Item 1A. Risk Factors
ITEM 1A — RISK FACTORS
We caution you that our business and operations are subject to a number of risks and uncertainties. The factors listed below are important factors that could cause our actual results to differ materially from our historical results and from projections in forward-looking statements contained in this report. Other factors that we do not anticipate, or that we do not consider material based on currently available information, may also have an adverse effect on our results.
Financial Risks
Gross margin on product sales: We consider gross profit as a percentage of product sales (gross margin) to be a key measure of our overall efficiency of production and of our ability to maintain favorable pricing of our products. Between 2024 and 2025, we saw a substantial recovery of gross margin, from 30% to 41% of product sales, with the latter percentage materially affected by a non-cash write-down of inventories representing approximately 2.4% of product sales for the year ended December 31, 2025. Many factors affect our costs of goods sold and therefore impact gross margin. There is a risk that efforts to maintain or improve our gross margin may not be realized due to distributor or end-customer price inelasticity, lack of colostrum supply or increased colostrum costs, other cost increases, production yield losses, in-process contamination events, equipment failures, or any combination of these factors.
Product sales : We will seek to expand our First Defense® product sales by increasing the share of calves in the U.S. using our products and by seeking to enter non-U.S. markets where we presently have little or no presence. We have increased our investment in our commercial staff. The markets for calf scours preventatives and treatments are highly competitive. First Defense® typically has a higher price per application than vaccine products against which we compete, reflecting what we consider to a higher level of efficacy. There is no assurance that our increased sales efforts in domestic markets or our attempts to enter new international markets will result in higher product sales. Our efforts to expand into international markets also may be constrained by difficulties in achieving necessary regulatory approvals for our products in that country.
Net income (loss): In 2025 we achieved a significant increase in net operating income, amounting to $1.6 million versus a $1.6 million net operating loss for 2024. Our future financial performance can be affected by numerous factors that are difficult to predict or that are beyond our control.
Exposure to interest rates and debt service obligations: Rising interest rates could negatively affect the operating costs of distributors and producers and put financial pressure on dairy and beef business sectors, which could indirectly, but materially and adversely, affect our business. Our aggregate outstanding debt as of December 31, 2025 totaled $9.1 million (without counting debt issuance and debt discount costs) bearing interest at the blended fixed rate of 4.31% per annum. Increasing interest rates would negatively impact the cost of any future borrowings. The additional debt we incurred to fund our growth objectives has increased our total debt service costs. We are obligated to make principal and interest payments aggregating approximately $2 million and $1.5 million during the years ending December 31, 2026 and 2027, respectively. See Note 9 to the accompanying audited financial statements for more details about our debt.
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Debt covenants: Our debt with Maine Community Bank is subject to certain financial covenants. We are required to meet a minimum debt service coverage (DSC) ratio of 1.35. Our actual DSC ratios were 2.65 and 0.73 for the years ended December 31, 2025 and 2024, respectively. The DSC ratio covenant was preemptively waived by our lenders for the twelve months periods ended June 30, 2024, September 30, 2024 and December 31, 2024. There is no assurance that we will be able to achieve the required DSC ratio going forward. If we are unable to do so or reach a favorable agreement with our lenders regarding that requirement (including an amendment to or waiver of such requirement), we would be in violation of that covenant, which could result in unfavorable amendments to the terms of our bank debt (including a possible bank requirement to prepay our debt) or have other adverse impacts on our business and results of operations.
Currency exchange fluctuation: We do not believe that currency exchange rates have had a significant effect on our revenues and expenses. However, particularly if we expand non-U.S. sales of First Defense® future increases in the value of the U.S. dollar could make our products more expensive for our non-U.S. customers and affect demand for our products. Conversely, decline of the U.S. dollar against other currencies could make our products less expensive to international customers.
Inflation, supply disruptions, tax rates and economic downturns: Cumulative inflation over the past five years has materially increased the price of almost all supplies we purchase and the labor we hire and retain. The cost of grain and other inputs for our customers has risen over that period, putting strain on the profitability of our customers. On the other hand, calf prices have increased significantly since 2020, which we believe makes spending on scours prevention more attractive. If the U.S. economy were to experience an extended period of economic downturn, we expect this could have a corresponding negative effect on our business and operations, including the supply of the colostrum we purchase to produce our First Defense® product line, the demand for our products in the U.S. market, and our ability to penetrate or maintain a profitable presence in international markets.
Business interruption and business continuity: Our business interruption insurance may not be adequate to cover our potential losses, liabilities and damages. Furthermore, we may be subject to business continuity risk in the event of an unexpected loss of a material facility or operation. Our product operations are concentrated at a single location, which exposes us to significant business interruption risk if that facility is damaged or otherwise unavailable. Although we maintain insurance coverage intended to protect against certain losses; waiting periods, deductibles, and exceptions could materially reduce or eliminate recovery for certain events. We pursue risk mitigation measures and periodically review our insurance programs, but these steps may not be sufficient to eliminate the risks described above or to prevent a material adverse effect on our business.
Uncertainty of market size and product sales estimates: Estimating the size of the total addressable market and future sales growth potential for our First Defense ® product line is based on our experience and understanding of market dynamics but is inherently subjective. Estimating the size of the market for any new product, such as First Defense Technology ® , involves more uncertainties than do projections for established products. We do not know whether, or to what extent, our products will achieve, maintain or increase market acceptance and profitability. Some of the uncertainties surrounding First Defense Technology ® include the product’s effectiveness against currently prevalent pathogens, market acceptance, the effect of our selling price on market penetration, the potential cannibalization effect on other First Defense ® products, competition from new and existing products sold by substantially larger competitors with greater market reach and promotional resources and other risks.
Net deferred tax assets: The realizability of our net deferred tax assets is a subjective estimate that is contingent upon many variables. During the second quarter of 2018, we recorded a full valuation allowance against our net deferred tax assets that significantly increased our net loss in comparison to other periods. This non-cash expense could be reversed, and this valuation allowance could be reduced or eliminated, if warranted by our actual and projected profitability in the future. We will continue to assess the need for the valuation allowance each quarter.
Product Risks
Product risks generally: We set objectives for our products that we believe we can achieve, but the achievement of such goals is not a certainty. The sale of our products is subject to production, financial, efficacy, regulatory, competitive and other market risks. Elevated standards to achieve and maintain regulatory compliance required to sell our products continue to evolve. Failure to achieve acceptable biological yields from our production processes can materially increase our costs of goods sold and reduce our production output, leading to lower margins and/or an order backlog that could adversely affect our customer relationships and operating results. First Defense ® is sold at price premiums relative to competitive products. There is no assurance that we will continue to achieve market acceptance of the First Defense ® product line at a profitable price level or that we can continue to manufacture our products at a low enough cost to result in a sufficient gross margin to justify their continued manufacture and sale. These risks could be heightened by the additional uncertainties associated with introducing a new product requiring a shift in customer behavior.
Reliance on sales of the First Defense ® product line: We presently are reliant on the market acceptance of the First Defense ® product line to generate product sales and fund our operations. Our business would not be profitable without the gross margin that we earn on sales of the First Defense ® product line. Our ability to achieve net operating income in 2025 was largely driven by gross margin we earned from First Defense ® and prudent management of product development expenses.
Concentration of sales: Sales of the First Defense ® line of products aggregated 99% of our total product sales during both the years ended December 31, 2025 and 2024. The majority of our product sales is from the U.S. dairy and beef industries (approximately 88% and 86% during the years ended December 31, 2025 and 2024, respectively), and the concentration of our sales into the dairy and beef markets is a risk to our business. The animal health distribution segment has been consolidating over the last few years, with larger distributors acquiring smaller distributors. A large portion of our product sales (approximately 72% and 77% during the years ended December 31, 2025 and 2024, respectively), was made to two large distributors and a large portion of our trade accounts receivable (approximately 69% and 78% as of December 31, 2025 and 2024, respectively) was due from these two distributors. We have a good history with these distributors, but the concentration of sales and accounts receivable with a small number of customers does present a risk to us, including risks related to such customers experiencing financial difficulties or altering the basis on which they do business with us in a manner unfavorable to us.
Production capacity constraints: The inability to meet market demand for our products is a risk to our business. We invested $11.0 million from 2019 to December 31, 2025 to increase our annual production capacity for the First Defense ® product line from approximately 2.2 million manufactured units in 2018 to approximately 4.6 million manufactured units in 2025. Our future plans call for increases of our production capacity through yield improvements and by redeploying assets previously slated for production of Re-Tain ® . Expanding manufacturing capacity involves practical and technical risks affecting efficiency of production, risks of contamination, and risks of not being able to access sufficient high-quality colostrum needed for this process. There is a risk of cost overruns in our projects and any future production expansions that we may undertake, and a risk that we will not be able to achieve our production capacity growth objectives on a timely basis, resulting in a continuing or increasing shortfall in supply to the market. A backlog of orders presents a risk that we could lose customers that are not easily regained. Our long-term capital plan to continue to expand the First Defense ® product line requires ongoing review of equipment capacity and utilization and assessment of costs, functional obsolescence and reliability of equipment. This review and assessment could identify a need to fund unexpected equipment maintenance or replacement costs.
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Contamination events, equipment failures and gross margin from our production process: During the first three and a half months of 2024, as well as during 2023 and late 2022, we experienced certain contamination events and equipment failures in our production process that resulted in scrapped inventory and a slowdown of our production process, which had a significant negative impact on our operating results. The realization of this risk following the contamination events discussed above did result in a slowdown of our production output during 2023 to remediate this problem, which led to less sales and gross margin during the year. We are at risk of further such production contaminations or equipment failures resulting in more scrapped inventory. Additional contamination events or equipment failures causing significantly less production output, depending on their severity, could deplete our cash resulting in an inability to fund our business operations. Recent losses incurred from contamination events in 2022 through early 2024 were only partially offset by business interruption insurance recoveries in 2023 and 2025.
Colostrum collection: There is a risk that the farms that participate in our vaccination and colostrum collection process no longer wish to continue supplying us with colostrum or participating in our vaccination program, due to the need to use all or part of the colostrum for their own calves and concerns with the increasing cost of colostrum-replacement. There is a risk that our supply farms, which are almost entirely located in one state, are subject to a disease outbreak that inhibits their ability to supply the colostrum. There is a risk that other companies will offer higher premiums for colostrum for use in human or other animal health markets. There is a risk that the quality of the colostrum collected will not be suitable for our production requirements.
Product liability: The manufacture and sale of our products entails a risk of product liability. Our exposure to product liability is mitigated to some extent by the fact that our products are directed towards the animal health market. We have maintained product liability insurance in an amount which we believe is reasonable in relation to our potential exposure in this area. We have no history of claims of this nature being made.
Risks pertaining to Re-Tain ®: In late 2025 we made the decision not to pursue manufacture of Re-Tain® and to attempt to license this technology to other companies, or to sell to or partner with other companies. There is no assurance that we will be able to find third parties who have an interest to in-license, acquire or partner with us related to Re-Tain®. Parties may not be interested if they perceive that (1) completing the process of obtaining FDA and international regulatory approvals is too burdensome, too costly, or takes too much time, (2) positive milk inhibitor tests involve risk of rejection of bulk tanks of milk comprised of milk from cows being treated with Re-Tain®, (3) cheese tanks fail or stall when a Nisin susceptible cheese starter culture is impacted by residues in milk that exceed on-farm treatment recommendations, (4) dairy farms will choose not to screen for subclinical mastitis (instead focusing on treating clinical mastitis that can be identified visually), (5) dairy farms are unable to judge satisfactory treatment outcomes due to lack of equipment to measure and monitor somatic cell counts (SCC) of the herd or individual cows, (6) cure rates established in scientific trials prove less than desired, or (7) dairy farms choose not to use Re-Tain® or use it improperly, rather than follow label instructions.
Regulatory Risks
Regulatory requirements for the First Defense ® product line: First Defense ® is sold in the United States subject to a product license from the Center for Veterinary Biologics, USDA, which was first obtained in 1991, with subsequent approvals of line extensions in 2017 and 2018. As a result, our operations are subject to periodic inspection by the USDA, and we are at risk of an unfavorable outcome from such inspections. The potency of serial lots is directly traceable to the original serial used to obtain the product performance claims (the Reference Standard). Due to the unique nature of the label claims, host animal re-testing is not required if periodic laboratory analyses continue to support the stability of the stored Reference Standard. To date, these analyses have demonstrated strong stability. However, if the USDA were not to approve requalification of the Reference Standard, additional clinical studies could be required to meet regulatory requirements and allow for continued sales of the product, which could interrupt sales and adversely affect our operating results. Territories outside of the United States may have additional regulatory requirements that we may not be able to meet with our current facilities, processes and resources. There is a risk that we will become subject to regulatory actions in the future, including actions that result in our inability to ship product. In these cases, the resulting interruption in sales could have a material and adverse effect on our operating results.
Regulatory requirements limiting access to suppliers and customer base: Maine, where our principal executive office and manufacturing facilities are located, has adopted product reporting and phase-out requirements for per- and polyfluoroalkyl substances (“PFAS”). Maine’s statute establishes a phased ban for products that contain intentionally added PFAS, with all products (subject to certain exceptions) other than cooling, heating, ventilation, air conditioning or refrigeration equipment being banned by 2032 unless the Maine Department of Environmental Protection (“DEP”) has determined that the use of PFAS within the product is a “currently unavoidable use.” Beginning January 1, 2032, the sale of products containing intentionally added but “currently unavoidable” PFAS also is banned if the manufacturer of such products has failed to report to the DEP information concerning the presence of PFAS in those products. The phased bans may limit our ability to access supplies and may limit those customers to whom we may sell our products. The U.S. Environmental Protection Agency also has adopted a PFAS reporting law, which requires that importers of articles that contain PFAS report the presence of such substances to the extent such information is known or reasonably ascertainable. This reporting requirement may limit our ability to import supplies.
Economic Risks Pertaining to the Dairy and Beef Industries
Dairy Staffing: The U.S. government is stepping up immigration enforcement efforts. Colostrum suppliers to our manufacturing process or customers of our products may be challenged to recruit, train and retain employees who are critical for our colostrum supply process and use of our product in the field. Significant deportations of these individuals could have a negative impact on the operations of our customers and of our source farms.
Industry: We define our addressable market for First Defense ® as the number of calves currently or potentially protected by scours preventative products multiplied by the value paid for such products. A significant decline in the cattle count would negatively affect the size of our addressable market by reducing the number of animals that would benefit from scours preventatives. A significant decline in the value of newborn or pre-weaning calves would negatively affect the size of our addressable market by reducing the interest of producers to invest in calf health solutions, including scours preventatives. A multitude of factors can contribute to changes in the number of cattle or changes in the value of calves in any particular geography, including government decisions affecting trade of live animals, disease outbreaks and containment statuses, supply and demand imbalances for specific sources of protein such as milk and beef, changes in breeding and genetics practices, and other factors. Changes in milk and beef prices and feed costs may also impact producers' ability to pay for premium calf health products such as First Defense ® .
Volatility of the dairy market : While the number of cows in the U.S. herd and the production of milk per cow directly influence the supply of milk, the price for milk is also influenced by very volatile international demand for milk products. Given our focus on the dairy and beef industries, the volatile market conditions and the resulting financial insecurities of our primary end users are risks to our ability to maintain and grow sales at a profitable level. These factors also heighten the challenge of selling our premium-priced animal health products into the dairy market.
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Small Size of the Company
Dependence on key personnel: We are a small company with 73 employees. As such, we rely on certain key employees to support multiple operational functions, with limited redundancy in capacity. The loss of any of these key employees could adversely affect our operations until a qualified replacement is hired and trained, which could be even more challenging in the present difficult labor market. Our competitive position will be highly influenced by our ability to attract, retain and motivate key scientific, manufacturing, managerial and sales and marketing personnel. The cost of attracting and retaining the needed additional personnel in this current job market and inflationary environment could adversely affect our margins and profitability.
Competition from others: Many of our competitors are significantly larger and more diversified in the relevant markets than we are and have substantially greater financial, marketing, manufacturing and human resources and more extensive product development and sales/distribution capabilities than we do, including greater ability to withstand adverse economic or market conditions and declining revenues and/or profitability. Elanco, Merck, Zoetis, Boehringer Ingelheim and CEVA, among other companies, sell products that compete directly with the First Defense ® product line in preventing scours in newborn calves. The scours product sold by Zoetis sells for approximately half the price of our product, although it does not have an E. coli claim (which ours does). With Tri-Shield ® , we can compete more effectively against vaccines that are given to the mother cow (dam) to improve the quality of the colostrum that she produces for the newborn calf. Elanco, Merck and Zoetis provide these dam vaccine products to the U.S. market and other competitors are active in international markets. There is no assurance that our products will compete successfully in these markets. We may not be aware of other companies that compete with us or intend to compete with us in the future.
Ability to hire: Our competitive position will be highly influenced by our ability to attract and retain key scientific, manufacturing, managerial, sales and marketing personnel, to develop, produce and commercialize proprietary technologies and products. We need to obtain USDA, FDA or foreign approvals for new products to effectively promote and sell our products. We must have available properly-licensed, efficient and effective raw material and finished product manufacturing resources to continue to profitably sell our current products. We currently compete on the basis of product performance, price, distribution capability and customer support.
Global Risks
Tariffs and Trade Policies: Changes in tariffs or cross-border trade policies could affect our ability to expand sales of our products into foreign markets. The businesses of some of our U.S. dairy and beef customers could be significantly affected by changes in tariffs or trade policies, thus negatively affecting demand for our products. Additionally, tariffs on products and materials that we import could increase our costs of goods sold.
International Conflicts: International conflicts give rise to uncertainties and stress on the global economy, which in turn can affect the demand for our products and our costs of operation. We have formerly done business in Iran. Although our ability to do so in the future is unclear, a cessation of sales to Iran would not materially affect our revenues or profitability.
Climate change: Our business, and our activities and the activities of our customers and suppliers, could be disrupted by climate change. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and a rising heat index, any of which could cause negative impacts to our and our customers’ and suppliers’ businesses. Increased temperatures and rising water levels may negatively impact our dairy and beef livestock customers by increasing the prevalence of parasites and diseases that affect food animals. The physical changes caused by climate change may also prompt changes in regulations or consumer preferences which in turn could have negative consequences for our and our customers’ businesses. Climate change may negatively impact our customers’ operations. In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our customers’ businesses, they may purchase fewer of our products, and our revenues may be negatively impacted. Climate driven changes could have a material adverse impact on the financial performance of our business and on our customers. In addition, increased frequency of natural disasters and adverse weather conditions may disrupt our manufacturing processes or our supply chain. These disruptions may have a material adverse effect on our business, financial condition, results of operations and/or cash flows.
Bovine diseases: The potential for epidemics and outbreaks of bovine diseases presents a risk to our suppliers and to our customers. United States policy for the prevention of certain diseases has led to an overall tightening of regulations pertaining to ingredients of animal origin, especially bovine. The First Defense ® product line is manufactured from concentrated bovine colostrum, which is not considered a risk material. Future regulatory action to increase protection of the human food supply could affect the First Defense ® product line, although presently we do not anticipate that this will be the case.
Risks Pertaining to Common Stock
Stock market valuation and liquidity: Our common stock trades on The Nasdaq Capital Market (Nasdaq: ICCC). Our average daily trading volume (which was 16,939 shares per day during the 20-day period ended March 20, 2026) is lower, our bid/ask stock price spread can be larger and our share price can be more volatile than what other companies experience. Those factors could result in investors facing difficulty selling their stock for proceeds that they may expect or desire. Our share price as of March 20, 2026 was $6.07. Most companies in the animal health sector have market capitalization values that greatly exceed our market capitalization of approximately $54.9 million as of March 20, 2026. Our product sales during the year ended December 31, 2025 were $27.6 million. This means that our market capitalization as of March 20, 2026 was equal to approximately two times our sales during the year ended December 31, 2025. Before adequate gross margin from the sale of existing and new products is achieved, our market capitalization may be heavily dependent on the perceived potential for margin expansion and revenue growth and may therefore be negatively affected by the related uncertainties and risks.
Certain provisions might discourage, delay or prevent a change in control of our Company or changes in our management: Provisions of our certificate of incorporation, our bylaws or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:
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limitations on the removal of directors;
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advance notice requirements for stockholder proposals and nominations;
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the ability of our Board of Directors to alter or repeal our bylaws;
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Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could adversely affect the trading price of our common stock or limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood of obtaining a premium for our common stock in an acquisition disfavored by our Board of Directors.
No expectation to pay any dividends or repurchase stock for the foreseeable future: We do not anticipate paying any dividends to, or repurchasing stock from, our stockholders for the foreseeable future. Instead, we expect to use cash to fund product development costs and investments in our facilities and production equipment, and to increase our working capital. Stockholders must be prepared to rely on market sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends or repurchase stock in the future will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, restrictions imposed by applicable laws, current and anticipated needs for liquidity and other factors our Board of Directors deems relevant.
Possible dilution: We have accessed the capital markets and issued additional common stock, from time to time, under an At-the-Market (ATM) Offering to fund our operations, as described elsewhere in this Annual Report. Such issuances have a dilutive effect on our existing stockholders and may occur again in the future.
Other Risks
Access to raw materials and contract manufacturing services: Our objective is to maintain more than one source of supply for the components used to manufacture and test our products that we obtain from third parties. However, we may experience difficulty in efficiently acquiring essential supplies. We have significantly increased the number of farms from which we purchase colostrum for the First Defense ® product line. A significant reduction in farm capacity could make it difficult for us to produce enough inventory to meet customer demand. The specific antibodies that we purify from colostrum for the First Defense ® product line are not readily available from other sources. We are and will be dependent on our manufacturing facilities and operations in Portland, Maine for the production of the First Defense ® product line. Any significant damage to or other disruption in the services at our leased facilities or our owned facilities (including due to lack of financing, regulatory issues or non-compliance) would adversely affect the production of inventory and result in significant added expenses and potential loss of future sales.
Failure to protect intellectual property: The protection and enforcement of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. We rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. However, we may be unable to adequately protect our intellectual property rights or prevent third parties from infringing or misappropriating our intellectual property rights. We may not be able to obtain registration for all intellectual property we seek to register, and effective intellectual property protection may not be available in every country in which our products are sold. In some cases, we have chosen (and may choose in the future) not to seek patent protection for certain products or processes. Instead, we have sought (and may seek in the future) to maintain the confidentiality of any relevant proprietary technology through trade secrets, operational safeguards and contractual agreements. Reliance upon trade secrets, rather than patent protection may cause us to be vulnerable to competitors who successfully replicate (knock off) our manufacturing techniques and processes. Further, our confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information. Others may independently develop similar trade secrets or technology or obtain access to our unpatented trade secrets or proprietary technology. Others may have filed patent applications and may have been issued patents involving products or technologies potentially useful to us or necessary for us to commercialize our products or achieve our business goals. If that were to be the case, there can be no assurance that we will be able to obtain licenses to such patents on terms that are acceptable to us. Any of our intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Third parties may claim in the future, that we have infringed their intellectual property rights, which could result in significant costs and potential damages and license requirements. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights. However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation of our intellectual property rights and other proprietary rights. In addition, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights.
Increasing dependence on the continuous and reliable operation of our information technology systems: We rely on information systems throughout our company. Any disruption of these systems or significant security breaches could adversely affect our business. Although we maintain information security policies and employ system backup measures and engage in information system redundancy planning and processes, such policies, measures, planning and processes, as well as our current disaster recovery plan may be ineffective or inadequate to address all eventualities. As information systems and the use of software and related applications by us, our business partners, suppliers, and customers become more cloud-based, we become inherently more susceptible to cyberattacks. There has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. There are reports of increased activity by hackers and scammers since the COVID-19 pandemic. Any such attack or breach could compromise our networks and the information stored thereon could be accessed, publicly disclosed, lost, or stolen. While we have invested in our data and information technology infrastructure (including working with an information security technology consultant to assess and enhance our security systems and procedures, and periodically training our employees in such systems and procedures), there can be no assurance that these efforts will prevent a system disruption, attack, or security breach and, as such, the risk of system disruptions and security breaches from a cyberattack remains. We have not experienced any material adverse effect on our business or operations as a consequence of any such attack or breach but may incur increasing costs in performing the tasks described above. Given the unpredictability of the timing, nature and scope of such disruptions and the evolving nature of cybersecurity threats, which vary in technique and sources, if we or our business partners or suppliers were to experience a system disruption, attack or security breach that impacts any of our critical functions, or our customers were to experience a system disruption, attack or security breach via any of our connected products and services, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations. Furthermore, any access to, public disclosure of, or other loss of data or information, including any of our (or our customers’ or suppliers’) confidential or proprietary information or personal data or information, as a result of an attack or security breach could result in governmental actions or private claims or proceedings, which could damage our reputation, cause a loss of confidence in our products and services, damage our ability to develop (and protect our rights to) our proprietary technologies and have a material adverse effect on our business, financial condition, results of operations or prospects. While this exposure is common to all companies, larger companies with greater resources may be better able to mitigate this risk than we can. See also PART I, ITEM 1C — CYBERSECURITY below.
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