment and ongoing sovereign relationship between China and Taiwan could have a material impact on our business.

Specifically, if a trade war, tariff, physical or economical blockade, or war ensued and impacted access to or from the Taiwan or Chinese markets or workforce, we could have challenges maintaining production plans or output, accessing the skilled labor necessary to produce our products without interruption, accessing and/or shipping our finished goods, work in progress, or other inventories located in either of those territories, accessing or maintaining our supply base that is located in those territories or elsewhere, and/or otherwise experience significant disruptions in our business.

Such disruptions, if prolonged, could have a material adverse effect on our business, results of operations, and financial condition.

In such a case, we may be forced to relocate and/or shift production facilities to other geographic territories to mitigate the risks associated with consolidating our manufacturing operations in such territories, which would likely result in disruptions to our production plans and/or our ability to meet forecasted customer demand in the near term, all of which could have a material adverse effect on our business, financial results, future operations, and/or financial position.

Fluctuations in the exchange rates between the U.S.

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We hedge a portion of our foreign currency exposure with the purchase of forward exchange contracts.

These hedge contracts only mitigate the impact of changes in

foreign currency exchange rates that occur during the term of the related contract period and carry risks of counterparty failure.

These hedge contracts only mitigate the impact of changes in foreign currency exchange rates that occur during the term of the related contract period and carry risks of counterparty failure.

There can be no assurance that our hedges will have their intended effects.

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The United Kingdom's withdrawal from the European Union could have an adverse impact on our business, financial condition, operating results, and cash flows.

On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to as “Brexit.” The U.K.

agreed to participate in a transition period (the “Transition Period”), due to expire on December 31, 2020, to negotiate a trade agreement and other aspects of their future relationship.

During the Transition Period, free trade has continued and will continue between the U.K.

On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“E.U.”), commonly referred to as “Brexit.” On or around that time, the U.K.

agreed to participate in a transition period (the “Transition Period”), which expired on December 31, 2020, to negotiate a trade agreement and other aspects of their relationship after the Transition Period.

During the Transition Period, free trade continued between the U.K.

without checks or extra charges.

Following the Transition Period, the U.K.

will no longer be a part of the single market and customs union of the E.U.

In December 2020, the U.K.

announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – potentially avoiding some of the anticipated disruption of a no-deal, “hard” Brexit.

is no longer a part of the single market and customs union of the E.U.

However, immediately prior to expiration of the Transition Period, the U.K.

announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues (the “December 2020 Brexit Deal”) – avoiding some of the anticipated disruption of a no-deal, “hard” Brexit.

We have operations in the U.K.

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(“HEL”), our sales and service business unit located there.

Changes resulting from Brexit and the newly-announced December 2020 Brexit Deal could subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

Changes resulting from Brexit, the December 2020 Brexit Deal, and/or subsequent transition agreements or arrangements could subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

and the U.K., inspections or barriers on goods sold between the U.K.

and the E.U., extra charges, and/or difficulty staffing.

We are in the process of evaluating the potential impact of Brexit and the December 2020 Brexit Deal on us, our subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows.

We have evaluated the impact of Brexit on us, our subsidiaries, including HEL, our business, and our future operations, operating results, and cash flows and it has not materially change our business to date.

In addition, we do not know if the U.K.

will succeed in negotiating certain terms not addressed or covered by the December 2020 Brexit Deal.

Changes in these other terms resulting from Brexit after the Transition Period could, similarly, subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

will succeed in negotiating all material terms not otherwise addressed or covered by the December 2020 Brexit Deal or subsequent transition agreements or arrangements and/or if previously agreed upon items will be renegotiated in the future.

Changes in these or other terms resulting from Brexit could, similarly, subject us or our subsidiaries, including HEL, to increased risk, including, among others, changes in regulatory oversight, disruptions to supply, increases in prices, fees, taxes or tariffs on goods that are sold between the E.U.

and the U.K., inspections or barriers on goods sold between the U.K.

and the E.U., extra charges, and/or difficulty staffing.

Brexit may cause fluctuations in the value of the U.K.

pound sterling and E.U.

Brexit may also cause fluctuations in the value of the Pound Sterling and the Euro.

Fluctuations in exchange rates between the U.S.

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While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, reduce the market value of our products and services, lower our profits, and could otherwise have an adverse effect on our business, financial condition, and results of operations.

Finally, certain subcontractors, vendors, and third parties provide inputs, components, code, and/or similar items that are complimentary and compatible with our products, software, and controls.

If we are unable to secure access and/or rights to any such inputs, components, code, or similar items, our ability to continue to produce our products without interruption could be challenged, which could materially and adversely impact our business, financial condition, results of operation, and demand for our products.

Disruptions in our manufacturing operations or the supply of materials and components could adversely affect our business, results of operations and financial condition.

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The availability and price for these and other raw materials are subject to volatility due to worldwide supply and demand forces, speculative actions, inventory levels, exchange rates, production costs, anticipated or perceived shortages, and tariffs or other trade restrictions.

In some cases, those cost increases can be passed on to customers in the form of price increases;

in other cases, they cannot.

In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot.

If the prices of raw materials increase and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected.

Recent inflationary pressures and other factors have resulted in increases to the cost of the inputs or materials for our products.

Similarly, recently, costs associated with transportation and freight services have increased significantly due limited capacity and/or availability of containers, shipping vessels, and/or receiving port services.

If prolonged, and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of raw materials, product components, and/or transportation services could adversely affect our sales, costs, margin, and profitability.

The unanticipated loss of current members of our senior management team and other key personnel may adversely affect our operating results.

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● issue common stock that would dilute our current shareholders’ percentage ownership;

● borrow and subject us to increasing interest rates;

● assume or otherwise be subject to liabilities of an acquired company;

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territories and all 50 states now have data breach laws that require timely notification to individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data.

Other state laws include the California Consumer Privacy Act (“CCPA”), which was signed into law on June 28, 2018 and largely took effect on January 1, 2020.

The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals new rights relating to their personal information that may affect our ability to use personal information or share it with our business partners.

Regulations from the California Attorney General have not been finalized, and it is expected that additional amendments to the CCPA will be introduced in 2020.

Meanwhile, over fifteen other states have considered privacy laws like the CCPA, We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.

Outside of the U.S., data protection laws, including the EU General Data Protection Regulation (the “GDPR”), also apply to some of our operations.

Other state laws include the California Consumer Privacy Act (“CCPA”), which gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights.

Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA.

The CPRA also creates a new California data protection agency authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security enforcement.

Other states have considered and/or enacted similar privacy laws.

We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.

Outside of the U.S., data protection laws, including the U.K.

General Data Protection Regulation (the “GDPR”), also apply to some of our operations.

Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data 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, 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 are considering similar types of legislative and regulatory proposals concerning data protection.

GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.

Other governmental authorities around the world are considering and, in some cases, have enacted, similar privacy and data security laws.

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 compliance with any additional requirements.

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Assets have become, and may become further, impaired, requiring us to record a significant charge to earnings.

We review our assets, including intangible assets such as goodwill, for indications of impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable.

We review our assets, including intangible assets, for indications of impairment annually and when events or changes in circumstances indicate the carrying value may not be recoverable.

We could be required to record a significant charge to earnings in our financial statements for the period in which any impairment of these assets is determined, which would adversely affect our results of operations for that period.

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These changes, as adopted by countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

An increase in the LIBOR rate or a phase-out or replacement of LIBOR with a benchmark rate that is higher or more volatile than the LIBOR rate could increase our cost of borrowing and could adversely affect our financial position.

The interest rates applicable to certain of our debt obligations are based on a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”).

Any increase in interest rates applicable to our debt obligations would increase our cost of borrowing and could adversely affect our financial position, results of operations, or cash flows.

Further, in July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.

The cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark Administration until mid-2023.

In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify alternatives to LIBOR.

The ARRC has recommended a benchmark replacement procedures to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation.

The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”).

Additionally, it is uncertain if applicable tenors of LIBOR will cease to exist after calendar year 2021, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR.

At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement.

At this time, all of our debt obligations that are based on LIBOR will mature at the end of 2021, but in anticipation of LIBOR’s phase out, the Second Amendment to our [2018 Credit Agreement] provides for alternative benchmark rates (including a hard-wired SOFR-based alternative benchmark) as well as transition mechanisms for selecting another benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed with the lender.

We will continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur.

Accordingly, the potential effect of the phase-out or replacement of LIBOR on our cost of capital cannot yet be determined.

Further, the use of an alternative base rate or a benchmark replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business, financial condition or results of operations.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1. Business