What changed in this filing

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Item 1A. Risk Factors

2023-12-18 compared with 2022-12-20 · 82 added, 73 removed, 360 unchanged (30% of the section changed)

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ECONOMY AND OUR BUSINESS.

and larger global economies are experiencing historically high inflation during 2022.

The Federal Reserve and other Central Banks already have raised interest rates more aggressively and to their highest levels in the last four to five decades.

As a result, the prospect for a recession is high and considered by many to be likely.

and larger global economies experienced historically high inflation during 2022, which continued into 2023.

The Federal Reserve and other Central Banks already have raised interest rates more aggressively and to their highest levels in decades.

As a result, the prospect for a recession is considered by many to be likely.

Some sources have declared that the U.S.

already is in a recession.

Consumer prices, including basic costs of food, fuel, utilities, healthcare, mortgage and personal loan rates, and other non-discretionary and discretionary consumer items are up by high single digits.

Wages are up, however, increases in wages lag price inflation resulting in a net decline in real personal incomes relative to consumer spending.

already has experienced a recession.

Consumer prices, including basic costs of food, fuel, utilities, healthcare, mortgage and personal loan rates, and other non-discretionary and discretionary consumer items have risen significantly.

Wages are up, however, increases in wages have lagged price inflation resulting in a net decline in real personal incomes relative to consumer spending.

Volatility continues to exist in the workforce making it more difficult and costly for employers to recruit, hire and/or retain workers.

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Shortages in the workforce are a significant factor in supply shortages relative to demand and also help fuel inflation.

On the global stage, the invasion of Ukraine by Russia and escalation of overtures by China over Taiwan and the South China Sea, also add instability to the uncertainty driving socioeconomic forces, which in turn, impact the Company’s and its subsidiaries’ operations.

The present conditions and state of our U.S and global economies make it difficult to predict whether and/or when and to what extent a recession has occurred or will occur in the near future.

In the event of an occurring or worsening recession, as the case may be, in which the U.S.

economy contracts, we expect that our business would be negatively impacted, accordingly.

The Company has taken significant actions to shore up its resources and means in order to weather a potential downturn in the economy;

however, should a recession occur, or one already exists and worsens in the future, one may expect either scenario to have an adverse effect on the business of the Company and its subsidiaries.

THE NEGATIVE EFFECTS OF THE CORONAVIRUS PANDEMIC, CARES ACT REQUIREMENTS, AND TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTS.

On the global stage, two wars are now being waged, the first led by the invasion of Ukraine by Russia, and the second, following the recent invasion of Israel by Hamas terrorists.

These and overtures by China over Taiwan and the South China Sea, also add instability to the uncertainty driving socioeconomic forces, which in turn, impact the Company’s and its subsidiaries’ operations.

The present conditions and state of our U.S.

and global economies make it difficult to predict the extent to which a recession has occurred or will occur or worsen in the near future, and we and other members of the U.S.

Staffing Industry already have seen significant declines in business in 2023.

In the event of recurring or worsening conditions, in which the U.S.

economy remains uncertain or contracts, we expect that our business will continue to be negatively impacted, accordingly.

The Company has taken significant actions to shore up its resources and means in order to mitigate the negative effects of economic downturns;

however, should economic conditions remain uncertain or worsen in the future, one may expect either scenario to continue to have an adverse effect on the business of the Company and its subsidiaries.

THE NEGATIVE EFFECTS OF THE CORONAVIRUS PANDEMIC AND ITS SUBSEQUENT VARIANTS, CARES ACT REQUIREMENTS, AND TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTS.

Recent global socioeconomic conditions, including the negative effects of the Coronavirus Pandemic (“COVID-19”), and disruption of financial markets, severely affected our business and results of operations during fiscal 2020 and, although to a lesser extent, fiscal 2021.

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The Company and eight of its operating subsidiaries received PPP loans, totaling $19,927 thousand, and have since applied for and received forgiveness of their respective PPP loans from the SBA.

The forgiveness of these loans, including their respective accrued and unpaid interest amounts, have been recognized by eliminating them from the Company’s consolidated balance sheet with corresponding gains in consolidated income in fiscal 2021 and 2022.

The forgiveness of these loans, including their respective accrued and unpaid interest amounts, have been recognized by eliminating them from the Company’s consolidated balance sheets with corresponding gains in consolidated net income in fiscal 2021 and 2022.

The former PPP loans obtained by GEE Group Inc., and its operating subsidiaries together as an affiliated group, exceeded the $2 million audit threshold established by the SBA, and therefore, will be subject to audit by the SBA in the future.

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These valuation techniques rely on assumptions and other factors, such as the estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and the market comparable assumptions.

These assumptions and factors require significant judgement by the Company in their development.

Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of impairment.

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OUR REVENUE CAN VARY BECAUSE OUR CUSTOMERS CAN TERMINATE THEIR RELATIONSHIP WITH US AT ANY TIME WITH LIMITED OR NO PENALTY.

We focus on providing mid-level professionals and light industrial personnel on a temporary assignment-by-assignment basis, which customers can generally terminate at any time or reduce their level of use when compared to prior periods.

We focus on providing professional and light industrial personnel on a temporary assignment-by-assignment basis, which customers can generally terminate at any time or reduce their level of use when compared to prior periods.

To avoid large placement agency fees, large companies may use in-house personnel staff, current employee referrals, or human resources consulting companies to find and hire new personnel.

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our customers cancel or defer a significant number of staffing requests;

or our existing customer agreements expire or lapse and we cannot replace them with similar agreements.

or our existing customer agreements expire or lapse and we cannot renew or replace them with similar agreements.

IF WE ARE UNABLE TO RETAIN A BROAD GROUP OF EXISTING CUSTOMERS, LOSE ONE OR MORE SIGNIFICANT CUSTOMERS, OR FAIL TO ATTRACT NEW CUSTOMERS, OUR RESULTS OF OPERATIONS COULD SUFFER.

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SUBSTANTIAL ALTERATION OF OUR CURRENT BUSINESS AND REVENUE MODEL COULD HURT SHORT-TERM RESULTS.

Our present business and revenue model represents the current view of the optimal business and revenue structure, which is to derive revenues and achieve profitability in the shortest period.

There can be no assurance that current models will not be altered significantly or replaced with an alternative model that is driven by motivations other than near-term revenues and/or profitability (for example, building market share before our competitors).

Our present business and revenue model represents our view of optimal business and revenue generation, which is to derive revenues and achieve profitability in the shortest period.

There can be no assurance that current models will not be altered significantly or replaced with one or more alternatives driven by motivations other than near-term revenues and/or profitability (for example, building market share ahead of our competitors).

Any such alteration or replacement of our current business and revenue model may ultimately result in the deferring of certain revenues in favor of potentially establishing larger market share.

We cannot assure that any adjustment or change in the business and revenue model would prove to be successful whether adopted in response to industry changes or for other reasons.

We cannot assure that any such adjustment or change in the business and revenue model would prove to be successful whether adopted in response to industry changes or for other reasons.

WE DEPEND ON OUR SENIOR MANAGEMENT TEAM AND THE LOSS OF ONE OR MORE KEY EMPLOYEES OR AN INABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED EMPLOYEES COULD ADVERSELY AFFECT OUR BUSINESS.

Our success depends largely upon the continued services of our executive officers.

We rely on our leadership team for research and development, marketing, sales, services, and general and administrative functions, and on mission-critical individual contributors.

Our success depends largely upon the continued services of our executive officers and on certain other mission-critical individual contributors.

We rely on our leadership team for the management and oversight of our business operations, including but not limited to, developing and executing our strategy, business and financial planning, research and development, marketing, sales, human resources, client services, finance, and other general and administrative functions,.

From time to time, our executive management team may change from the hiring or departure of executives, which could disrupt our business.

We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period;

therefore, they could terminate their employment with us at any time.

The loss of one or more of our executive officers or key employees (including any limitation on the performance of their duties or short term or long-term absences as a result of the COVID-19 pandemic) could have a serious adverse effect on our business.

Employment agreements with our executive officers or other key personnel contain terms and conditions while employed by us, however, they also continue to be considered “at will” employees and, as such, they are not legally required to continue to work for us for any specified period and may terminate their employment with us at any time should they choose.

The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.

To execute our growth plan, we must attract and retain highly qualified personnel.

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If we are unable to attract such personnel in cities where we are located, we may need to hire in other locations, which may add to the complexity and costs of our business operations.

We expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications.

Extended stay-at-home, business closure, and other restrictive orders may impact our ability to identify, hire, and train new personnel.

We expect to continue to experience challenges in hiring and retaining employees with appropriate qualifications.

Extended stay-at-home, business closure, and other restrictive orders also may be expected to impact our ability to identify, hire, and train new personnel.

Many of the companies with which we compete for experienced personnel have greater resources than we have.

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Our success depends upon our ability to attract, integrate, manage and retain personnel who possess the skills and experience necessary to fulfill our clients’ needs.

Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors or modifications to our total compensation philosophy or competitor hiring programs.

If we cannot attract, hire and retain qualified personnel, our business, financial condition and results of operations would be negatively impacted.

Our future success also depends upon our ability to manage the performance of our personnel.

Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors, modifications to our total compensation philosophy that might be perceived negatively, or aggressive competitor hiring programs.

If we cannot attract, hire and retain required qualified personnel, our business, financial condition and results of operations would be negatively impacted.

Our future success also depends upon our ability to manage the successful performance of our personnel.

Failure to successfully manage the performance of our personnel could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income.

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Competition for individuals with proven professional skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future.

Since the onset of the COIVD-19 pandemic, the U.S.

workforce has not yet fully recovered to employment levels prior to the pandemic.

It is presently estimated by some that as many as 11 million former employees that left the U.S.

workforce during the pandemic, have not yet re-entered the workforce, or may have re-entered the workforce temporarily.

The later volatility in employment, referred to in the media as the “big resignation,” has created challenge to the Company’s and other U.S.

staffing firms’ ability to fill placement orders from clients.

It is uncertain as of now as to how this trend will ultimately unfold.

There can be no assurance that qualified personnel will continue to be available.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OUR EXISTING AND POTENTIAL COMPETITORS.

Competition in the market for placement and staffing services is intense.

The Company faces competition from many larger, more established companies.

In addition, other companies could seek to introduce competing services and increased competition could result in a decrease in the price charged by the Company’s competitors for their services and reduce demand for the Company’s products and services, which would have a material adverse effect on the Company’s business, operating results and financial condition.

There can be no assurance that the Company will be able to compete successfully with its existing or potential competitors, which may have substantially greater financial, technical, and marketing resources, longer operating histories, greater name recognition or more established relationships in the industry than the Company.

If any of these competitors provides competitive services to the marketplace in the future, the Company cannot be sure that it will have the resources or expertise to compete successfully.

Staffing Industry Analysts, a leading industry trade organization, recently published in its September 2023 Industry Forecast update, that the U.S.

Staffing Industry is expected to decline by 10% in 2023.

The identified causes vary within different market verticals and scenarios, with the overall level of uncertainties that persist in the U.S.

and global economies and labor markets receiving significant mention.

Other cited causes of the decline particularly in light industrial and administrative and clerical markets are the rise of new B2C trends, such as Uber and DoorDash, and, in other markets, “side gigs” that offer alternative opportunities to potential employment candidates and increased competition amongst recruiters.

WE OPERATE IN AN INTENSELY COMPETITIVE AND RAPIDLY CHANGING BUSINESS ENVIRONMENT, AND THERE IS A SUBSTANTIAL RISK THAT OUR SERVICES COULD BECOME OBSOLETE OR UNCOMPETITIVE.

The markets for our services are highly competitive.

The markets for our services are highly competitive and include many larger, more established companies.

Our markets are characterized by pressures to provide high levels of service, incorporate new capabilities and technologies, accelerate job completion schedules and reduce prices.

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WE MAY NOT BE ABLE TO MANAGE EXPECTED GROWTH AND INTERNAL EXPANSION.

Our inability to manage growth could hurt our results of operations.

Expansion of our operations will be required to address anticipated growth of our customer base and market opportunities.

Expansion will place a significant strain on our management, operational and financial resources.

We will need to enhance existing procedures and controls as well as implement new transaction processing, operational and financial systems, procedures and controls to expand, train and manage our employee base.

Our failure to manage growth effectively could have a damaging effect on our business, results of operations and financial condition.

Our ability to manage growth effectively will be important to our business and future results of operations and financial condition.

Expansion of our resources and operations will be required to address anticipated growth of our customer base and market opportunities.

Expansion may be expected to place additional strain on our management, operational and financial resources, and thereby our ability to provide quality services and support for our clients and other stakeholders.

In these regards, we anticipate the need to enhance existing resources, processes and controls, including but not limited to, implementation of new operational and financial systems, and development of additional procedures and controls to expand, train and manage our growing employee base and to service new and growing customers.

Our failure to manage growth effectively, therefore, could have a materially negative effect on our business, results of operations and financial condition.

WE ARE DEPENDENT UPON TECHNOLOGY SERVICES, AND IF WE EXPERIENCE DAMAGE, SERVICE INTERRUPTIONS OR FAILURES IN OUR COMPUTER AND TELECOMMUNICATIONS SYSTEMS, OUR EXISTING CUSTOMER RELATIONSHIPS AND OUR ABILITY TO ATTRACT NEW CUSTOMERS MAY BE ADVERSELY AFFECTED.

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Our forensic investigation has been concluded and we believe we have reasonably determined the scope of the incident.

Individuals affected by this incident are in the process of being notified in accordance with applicable state and federal laws.

Individuals affected by this incident were sent formal notification in accordance with applicable state and federal laws.

The cost of investigating and resolving the incident has been immaterial.

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failure to realize anticipated growth opportunities from a combined business, because existing and potential clients may be unwilling to consolidate business with a single supplier or to stay with the acquirer post acquisition;

impacts of cash on hand and debt incurred to finance acquisitions, thus reducing liquidity for other significant strategic objectives;

impacts of cash on hand and debt incurred to finance acquisitions, thus increasing debt leverage and reducing liquidity for other significant strategic objectives;

internal controls, disclosure controls, corruption prevention policies, human resources and other key policies and practices of the acquired companies may be inadequate or ineffective;

overpayment for the acquired company or assets or failure to achieve anticipated benefits, such as cost savings and revenue enhancements;

overpayment for the acquired company or assets or failure to achieve anticipated benefits, such as cost savings (“synergies”) and revenue enhancements;

increased expenses associated with completing an acquisition and amortizing any acquired intangible assets;

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failure to retain, motivate and integrate key management and other employees of the acquired business;

loss of customers and a failure to integrate customer bases.

loss of customers and a failure to integrate and retain customer bases.

In addition, if we incur indebtedness to finance an acquisition, it may reduce our capacity to borrow additional amounts and requiring us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the cash resources available to us to fund capital expenditures, pursue other acquisitions or investments in new business initiatives and meet general corporate and working capital needs.

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Securities markets worldwide experience significant price and volume fluctuations.

The securities markets have experienced significant volatility as a result of the COVID-19 pandemic.

The securities markets have experienced significant volatility as a result of the COVID-19 pandemic and more recently, significant inflation, rising interest rates, economic uncertainty and volatility and uncertainty in our labor market.

Market volatility, as well as general economic, market, or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance.

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If a more active, liquid public trading market does not develop, we may be limited in our ability to raise capital by selling shares of common stock and our ability to acquire other companies or assets by using shares of our common stock as consideration.

In addition, if there is a thin trading market or “float” for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole.

Without a large enough float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile.

In addition, if the relatively limited trading volumes for our stock persists, the market price for our common stock may fluctuate significantly more than the stock market as a whole.

Without large enough trading volumes, our common stock may be expected to remain less liquid than the stock of other more actively traded companies and, as a result, the trading prices of our common stock may be more volatile.

Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including:

our quarterly or annual operating results and financial position;

adverse market reaction to our indebtedness;

the impact of the COVID-19 pandemic on our management, employees, partners, customers, and operating results;

adverse market reaction to changes in our indebtedness, if any;

the perceived impact of the present uncertainties in the economy and labor markets on our industry and our own results;

announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, or capital commitments;

litigation and government investigations;

pending or recently completed acquisitions;

pending acquisitions, if any;

investment recommendations by securities analysts following our business or our industry;

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our failure to achieve operating results consistent with securities analysts’ projections;

changes in industry, general market or economic conditions;

future changes in industry, general market or economic conditions;

changes or proposed changes in laws or regulations or differing interpretations or enforcement of laws or regulations affecting our business.

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AS A RESULT, YOU MAY NOT RECEIVE ANY RETURN ON INVESTMENT UNLESS YOU SELL YOUR COMMON STOCK FOR A PRICE GREATER THAN THAT WHICH YOU PAID FOR IT.

We intend to retain all future earnings for use in the development of our business and do not anticipate paying any cash dividends on our common stock in the near future.

Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws.

We intend to retain a substantial portion of future earnings for use in the development of our business and do not anticipate paying any cash dividends on our common stock in the near future.

We are presently repurchasing our own common shares in the open market, under authorization of our board of directors and in accordance with applicable Federal and state laws, regulations and rules.

However, any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws.

It will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, general business conditions, and other factors that our board of directors may deem relevant.

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Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We have had recurring losses from operations, negative operating cash flow in the past and have an accumulated deficit.

We have had to raise additional funds in order to continue financing our operations and may have to in the future.

If additional capital is not available to us when needed or on acceptable terms, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.

Any additional capital raised through the sale of equity or equity-backed securities may dilute our shareholders’ ownership percentages and could also result in a decrease in the market value of our equity securities.

We have experienced losses from operations and negative operating cash flow in the past and have an accumulated deficit.

We have had to raise additional funds in order to deleverage, recapitalize and finance our current operations and may have to in the future if we are unable to sustain our current operations and results.

If additional capital is not available to us when and if needed or on acceptable terms, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.

Any additional capital raised through the sale of equity or equity-backed securities may be expected to dilute our shareholders’ ownership percentages and could also result in a decrease in the market value of our equity securities.

The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding.

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In addition, these provisions may limit the ability of shareholders to approve transactions that they may deem to be in their best interests.

These provisions include:

These provisions include, but are not limited to:

restrictions on the ability of shareholders to call special meetings of shareholders.

Special meetings of our shareholders may be called only by the chairman of the board of directors, our president, a majority of the members of the board of directors, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 20% of the votes at the special meeting;

establishing a staggered board of directors.

Our board is divided into three classes, each of which shall serve for a term of three years, with only one class of directors being elected in each year.

As a result, successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

requiring advance notice of shareholder proposals for business to be conducted at meetings of our shareholders and for nominations of candidates for election to our board of directors;

the ability of our board of directors to designate the terms of and issue new series of preferred stock without shareholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors;

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Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure are able to purchase additional common shares to cover their short position.

This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our company and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline.

This is referred to as a “short squeeze” in lay terms.

A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our company and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline.

THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR FINANCIAL AND HUMAN RESOURCES AND DISTRACT MANAGEMENT.

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A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

While we believe that we have remediated this material weakness, we cannot assure you that additional material weaknesses will not be identified in the future.

While we are not aware of any material weaknesses, we cannot assure you that one or more will not be identified in the future.

Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our consolidated financial statements.

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economy, in general, is being adversely affected by terrorist activities and the potential activities for terrorist activities or other civil unrest.

Any economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise adversely affect our ability to grow the business.

Any resulting economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise adversely affect our ability to grow the business.

It is impossible to predict how this may affect our business or the economy in the U.S.

and in the world.

In the event of further threats or acts of terrorism or civil unrest, our business and operations may be severely and adversely affected.

In the event of further threats or acts of terrorism or civil unrest, our business and operations may be further severely and adversely affected.

OUR BUSINESS MAY BE IMPACTED BY POLITICAL EVENTS, WAR, PUBLIC HEALTH ISSUES, INCLEMENT WEATHER, NATURAL DISASTERS AND OTHER BUSINESS INTERRUPTIONS.

War, geopolitical uncertainties, public health issues (such as the COVID-19 pandemic) and other business interruptions have caused and could cause damage or disruption to commerce and the economy, and thus could have a material adverse effect on us and our customers.

Our business operations are subject to interruption by, among others, inclement weather, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks, civil unrest and other hostile acts, labor disputes, public health issues and other events beyond our control.

Two wars are now being waged at the global level, the first led by the invasion of Ukraine by Russia, and the second, following the recent invasion of Israel by Hamas terrorists.

These and continuing overtures by China over Taiwan and the South China Sea, also add instability to the uncertainty driving socioeconomic forces, which in turn, impact the Company’s and its subsidiaries’ operations.

Our business operations also are subject to interruption by, among others, inclement weather, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks, civil unrest and other hostile acts, labor disputes, public health issues and other events beyond our control.

Such events could decrease demand for our services.

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Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

FINANCIAL CHALLENGES AT OTHER BANKING INSTITUTIONS COULD LEAD TO DEPOSITOR CONCERNS THAT SPREAD WITHIN THE BANKING INDUSTRY CAUSING DISRUPTIVE DEPOSIT OUTFLOWS AND OTHER DESTABILIZING RESULTS.

In March and April 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into Federal Deposit Insurance Corporation (“FDIC”) receiverships.

In the aftermath, there has been market disruption and indications that diminished depositor confidence could spread across the banking industry, leading to deposit outflows and other destabilizing results.

The Federal Reserve Board announced that it would provide funding to ensure that banks have sufficient liquidity to meet the needs of their depositors, but there can be no assurance whether such funding will be adequate to fully address these issues.

The Company currently has bank deposits with financial institutions in the U.S.

that exceed FDIC insurance limits.

However, the Company has taken measures to diversify its deposit base, that are intended to mitigate and minimize its potential exposure to losses as a result of maintaining cash deposits in accounts that exceed FDIC insurance limits.

Among these, during fiscal 2023, the Company established, and initially deposited $13 million of its excess cash, under a brokerage arrangement with a major financial advisory institution that manages and deposits these funds under a specialized program whereby the funds are allocated among FDIC insured banks in amounts that individually do not exceed the established FDIC insured limit of $250 thousand.

To date, the Company has not experienced any material loss as a result of the failure of any financial institution in which it has funds or other assets on deposit.

Unresolved Staff Comments.

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

What changed 10-K

Item 1A. Risk Factors