Item 1A. Risk Factors
Item
1A – RISK FACTORS
You
should carefully consider the following risk factors and all the other information contained in this annual report and our other filings
in evaluating our business and investment in our common stock. We have not disclosed general risk factors that may be applicable to any
for-profit organization, such as general economic conditions, interest rates, labor supply and technological changes. Investors are cautioned
to take into consideration the specific risk factors we have disclosed below and general risk factors before making an investment decision.
Risk
Relating to Our Business – Sales and Competition
We
are primarily dependent on one product line for most of our sales.
Most
of the Company’s sales are derived from the sale of TracPipe ® and CounterStrike ® flexible gas piping
systems, including Autoflare ® and AutoSnap ® fittings and a variety of accessories. Sales of our flexible
metal hose for other applications represent a small portion of our overall sales and income. Any event or circumstance that adversely
affects our TracPipe ® or CounterStrike ® flexible gas piping could have a greater impact on our business
and financial results than if our business were more evenly distributed across several different product lines. The effects of such an
adverse event or circumstance would be magnified in terms of our Company as a whole as compared to one or more competitors whose product
lines may be more diversified, or who are not as reliant on the sales generated by their respective flexible gas piping products. Therefore,
risks relating to our TracPipe ® and CounterStrike ® flexible gas piping business – in particular loss
of distributors or sales channels, technological changes, loss of our key personnel involved in the flexible gas piping product line,
increases in commodity prices, particularly in stainless steel and polyethylene – could damage our business, competitive position,
results of operations or financial condition.
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We
face intense competition in all of our markets.
The
markets for flexible metal hose are intensely competitive. There are a number of competitors in all markets in which we operate, and
generally none of these markets have one dominant competitor – rather a large number of competitors exist, each having a proportion
of the total market. One or more of our competitors may develop technologies and products that are more effective, or which may cost
less than our current or future products, or could potentially render our products noncompetitive or obsolete. Our prior success has
been due to our ability to develop new products and product improvements, and establish and maintain an effective distribution network
which to some extent came at the expense of several competing manufacturers. Our business, competitive position, results of operations
or financial condition could be negatively impacted if we are unable to maintain and develop our competitive products.
We
may not retain our independent sales organizations.
Almost
all of the Company’s products and product lines are sold by outside sales organizations. These independent sales organizations
or sales representatives are geographically dispersed in certain territorial markets across the U.S., Canada and elsewhere. These outside
sales organizations are independent of us and are typically owned by the individual principals of such firms. We enter into agreements
with such outside sales organizations for the exclusive representation or distribution of our products, but such agreements are generally
for terms of one year or less. At the expiration of the agreement, the agent or distributor may elect to represent a different manufacturer.
As a result, we have no ability to control which flexible metal hose manufacturer any such sales organization may represent or carry.
The competition to retain quality outside sales organizations is also intense between manufacturers of flexible metal hose since it is
these sales organizations that generally can direct the sales volume to distributors and, ultimately, contractors and installers in important
markets across the country, and in other countries in which we operate. The failure to obtain the best outside sales organization within
a particular geographic market can limit our ability to generate sales of our products. While we currently have a fully developed sales
and distribution network of superior outside sales organizations, there can be no assurance that any one or more of the outside sales
organizations will elect to remain with us, or that our competitors will not be able to disrupt our distribution network by causing one
or more of our sales representatives to drop our product lines. Our business, competitive position, results of operation or financial
condition could be negatively impacted if we cannot maintain adequate sales and distribution networks.
We
are dependent on certain sales channels for a significant portion of our business.
Of
the various sales channels that we use to sell our products, a significant portion of such sales are made through our wholesale stocking
distributors. These and other distributors purchase our products, and stock the goods in warehouses for resale, either to their own local
branches or to end-users. Because of the breadth and penetration of the distribution networks, and the range of complementary products
they offer for sale, these wholesale distributors are able to sell large amounts of our products to end users across the U.S. and Canada.
The decision by a major wholesaler distributor to stop distributing our products such as TracPipe ® and CounterStrike ®
flexible gas piping, and to distribute a competitive flexible gas piping product, could significantly affect our business, competitive
position, results of operations or financial condition.
Certain
of our competitors may have greater resources, or they may acquire greater resources.
Some
of our competitors have substantially more resources than are available to us as a stand-alone company. For example, in the CSST market,
two of our competitors are divisions of large corporations with revenues measured in the billions of dollars. These competitors may be
able to devote substantially greater resources to the development, manufacture, distribution, and sale of their products than would be
available to us as a stand-alone company. One or more competitors may acquire several other competitors, or may be acquired by a larger
entity, and through a combination of resources be able to devote additional resources to their businesses. These additional resources
could be devoted to product development, reduced costs in an effort to obtain market share, greater flexibility in terms of profit margin
as part of a larger business organization, increased investment in plant, machinery, distribution and sales concessions. As a stand-alone
company, the resources that may be devoted by us to meet any potential developments by larger, well-financed competitors may be limited.
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Our
business may be subject to the impact of Brexit.
The
Company’s main operating subsidiary, Omega Flex Limited, is headquartered in Banbury, England in the U.K. The result of the referendum
held by the U.K. to withdraw from the European Union (“Brexit”) had created a level of uncertainty regarding the final terms
of that withdrawal for a number of years, until an agreement was reached on December 24, 2020, by the U.K. and the European Union. While
an agreement was reached, uncertainty still exists, and adherence to the new rules regarding border and customs controls could increase
costs on materials imported into the U.K. and finished goods exported from the U.K. In addition, it is possible that logistical delays
created by those controls could delay shipments of materials and supplies into the Banbury manufacturing plant and could also affect
our ability to ship goods to customers outside of the U.K., into the European Union, Africa, and the Near East. Most of the business
of Omega Flex Limited is domestic and should therefore not be unduly disrupted. However, the macroeconomic effects of Brexit on the economies
of the U.K. and the European Union remain partially unknown, and those effects could dampen economic activity and the overall demand
for the Company’s products in those markets. However, it is not expected that increased costs, logistical delays, nor possible
economic declines in those markets would be material to the Company.
Our
business may be subject to macroeconomic effects caused by increased trade tariffs and reduced international trade.
Recent
events have caused various governments around the world to impose increased trade tariffs on imported goods. These increased tariffs
may cause the cost of materials to rise and may add additional expense on exported goods. However, the Company does not believe that
increased tariffs will materially affect the Company’s sales or gross profits, as most of the raw materials and supplies used to
manufacture our products are sourced domestically in the U.S. Further, exports of our flexible gas piping products from our Exton, Pennsylvania
facility are primarily to Canada, which recently agreed to a revised North American trade treaty, and to a lesser extent to the Caribbean
and South America. Sales to Europe, Asia and Africa are primarily handled from our Banbury, England facility, which are not affected
by U.S. trade tariffs and retaliatory tariffs but may be subject to other constraints as discussed in the Brexit risk factor,
above.
Our
international sales subject us to additional risks that can adversely affect our business, operating results, and financial condition.
During
2021, we derived 7% of our revenue from sales to customers located outside the U.S. Our ability to convince customers to expand their
use of our products or renew their agreements with us are directly correlated to our direct engagement with such customers. To the extent
that we are unable to engage with non-U.S. customers effectively, we may be unable to grow sales to international customers to the same
degree we have experienced in the past.
Our
international operations subject it to a variety of risks and challenges, including:
●
general
economic or geopolitical conditions in each country or region;
●
the
effects of a widespread outbreak of an illness or disease, or any other public health crisis, including the COVID-19 pandemic, in
each country or region;
●
economic
uncertainty around the world; and
●
compliance
with U.S. laws and regulations imposed by other countries on foreign operations, including the Foreign Corrupt Practices Act, the
U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual
limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance.
For
example, in response to the rapidly developing conflict between Russia and Ukraine, the U.S. has imposed and may further impose, and
other countries may additionally impose, broad sanctions or other restrictive actions against governmental and other entities in Russia,
and such sanctions or actions could cut off or impede the flow of raw materials for our products, including minerals that are used in
our stainless steel and copper alloys. Additionally, further escalation of geopolitical tensions could have a broader impact that extends
into other markets where we do business. Any of these risks could adversely affect our international sales, reduce our international
revenues, or increase our operating costs, adversely affecting our business, financial condition, and operating results.
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Risk
Relating to Our Business – Manufacturing and Operations
Our
manufacturing plant(s) may be damaged or destroyed.
The
majority of the Company’s manufacturing capacity is currently located in Exton, Pennsylvania, where we own two manufacturing facilities
which are in close proximity to each other, and in Banbury, England in the U.K. where we rent a manufacturing facility. On a smaller
scale the Company also manufactures product in Houston, Texas. We do not have any operational manufacturing capacity for flexible metal
hose outside of these locations. We cannot replicate our manufacturing methods at a supplier’s facility due to the confidential
and proprietary nature of our manufacturing process. If one of the manufacturing facilities were destroyed or damaged in a significant
manner, we would likely experience a delay or some interruption of our flexible metal hose operations. This could lead to a reduction
in sales volume if customers were to purchase their requirements from our competitors, claims for breach of contract by certain customers
with contracts for delivery of flexible metal hose by a certain date, and costs to replace our destroyed or damaged manufacturing capacity.
The fittings and accessories for the flexible metal hose are manufactured for us by suppliers not located in Exton, Pennsylvania, and
the Company also has outside warehouses which contain finished goods inventory. Disruption of or damage to our supply of these items
could damage our business, competitive position, results of operations or financial condition.
We
are dependent on certain raw materials and supplies that could be subject to volatile price escalation .
As
a manufacturer of flexible metal hose, we must use certain raw materials in the manufacture of the hose. The primary raw material is
stainless steel that is used in the forming of the hose, and various other steel products used in the wire braid overlay over some flexible
metal hoses for additional strength and durability, as well as copper alloy for MediTrac ® CMT. We also use polyethylene
in pellet form for the forming and extrusion of a polyethylene jacket over CSST for use in fuel gas applications, underground installations,
and other installations that require that the metal hose be isolated from the environment. Finally, we also purchase our proprietary
brass and stainless steel fittings used with the flexible metal hose that provide a mechanical means of attaching the hose to an assembly
or junction. We attempt to limit the effects of volatile raw material prices, and to ensure adequate and timely supply of material, by
committing to annual purchase contracts for the bulk of our steel and polyethylene requirements, and for our fitting requirements. The
contracts typically represent a significant portion of the Company’s annual planned usage and are set at a designated fixed price
or a range of prices. These agreements sometimes require the Company to accept delivery of the commodity in the quantities committed,
at the agreed upon prices. Transactions in excess of the pre-arranged commitments are conducted at current market prices at the Company’s
discretion. The Company has identified multiple qualified vendors to produce or manufacture our critical purchase requirements. The Company
does however tend to rely on one or two sources for each or our primary components to leverage the relationship and pricing. Therefore,
there is no assurance that the Company would be able to eliminate all or most of the adverse effects of a sudden increase in the cost
of materials or key components, or that the loss of one or more of our key sources would not lead to higher costs or a disruption in
our business, which could damage our business, competitive position, results of operations or financial condition.
If
we were to lose the services of one or more of our senior management team, we may not be able to execute our business strategy
Our
future success depends in a large part upon the continued service of key members of our senior management team. The senior executives
are critical to the development of our products and our strategic direction and have a keen knowledge of business operations and processes.
Their unique abilities, experience and expertise cannot be easily duplicated or replaced. As much as possible, senior executives strive
to educate and develop other layers of staff and succession planning, but the loss of any of our senior management could seriously harm
our business.
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Risk
Relating to Our Business – Legal
Susceptibility
of litigation and significant legal costs or settlements.
In
the ordinary and normal conduct of the Company’s business, it is subject to periodic lawsuits, investigations, and claims (collectively,
the “Claims”). The Company has continued to receive repeat pattern Claims relating to our flexible gas piping products, although
the pace of the new Claims has generally declined over the last several years. While the Company does not believe the Claims have legal
merit, and has successfully defended itself vigorously against such Claims, there is no guarantee that the pace of claims will not increase
or subside. Any significant increase in the number of Claims, the financial magnitude of Claims brought against the Company, the costs
of defending the Claims, particularly under higher retentions of the Company’s current product liability insurance policies, could
have a detrimental impact on the Company’s business, competitive position, results of operations or financial condition, perhaps
materially.
If
we are not able to protect our intellectual property rights, we may not be able to compete as effectively.
We
possess a wide array of intellectual property rights, including patents, trademarks, copyrights, and applications for the above, as well
as trade secrets, manufacturing know-how, and other proprietary information. Certain of these intellectual property rights form the basis
of our competitive advantage in the marketplace through a superior product design, a superior business process, superior manufacturing
methods or other features that provide an advantage over our competitors. The intellectual property rights are sometimes subject to infringement
or misappropriation by other organizations, and failing an amiable resolution, we may be forced to resort to legal proceedings to protect
our rights in such intellectual property.
In
the past, the Company has needed to protect itself and resort to legal action, in one instance regarding a trade secret, and other instances
where we sued flexible gas pipe competitors for infringement on one or more of our U.S. patents covering our various piping and/or fitting
products. In each instance, the Company received favorable rulings, thus solidifying the validity of our intellectual property. Although
the Company has had past success, the results we may obtain from resorting to any such legal proceedings are never assured, and it is
possible that an adverse decision may be delivered in any particular proceeding. As a result, we may not be able to retain the exclusive
rights to utilize and practice such intellectual property rights, and one or more of our competitors could utilize and practice such
intellectual property rights. This development may lessen our competitive advantage vis-à-vis one or more competitors, and lead
to a reduction in sales volume in one or more product lines, a reduction in profit margin in such product lines, or both, which would
damage our business, competitive position, results of operations or financial condition.
Risk
Relating to Our Business – General and Macroeconomic
Our
business may be subject to the supply and availability of fuel gas supplies and infrastructure.
With
increasing debate on the effect of human activities on climate change, there has been a focus on transitioning energy and heating in
buildings away from fossil fuels, such as natural gas and liquid propane. Several municipalities in the U.S. have announced policy decisions
to move away from fossil fuel applications in the future, including prohibiting the new installation of appliances fueled by natural
gas or liquid propane. Although there are significant technical and economic hurdles, it is possible that a large scale movement, in
individual cities and states or on a federal level, away from fossil fuels may increase in the future. Such moves could reduce the demand
for our flexible gas piping products that carry natural gas or liquid propane from the building’s meter to the gas-fired appliance,
which represent a major part of the Company’s sales and net profits. As a result, it is possible in the future that proposals to
limit or eliminate the use of fossil fuels could adversely impact the financial results of the Company, perhaps materially.
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Our
TracPipe ® and CounterStrike ® flexible gas piping products are used to convey fuel gas, primarily natural
gas, but also propane, within a building from the exterior wall of the building to any gas-fired appliances within the building. Because
those products are used in the transmission of fuel gas, the applications are limited to geographic areas where such fuel gas is available.
Certain geographic areas of the U.S. and other countries do not have the infrastructure to make natural gas available. Other types of
fuel gas may be used in areas where there are no natural gas pipelines, but these alternate fuel gas sources have other distribution
issues that may constrict their availability. Our prospects for future growth of the TracPipe ® and CounterStrike ®
products are largely limited to those areas that have natural gas transmission lines available for use in residences and commercial
buildings.
We
may substantially increase our debt in the future or be restricted from accessing funds.
We
are currently not carrying any long-term debt, although the Company has a line of credit facility available for use as described in Note
5, Line of Credit, to the Consolidated Financial Statements included in this report. We may consider borrowing funds for purposes of
working capital, capital purchases, research and development, potential acquisitions, and business development. If we do use credit facilities,
interest costs associated with any such borrowings and the terms of the loan could potentially adversely affect our profitability. Additionally,
the current line of credit has debt covenants associated with it which may restrict the level of borrowing the Company may take on. Lack
of access to financing, or desirable terms or at all, could damage our business, competitive position, results of operations or financial
condition.
Changes
in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR and adoption of SOFR after 2021 may
affect our financial results.
Borrowings
under our line of credit facility bear interest at variable rates based on LIBOR. The U.K.’s Financial Conduct Authority, which
regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit rates for the calculation of LIBOR rates
after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. The Federal Reserve Bank
formed the Alternative Rates Committee (ARRC) to consider options for transitioning away from LIBOR. The ARRC selected the Secured Overnight
Financing Rate (SOFR) as an appropriate replacement. SOFR is based on transactions in the overnight repurchase markets, which reflects
a transaction-based rate on a large number of transactions, better reflecting current financing costs. If LIBOR ceases to exist or if
the methods of calculating LIBOR change from their current form, or if new methods are implemented such as SOFR, interest rates on our
current or future debt obligations may be adversely affected.
Our
business may be subject to varying demands based on market interest rates.
Our
TracPipe ® and CounterStrike ® flexible gas piping products are used in the construction industry, both in
residential, commercial, and industrial segments, for the piping of fuel gas within a building. The demand for new or remodeled construction
in the construction industry – and in particular the residential construction industry – is susceptible to fluctuations in
interest rates charged by banks and other financial institutions as well as consumer demand. The purchasers of new or remodeled construction
generally finance the construction or acquisition of the residential, commercial, or industrial buildings, and any increase in the interest
rates on such financing will raise the acquisition cost of the potential purchaser. While interest rates are currently low, there is
no guarantee that will remain the case in the future. If costs increase significantly, a higher amount of potential buyers may not be
able to support the level of financing under a higher interest rate environment. Increased acquisition costs may lead to a decline in
the demand for new or remodeled construction, and as a result may also lead to a reduced demand for our products used in construction
industry, which could damage our business, competitive position, results of operations or financial condition.
Our
business may be subject to cyclical demands.
The
demand for our products may be subject to cyclical demands in the markets in which we operate. Our customers who use our products in
industrial and commercial applications are generally manufacturing capital equipment for their customers. Similarly, our TracPipe ®
and CounterStrike ® flexible gas piping products are used primarily in residential construction, both in single-family
buildings, and in larger multi-unit buildings. Should there be any change in factors that affect the rate of new residential construction,
our growth rate would likely be impacted. To the extent that interest rates increase, in conjunction with an economic cycle or as part
of the general economic conditions in the U.S. or abroad, the demand for our products in such applications may decrease as well, which
could damage our business, competitive position, results of operations or financial condition.
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Our
business may be subject to seasonal or weather related factors.
The
demand for our products may be affected by factors relating to seasonal demand for the product, or a decline in demand due to inclement
weather. Our TracPipe ® and CounterStrike ® flexible gas piping products are installed in new or remodeled
buildings, including homes, apartment buildings, office buildings, warehouses, and other commercial or industrial buildings. Generally,
the rate of new or remodeled buildings in the U.S. and in the other geographic markets in which we are present decline in the winter
months due to the inability to dig foundations, problems at the job site relating to snow, or generally due to low temperatures and stormy
weather. As the rate of construction activity declines during the winter, the demand for our corrugated stainless steel tubing may also
decrease or remain static.
Our
business may be subject to the impact of currency volatility.
The
Company has operations in the U.K., and does business transactions elsewhere in the world outside of the U.S. While the magnitude of
these transactions outside of the U.S. have thus far not been significant, and typically not in currencies of high volatility, it is
possible that they could be material. Events such as Brexit, as described above, or other instances of political and economic turmoil
or uncertainty, could create a weakened British Pound (“BP”) in comparison to other currencies. A weakened BP would in turn
have a direct negative impact on the Company’s financial statements, as we would experience losses when settling transactions in
other currencies, and experience unfavorable results due to the translation of financial statements with a lower exchange rate. During
2020 and 2021 there was not any notable impact due to currency volatility on the financial statements, but going forward, it is possible
that the BP, other currencies that we engage in, or even the U.S. Dollar may weaken, and materially impact the financial position, operations,
and liquidity of the Company.
A
cyberattack or other computer system breach could harm us.
In
recent years, the topic of cybersecurity, or the lack thereof, has been an issue of high concern. The Company currently maintains a robust
firewall and other safeguards to either prevent or detect against nefarious actors looking to breach or infiltrate our data and has backup
systems in place. The Company’s website is housed and maintained by a third party who maintain their own controls. The Company
currently has a very low volume of sales coming through the internet, and processes very few credit card transactions. While it currently
appears that the Company has a low level of risk related to cybercrime, the vulnerability still exists and could affect the Company negatively.
The
COVID-19 pandemic affected and may continue to affect the business.
The
ongoing global outbreak of coronavirus, which was declared a pandemic by the World Health Organization on March 11, 2020, and a national
emergency by the President of the U.S. on March 13, 2020, has caused and is continuing to cause business slowdowns and shutdowns and
turmoil in the financial markets both in the U.S. and abroad. The Company is monitoring the impact of the COVID-19 pandemic on its business,
including how it has impacted and will impact the Company’s employees, customers, suppliers, and distribution channels. The COVID-19
pandemic, as well as the quarantines and other governmental and non-governmental restrictions that have been imposed throughout the world
in an effort to contain or mitigate the spread of the coronavirus, has created significant volatility, uncertainty and economic disruption
which affected and may continue to affect the Company’s business. For example, governmental authorities in several jurisdictions
have and had ordered the cessation of all business activity that is and was deemed non-essential and, although the Company’s business
has to date been deemed essential in many affected markets, there is a risk that these shutdown orders will be extended or expanded,
or that similar shutdown orders will be implemented in other regions.
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The
Company is currently navigating through this unprecedented crisis without any government support from the U.S. Small Business Administration’s
Paycheck Protection Program (“PPP”), and the nature and magnitude of the COVID-19 pandemic’s ultimate impact on the
Company will depend on numerous evolving factors, future developments and cascading effects of the coronavirus pandemic that the Company
is not able to predict, including: the duration and severity of the COVID-19 pandemic and the international actions and business restrictions
that are being undertaken and implemented as a result of it; governmental, business and other responses to the COVID-19 pandemic, including
the promotion of “social distancing,” the issuance of shelter in place orders and restrictions on the Company’s operations,
and the possibility that government officials may mandate that the Company provide products or services; potential disruptions in the
Company’s supply chain; the impact of the COVID-19 pandemic on the Company’s ability to execute its short-term and long-term
business strategies and initiatives; the extent to which forced remote working arrangements reduce the Company’s ability to manage
its business effectively; the extent to which staffing shortages due to members of the Company’s workforce being quarantined or
exposed to the coronavirus may be detrimental to the Company’s operations; and the Company’s ability to maintain current
levels of skilled headcount without the proceeds of a loan under the PPP (a “PPP Loan”) as a source of additional liquidity.
Furthermore, while the Company timely returned the proceeds of a PPP Loan in 2020 that it initially received out of an abundance of caution
in reliance on U.S. Treasury Department and Small Business Administration guidance that companies were able to do so without penalty,
as the COVID-19 pandemic unfolds, federal or state governments (including government agencies such as the Treasury Department, the Small
Business Administration or the Securities and Exchange Commission) could promulgate new statutes, regulations, guidance or relief measures,
or rescind or modify existing statutes, regulations, guidance or relief measures, in a way that is detrimental to the Company or its
business, including as a result of the Company’s prior application for a loan under the PPP.
In
addition, while the Company cannot predict the magnitude of the impact that the COVID-19 pandemic will have on its customers and suppliers
or their financial conditions, any material effect on the Company’s customers or suppliers could adversely impact the Company.
For example, the Company’s customers or suppliers may themselves assert, or attempt to terminate various agreements and arrangements
with us on the basis of, contractual force majeure provisions, and any termination of a significant commercial agreement may adversely
harm our operations. Additionally, the COVID-19 pandemic and related travel restrictions and other containment efforts have had a significant
impact on the travel industry, which may result in reduced demand for products. The impact of the COVID-19 pandemic may also exacerbate
other risk factors in this Item 1A, any of which could have a material effect on the Company. For example, the risks associated with
potential cybersecurity threats may be magnified given the increase in the number of Company employees working remotely using personal
electronic devices and home internet connections.
The
extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as information
is rapidly evolving with respect to the duration and severity of the COVID-19 pandemic. At this point, the Company cannot reasonably
estimate the duration and severity of the COVID-19 pandemic or its overall impact on the Company’s business.
Various
other general and macroeconomic issues may impact the business
Conflicts,
wars, natural disasters, infectious disease outbreaks (see Pandemic above) or terrorist acts could also cause significant damage or disruption
to our operations, employees, facilities, systems, suppliers, supply chain, distributors, resellers, or customers in the U.S. and internationally
for extended periods of time and could also affect demand for our products.
Risks
Associated with Our Common Stock
The
concentration of ownership of our common stock could impact its market price.
On
December 31, 2021, approximately 70% of the issued and outstanding common stock is owned or controlled by inside affiliated parties to
the Company, with the largest being: The Estate of John E. Reed, Stewart B. Reed, Kevin R. Hoben and Mark F. Albino. Stewart B. Reed
currently serves on the Board of Directors, where he presides as Vice Chairman. Mr. Hoben and Mr. Albino also serve on the Board of Directors,
with Mr. Hoben being the Chairman of the Board, and both are officers of the Company. This concentration of ownership may have the effect
of reducing the volume of trading of the common stock on the NASDAQ. A decrease in trading volume could result in lower prices for the
common stock because there is not a sufficient supply of shares to create a vibrant market for our shares on the NASDAQ, or inversely
could drive the common stock price higher when demand exceeds supply.
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The
concentration of ownership of common stock could exert significant influence over matters requiring shareholder approval, including takeover
attempts.
Because
of their significant ownership of our common stock, our officer and directors and their respective affiliates may, as a practical matter,
be able to exert influence over matters requiring approval by our shareholders, including the election of directors and the approval
of mergers or other business combinations. This concentration also could have the effect of delaying or preventing a change in control
of the Company.
Item
1B – UNRESOLVED STAFF COMMENTS
None.