Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Interest
Rate Risk
Our exposure to market risk includes interest rate
fluctuations in connection with our Revolving Facility (see Note 5 – Credit Facilities). As detailed in the BMO Credit Agreement,
borrowings under the Revolving Facility bear interest, at the Company’s election, at either (i) the Adjusted Term SOFR plus an applicable
margin or (ii) the Base Rate plus an applicable margin. The applicable margin varies based on the Company’s Total Net Leverage Ratio
and ranges from 1.50% to 2.00% for SOFR loans and from 0.50% to 1.00% for Base Rate loans. Borrowings under the Revolving Facility are
therefore subject to risk based upon prevailing market interest rates. Interest rate risk may result from many factors, including governmental
monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
Foreign
Currency Risk
We
have wholly-owned subsidiaries in Hong Kong, China, the United Kingdom, Germany, France, the Netherlands, Italy, Canada and Mexico. Sales
are generally made by these operations on FOB China or Hong Kong terms and are denominated in U.S. dollars. However, purchases of inventory
and Hong Kong operating expenses are typically denominated in Hong Kong dollars and local operating expenses in the United Kingdom, Germany,
France, the Netherlands, Italy, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange
rates. Changes in the U.S. dollar exchange rates may positively or negatively affect our results of operations. We do not believe that
near-term changes in these exchange rates, if any, will result in a material effect on our future earnings, fair values or cash flows.
Therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot assure you that this approach will be successful,
especially in the event of a significant and sudden change in the value of these foreign currencies.
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