What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-03-14 compared with 2021-03-16 · 55 added, 86 removed, 244 unchanged (37% of the section changed)

5 unchanged sentences

You should understand that it is not possible to predict or identify all risk factors that could impact us.

For example, the current pandemic created by the COVID-19 coronavirus is causing a dramatic negative impact on the health of citizens of many countries, which in turn has caused major disruptions in economies and markets around the world, including our key markets.

For example, the COVID-19 pandemic has had a dramatic negative impact on the health of citizens of many countries, and resulted in major disruptions in economies and markets around the world, including our key markets.

In addition, it is unclear what effects the recently engaged conflict between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market.

Accordingly, you should not consider the following to be a complete discussion of all risks and uncertainties pertaining to us and our common stock.

1 unchanged sentence

Due to our dependency on customers in the oil and gas industry, we are susceptible to prolonged negative trends relating to this industry that could adversely affect our operating results.

Our customers in the oil and gas industry (including the petrochemical market) have accounted for a substantial portion of our historical revenues.

Our customers in the oil and gas industry have accounted for a substantial portion of our historical revenues.

Specifically, they accounted for approximately 54%, 54%, and 55% of our revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

3 unchanged sentences

In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities.

If the oil and gas industry were to continue to operate in a market with low oil prices, our revenues, profits and cash flows may be reduced.

While we continue to expand our market presence in the aerospace, power generation and

Table o f Contents

transmission, and the chemical processing industries, among others, these markets are also cyclical in nature and as such, are subject to economic downturns.

If the price of oil were to decrease to prior year levels, our revenues, profits and cash flows may be reduced.

While we continue to expand our market presence in the aerospace, power generation and transmission, and the chemical processing industries, among others, these markets are also cyclical in nature and as such, are subject to economic downturns.

We may be affected by climate change and market or regulatory responses to climate change

Climate change, including the impact of global warming, could have a material adverse effect on our results of operations, financial condition, and liquidity.

Restrictions on emissions could affect our customers that (a) use commodities to produce energy, (b) use significant amounts of energy in producing or delivering commodities, or (c) manufacture or produce goods that consume significant amounts of energy or burn fossil fuels.

Climate change, could have a material adverse effect on our results of operations, financial condition, and liquidity.

Restrictions on emissions, including those that have already been adopted and others that are expected to be adopted in the future, could affect our customers that (a) use commodities to produce energy, (b) use significant amounts of fossil fuel to produce or deliver commodities, or (c) manufacture or produce goods that consume significant amounts of fossil fuels or burn fossil fuels.

Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could materially affect the markets we serve (including the oil and gas industry), which in turn could have a material adverse effect on our results of operations, financial condition, and liquidity.

1 unchanged sentence

Any of these factors, individually or in operation with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.

Our long-term growth strategy includes acquisitions.

Our long-term growth strategy may include acquisitions.

We may not be able to identify suitable acquisition candidates or integrate acquired businesses successfully, which may adversely impact our results.

In addition, due to our current debt levels and the restrictions related to the covenants in our credit facility, we do not expect to complete any acquisitions in 2021 other than small acquisitions with the banks’ approval.

Furthermore, acquisitions that we have completed or may complete in the future could expose us to a number of unanticipated operational and financial risks.

A significant factor in our growth has been and will continue to be based upon our ability to make acquisitions and successfully integrate these acquired businesses.

A significant factor in our growth has been based upon our ability to make acquisitions and successfully integrate these acquired businesses.

We have used acquisitions both to expand into new markets and to enhance our position in existing markets.

This strategy has provided us with many benefits and has helped fuel our growth, but also carries with it many risks.

While we have not made a material acquisition in the past two years, we do expect to make acquisitions in the future, subject to the restrictions in our debt covenants.

Some of the risks associated with our acquisition strategy include:

3 unchanged sentences

• whether we value an acquired business properly when determining the purchase price and terms, and whether we are able to achieve the returns on the investment we expect;

• whether an acquired business can achieve levels of revenues, profitability, productivity or cost savings we expect;

• whether an acquired business can achieve the levels of revenues, profitability, productivity or cost savings we expect;

• whether an acquired business is compatible with our culture and philosophy of doing business;

1 unchanged sentence

• the assumption of liabilities and risks (including environmental-related costs) of an acquired business, some of which may not be anticipated;

• the potential disruption of our ongoing business and distraction of management and other personnel of us and the acquired business resulting from the efforts to acquire, then integrate, an acquired business;

• the potential disruption of our ongoing business and distraction of our management and other personnel and of those of the acquired business resulting from the efforts to acquire, then integrate, an acquired business;

• the potential for greater exposure to risks associated with international operations;

• the amount and cost of funding (including borrowings under our credit agreement) to acquire and integrate other businesses (some of which may require substantial funding) and the impact of the acquisition and borrowing on our continued compliance with covenants in our credit agreement.

Our ability to undertake acquisitions is limited by our financial resources, including available cash and borrowing capacity.

Our a bility to undertake acquisitions is limited by our financial resources, including available cash and borrowing capacity.

Due to our current debt levels and restrictions related to the covenants in our credit facility, we do not expect to make any acquisitions in 2022, other than small acquisitions with the banks’ approval.

Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of substantial additional indebtedness and other expenses, any of which could adversely impact our financial condition and results of operations.

Although management intends to:

(i) evaluate the risks

Table o f Contents

inherent in any particular transaction, (ii) assume only risks management believes to be acceptable, and (iii) develop plans to mitigate such risks, there are no assurances that we will properly ascertain or accurately assess the extent of all such risks.

Although we intend to:

(i) evaluate the risks inherent in any particular transaction, (ii) assume only risks we believe to be acceptable, and (iii) develop plans to mitigate such risks, there are no assurances that we will properly ascertain or accurately assess the extent of all such risks.

Difficulties encountered with acquisitions may adversely impact our business, financial condition and results of operations.

2 unchanged sentences

If our acquisitions do not perform as planned and we do not realize the benefits and profitability we expect, we could incur significant write-downs and impairment charges to our earnings due to the impairment of the goodwill and other intangible assets we have acquired or acquire in the future.

We experienced such write-downs and impairment changes in the quarter ended March 31, 2020 (see notes 8 and 9 to the financial statements included in Item 8 of this report).

We experienced such write-downs and impairment charges in the quarter ended March 31, 2020 (see Notes 8 and 9 to the consolidated financial statements included in Item 8 of this Annual Report).

Our international operations are subject to risks relating to non-U.S.

7 unchanged sentences

• compliance with applicable foreign regulations and licensing requirements, and U.S.

laws and regulation with respect to our business in other countries, including export controls and anti-bribery laws;

laws and regulation with respect to conducting business in other countries, including export controls, sanctions, anti-terrorist, and anti-bribery laws;

• the cost and uncertainty of obtaining data and creating solutions that are relevant to particular geographic markets;

2 unchanged sentences

• political instability and civil unrest;

• increased risk of hacking, malware or security breaches of our data and databases;

• restrictions or limitations on outsourcing contracts or services abroad;

• the long-term impact of the United Kingdom exiting the European Union;

the ultimate effects of Brexit on the Company are difficult to predict.

On January 31, 2020, the U.K.

exited from the EU (BREXIT).

On December 24, 2020, the United Kingdom and European Union agreed on a new Trade and Cooperation Agreement and on December 31, 2020, the United Kingdom formally left the transition period.

Although it is unknown what the terms of the U.K.’s future relationship with the EU will be, it is possible that there will be higher tariffs or greater restrictions on imports and exports between the U.K.

and the EU and increased regulatory complexities.

The Company currently has subsidiaries that operate in the United Kingdom and Europe and our UK subsidiary and other European subsidiaries from time to time share employees and equipment.

Brexit may make this sharing of employees and equipment more time consuming and expensive, which could cause disruptions and adversely affect the Company’s financial condition, operating results and cash flows.

Our UK subsidiary represents 1.6% of our consolidated revenue for the year ended December 31, 2020.

• restrictions or limitations on the repatriation of funds, or tax consequences on the non-repatriation of overseas operationally generated funds;

• other potentially adverse tax consequences.

Table o f Contents

We expect to continue expanding and our success depends on how effectively we manage our growth.

8 unchanged sentences

Taken as a group, our top ten customers were responsible for approximately 33%, 32%, and 34% of our revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

This concentration pertains almost exclusively to our Services segment, which accounted for more than 75% of our revenues for the years ended December 31, 2020, 2019 and 2018.

This concentration pertains almost exclusively to our Services segment, which accounted for 82%, 80% and 80% of our revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

These customers are primarily in the oil and gas sector.

Generally, our customers do not have an obligation to make purchases from us and may stop ordering our products and services or may terminate existing orders or contracts at any time with little or no financial penalty.

The loss of any of our significant customers, any substantial decline in sales to these customers or any significant change in the timing or volume of purchases by our customers could result in lower revenues and could harm our business, financial condition or results of operations.

The loss of any of our significant customers, any substantial decline in sales to these customers or any significant change in the timing or volume of purchases by our significant customers could result in lower revenues and could harm our business, financial condition or results of operations.

An accident or incident involving our asset protection solutions could expose us to claims, harm our reputation and adversely affect our ability to compete for business and, as a result, harm our operating performance.

6 unchanged sentences

Even if the accuracy of only a small number of these test results are questioned, a customer may attempt to refuse payment for the entire project.

While we do have insurance, our insurance coverage does not cover non-payment by customers and may not be adequate to cover the damages from any such claims, forcing us to bear these uninsured damages directly, which could harm our operating results and may result in additional expenses and possible loss of revenues.

While we do have insurance, our insurance coverage does not cover non-payment by customers and may not be adequate to cover the damages from any of the prior referenced claims, forcing us to bear these uninsured damages directly, which could harm our operating results and may result in additional expenses and possible loss of revenues.

An accident or incident for which we are found partially or fully responsible, even if fully insured, or even an incident at a customer or site for which we provide services although we were found not to be responsible, may also result in negative publicity, which would harm our reputation among our customers and the public, cause us to lose existing and future contracts or make it more difficult for us to compete effectively, thereby significantly harming our operating performance.

6 unchanged sentences

If our safety record is not within the levels required by our customers, or compares unfavorably to our competitors, we could lose business, be prevented from working at certain facilities or suffer other adverse consequences, all of which could negatively impact our business, revenues, reputation and profitability.

Table o f Contents

If our software or system produces inaccurate information or are incompatible with the systems used by our customers and

5 unchanged sentences

As a result, we could lose customers, our reputation may be harmed and our financial condition and results of operations could be materially adversely affected.

We currently serve a commercial, industrial and governmental customer base that uses a wide variety of constantly changing hardware, software solutions and operating systems.

Our asset protection solutions need to interface with these non-standard systems in order to gather and assess data.

We currently serve a commercial, and industrial customer base that uses a wide variety of constantly changing hardware, software solutions and operating systems.

Our asset protection solutions need to interface with these systems in order to gather and assess data.

Our business depends on the following factors, among others:

• our ability to integrate our technology with new and existing hardware and software systems;

• our ability to integrate our technology with new and existing hardware and software systems, of either Mistras or a customer;

• our ability to anticipate and support new standards, especially internet-based standards;

• our ability to integrate additional software modules under development with our existing technology and operational processes.

• our ability to integrate additional software modules under development by either Mistras or a customer, with our existing technology and operational processes.

If we are unable to adequately address any of these factors, our results of operations and prospects for growth and profitability

16 unchanged sentences

The market for asset protection solutions is impacted by technological change, uncertain product lifecycles, shifts in customer demands and evolving industry standards and regulations.

If management fails to execute effective business strategies, and to successfully develop and market new asset protection solutions that comply with present or emerging industry regulations and technology standards our competitive standing and results could suffer.

If we fail to execute effective business strategies, or fail to successfully develop and market new asset protection solutions that comply with present or emerging industry regulations and technology standards our competitive standing and results could suffer.

Also, new regulations or technology standards could increase our cost of doing business.

Table o f Contents

From time to time, our customers have requested greater value and functionality in our solutions.

7 unchanged sentences

Even if we develop new solutions, if our customers, or potential customers, do not see the value our solutions have over competing products and services, our operating results could be adversely impacted.

In addition, because the asset protection solutions industry is rapidly evolving, we could lose insight into trends that may be emerging, which would further harm our competitive position by making it difficult to predict and respond to customer needs.

In addition, because the asset protection solutions industry is evolving, we could lose insight into trends that may be emerging, which would further harm our competitive position by making it difficult to predict and respond to customer needs.

If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain profitability.

5 unchanged sentences

refineries’ non-peak periods are generally in the fall, when they are retooling to produce more heating oil for winter, and in the spring, when they are retooling to produce more gasoline for summer.

As a result of these trends, we generally have reduced cash flows in the fall and spring, as collections of receivables lag behind revenues, possibly requiring us to borrow under our credit agreement.

As a result of these trends, we generally have reduced cash flows in the fall and spring, as collections of receivables lag behind revenues, normally requiring us to increase our borrowings under our credit agreement.

In addition, most of our operating expenses, such as employee compensation and property rental expense, are relatively fixed over the short term.

14 unchanged sentences

International agreements, national laws, state laws and various regulatory schemes limit or otherwise regulate emissions of greenhouse gases, and additional restrictions are under consideration by different governmental entities.

We derive a significant amount of revenues and profits from such industries, including oil and gas, power generation and transmission, and chemicals processing.

Table o f Contents

regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

We derive a significant amount of revenues

and profits from such industries, including oil and gas, power generation and transmission, and chemicals processing.

Such regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

This could materially adversely affect our business, financial condition, results of operations and cash flows.

5 unchanged sentences

Risks Related to Our Common Stock

A significant stockholder controls the direction of our business.

A significant stockholder has significant influence over the direction of our business.

The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions.

Vahaviolos, our founder and Executive Chairman, owns approximately 29% of our outstanding common stock.

Vahaviolos, our founder and Executive Chairman, owns approximately 29% o f our outstanding common stock, and his three adult children own an additional 6%, in the aggregate.

As a result, Dr.

14 unchanged sentences

This could also impair our ability to raise additional capital in the future through the sale of our equity securities.

Under our certificate of incorporation, we are authorized to issue up to 200,000,000 shares of common stock, of which approximately 29,234,143 shares of common stock were outstanding as of March 11, 2021.

In addition, we have approximately 1,414,000 shares of common stock reserved for issuance related to share-based equity awards that were outstanding as of March 11, 2021.

We cannot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock, or the perception of such sales or issuances, would have on the market price of our common stock.

Table o f Contents

We cann ot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock, or the perception of such sales or issuances, would have on the market price of our common stock.

We currently have approximately 170 million shares of common stock available for issuance.

Provisions of our charter, bylaws and of Delaware law could discourage, delay or prevent a change of control of our company, which may adversely affect the market price of our common stock.

17 unchanged sentences

If the maturity of our indebtedness is accelerated, we then may not have sufficient funds available for repayment or the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.

We believe that it is probable, based on the amended covenants to the credit agreement, that we will be able to comply with the financial covenants in our credit agreement and that sufficient credit remains available under the credit agreement to meet our liquidity needs.

However, due to the uncertainties being caused by the COVID-19 pandemic, the significant volatility in oil prices, and volatility in the aerospace production, such matters cannot be predicted with certainty.

Our current credit agreement also imposes restrictions on our ability to engage in certain activities, such as creating liens, making certain investments, incurring more debt, disposing of certain property, paying dividends and making distributions and entering into a new line of business.

While these restrictions have not impeded our business operations to date, if our plans change, these restrictions could be burdensome or require that we pay fees to have the restrictions waived.

In addition, due to our current debt levels and financial ratios, we do not expect to make any acquisitions in 2021 due to restrictions related to the financial covenants in our credit agreement.

The COVID-19 pandemic has adversely affected and in future periods is expected to continue to adversely affect our business and operations.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations and the business and operations of our customers.

We have experienced, and expect to continue to experience, unpredictable

Table o f Contents

reductions in demand for our services and products.

In response to the COVID-19 pandemic, companies within the oil and gas and aerospace industries (including our customers) have announced spending cuts and/or slowdowns (or temporary cessation) in production which, in turn, may result in decreases in awards of new contracts or adjustments, reductions, suspensions or cancellations of existing contracts.

In addition, as a result of the COVID-19 pandemic, some of our customers have been and could continue to be negatively impacted as a result of disruption in demand, which has led to delays and could lead to defaults on collections of receivables from them.

In addition, due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2022 other than small acquisitions with the banks’ approval.

The COVID-19 pandemic has adversely affected our business and operations and may continue to do so in the future.

The COVID-19 pandemic adversely affected the Company's business and operations during 2020, however our business and operations have rebounded to near pre-pandemic levels during 2021.

The COVID-19 pandemic has continued to cause disruption and volatility in domestic and international markets and in the businesses and operations of our customers.

In addition, as a result of the COVID-19 pandemic, some of our customers have been and could continue to be negatively impacted as a result of disruption in supply and demand, which has led to delays and could lead to defaults on collections of receivables from them.

Such continued delays could negatively impact our business, results of operations and financial condition.

The continued spread of COVID-19 may result in a decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us, particularly in the event of a spread of COVID-19 in our market areas.

The continued spread of COVID-19 could also negatively impact the availability of our key personnel necessary to conduct our business.

In addition, any significant disruption of global financial markets, reducing our ability to access capital, could negatively affect our liquidity.

Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict.

While we expect the COVID-19 pandemic to have an adverse effect on our business, financial condition, liquidity, cash flow and results of operations, we are unable to predict the extent, nature or duration of these impacts at this time, although we expect such negative impacts for at least the next several quarters.

If the economic disruption caused by the COVID-19 pandemic increases in magnitude or continues longer than expected, we may have difficulty meeting the financial covenants in our credit agreement with our banks.

The Company expected that the economic disruption being caused by the COVID-19 pandemic was likely to cause our results in upcoming quarters to be less than what was required to meet the financial covenants in our then existing credit agreement with our banks.

We obtained an amendment to our credit agreement which included, among other terms, modifications to the financial covenants in the credit agreement, and a reduction in our revolving line of credit from $300 million to $175 million.

We believe it is probable that we will be able to meet the amended financial covenants and that sufficient credit remains available under the amended Credit Facility to meet our liquidity needs.

However, due to the uncertainties and risks created by the COVID-19 pandemic, no assurance can be given that we will comply with these amended covenants, particularly if the pandemic increases in intensity or its duration is longer than expected.

If we are not able to meet the financial covenants in our credit agreement in future quarters, and cannot obtain a waiver from our lenders or further amend the Credit Agreement, we will be in default, which would give the lenders the right to terminate the agreement, not allow us to borrow on our line of credit, call all of our loans to be due and payable, and exercise any other remedies available to the lenders.

If we do default on our credit agreement and the lenders elect to not grant us a waiver or amendment and/or to commence exercising their remedies and we are unable to obtain other funding sources, our operations will be materially impacted and we may not be able to continue operating as a going concern.

If we do obtain alternate funding sources, this alternate financing could be on substantially different and adverse terms than our existing credit agreement, materially impacting our operations and profitability, and otherwise could significantly dilute our existing shareholders and have other materially adverse effects on us and our shareholders.

Likewise, any waiver and amendment to our existing credit facility could be on substantially different and adverse terms to those that currently exist, materially impacting our profitability and results of operations.

While we have recovered during 2021 from most of the negative effects of the COVID-19 pandemic on our business and operations, we are unable to predict the nature or duration of the COVID-19 pandemic and the effect the pandemic will have on our business, financial condition, liquidity, cash flow and results of operations in the future.

If the pandemic continues longer or in a manner more adverse that expected, or has a greater adverse impact on our customers, our financial conditions could be adversely impacted and we may encounter difficulties meeting the financial covenants in our credit agreement.

Deteriorations in economic conditions in certain markets or other factors may cause us to recognize additional impairment charges for our goodwill.

6 unchanged sentences

Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $77.1 million, which included $57.2 million in the services reporting unit within the Services segment, and $19.3 million in the European reporting unit and $0.6 million in the Brazilian reporting unit, both within the International segment.

Table o f Contents

Significant continued deterioration in industry or economic conditions in which we operate, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause additional impairment charges to our goodwill in future periods.

While we have significantly recovered during 2021, future deterioration in industry or economic conditions in which we operate, including disruptions in Europe or elsewhere as a result of the conflict between Russia and Ukraine, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause additional impairment charges to our goodwill in future periods.

We may face risks regarding our information technology and security.

20 unchanged sentences

In addition to GDPR, many states in the U.S.

have enacted, or are considering, data privacy requirements similar to GDPR, and thus we will need to ensure our procedures comply with these various state laws.

and provinces in Canada have enacted, or are considering, data privacy requirements similar to GDPR, and thus we will need to ensure our procedures comply with these various state laws.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes, which could have a material adverse effect on our financial condition and results of operations.

In addition, the payment of potentially significant fines or penalties in the event of a breach of the GDRP or other privacy and information security laws, as well as the negative publicity associated with such a breach, could damage the Company’s reputation and adversely impact product demand and customer relationships.

In addition, the payment of potentially significant fines or penalties in the event of a breach privacy and information security laws, as well as the negative publicity associated with such a breach, could damage the Company’s reputation and adversely impact product demand and customer relationships.

Events such as natural disasters, industrial accidents, epidemics, pandemics, war and acts of terrorism, and adverse weather conditions could disrupt our business or the business of our customers, which could significantly harm our operations, financial results and cash flow.

Our operations and those of our customers are susceptible to the occurrence of catastrophic events outside our control, which may include events like epidemics, pandemics and other health crises, severe weather conditions, industrial accidents, and acts of war and terrorism, to name a few.

We continue to actively monitor the conflict between Russia and Ukraine and the sanctions imposed upon Russia in order to assess impacts to our customers and our operations.

At this time, we do not believe there is a material impact on our operations, however the future impact of the conflict, and sanctions imposed, are uncertain.

Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset protection solutions.

1 unchanged sentence

A large portion of our customer base has operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms.

Table o f Contents

Hurricane-related disruptions to our customers’ operations have adversely affected our revenues in the past.

1 unchanged sentence

In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects.

While our business may not be directly impacted by the COVID-19 coronavirus like other industries such as travel and restaurants, the safety measures being taken in an attempt to slowdown the spread of COVID-19 has resulted in a slowdown of our business.

In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts, such as those being caused by COVID-19 coronavirus, which could harm our business.

Safety measures have been taken in an attempt to protect our employees during the COVID-19 pandemic.

If we lose key members of our senior management team upon whom we are dependent, we may be less effective in managing our operations and may have more difficulty achieving our strategic objectives.

7 unchanged sentences

Patent protection is unavailable for certain aspects of the technology and operational processes important to our business and any patent or patent applications, trademarks or copyrights held by us or to be issued to us, may not adequately protect us.

Some of our trademarks that are not in use may become available to others.

To date, we have relied principally on copyright, trademark and trade secrecy laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our intellectual property.

To date, we have relied principally on copyright, trademark and trade secrecy laws, as well as confidentiality agreements and licensing arrangements, and more recently, patent protection, to establish and protect our intellectual property.

However, we have not obtained confidentiality agreements from all our customers and vendors.

Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable.

Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable in all circumstances.

We may require additional capital to support business growth, which might not be available.

2 unchanged sentences

If we raise additional funds through further issuances of equity or convertible debt securities, our current stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

Our current credit facility (as amended on May 15, 2020) meets our current needs, except that due to our current debt levels, the facility limits our ability to make acquisitions without the banks' approval until our debt ratio improves.

Our current credit facility meets our current needs, except that due to our current debt levels, the facility limits our ability to make acquisitions without the banks' approval until our debt ratio improves.

If we were to secure other debt financing in the future, it could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

1 unchanged sentence

UNRESOLVED STAFF COMMENTS

Table o f Contents

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