What changed in this filing

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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-11 · 61 added, 63 removed, 239 unchanged (34% of the section changed)

The following are risk factors that affect our business, prospects, financial condition, results of operations, and cash flows, some of which are beyond our control.

These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K.

The following risks and uncertainties may have a material affect on our business, prospects, financial condition, results of operations, and cash flows, and should be considered in connection with the other information contained in this Annual Report on Form 10-K.

If any of the events described below were to actually occur, our business, prospects, financial condition, results of operations, or cash flows could be adversely affected, and results could differ materially from expected and historical results.

The risks and uncertainties described below are not the only risks facing our company.

Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, prospects, financial condition, results of operations, and cash flows.

Risks Related to Our Operations

The COVID-19 pandemic and mitigation efforts to control the spread of the disease have impacted, and are expected to continue to materially impact, our business and our financial condition, results of operations and cash flows could be materially adversely affected by factors directly or indirectly relating to the COVID-19 pandemic.

The COVID-19 pandemic has created significant volatility in the global economy, led to significant reduced market and economic activity, and disrupted, and may continue to disrupt, the end markets we serve.

In response, various governmental bodies and private enterprises implemented numerous measures to contain the pandemic, such as travel bans and restrictions, quarantines, “shelter-in-place” orders and shutdowns.

While many of the restrictions have eased across the globe, some areas have re-imposed closures and other restrictions due to increased rates of COVID-19 cases.

No assurance can be given that these new closures and restrictions will not continue to occur.

New and more easily transmitted variants of COVID-19, such as the Delta and Omicron variants, have emerged and spread in the U.S.

and across the globe.

The impact of these variants cannot be predicted at this time and could depend on numerous factors, including vaccination rates among the population, the efficacy of COVID-19 vaccines against the new variants, and the response by governmental bodies and regulators.

Further surges in COVID-19 infection rates could result in the reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations.

The COVID-19 pandemic and the responses by governmental bodies and regulators thereto have created a disruption in our manufacturing, product distribution, overall supply chain, and other business activities, and that of our customers, suppliers, co-manufacturers, and distributors.

A significant number of our customers, suppliers, co-manufacturers, distributors, and manufacturing facilities are located in regions that have been affected by the pandemic and those operations have been, and may continue to be, materially affected by restrictive measures implemented in response to the pandemic.

As a result we have experienced, and may continue to experience, delays in the production and distribution of our products and the loss of sales to our customers.

Any delay or shortage in the supply of raw materials or delay in the manufacturing or distribution of our products may result in our inability to satisfy customer demand in a timely manner or at all, which could result in the loss of a portion of or all of the customer’s business and damage our reputation.

Additionally, if the global economic effects caused by

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the COVID-19 pandemic continue or increase, overall customer demand may continue to decrease, which could have a material and adverse effect on our business, results of operations, and financial condition.

Further, the COVID-19 pandemic could adversely impact our ability, and the ability of our suppliers, co-manufacturers, distributors, and customers, to retain key employees and ensure the continued service and availability of skilled personnel necessary to run our, and their, operations.

To the extent our management or other personnel, or the management or other personnel of our suppliers, co-manufacturers, distributors, and customers, are impacted in significant numbers by the pandemic and are not available to perform their job duties, we could experience delays in, or the suspension of, our manufacturing operations, distribution of our products, and other important corporate functions.

The ongoing COVID-19 pandemic and the current volatility in the global economy, reduced market and economic activity, and disruptions in the end markets we serve present material risks and uncertainties for us.

The extent of the impact that the COVID-19 pandemic will have on our business, results of operations, and financial condition will depend largely on future developments relating to the duration and scope of the COVID-19 pandemic, including the continued emergence, persistence, severity and transmissibility of variants of the virus, the efficacy of vaccines, the pace at which governmental restrictions are eased or lifted, and the implementation of new or additional mitigation efforts by governmental authorities to control the spread of the disease, such as “stay-at-home” orders, business closures, and vaccine mandates.

To the extent the COVID-19 pandemic adversely affects our business, financial condition, results of operation, and cash flows, it may also have the effect of heightening other risks disclosed below.

In addition, if in the future there is an outbreak of another highly infectious or contagious disease or similar public health crisis, we would be subject to similar risks as posed by the COVID-19 pandemic.

Pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic, could materially adversely impact our business, financial condition, results of operations and cash flows.

Pandemics, epidemics or disease outbreaks in the U.S.

or globally, including the COVID-19 pandemic, have disrupted, and may in the future disrupt, our business, which could materially affect our results of financial condition, results of operations and cash flows.

Any such events may adversely impact our global supply chain and global manufacturing operations and cause us to again suspend our operations in countries and states where we operate.

In particular, we have experienced, and could continue to experience, among other things:

(1) global supply disruptions, especially in China;

(2) labor disruptions;

(3) an inability to manufacture;

(4) an inability to sell and distribute our products to our customers;

(5) a decline in customer demand during and following the pandemic, whether as a result of our inability to satisfy customer demand in a timely manner due to raw material shortages, supply chain disruptions, inflationary cost pressures, or work stoppages experienced by one or more of our customers;

and (6) an impaired ability to access credit and the capital markets, especially in light of the rising interest rates.

Any new pandemic or other public health crises, or future public health crises, could have a material impact on our business, financial condition, results of operations and cash flows going forward.

To the extent any new pandemic or other public health crises adversely affects our business, financial condition, results of operation and cash flows, it may also have the effect of heightening other risks and uncertainties disclosed below.

We depend heavily on a relatively limited number of customers, and the loss of any major customer would have a material adverse effect on our business.

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Work stoppages or similar difficulties and unanticipated business disruptions could significantly disrupt our operations, reduce our revenues and materially affect our earnings.

A work stoppage at one or more of our facilities could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Also, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products.

For example, increased demand for semiconductor chips in 2020, due in part to the COVID-19 pandemic and an increased use of laptop computers, 5G phones, gaming systems and other IT equipment that use these chips, has resulted in a severe shortage of chips in early 2021 and is ongoing.

These same chips are used in automobiles in a variety of parts and information and entertainment systems.

As a result, various automotive manufacturers have been forced to delay or stall new vehicle production.

If efforts to address the chip shortage by the industry and the U.S government are unsuccessful, there may be further delays in new vehicle production, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

We have a complex network of suppliers, owned and leased manufacturing locations, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers.

Factors that are hard to predict or beyond our control, such as weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or health pandemics, such as COVID-19, could damage or disrupt our operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations.

Factors that are hard to predict or beyond our control, such as supply chain disruptions, weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or public health crises, such as the COVID-19 pandemic, could damage or disrupt our operations or our customers’, suppliers’, co-manufacturers’ or distributors’ operations.

These disruptions may require additional resources to restore our supply chain or distribution network.

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During the year ended December 31, 2022, sales to customers located outside of the U.S.

accounted for approximately 39% of our consolidated net sales.

accounted for 39% of our consolidated net sales.

As a result of doing business internationally, we face risks associated with the following:

• changes in tariff regulations, which may make our products more costly to export or import;

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• changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations;

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• difficulty in staffing and managing geographically diverse operations;

• unstable governments or legal systems in countries in which our suppliers, manufacturing operations, and customers are located.

• political uncertainty, instability, civil unrest, government controls over certain sectors and human rights concerns in countries, including but not limited to, China, in which our suppliers, manufacturing operations, and customers are located;

• changes in the geopolitical environment, wars, conflicts, or trade barriers or blockades in the European Union and Asia, which may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial and foreign exchange markets, as well as disrupt the free movement of goods, services, and people between countries.

These and other risks may also increase the relative price of our products compared to those manufactured in other countries, thereby reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

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In many cases we face pressure from our customers to reduce prices, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

In addition, our customers may choose to purchase products from one of our competitors rather

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than pay the prices we seek for our products, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on our operations.

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If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.

Any breach or security failure of our information technology systems could materially adversely affect our business, financial condition, results of operations, and reputation.

Any security breach or disruption to our information technology systems could materially adversely affect our business, financial condition, results of operations, and reputation.

We rely on proprietary and third-party information technology systems to process, transmit and store information and to manage or support our business processes.

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We take steps, and generally require third-party service providers to take steps, to protect the security of the information maintained in our and our service providers’ information technology systems, including the use of systems, software, tools, and monitoring to provide security for processing, transmitting, and storing of the information.

However, we face risks associated with breaches or security failures of the information technology systems on which we rely, which could result from, among other incidents, cyber-attacks or cyber-intrusions over the internet, malware, computer viruses, or employee error or misconduct.

This risk of a data breach or security failure, particularly through cyber-attacks or cyber-intrusion, has generally increased due to the rise in new technologies and the increased sophistication and activities of the perpetrators of attempted attacks and intrusions.

Despite our security measures and business continuity plans, we face risks associated with security breaches or disruptions to the information technology systems on which we rely, which could result from, among other incidents, attacks by hackers, computer viruses, malware (including “ransomware”), phishing attacks or breaches due to errors or malfeasance by employees, contractors and others who have access to these systems.

Our third-party service providers could also be the source of a cybersecurity attack on, or breach of, our information technology systems.

Techniques used in cybersecurity attacks to obtain unauthorized access, disable or sabotage information technology systems change frequently, as data breaches and other cybersecurity events have become increasingly commonplace, including as a result of the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine.

The security measures put in place by us and our service providers cannot provide absolute security and there can be no assurance that we or our service providers will not suffer a data security incident in the future, that unauthorized parties will not gain access to sensitive information stored on our or our service providers’ systems, that such access will not, whether temporarily or permanently, impact, interfere with, or interrupt our operations, or that any such incident will be discovered in a timely manner.

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A data security incident could compromise our or our service providers’ information technology systems, and the information stored by us or our service providers, including personally identifiable information of employees, could be accessed, misused, publicly disclosed, corrupted, lost, or stolen.

Any failure to prevent a data breach or a security failure of our or our service providers’ information technology systems could interrupt our operations, result in downtime, divert our planned efforts and resources from other projects, damage our reputation and brand, damage our competitive position, subject us to liability claims or regulatory penalties, and could materially and adversely affect our business, financial condition, or results of operations.

Similarly, if our service providers fail to use adequate security or data protection processes, or use personal data in an unpermitted or improper manner, we may be liable for certain losses and it may damage our reputation.

Any failure to prevent a data breach or a security failure of our or our service providers’ information technology systems could interrupt our operations, result in downtime, divert our planned efforts and resources from other projects, damage our reputation and brand, damage our competitive position, subject us to liability claims or regulatory penalties under laws protecting the privacy of personal information.

Similarly, if our third-party service providers fail to use adequate security or data protection processes, or use personal information in an unpermitted or improper manner, we may be liable for certain losses and it may damage our reputation.

Various events described above have occurred in the past and may occur in the future.

Although impacts of past events have been immaterial, the impacts of such events in the future may materially and adversely affect our business, financial condition, or results of operations.

Our international operations and business, financial condition, and prospects may be adversely affected by the current military conflict between Russia and Ukraine, other future social and geopolitical instability and resulting domestic and foreign economic instability.

We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions.

The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine.

As a result of Russia’s invasion of Ukraine, the

United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia.

Broad restrictions on exports to Russia have also been imposed.

These measures include:

(i) comprehensive financial sanctions against major Russian banks;

(ii) additional designations of Russian individuals with significant business interests and government connections;

(iii) designations of individuals and entities involved in Russian military activities;

and (iv) enhanced export controls and trade sanctions limiting Russia’s ability to import various goods.

The negative impacts arising from the conflict and these sanctions and export restrictions, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials.

Although none of our operations are physically located in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition, results of operations and prospects.

Physical effects of climate change or legal, regulatory or market measures intended to address climate change could materially adversely affect our business and operations.

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and globally.

Shifts in weather patterns caused by climate change could increase the frequency, severity, or duration of certain adverse weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires, droughts, extreme temperatures, or flooding, which could result in more significant business and supply chain interruptions, damage to our products and facilities as well as the infrastructure of our customers, reduced workforce availability, increased costs of raw materials and

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components, increased liabilities, and decreased revenues than what we have experienced in the past from such events.

In addition, increased public concern over climate change could result in new legal or regulatory requirements designed to mitigate the effects of climate change, which could include the adoption of more stringent environmental laws and regulations or stricter enforcement of existing laws and regulations.

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New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, prospects, financial condition, results of operations, or cash flows.

Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable agencies outside the U.S.

Our medical devices are subject to regulation by numerous government agencies, including the Food and Drug Administration (“FDA”) and comparable agencies outside the U.S.

To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices.

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The FDA has also significantly increased the number of warning letters issued to companies.

If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/or require us to notify

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health professionals and others that the devices present unreasonable risks of substantial harm to the public health.

The FDA may also impose operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees, or us.

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Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.

Increasing scrutiny and evolving expectations with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

In addition to the increased legislative and regulatory attention to climate change, customer, investor, and employee expectations in ESG have been rapidly evolving and increasing.

While we have been committed to continuous improvements to our product portfolio to meet anticipated regulatory standard levels, if customers, regulators or investors demand we increase our greenhouse gas emission or renewable energy disclosures or our ESG initiatives, we may have to implement additional reporting standards and reporting requirements.

If we fail to meet customer, investor, or employee expectations, we may be unable to attract or retain our consumer base or talent.

Further, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact or that economic returns will reflect our investments in new product development.

The standards by which ESG efforts and related matters are measured are developing and evolving, and we could be criticized for the scope of our initiatives and goals, or lack thereof.

If we fail to comply with the evolving customer or investor or employee expectations and standards, or if we are perceived to have failed to adequately respond to such expectations and standards, we may suffer from reputational damage, which could have an adverse impact on our business or financial condition.

Risks Related to Our Capitalization

Our indebtedness could adversely affect our business, prospects, financial condition, results of operations, or cash flows.

As of December 31, 2021, we had approximately $159.8 million of indebtedness outstanding and $36.0 million available for future borrowings under the ABL Facility.

As of December 31, 2022, we had $157.1 million of indebtedness outstanding and $35.3 million available for future borrowings under our asset backed credit facility (the “ABL Facility”).

Our debt obligations could have important consequences, including:

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• consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets;

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• alter our existing businesses;

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In 2022, the U.S.

dollar weakened against foreign currencies which favorably affected our revenue by $2.2 million.

In contrast, a strengthening of the U.S.

dollar may unfavorably affect our business, prospects, financial condition, results of operations, or cash flows.

dollar strengthened against foreign currencies which unfavorably affected our revenue by $4.2 million.

In contrast, a weakening of the U.S.

dollar may beneficially affect our business, prospects, financial condition, results of operations, or cash flows.

The price of our common stock may be volatile.

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• loss of a major customer;

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• the declaration and payment of a dividend.

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Provisions in our charter documents and Delaware law may inhibit a takeover, which could adversely affect the value of our common stock.

Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable and may prevent shareholders from receiving a takeover premium for their shares.

These provisions include, for example, a classified board of directors and the authorization of our board of directors to issue up to five million preferred shares without a stockholder vote.

In addition, our certificate of incorporation provides that stockholders may not call a special meeting.

Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable and may prevent stockholders from receiving a takeover premium for their shares.

These provisions include, for example, the authorization of our board of directors to issue up to five million preferred shares without a stockholder vote and that stockholders may not call a special meeting.

We are a Delaware corporation subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law.

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We cannot assure you that we will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms in the future.

In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existing stockholders’ ownership interest in us.

In addition, we may borrow funds or issue equity to acquire other businesses, increasing our interest expense and debt levels or diluting our existing stockholders’

ownership interest in us.

Our inability to acquire businesses, or to operate them profitably once acquired, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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• the inability to implement effective internal controls, procedures, and policies for acquired businesses as required by the Sarbanes-Oxley Act of 2002 within the time periods prescribed thereby;

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• the exposure to potential unknown liabilities and unforeseen increased expenses or delays associated with acquired businesses;

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Our ability to attract and retain customers, suppliers, investors, and employees is impacted by our reputation.

Harm to our reputation can arise from various sources, including employee misconduct, security breaches, unethical behavior, litigation, or

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regulatory outcomes.

Harm to our reputation can arise from various sources, including employee misconduct, security breaches, unethical behavior, litigation, or regulatory outcomes.

The consequences of damage to our reputation include, among other things, increasing the number of litigation claims and the size of damages asserted or subjecting us to enforcement actions, fines, and penalties, all of which would cause us to incur significant defense related costs and expenses.

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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