What changed in this filing

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Item 1A. Risk Factors

2023-03-16 compared with 2022-02-28 · 370 added, 592 removed, 655 unchanged (59% of the section changed)

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Some of the factors that could materially and adversely affect our business, financial condition, results of operations and cash flows include, but are not limited to, the following:

revenues and results of operations are volatile and difficult to predict.

in the financial markets and general economic conditions, including the ongoing COVID-19 pandemic, have impacted and may continue

to impact our ability to generate business and revenues, which may cause significant fluctuations in our stock price.

change could have a material negative impact on us and our customers and counterparties.

exposure to legal liability is significant and could lead to substantial damages.

services firms have been subject to increased scrutiny over the last several years, increasing the risk of financial liability and

reputational harm resulting from adverse regulatory actions.

failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act

could have a material adverse effect on our financial condition, results of operations and business and the price of our common stock

and other securities.

may enter into new lines of business, make strategic investments or acquisitions or enter into joint ventures, each of which may

result in additional risks and uncertainties for our business.

corporate finance and strategic advisory engagements are singular in nature and do not generally provide for subsequent engagements.

have made and may make principal investments in relatively high-risk, illiquid assets that often have significantly leveraged capital

structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of

the principal amount we invest in these activities.

are exposed to credit risk from a variety of our activities, including loans, lines of credit, guarantees and backstop commitments,

and we may not be able to fully realize the value of the collateral securing certain of our loans.

• Our revenues and results of operations are volatile and difficult to predict.

• Conditions in the financial markets and general economic conditions, including increased inflation and a rising interest rate environment, have impacted and may continue to impact our ability to generate business and revenues, which may cause significant fluctuations in our stock price.

• Our exposure to legal liability is significant and could lead to substantial damages.

• Financial services firms have been subject to increased scrutiny over the last several years, increasing the risk of financial liability and reputational harm resulting from adverse regulatory actions.

• The restatement of our previously issued financial statements, the error that resulted in such restatement, the material weaknesses that were identified in our internal control over financial reporting and the determination that our internal control over financial reporting and disclosure controls and procedures were not effective, could result in loss of investor confidence, shareholder litigation or governmental proceedings or investigations, any of which could cause the market value of our securities to decline or impact our ability to access the capital markets.

• Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our financial condition, results of operations and business and the price of our common stock and other securities.

• We may enter into new lines of business, make strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties for our business.

• Our corporate finance and strategic advisory engagements are singular in nature and do not generally provide for subsequent engagements.

• We have made and may make investments in relatively high-risk, illiquid assets that often have significantly leveraged capital structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount we invest in these activities.

• We are exposed to credit risk from a variety of our activities, including loans, lines of credit, guarantees and backstop commitments, and we may not be able to fully realize the value of the collateral securing certain of our loans.

• A substantial portion of our cash flows and net income are dependent upon payments from our investments in receivables.

• We may incur losses as a result of “guarantee” based engagements that we enter into in connection with our auction and liquidation solutions business.

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Consequently, the loss of any financial institutions as clients may have an adverse impact on our business.

The asset management business is intensely competitive.

• Poor investment performance may decrease assets under management and reduce revenues from and the profitability of our asset management business.

Our communications businesses compete against large companies, many of whom have significantly more financial and marketing resources, and our business will suffer if we are unable to compete successfully.

• Dial-up and DSL pay accounts may decline faster than expected and adversely impact our business.

• If we fail to innovate and develop new products in our consumer businesses in a timely and cost-effective manner for its new and existing product categories, our business and operating results could be adversely affected.

• Our consumer businesses purchase key components and products from a limited number of sources, and our business and operating results could be adversely affected if supply were delayed or constrained or if there were shortages of required components.

• The failure of our licensees to sell products that generate royalties to us, to pay us royalties pursuant to their license agreements with us, or to renew these agreements could negatively affect our results of operations and financial condition.

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• Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

• We may be unsuccessful in protecting our proprietary rights or may have to defend ourselves against claims of infringement, which could impair or significantly affect our business.

• Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock.

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• Our level of indebtedness, and restrictions under such indebtedness, could adversely affect our operations and liquidity.

Risks Related to Global and Economic Conditions

• An increase in market interest rates could result in a decrease in the value of our senior notes and increase our future borrowing costs.

Risks Related to Global and Economic Conditions and International Operations

Our revenues and results of operations are volatile and difficult to predict.

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• The types of fees we charge clients, or other financial arrangements we enter into with clients;

Changes in general economic and market conditions, including the effects of the ongoing COVID-19 pandemic, or an outbreak of another highly infectious or contagious disease.

• Changes in general economic and market conditions, including increased inflation and rising interest rates.

We have limited or no control over some of the factors set forth above and, as a result, may be unable to forecast our revenues accurately.

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If, for any reason, we fail to meet company, investor or analyst projections of revenue, growth or earnings, the market price of the common stock could decline and you may lose all or part of your investment.

Conditions in the financial markets and general economic conditions, including the ongoing COVID-19 pandemic, have impacted and may continue to impact our ability to generate business and revenues, which may cause significant fluctuations in our stock price.

Conditions in the financial markets and general economic conditions have impacted and may continue to impact our ability to generate business and revenues, which may cause significant fluctuations in our stock price.

• Our opportunity to act as underwriter or placement agent could be adversely affected by a reduction in the number and size of capital raising transactions or by competing sources of equity.

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• Market volatility could lead to a decline in the volume of transactions that we execute for our customers and, therefore, to a decline in the revenue we receive from commissions and spreads.

We may experience losses in securities trading activities, or as a result of write-downs in the value of securities that we own, as a result of deteriorations in the businesses or creditworthiness of the issuers of such securities.

We may experience losses or write downs in the realizable value of our proprietary investments due to the inability of companies we invest in to repay their borrowings.

• We have experienced and may experience in the future losses in securities trading activities, or as a result of write-downs in the value of securities that we own, as a result of deteriorations in the businesses or creditworthiness of the issuers of such securities.

• We have experienced and may experience in the future losses or write downs in the realizable value of our proprietary investments due to the inability of companies we invest in to repay their borrowings.

• Our access to liquidity and the capital markets could be limited, preventing us from making proprietary investments and restricting our sales and trading businesses.

We may incur unexpected costs or losses as a result of the bankruptcy or other failure of companies for which we have performed investment banking services to honor ongoing obligations such as indemnification or expense reimbursement agreements.

• We have incurred, and may incur in the future, unexpected costs or losses as a result of the bankruptcy or other failure of companies for which we have performed investment banking services to honor ongoing obligations such as indemnification or expense reimbursement agreements, or in whom we have invested or to whom we have extended credit.

• Sudden sharp declines in market values of securities can result in illiquid markets and the failure of counterparties to perform their obligations, which could make it difficult for us to sell securities, hedge securities positions, and invest funds under management.

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• Competition in our investment banking, sales, and trading businesses could intensify as a result of the increasing pressures on financial services companies and larger firms competing for transactions and business that historically would have been too small for them to consider.

Market volatility could result in lower prices for securities, which may result in reduced management fees calculated as a percentage of assets under management.

• Market volatility often results in lower prices for securities, which results in reduced management fees calculated as a percentage of assets under management.

• Market declines could increase claims and litigation, including arbitration claims from customers.

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• Government intervention may not succeed in improving the financial and credit markets and may have negative consequences for our business.

It is difficult to predict how long the current financial market and economic conditions related to the ongoing COVID-19 pandemic will continue, whether they will further deteriorate and if they do, which of our business lines will be adversely affected.

We are currently being impacted by the ongoing COVID-19 pandemic, including with respect to the above-described risks.

While we are continuing to monitor the spread of COVID-19 and related risks, the rapid development and fluidity of situation precludes any prediction as to its ultimate impact on us.

However, if the spread continues, such impact could grow and our business, financial condition, results of operations and cash flows could be materially adversely affected.

Global economic and

political uncertainty, including as a result of COVID-19 pandemic, could adversely affect our revenue and results of operations.

As a result of the international

nature of our business, we are subject to the risks arising from adverse changes in global economic and political conditions.

about the effects of current and future economic and political conditions, including acts of war, aggression or terrorism, on us, our

customers, suppliers and partners makes it difficult for us to forecast operating results and to make decisions about future investments.

Deterioration in economic conditions in any of the countries in which we do business could result in reductions in sales of our products

and services and could cause slower or impaired collections on accounts receivable, which may adversely impact our liquidity and financial

The ongoing COVID-19 pandemic

has caused severe disruptions in the U.S.

and global economies, which has impacted the business, activities, and operations of our customers,

as well as our business and operations.

Through 2021, the U.S.

and other economies have been impacted by supply chain disruptions, labor

shortages and high inflation, and in late 2021 the Federal Reserve signaled that it will likely begin increasing the target range for

the federal funds rate in response to the increasing inflation.

While many of the restrictions on commercial activity and public gatherings

and events that characterized the earlier stages of the pandemic have been lifted or are winding down, there can be no assurances that

there will not be additional quarantines, business shutdowns, and reduction in business activity and financial transactions as a result

of a resurgence in the virus or new variants.

The return of unfavorable economic conditions may also make it more difficult for us to

access the capital markets, use the capital markets for our clients or otherwise obtain additional financing.

The continuation of the COVID-19

pandemic, or a significant outbreak of another contagious disease or other severe public health crisis, could negatively impact the availability

of key personnel necessary to conduct our business, and the business and operations of our third-party service providers who perform critical

services for our business.

Pandemics, epidemics, future highly infectious or contagious diseases, or other severe public health crisis

could cause a material adverse effect on our business, financial condition, results of operations and cash flow.

Among the factors outside

our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:

● the pandemic’s course and severity;

● the direct and indirect results of the pandemic, such as recessionary economic trends, including with

respect to employment, wages and benefits and commercial activity;

● political, legal and regulatory actions and policies in response to the pandemic, including the effects

of restrictions on commerce or other public activities, moratoria and other suspensions of evictions or rent and related obligations;

● the timing, magnitude and effect of any continued or additional public

spending, directly or through subsidies, or the winding-down of the same, and the resultant direct and indirect effects on commercial

activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

● the timing and availability of direct and indirect governmental support for various financial assets,

and possible related distortions in market values and liquidity for such assets whose markets have or are assumed to have government support

versus possibly similar assets that do not;

● the likely longer-term effects of increased government spending on

inflation and the interest rate environment and borrowing costs for non-governmental parties;

● the ability of our employees and our third-party vendors to work effectively during the course of the

● potential longer-term shifts toward telecommuting and telecommerce;

● geographic variation in the severity and duration of the COVID-19 pandemic, including in states such as

New York and California where high percentages of our clients, customers and personnel are located.

Global economic and political uncertainty could adversely affect our revenue and results of operations.

As a result of the international nature of our business, we are subject to the risks arising from adverse changes in global economic and political conditions.

Uncertainty about the effects of current and future economic and political conditions, including acts of war, aggression or terrorism, on us, our customers, suppliers and partners makes it difficult for us to forecast operating results and to make decisions about future investments.

Deterioration in economic conditions in any of the countries in which we do business could result in reductions in sales of our products and services and could cause slower or impaired collections on accounts receivable, which may adversely impact our liquidity and financial condition.

As was observed during the COVID-19 pandemic, a significant outbreak of a contagious disease or other severe public health crisis, could negatively impact the availability of key personnel necessary to conduct our business, and the business and operations of our third-party service providers who perform critical services for our business.

Pandemics, epidemics, future highly infectious or contagious diseases, or other severe public health crisis could cause a material adverse effect on our business, financial condition, results of operations and cash flow.

We focus principally on certain sectors of the economy in our investment banking operations, and deterioration in the business environment in these sectors or a decline in the market for securities of companies within these sectors could harm our business.

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For example, the consumer goods and services sectors are subject to consumer spending trends, which have been volatile, to mall traffic trends, which have been down, to the availability of credit, and to broader trends such as the rise of Internet retailers.

The consumer goods and services sector was severely impacted by the ongoing COVID-19 pandemic, which has resulted in mandatory store closures of uncertain duration due to social distancing measures, stay-at-home work restrictions and the closing of non-essential businesses imposed to control the pandemic.

Emerging markets have driven the growth of certain consumer companies but emerging market economies are fragile, subject to wide swings in GDP, and subject to changes in foreign currencies.

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This concentration of activity in our target industries exposes us to the risk of declines in revenues in the event of downturns in these industries, such as those due to rising inflation and interest rates.

Our businesses may be adversely affected by the disruptions in the credit markets, such as those due to the COVID-19 pandemic and its effects, including reduced access to credit and liquidity and higher costs of obtaining credit.

Our businesses may be adversely affected by the disruptions in the credit markets, including reduced access to credit and liquidity and higher costs of obtaining credit.

In the event existing internal and external financial resources do not satisfy our needs, we would have to seek additional outside financing.

The availability of outside financing will depend on a variety of factors, such as our financial condition and results of operations, the availability of acceptable collateral, market conditions, the general availability of credit, the volume of trading activities, and the overall availability of credit to the financial services industry, all of which may be negatively impacted due to the effects of the COVID-19 pandemic, which may include increased inflation and rising interest rates.

The availability of outside financing will depend on a variety of factors, such as our financial condition and results of operations, the availability of acceptable collateral, market conditions, the general availability of credit, the volume of trading activities, and the overall availability of credit to the financial services industry, all of which are under increased pressure due to recent increases in inflation and the present rising interest rate environment.

Widening credit spreads, as well as significant declines in the availability of credit, could adversely affect our ability to borrow on an unsecured basis.

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Our clients engaging us with respect to mergers and acquisitions often rely on access to the secured and unsecured credit markets to finance their transactions.

The lack of available credit and the increased cost of credit could adversely affect the size, volume and timing of our clients’ merger and acquisition transactions-particularly large transactions-and adversely affect our investment banking business and revenues.

Climate change could

have a material negative impact on us and our customers and counterparties, and our efforts to address concerns relating to climate change

could result in damage to our reputation.

Our business, as well as

the operations and activities of our customers and counterparties, could be negatively impacted by climate change.

Climate change presents

both immediate and long-term risks to us and our customers and these risks are expected to increase over time.

Climate change may cause

extreme weather events that disrupt operations at one or more of our primary locations, which may negatively affect our ability to service

and interact with our clients, adversely affect the value of our investments, and reduce the availability of insurance.

Climate change

and the transition to a less carbon-dependent economy may also have a negative impact on the operations or financial condition of our

clients and counterparties, which may decrease revenues from those clients and counterparties and increase the credit risk associated

with loans and other credit exposures to those clients and counterparties.

In addition, climate change may impact the broader economy,

including through disruptions to supply chains.

Climate change also exposes

us to transition risks associated with the transition to a less carbon-dependent economy.

Transition risks may result from changes in

The lack of available credit and the increased cost of credit could adversely

affect the size, volume and timing of our clients’ merger and acquisition transactions-particularly large transactions-and adversely affect our investment banking business and revenues.

Climate change could have a material negative impact on us and our customers and counterparties, and our efforts to address concerns relating to climate change could result in damage to our reputation.

Our business, as well as the operations and activities of our customers and counterparties, could be negatively impacted by climate change.

Climate change presents both immediate and long-term risks to us and our customers and these risks are expected to increase over time.

Climate change may cause extreme weather events that disrupt operations at one or more of our primary locations, which may negatively affect our ability to service and interact with our clients, adversely affect the value of our investments, and reduce the availability of insurance.

Climate change and the transition to a less carbon-dependent economy may also have a negative impact on the operations or financial condition of our clients and counterparties, which may decrease revenues from those clients and counterparties and increase the credit risk associated with loans and other credit exposures to those clients and counterparties.

In addition, climate change may impact the broader economy, including through disruptions to supply chains.

Climate change also exposes us to transition risks associated with the transition to a less carbon-dependent economy.

Transition risks may result from changes in policies;

laws and regulations;

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and/or market preferences to address climate change.

Such changes could materially, negatively

impact our business, results of operations, financial condition and/or our reputation, in addition to having a similar impact on our customers

and counterparties.

For example, our reputation

and client relationships may be damaged as a result of our involvement, or our clients’ involvement, in certain industries or projects

associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities

in response to considerations relating to climate change.

New regulations or guidance

relating to climate change, as well as the perspectives of regulators, stockholders, employees and other stakeholders regarding climate

change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products.

The risks associated

with, and the perspective of regulators, shareholders, employees and other stakeholders regarding, climate change are continuing to evolve

rapidly, which can make it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties, and we expect

that climate change-related risks will increase over time.

Such changes could materially, negatively impact our business, results of operations, financial condition and/or our reputation, in addition to having a similar impact on our customers and counterparties.

For example, our reputation and client relationships may be damaged as a result of our involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

New regulations or guidance relating to climate change, as well as the perspectives of regulators, stockholders, employees and other stakeholders regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products.

The risks associated with, and the perspective of regulators, shareholders, employees and other stakeholders regarding, climate change are continuing to evolve rapidly, which can make it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties, and we expect that climate change-related risks will increase over time.

Our third-party contract manufacturers are located across seven countries in Asia, Turkey, and U.S., which could expose us to risks associated with doing business in those geographic areas.

All of our production is performed by third-party contract manufacturers, including original design manufacturers, in Taiwan, China, Thailand, Vietnam, Cambodia, India, Korea and Philippines.

Our global manufacturing suppliers in Asia and other countries could be adversely affected by changes in the interpretation and enforcement of legal standards, strains on available labor pool, changes in labor costs and other employment dynamics, high turnover among skilled employees, infrastructure issues, import-export issues, cross-border intellectual property and technology restrictions, currency transfer restrictions, natural disasters, regional or global pandemics, conflicts or disagreements between the United States and some other countries, labor unrest, and other trade customs and practices that are dissimilar to those in the United States and Europe.

We depend on overseas third-party suppliers for the manufacture of Targus and magicJack products, and our reputation and results of operations would be harmed if these manufacturers or suppliers fail to meet our requirements.

Our manufacturers supply substantially all of the raw materials and provide all facilities and labor required to manufacture our products.

Within Asia, except for India, the majority of raw materials are from China.

If these companies were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, either due to actions of the manufacturers;

earthquakes, typhoons, tsunamis, fires, floods, or other natural disasters;

COVID-19 or other pandemics;

wars or armed conflicts;

strains on infrastructure;

available labor pools or manufacturing capacity;

or the actions of their respective governments, we would be unable to manufacture our products until replacement contract manufacturing services could be obtained.

To qualify a new contract manufacturer, familiarize it with our products, quality standards and other requirements, and commence volume production is a costly and time-consuming process.

Lead times for materials, components and products ordered by us or by our contract manufacturers can vary significantly and depend on factors such as contract terms, demand for an input component, and supplier capacity.

time to time, we have experienced component shortages and extended lead times on semiconductors and other input products used in our finished products.

Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment of our products or increase our production costs, which could adversely affect our business and operating results.

While we work to address and mitigate such risks, we are exposed to the risks of supply chain disruption which could negatively impact our business.

Any material interruption in the manufacture of our products could likely result in delays in shipment, lost sales and revenue, and damage to our reputation in the market, all of which would harm our business and results of operations.

Changes in trade policy and regulations in the United States and other countries, including changes in trade agreements and the imposition of tariffs and the resulting consequences, may have adverse impacts on our business, results of operations, and financial condition.

In recent years, the U.S.

government has instituted or proposed changes to international trade policy through the renegotiation, and potential termination, of certain existing bilateral or multilateral trade agreements and treaties with, and the imposition of tariffs on a wide range of products and other goods from China, EMEA, and other countries.

Given our contract manufacturing and logistic providers in those countries, policy or regulations changes in the United States or other countries present particular risks for us.

New or increased tariffs could adversely affect many of our products.

There also are risks associated with retaliatory tariffs and resulting trade wars.

We cannot predict future trade policy and regulations in the United States and other countries, the terms of any renegotiated trade agreements or treaties, or tariffs and their impact on our business.

An escalated trade war could have a significant adverse effect on world trade and the world economy.

To the extent that trade tariffs and other restrictions imposed by the United States or other countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the United States or other countries, or create adverse tax consequences, the sales, cost, or gross margin of our products may be adversely affected and the demand from our customers for products and services may be diminished.

Uncertainty surrounding international trade policy and regulations as well as disputes and protectionist measures could also have an adverse effect on consumer confidence and spending.

If we deem it necessary to alter all or a portion of our activities or operations in response to such policies, agreements, or tariffs, our capital and operating costs may increase.

Our financial performance is subject to risks associated with fluctuations in currency exchange rates.

While the majority of our business is conducted in U.S.

Dollars, we face some exposure to movements in currency exchange rates.

For manufacturing, our components are sourced mainly in U.S.

Our primary exposure to movements in currency exchange rates relates to non-U.S.

Dollar-denominated sales and operating expenses worldwide.

The weakening of currencies relative to the U.S.

Dollar adversely affects the U.S.

Dollar value of our non-U.S.

Dollar-denominated sales and earnings.

If we raise international pricing to compensate, it could potentially reduce demand for our products, adversely affecting our sales and potentially having an adverse impact on our market share.

Margins on sales of our products in non-U.S.

Dollar-denominated countries and on sales of products that include components obtained from suppliers in non-U.S.

Dollar-denominated countries could be adversely affected by currency exchange rate fluctuations.

In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the U.S.

Dollar’s strengthening, which would adversely affect the U.S.

Dollar value of our non-U.S.

Dollar-denominated sales and earnings.

Competitive conditions in the markets in which we operate may also limit our ability to increase prices in the event of fluctuations in currency exchange rates.

Conversely, strengthening of currency rates may also increase our product component costs and other expenses denominated in those currencies, adversely affecting operating results.

As a result, fluctuations in currency exchange rates could and have in the past adversely affected our business, operating results and financial condition.

Risks Related to Legal Liability, Risk Management, Finance and Accounting

Our exposure to legal liability is significant, and could lead to substantial damages.

We face significant legal

risks in our businesses.

These risks include potential liability under securities laws and regulations in connection with our capital

markets, asset management and other businesses.

The volume and amount of damages claimed in litigation, arbitrations, regulatory enforcement

actions and other adversarial proceedings against financial services firms have increased in recent years.

We also are subject to claims

from disputes with our employees and our former employees under various circumstances.

Risks associated with legal liability often are

difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time, making the amount

of legal reserves related to these legal liabilities difficult to determine and subject to future revision.

Legal or regulatory matters

involving our directors, officers or employees in their individual capacities also may create exposure for us because we may be obligated

or may choose to indemnify the affected individuals against liabilities and expenses they incur in connection with such matters to the

extent permitted under applicable law.

In addition, like other financial services companies, we may face the possibility of employee fraud

or misconduct.

The precautions we take to prevent and detect this activity may not be effective in all cases and there can be no assurance

that we will be able to deter or prevent fraud or misconduct.

Exposures from and expenses incurred related to any of the foregoing actions

or proceedings could have a negative impact on our results of operations and financial condition.

In addition, future results of operations

could be adversely affected if reserves relating to these legal liabilities are required to be increased or legal proceedings are resolved

in excess of established reserves.

We face significant legal risks in our businesses.

These risks include potential liability under securities laws and regulations in connection with our capital markets, asset management and other businesses.

The volume and amount of damages claimed in litigation, arbitrations, regulatory enforcement actions and other adversarial proceedings against financial services firms have increased in recent years.

We also are subject to claims from disputes with our employees and

our former employees under various circumstances.

Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time, making the amount of legal reserves related to these legal liabilities difficult to determine and subject to future revision.

Legal or regulatory matters involving our directors, officers or employees in their individual capacities also may create exposure for us because we may be obligated or may choose to indemnify the affected individuals against liabilities and expenses they incur in connection with such matters to the extent permitted under applicable law.

In addition, like other financial services companies, we may face the possibility of employee fraud or misconduct.

The precautions we take to prevent and detect this activity may not be effective in all cases and there can be no assurance that we will be able to deter or prevent fraud or misconduct.

Exposures from and expenses incurred related to any of the foregoing actions or proceedings could have a negative impact on our results of operations and financial condition.

In addition, future results of operations could be adversely affected if reserves relating to these legal liabilities are required to be increased or legal proceedings are resolved in excess of established reserves.

We may incur losses as a result of ineffective risk management processes and strategies.

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Riley Capital Management, LLC, is registered as an investment advisor with the SEC and regulatory scrutiny and rulemaking initiatives may result in an increase in operational and compliance costs or the assessment of significant fines or penalties against our asset management business, and may otherwise limit our ability to engage in certain activities.

In addition, the SEC staff has conducted studies with respect to soft dollar practices in the brokerage and asset management industries and proposed interpretive guidance regarding the scope of permitted brokerage and research services in connection with soft dollar practices.

The SEC staff has indicated that it is considering additional rulemaking in this and other areas, and we cannot predict the effect that additional rulemaking may have on our asset management or brokerage business or whether it will be adverse to us.

In recent years the Company has experienced significant pricing pressures on trading margins and commissions in debt and equity trading.

In the equity and fixed income markets, regulatory requirements and the increased use of electronic trading and alternative trading systems has resulted in greater price transparency, leading to

increased price competition and decreased trading margins.

The trend toward using alternative trading systems is continuing to grow, which may result in decreased commission and trading revenue, reduce our participation in the trading markets and our ability to access market information, and lead to the creation of new and stronger competitors.

In the equity markets, we utilize certain market centers to execute orders on our behalf in exchange for payment for our order flow.

Market centers are selected based on their ability to provide liquidity, price improvement, and timely execution for client orders.

Increased regulatory scrutiny of payment for order flow may result in a decrease in this type of revenue.

Institutional clients also have pressured financial services firms to alter "soft dollar" practices under which brokerage firms bundle the cost of trade execution with research products and services.

Some institutions separate (or “unbundle”) payments for research products or services from sales commissions.

Institutions subject to MiFID II were required to unbundle such payments commencing January 3, 2018.

The SEC’s decision to no longer extend regulatory relief from certain arrangements required by MiFID II will increase competitive pressures from those clients which have yet to unbundle payments for research products or services from sales commissions.

Should we be unable to reach agreement regarding the terms of unbundling arrangements with institutional clients who are actively seeking such arrangements, this could result in the loss of those clients, which would likely reduce the level of institutional commissions.

We believe that price competition and pricing pressures in these and other areas will continue as institutional investors continue to reduce the amounts they are willing to pay, including reducing the number of brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.

In addition, Congress is currently considering imposing new requirements on entities that securitize assets, which could affect our credit activities.

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Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.

Financial reforms and related regulations may negatively affect our business activities, financial position and profitability.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) instituted a wide range of reforms that have impacted and will continue to impact financial services firms and continues to require significant rule-making.

In addition, the legislation mandates multiple studies, which could result in additional legislative or regulatory action.

The legislation and regulation of financial institutions, both domestically and internationally, include calls to increase capital and liquidity requirements;

limit the size and types of the activities permitted;

and increase taxes on some institutions.

FINRA’s oversight over broker-dealers and investment advisors may be expanded, and new regulations on having investment banking and securities analyst functions in the same firm may be created.

Certain of the provisions of the Dodd-Frank Act remain subject to further rule making procedures and studies.

As a result, we cannot assess the full impact of all of these legislative and regulatory changes on our business at the present time.

However, these legislative and regulatory changes could affect our revenue, limit our ability to pursue business opportunities, impact the value of assets that we hold, require us to change certain of our business practices, impose additional costs on us, or otherwise adversely affect our businesses.

If we do not comply with current or future legislation and regulations that apply to our operations, we may be subject to fines, penalties or material restrictions on our businesses in the jurisdiction where the violation occurred.

Accordingly, such legislation or regulation could have an adverse effect on our business, results of operations, cash flows or financial condition.

If we cannot meet our future capital requirements, we may be unable to develop and enhance our services, take advantage of business opportunities and respond to competitive pressures.

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Our ability to use net loss carryovers to reduce our taxable income may be limited.

As a result of the common stock offering that was completed on June 5, 2014, the Company had a more than 50% ownership shift in accordance with Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

Accordingly, the Company may be limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income.

As a result of the acquisition of UOL on July 1, 2016, the historical net operating losses of UOL are limited to offset income we generate post acquisition.

As of December 31, 2019, the Company believes that the net operating loss that existed as of the more than 50% ownership shift will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided an allowance.

However, to the extent that the Company is unable to utilize such net operating loss, it may have a material adverse effect on our financial condition and results of operations.

The tax benefits, grants and other incentives available to us require us to continue to meet various conditions and may be terminated, repaid or reduced in the future, which could increase our costs and taxes.

The Israeli government currently provides major tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities.

In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce, seek repayment or eliminate the benefits of those programs.

magicJack currently takes advantage of these programs.

There is no assurance that we will continue to meet the conditions of such benefits and programs or that such benefits and programs would continue to be available to us in the future.

If we fail to meet the conditions of such benefits and programs or if they are terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.

The Company may be limited to the amount of net operating loss carryforwards that may be utilized in future taxable years depending on the Company’s actual taxable income.

As of December 31, 2022, the Company believes that its net operating loss carryforwards, net of any existing allowances provided, will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets.

However, to the extent that the Company is unable to utilize such net operating losses, it may have a material adverse effect on the Company’s financial condition and results of operations.

Changes in tax laws or regulations, or to interpretations of existing tax laws or regulations, to which we are subject could adversely affect our financial condition and cash flows.

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However, future changes to tax laws or regulations, or to interpretations of existing tax laws or regulations, could increase our tax burden or otherwise adversely affect our financial condition and cash flows.

Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our financial condition, results of operations and business and the price of our common stock and other securities.

The Sarbanes-Oxley Act and the related rules require our management to conduct an annual assessment of the effectiveness of our internal control over financial reporting and require a report by our independent registered public accounting firm addressing our internal control over financial reporting.

To comply with Section 404 of the Sarbanes-Oxley Act, we are required to document formal policies, processes and practices related to financial reporting that are necessary to comply with Section 404.

Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization.

If we fail for any reason to comply with the requirements of Section 404 in a timely manner, our independent registered public accounting firm may, at that time, issue an adverse report regarding the effectiveness of our internal control over financial reporting.

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules.

There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.

Any such event could adversely affect our financial condition, results of operations and business, and result in a decline in the price of our common stock and other securities.

The restatement of our previously issued financial statements, the error that resulted in such restatement, the material weaknesses that were identified in our internal control over financial reporting and the determination that our internal control over financial reporting and disclosure controls and procedures were not effective, could result in loss of investor confidence, shareholder litigation or governmental proceedings or investigations, any of which could cause the market value of our securities to decline or impact our ability to access the capital markets.

As discussed in the "Explanatory Note" and Note 2 to our consolidated financial statements, prior to the filing of this Annual Report on Form 10-K, we identified a classification error of dividend income and realized and unrealized gains (losses) on certain investments within revenue in our consolidated statement of operations.

Due to the error, on March 15, 2023, the Audit Committee of our Board of Directors, after considering the recommendation of management and after discussion with our independent registered public accounting firm, Marcum LLP, we concluded that our previously issued audited consolidated financial statements as of and for the year ended December 31, 2020 and 2021 and each of our unaudited condensed consolidated financial statements for the quarterly and year-to-date periods during 2021 and for the first three quarters of the year ending 2022 should no longer be relied upon.

As a result of the error and restatement, we are subject to additional risks and uncertainties, including unanticipated costs for legal fees, litigation, governmental proceedings or investigations and loss of investor confidence.

Management has determined that the restatement described above resulted from a material weakness in internal control over financial reporting.

We have also identified a material weakness relating to the operating effectiveness of management review controls over key assumptions that are utilized to determine the fair value of intangible assets for new acquisitions and the fair value of reporting units in our assessment of goodwill impairment and a material weakness relating to the operating effectiveness of management's review controls over the income tax provision in our internal control over financial reporting.

As a result of the foregoing, we have concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2022.

For further discussion of the material weaknesses identified and our remediation efforts, see Item 9A, Controls and Procedures.

Remediation efforts place a significant burden on management and add increased pressure to our financial resources and processes.

If we are unable to successfully remediate our existing, or any future, material weaknesses or other deficiencies in our internal control over financial reporting or disclosure controls and procedures, investors may lose confidence in our financial reporting and the accuracy and timing of our financial reporting and disclosures and our business, reputation, results of operations, financial condition, price of our securities, and ability to access the capital markets through equity or debt issuances could be adversely affected.

In addition, we may be subject to governmental investigations and penalties and litigation.

We may suffer losses if our reputation is harmed.

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We may enter into new lines of business, make future strategic investments or acquisitions and enter into joint ventures.

As we have in the past, and subject to market conditions, we may grow our business by increasing assets under management in existing investment strategies, pursue new investment strategies, which may be similar or complementary to our existing strategies or be wholly new initiatives, or enter into strategic relationships, or joint ventures.

As we have in the past, and subject to market conditions, we may grow our business by increasing assets under

management in existing investment strategies, pursue new investment strategies, which may be similar or complementary to our existing strategies or be wholly new initiatives, or enter into strategic relationships, or joint ventures.

In addition, opportunities may arise to acquire or invest in other businesses that are related or unrelated to our current businesses.

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If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

A disruption in the infrastructure that supports our business due to fire, natural disaster, health emergency (for example, the ongoing COVID-19 pandemic), power or communication failure, act of terrorism or war may affect our ability to service and interact with our clients.

We may be required to expend significant additional resources to

modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

A disruption in the infrastructure that supports our business due to fire, natural disaster, health emergency (for example, the COVID-19 pandemic), power or communication failure, act of terrorism or war may affect our ability to service and interact with our clients.

If we are not able to implement contingency plans effectively, any such disruption could harm our results of operations.

Due to the ongoing COVID-19 pandemic, many businesses, including ours, have shifted largely to telecommuting.

While we continue to evaluate the situation and invest in our technological infrastructure, the duration and effects of this shift are uncertain, but could make our operations more vulnerable.

The growth of electronic trading and the introduction of new technology in the markets in which our market-making business operates may adversely affect this business and may increase competition.

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Certain financial services firms make larger and more frequent commitments of capital in many of their activities.

For example, in order to win business, some investment banks increasingly commit to purchase large blocks of stock from publicly traded issuers or significant stockholders, instead of the more traditional marketed underwriting process in which marketing is typically completed before an investment bank commits to purchase securities for resale.

For example, in order to win business, some investment banks increasingly commit to purchase large blocks of stock from

publicly traded issuers or significant stockholders, instead of the more traditional marketed underwriting process in which marketing is typically completed before an investment bank commits to purchase securities for resale.

We have participated in this activity and expect to continue to do so and, as a result, we are subject to increased risk.

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Furthermore, we may suffer losses as a result of the positions taken in these transactions even when economic and market conditions are generally favorable for others in the industry.

We may increasingly commit our own capital as part of our trading business to facilitate client sales and trading activities.

We may commit our own capital as part of our trading business to facilitate client sales and trading activities.

The number and size of these transactions may adversely affect our results of operations in a given period.

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holds equity interests in the firm’s subsidiaries, its rights as an equity holder to the assets of these subsidiaries may not materialize, if at all, until the claims of the creditors of these subsidiaries are first satisfied.

Risks Related to our Principal Investments Activities

We have made and may make principal investments in relatively high-risk, illiquid assets that often have significantly leveraged capital structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount we invest in these activities.

Risks Related to our Investment Activities

We have made and may make investments in relatively high-risk, illiquid assets that often have significantly leveraged capital structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount we invest in these activities.

From time to time, we use our capital, including on a leveraged basis, in proprietary investments in both private company and public company securities that may be illiquid and volatile.

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Thereafter, a public market sale may be subject to volume limitations or dependent upon securing a registration statement for an initial and potentially secondary public offering of the securities.

We may make principal investments that are significant relative to the overall capitalization of the investee company and resales of significant amounts of these securities might be subject to significant limitations and adversely affect the market and the sales price for the securities in which we invest.

In addition, our Principal Investments may involve entities or businesses with capital structures that have significant leverage.

We may make investments that are significant relative to the overall capitalization of the investee company and resales of significant amounts of these securities might be subject to significant limitations and adversely affect the market and the sales price for the securities in which we invest.

In addition, our investments may involve entities or businesses with capital structures that have significant leverage.

The large amount of borrowing in the leveraged capital structure increases the risk of losses due to factors such as rising inflation, interest rates, downturns in the economy or deteriorations in the condition of the investment or its industry.

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Therefore, the value of our investments does not necessarily reflect the prices that would actually be obtained by us when such investments are sold.

Realizations, if any, at values significantly lower than the values at which investments have been reflected on our balance sheet would result in loses of potential incentive income and Principal Investments.

Realizations, if any, at values significantly lower than the values at which investments have been reflected on our balance sheet would result in losses of potential incentive income.

We are exposed to credit risk from a variety of our activities, including loans, lines of credit, guarantees and backstop commitments, and we may not be able to fully realize the value of the collateral securing certain of our loans.

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Additionally, when we guarantee or backstop the obligations of third parties, we are exposed to the risk that our guarantee or backstop may be called by the holder following a default by the primary obligor, which could cause us to incur significant losses, and, when our obligations are secured, expose us to the risk that the holder may seek to foreclose on collateral pledged by us.

incur credit risk through loans, lines of credit, guarantees and backstop commitments issued to or on behalf of businesses and

individuals, and other loans collateralized by a variety of assets, including securities.

Our credit risk and credit losses can

increase if our loans or investments are concentrated among borrowers or issuers engaged in the same or similar activities,

industries, or geographies, or to borrowers or issuers who as a group may be uniquely or disproportionately affected by economic or

market conditions.

The deterioration of an individually large exposure, for example due to natural disasters, health emergencies or

pandemics (like the ongoing COVID-19 pandemic), acts of terrorism or war, severe weather events or other adverse economic events,

could lead to additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a

material impact on our net income and regulatory capital.

We incur credit risk through loans, lines of credit, guarantees and backstop commitments issued to or on behalf of businesses and individuals, and other loans collateralized by a variety of assets, including securities.

We have experienced credit losses and bear increased credit risk because we have made loans and commitments to borrowers or issuers engaged

in emerging businesses or who lack access to conventional financing who, as a group, may be uniquely or disproportionately affected by economic or market conditions.

For example, we have made loans to borrowers in the cryptocurrency industry and have incurred losses as cryptocurrency prices have declined and participants in the cryptocurrency industry have experienced liquidity issues and we expect to incur further losses in the event that the cryptocurrency market experiences further volatility or liquidity issues or further declines or fails to recover.

Our credit risk and credit losses can further increase if our loans or investments are concentrated among borrowers or issuers engaged in the same or similar activities, industries, or geographies.

The deterioration of an individually large exposure, for example due to natural disasters, health emergencies or pandemics (like the COVID-19 pandemic), acts of terrorism or war, severe weather events or other adverse economic events, could lead to additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income and regulatory capital.

The amount and duration of our credit exposures have been increasing over the past year, as have the breadth and size of the entities to which we have credit exposures.

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In our proprietary investment activities, our concentrated holdings, illiquidity and market volatility may make it difficult to value certain of our investment securities.

Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these securities in future periods.

We have experienced, and may continue to experience in light of factors then prevailing, such as rising interest rates, general economic and market conditions or changes in the financial condition of the applicable issuer, significant downward adjustments in subsequent valuations of securities on our balance sheet.

In addition, at the time of any sales and settlements of these securities, the price we ultimately realize will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value.

Any of these factors could require us to take write downs in the value of our investment and securities portfolio, which may have an adverse effect on our results of operations in future periods.

A substantial portion of our cash flows and net income are dependent upon payments from our investments in receivables.

We hold approximately $406.2 million of consumer receivables, which we acquired from home-furnishing retailer W.S.

Badcock Corporation (“Badcock”) in multiple purchases beginning in December 2021.

The collectability of our investments in receivables is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which consumers repay their accounts or become delinquent, and the rate at which consumers borrow funds.

Deterioration in these factors would adversely impact our business.

In addition, to the extent we have over-estimated collectability, in all likelihood we have over-estimated our financial performance.

Some of these concerns are discussed more fully below.

Our portfolio of receivables is not diversified and primarily originates from consumers whose creditworthiness is considered less than prime.

Our reliance on these receivables may in the future negatively impact our performance.

Economic slowdowns increase our credit losses.

During periods of economic slowdown or recession, we generally experience an increase in rates of delinquencies and frequency and severity of credit losses.

Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown or recession.

Because a significant portion of our reported interest income is based on management’s estimates of the future performance of receivables to that collateralize $318.1 million of loans receivable, at fair value as of December 31, 2022, differences between actual and expected performance of the receivables may cause fluctuations in interest income.

The fair value of these loans and the interest income we report are based on management’s estimates of cash flows we expect to receive on receivables that collateralize the loan receivable.

The expected cash flows are based on management’s estimates of future default rates, payment rates, servicing costs, and charge-offs from the receivables portfolio.

These estimates are based on a variety of factors, many of which are not within our control.

Substantial differences between actual and expected performance of the receivables can occur and cause fluctuations in the interest income we record.

For instance, higher than expected rates of delinquencies and losses from the receivables portfolio could cause interest income to be lower than expected.

Our recent and ongoing investment in consumer credit receivables may not be indicative of our ability to grow such receivables in the future.

Additionally, even if such receivables continue to increase, the rate of such growth could decline.

If we cannot manage the growth in receivables effectively, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

Furthermore, reliance upon our relationship with a single retailer may adversely affect our revenues and operating results from our receivables portfolio.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact us or the originator of our receivables.

Federal and state consumer protection laws regulate the creation and enforcement of consumer receivables and other loans.

Many of these laws (and the related regulations) are focused on non-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard practices.

For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense.

Similarly, in 2009, Congress enacted legislation that required changes to a variety of marketing, billing, and collection practices, and the Federal Reserve adopted significant changes to a number of practices through its issuance of regulations.

Badcock originated the transactions that underlie the receivables we have purchased and may continue to purchase.

Furthermore, we rely on Badcock to service our receivables portfolio.

We depend on Badcock to comply with all applicable laws and regulations applicable to our receivables portfolio, and for Badcock to adapt to changing laws and regulations.

Furthermore, if Badcock becomes unable or unwilling to continue to service our receivables portfolio, we will likely need to engage another third party to provide such services, which could cause us to incur unanticipated costs.

Changes in the consumer protection laws could result in the following:

• receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors;

• the servicer may be required to credit or refund previously collected amounts, resulting in a reduction in amounts paid to us;

• certain fees and finance charges could be limited, prohibited, or restricted, reducing the profitability of certain investments in receivables;

• certain collection methods could be prohibited, forcing the parties that service our receivables portfolio to revise their practices or adopt more costly or less effective practices;

• limitations on the servicer's ability to recover on charged-off receivables regardless of any act or omission on their or our part;

• some credit products and services could be banned in certain states or at the federal level;

• federal or state bankruptcy or debtor relief laws could offer additional protections to consumers seeking bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed;

• a reduction in our ability or willingness to invest in receivables arising under loans to certain consumers, such as military personnel.

Risks Related to our Auction and Liquidation Activities

We may incur losses

as a result of “guarantee” based engagements that we enter into in connection with our auction and liquidation solutions

We may incur losses as a result of “guarantee” based engagements that we enter into in connection with our auction and liquidation solutions business.

In many instances, in order to secure an engagement, we are required to bid for that engagement by guaranteeing to the client a minimum amount that such client will receive from the sale of inventory or assets.

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Losses due to any auction or liquidation engagement may cause us to become unable to make payments due to our creditors and may cause us to default on our debt obligations.

We have three engagement

structures for our auction and liquidation services:

(i) a “fee” based structure under which we are compensated for our role

in an engagement on a commission basis, (ii) purchase on an outright basis (and take title to) the assets or inventory of the client,

and (iii) “guarantee” to the client that a certain amount will be realized by the client upon the sale of the assets or inventory

based on contractually defined terms in the auction or liquidation contract.

We bear the risk of loss under the purchase and guarantee

structures of auction and liquidation contracts.

If the amount realized from the sale or disposition of assets, net of direct operating

expenses, does not equal or exceed the purchase price (in purchase transaction), we will recognize a loss on the engagement, or should

the amount realized, net of direct operating expenses, not equal or exceed the “guarantee,” we are still required to pay the

guaranteed amount to the client.

We could incur losses

in connection with outright purchase transactions in which we engage as part of our auction and liquidation solutions business.

We have three engagement structures for our auction and liquidation services:

(i) a “fee” based structure under which we are compensated for our role in an engagement on a commission basis, (ii) purchase on an outright basis (and take title to) the assets or inventory of the client, and (iii) “guarantee” to the client that a certain amount will be realized by the client upon the sale of the assets or inventory based on contractually defined terms in the auction or liquidation contract.

We bear the risk of loss under the purchase and guarantee structures of auction and liquidation contracts.

If the amount realized from the sale or disposition of assets, net of direct operating expenses, does not equal or exceed the purchase price (in purchase transaction), we will recognize a loss on the engagement, or should the amount realized, net of direct operating expenses, not equal or exceed the “guarantee,” we are still required to pay the guaranteed amount to the client.

We could incur losses in connection with outright purchase transactions in which we engage as part of our auction and liquidation solutions business.

When we conduct an asset disposition or liquidation on an outright purchase basis, we purchase from the client the assets or inventory to be sold or liquidated and therefore, we hold title to any assets or inventory that we are not able to sell.

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however, according to U.S.

Generally Accepted Accounting Principles, inventory whose historical cost exceeds its market value should be valued conservatively, which dictates a lower value should apply.

Generally Accepted Accounting Principles, inventory whose historical cost exceeds its market value should be valued

conservatively, which dictates a lower value should apply.

Accordingly, should the replacement cost (due to technological obsolescence or otherwise), or the net realizable value of any inventory we hold be less than the cost paid to acquire such inventory (purchase price), we will be required to “mark down” the value of such inventory held.

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Risks Related to Our Financial Consulting Activities

depend on financial institutions as primary clients for our financial consulting business.

Consequently, the loss of any financial institutions

as clients may have an adverse impact on our business.

majority of the revenue from our financial consulting business is derived from engagements by financial institutions.

As a result, any

loss of financial institutions as clients of our valuation and advisory services, whether due to changing preferences in service providers,

failures of financial institutions or mergers and consolidations within the finance industry, could significantly reduce the number of

existing, repeat and potential clients, thereby adversely affecting our revenues.

In addition, any larger financial institutions that

result from mergers or consolidations in the financial services industry could have greater leverage in negotiating terms of engagements

with us, or could decide to internally perform some or all of the financial consulting services which we currently provide to one of

the constituent institutions involved in the merger or consolidation or which we could provide in the future.

Any of these developments

could have a material adverse effect on our financial consulting business.

We depend on financial institutions as primary clients for our financial consulting business.

Consequently, the loss of any financial institutions as clients may have an adverse impact on our business.

A majority of the revenue from our financial consulting business is derived from engagements by financial institutions.

As a result, any loss of financial institutions as clients of our valuation and advisory services, whether due to changing preferences in service providers, failures of financial institutions or mergers and consolidations within the finance industry, could significantly reduce the number of existing, repeat and potential clients, thereby adversely affecting our revenues.

In addition, any larger financial institutions that result from mergers or consolidations in the financial services industry could have greater leverage in negotiating terms of engagements with us, or could decide to internally perform some or all of the financial consulting services which we currently provide to one of the constituent institutions involved in the merger or consolidation or which we could provide in the future.

Any of these developments could have a material adverse effect on our financial consulting business.

We may face liability or harm to our reputation as a result of a claim that we provided an inaccurate appraisal or valuation and our insurance coverage may not be sufficient to cover the liability.

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While our appraisals and valuations are typically provided only for the benefit of our clients, if a third party relies on an appraisal or valuation and suffers harm as a result, we may become subject to a legal claim, even if the claim is without merit.

We carry insurance for liability resulting from errors or omissions in connection with our appraisals and valuations;

We carry insurance for liability resulting from errors or omissions in connection

with our appraisals and valuations;

however, the coverage may not be sufficient if we are found to be liable in connection with a claim by a client or third party.

Risks Related to our Asset Management Business

The asset management business is intensely competitive.

the past several years, the size and number of asset management funds, including hedge funds and mutual funds, has continued to

If this trend continues, it is possible that it will become increasingly difficult for our funds to raise capital.

significantly, the allocation of increasing amounts of capital to alternative investment strategies by institutional and individual

investors leads to a reduction in the size and duration of pricing inefficiencies.

Many alternative investment strategies seek to

exploit these inefficiencies and, in certain industries, this drives prices for investments higher, in either case increasing the

difficulty of achieving targeted returns.

In addition, when inflation or interest rates rise or there is a prolonged bear market in

equities, the attractiveness of our funds relative to investments in other investment products could decrease.

Competition is based

on a variety of factors, including:

investment performance;

investor perception of the drive, focus and alignment of interest of an investment manager;

quality of service provided to and duration of relationship with investors;

business reputation;

level of fees and expenses charged for services.

We compete in the asset management business with a large number of investment management firms, private equity fund sponsors, hedge fund sponsors and other financial institutions.

A number of factors serve to increase our competitive risks, as follows:

investors may develop concerns that we will allow a fund to grow to the detriment of its performance;

some of our competitors have greater capital, lower targeted returns or greater sector or investment strategy specific expertise than we do, which creates competitive disadvantages with respect to investment opportunities;

some of our competitors may perceive risk differently than we do which could allow them either to outbid us for investments in particular sectors or, generally, to consider a wider variety of investments;

there are relatively few barriers to entry impeding new asset management firms, and the successful efforts of new entrants into our various lines of business, including former “star” portfolio managers at large diversified financial institutions as well as such institutions themselves, will continue to result in increased competition;

other industry participants in the asset management business continuously seek to recruit our best and brightest investment professionals away from us.

These and other factors could reduce our earnings and revenues and adversely affect our business.

In addition, if we are forced to compete with other alternative asset managers on the basis of price, we may not be able to maintain our current base management and incentive fee structures.

We have historically competed primarily on the performance of our funds, and not on the level of our fees relative to those of our competitors.

However, there is a risk that fees in the alternative investment management industry will decline, without regard to the historical performance of a manager, including our managers.

Fee reductions on our existing or future funds, without corresponding decreases in our cost structure, would adversely affect our revenues and distributable earnings.

Poor investment performance may decrease assets under management and reduce revenues from and the profitability of our asset management business.

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If a fund experiences losses, we will not earn incentive fees with regard to investors in that fund until its returns exceed the relevant highwater mark.

addition, investment performance is one of the most important factors in retaining existing investors and competing for new asset management

Investment performance may be poor as a result of the current or future difficult market or economic conditions, including

changes in interest rates, with increases anticipated in 2022, or inflation, which has been an ongoing concern during 2021 and into 2022,

acts of war, aggression or terrorism, widespread outbreaks of disease, such as the ongoing COVID-19 pandemic, or political uncertainty,

our investment style, the particular investments that we make, and other factors.

Poor investment performance may result in a decline

in our revenues and income by causing (i) the net asset value of the assets under our management to decrease, which would result in lower

management fees to us, (ii) lower investment returns, resulting in a reduction of incentive fee income to us, and (iii) investor redemptions,

which would result in lower fees to us because we would have fewer assets under management.

In addition, investment performance is one of the most important factors in retaining existing investors and competing for new asset management business.

Investment performance may be poor as a result of the current or future difficult market or economic conditions, including changes in interest rates, with increases anticipated in 2023, or inflation, which continues to be an ongoing concern going into 2023, acts of war, aggression or terrorism, widespread outbreaks of disease, such as the COVID-19 pandemic or similar pandemics, or political uncertainty, our investment style, the particular investments that we make, and other factors.

Poor investment performance may result in a decline in our revenues and income by causing (i) the net asset value of the assets under our management to decrease, which would result in lower management fees to us, (ii) lower investment returns, resulting in a reduction of incentive fee income to us, and (iii) investor redemptions, which would result in lower fees to us because we would have fewer assets under management.

To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our asset management business will likely be reduced and our ability to grow existing funds and raise new funds in the future will likely be impaired.

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GACP I., L.P.

and GACP II, L.P., both direct lending funds of which our wholly owned subsidiary GACP is the general partner, and which are managed by WhiteHawk Capital Partners, L.P.

pursuant to an investment advisory services agreement, may invest in secured debt issued by companies that have or may incur additional debt that is senior to the secured debt owned by the fund.

and GACP II, L.P., both direct lending funds of which our wholly owned subsidiary GACP is the general partner, and which are managed by WhiteHawk Capital Partners, L.P., a limited partnership controlled by Mr.

Ahn, who is the brother of Phil Ahn, the Company’s Chief Financial Officer and Chief Operating Officer, pursuant to an investment advisory services agreement, may invest in secured debt issued by companies that have or may incur additional debt that is senior to the secured debt owned by the fund.

In the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of any such company, the owners of senior secured debt (i.e., the owners of first priority liens) generally will be entitled to receive proceeds from any realization of the secured collateral until they have been reimbursed.

At such time, the owners of junior secured debt (including, in certain circumstances, the fund) will be entitled to receive proceeds from the realization of the collateral securing such debt.

At such time, the owners of junior secured debt (including, in certain circumstances, the fund) will be entitled to receive proceeds from

the realization of the collateral securing such debt.

There can be no assurances that the proceeds, if any, from the sale of such collateral would be sufficient to satisfy the loan obligations secured by subordinate debt instruments.

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Risks Related to Our Communications Businesses

We compete against large companies, many of whom have significantly more financial and marketing resources, and our business will suffer if we are unable to compete successfully.

We compete with numerous providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers, many of whom are large and have significantly more financial and marketing resources.

Our principal competitors include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers.

These competitors include established providers such as AT&T, Verizon, Sprint, and T-Mobile.

UOL’s principal dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers, such as EarthLink and its PeoplePC subsidiary.

Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services.

In addition, there are a number of mobile virtual network operators, some of which focus on pricing as their main selling point.

Certain portions of the U.S., primarily rural areas, currently have limited or no access to broadband services.

However, the U.S.

government has indicated its intention to facilitate the provision of broadband services to such areas.

Such expansion of the availability of broadband services will increase the competition for Internet access subscribers in such areas and will likely adversely affect the UOL business.

In addition to competition from broadband, mobile broadband, and DSL providers, competition among dial-up Internet access service providers is intense and neither UOL’s pricing nor the features of UOL’s services provide us with a significant competitive advantage, if any, over certain of UOL’s dial-up Internet access competitors.

We expect that competition, particularly with respect to price, for broadband, mobile broadband, and DSL services, as well as dial-up Internet access services, will continue and may materially and adversely impact our business, financial condition, results of operations, and cash flows.

Dial-up and DSL pay accounts may decline faster than expected and adversely impact our business.

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Further, our successful operation and management of UOL, including the ability to generate advertising revenues for UOL’s services, will depend in part upon our ability to increase or maintain the number of subscribers for UOL’s services.

A decline in the number of subscribers using UOL’s services could result in decreased advertising revenues, and decreases in advertising revenues would adversely impact our profitability.

A decline in the number of subscribers using UOL’s services could result in decreased advertising revenues, and decreases in advertising revenues

would adversely impact our profitability.

The failure to increase or maintain the number of subscribers for UOL’s services could have a material adverse effect on advertising revenues and our profitability.

Interruption or failure of the network, information systems or other technologies essential to our communications businesses could impair our ability to serve our customers, which could damage our reputation and harm our operating results.

Our successful operation of our communications businesses depends on our ability to provide reliable service.

Many of our products are services are supported by data centers, central offices and network infrastructure maintained and operated by third-party service providers which are vulnerable to damage or interruption from fires, earthquakes, hurricanes, tornados, floods and other natural disasters, terrorist attacks, power loss, capacity limitations, telecommunications failures, software and hardware defects or malfunctions, break ins, sabotage and vandalism, human error and other disruptions that are beyond our control.

Some of the systems serving our communications businesses are not fully redundant, and our disaster recovery or business continuity planning may not be adequate.

Our communications businesses could also experience interruptions due to cable damage, theft of equipment, power outages, inclement weather and service failures of third-party service providers.

The occurrence of any disruption or system failure or other significant disruption to business continuity may result in a loss of business, increase expenses, damage to reputation for providing reliable service, subject us to additional regulatory scrutiny or expose us to litigation and possible financial losses, any of which could adversely affect our business, results of operations and cash flows.

If there are events or circumstances affecting the reliability or security of the Internet, access to the websites related to the communications businesses and/or the ability to safeguard confidential information could be impaired causing a negative effect on the financial results of our business operations.

Our website infrastructure may be vulnerable to computer viruses, hacking or similar disruptive problems caused by customers, other Internet users, other connected Internet sites, and the interconnecting telecommunications networks.

Such problems caused by third-parties could lead to interruptions, delays or cessation of service to our customers.

Inappropriate use of the Internet by third-parties could also potentially jeopardize the security of confidential information stored in our computer system, which may deter individuals from becoming customers.

There can be no assurance that any such measures would not be circumvented in future.

Dealing with problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation of service to customers, which could have a material adverse effect on our business, financial condition and results of operations.

Our marketing efforts for our communications businesses may not be successful or may become more expensive, either of which could increase our costs and adversely impact our business, financial condition, results of operations, and cash flows.

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Moreover, distribution partners or customers may require us, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment.

Our inability to alter our products to address these requirements and any regulatory changes could have a material adverse effect on our business, financial condition, and operating results.

Our inability to alter our products to address these

requirements and any regulatory changes could have a material adverse effect on our business, financial condition, and operating results.

The current regulatory environment for broadband telephone services is developing and therefore uncertain.

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Delays in obtaining such approvals could affect our ability to close proposed transactions in a timely manner and could increase our costs and increase the risk of non-consummation of some transactions.

The market in which our communications businesses participate is highly competitive and if we do not compete effectively, our operating results may be harmed by loss of market share and revenues.

The communications industry is highly competitive.

We face intense competition from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers and manufacturers of communication devices.

Competitors for our products and services include telecommunications carriers, such as AT&T, Inc., Lumen and Verizon, which provide telephone service using the public switched telephone network, as well as broadband telephone services.

We also face competition from cable companies, such as Cablevision, Charter, Comcast, and Cox Communications, which offer broadband telephone services to their existing cable television and broadband customers.

Further, wireless providers, including AT&T, T-Mobile, and Verizon Wireless offer services that some customers may prefer over wireline-based broadband voice service.

We face competition on magicJack device sales from Apple, Samsung and other manufacturers of smart phones, tablets and other handheld wireless devices.

Also, we compete against established alternative voice communication providers, such as Vonage, Google Voice, Ooma, and Skype, some of which are part of established, well-capitalized technology companies.

In addition, we compete with independent broadband telephone service providers.

Increased competition may result in our competitors using aggressive business tactics, including providing financial incentives to customers, selling their products or services at a discount or loss, offering products or services similar to our products and services on a bundled basis at a discounted rate or no charge, announcing competing products or services combined with aggressive marketing efforts, and asserting intellectual property rights or claims, irrespective of their validity.

We may be unsuccessful in protecting our proprietary rights or may have to defend ourselves against claims of infringement, which could impair or significantly affect our business.

Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology that is similar ours.

Legal protections afford only limited protection for our technology.

The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States.

Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to copy aspects of our products or to obtain and use information that it regards as proprietary.

Third parties may also design around our proprietary rights, which may render our protected products less valuable if the design around is favorably received in the marketplace.

In addition, if any our products or the technology underlying our products is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions.

We cannot assure you that our products do not infringe intellectual property rights held by others or that they will not in the future.

Third parties may assert infringement, misappropriation, or breach of license claims against us from time to time.

Such claims could cause us to incur substantial liabilities and to suspend or permanently cease the use of critical technologies or processes or the production or sale of major products.

Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, misappropriation, or other claims.

Any such litigation could result in substantial costs and diversion of our resources, which in turn could materially adversely affect our business and financial condition.

Moreover, any settlement of or adverse judgment resulting from such litigation could require us to obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology.

Any required licenses may not be available to us on acceptable terms, if at all.

If we attempt to design around the technology at issue or to find another provider of suitable alternative technology to permit it to continue offering applicable software or product solutions, our continued supply of software or product solutions could be disrupted or our introduction of new or enhanced software or products could be significantly delayed.

Increases in credit card processing fees and high chargeback costs would increase our operating expenses and adversely affect our results of operations, and an adverse change in, or the termination of, our relationship with any major credit card company would have a severe, negative impact on our business.

A significant number of our communications customers purchase its products through our websites and pay for our communications products and services using credit or debit cards.

A significant number of our communications customers purchase their products through our websites and pay for our communications products and services using credit or debit cards.

The major credit card companies or the issuing banks may increase the fees that they charge for transactions using their cards.

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If service interruptions adversely affect the perceived reliability of our service, it may have difficulty attracting and retaining customers and our brand reputation and growth may suffer.

We depend on overseas manufacturers, and for certain magicJack products, third-party suppliers, and our reputation and results of operations would be harmed if these manufacturers or suppliers fail to meet magicJack’s requirements.

The manufacture of the magicJack devices is conducted by a manufacturing company in China, and certain parts are produced in Taiwan and Hong Kong.

These manufacturers supply substantially all of the raw materials and provide all facilities and labor required to manufacture our products.

If these companies were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, either due to actions of the manufacturers;

earthquakes, typhoons, tsunamis, fires, floods, or other natural disasters;

or the actions of their respective governments, we would be unable to manufacture our products until replacement contract manufacturing services could be obtained.

To qualify a new contract manufacturer, familiarize it with the magicJack products, quality standards and other requirements, and commence volume production is a costly and time-consuming process.

We cannot assure you that we would be able to establish alternative manufacturing relationships on acceptable terms or in a timely manner that would not cause disruptions in our supply.

Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost sales and revenue and damage to our reputation in the market, all of which would harm our business and results of operations.

In addition, while the magicJack contract obligations with its contract manufacturer in China is denominated in U.S.

dollars, changes in currency exchange rates could impact our suppliers and increase our prices.

We rely on independent retailers to sell the magicJack devices, and disruption to these channels would harm our business.

Because we sell a significant amount of the magicJack devices, other devices and certain services to independent retailers, we are subject to many risks, including risks related to their inventory levels and support for magicJack’s products.

In particular, magicJack’s retailers maintain significant levels of our products in their inventories.

In particular, magicJack’s retailers may maintain significant levels of our products in their inventories.

If retailers attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted.

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If magicJack fails to maintain relationships with these channels, fails to develop new channels, fails to effectively manage, train, or provide incentives to existing channels or if these channels are not successful in their sales efforts, sales of magicJack’s products may decrease and our operating results would suffer.

The independent retailers we rely on were impacted by the acute phase of the COVID-19 pandemic, which resulted in mandatory store closures due to social distancing measures imposed to control the pandemic and they may be limited in their ability to sell magicJack devices to customers should such measures return during additional waves of the pandemic.

The success of our business relies on customers’ continued and unimpeded access to broadband service.

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Although some states, most notably California, have adopted prohibitions similar to those rescinded by the FCC, if broadband providers block, throttle or otherwise degrade the quality of our data packets or attempt to extract additional fees from us or our customers, it could adversely impact our business.

Server failures or system breaches could cause delays or adversely affect our service quality, which may cause us to lose customers and revenue.

In operating our servers, we may be unable to connect and manage a large number of customers or a large quantity of traffic at high speeds.

Any failure or perceived failure to achieve or maintain high-speed data transmission could significantly reduce demand for our magicJack services and adversely affect our operating results.

In addition, computer viruses, break-ins, human error, natural disasters and other problems may disrupt our servers.

The system security and stability measures we implement may be circumvented in the future or otherwise fail to prevent the disruption of our services.

The costs and resources required to eliminate computer viruses and other security problems may result in interruptions, delays or cessation of services to our customers, which could decrease demand, decrease our revenue and slow our planned expansion.

Hardware and software failures, delays in the operation of our computer and communications systems or the failure to implement system enhancements may harm our business.

Our success depends on the efficient and uninterrupted operation of our software and communications systems.

A failure of our servers could impede the delivery of services, customer orders and day-to-day management of our business and could result in the corruption or loss of data.

Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various facilities could result in interruptions in the flow of data to our servers and from our servers to our customers.

In addition, any failure by our computer environment to provide our required telephone communications capacity could result in interruptions in our service.

Additionally, significant delays in the planned delivery of system enhancements and improvements, or inadequate performance of the systems once they are completed, could damage our reputation and harm our business.

Finally, long-term disruptions in infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, and acts of terrorism (particularly involving cities in which it has offices) could adversely affect our business.

Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may be inadequate, or may not be available in the future on reasonable terms, or at all.

We cannot assure you that this policy will cover any claim against us for loss of data or other indirect or consequential damages and defending a lawsuit, regardless of its merit, could be costly and divert management’s attention.

In addition to potential liability, if we experience interruptions in our ability to supply our services, our reputation could be harmed and we could lose customers.

Our communications businesses are subject to privacy and online security risks, including security breaches, and we could be liable for such breaches of security.

If we are unable to protect the privacy of our customers using our services, or information obtained from our customers in connection with their use or payment of our services, in violation of privacy or security laws or expectations, we could be subject to significant liability and damage to our reputation.

Our systems and processes that are designed to protect customer information and prevent fraudulent transactions, data loss and other security breaches, may not be sufficient to prevent fraudulent transactions, data loss and other security breaches.

Failure to prevent or mitigate such breaches may adversely affect our operating results.

The websites of our communications businesses serve as online sales portals.

We currently obtain and retain personal information about our website users in connection with such purchases.

In addition, we obtain personal information about our customers as part of their registration to use our products and services.

Federal, state and foreign governments have enacted or may enact laws or regulations regarding the collection and use of personal information.

Additionally, magicJack customers may believe that using our services to make and receive telephone calls using their broadband connection could result in a reduction of their privacy, as compared to traditional wireline carriers.

Our business involves the storage and transmission of users’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability.

An increasing number of websites, including several other communications companies, have recently disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users.

A party that is able to circumvent our security measures could misappropriate our or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business.

Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.

Currently, a significant number of our users authorize it to bill their credit card accounts directly for all transaction fees charged by us.

We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer credit card numbers.

Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised.

Non-technical means, for example, actions by a suborned employee, can also result in a data breach.

Possession and use of personal information in conducting our business subjects it to legislative and regulatory burdens that could require notification of data breach, restrict our use of personal information and hinder our ability to acquire new customers or market to existing customers.

We may incur expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.

Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses.

In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give customers the option of using payment cards to fund their payments or pay their fees.

If we were unable to accept payment cards, our business would be seriously damaged.

Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions.

We may need to expend significant resources to protect against security breaches or to address problems caused by breaches.

These issues are likely to become more difficult as we expand the number of places where we operate.

Security breaches, including any breach by us or by parties with which we have commercial relationships that result in the unauthorized release of our users’ personal information, could damage our reputation and expose us to a risk of loss or litigation and liability.

Our insurance policies carry coverage limits that may not be adequate to reimburse it for losses caused by security breaches.

Our users, as well as those of other prominent communications companies, have been and will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails to misappropriate passwords, credit card numbers, or other personal information or to introduce viruses or other malware through “trojan horse” programs to our users’ computers.

These emails appear to be legitimate emails sent by our communications businesses, but direct recipients to fake websites operated by the sender of the email or request that the recipient send a password or other confidential information via email or download a program.

Despite our efforts to mitigate “spoof” and “phishing” emails through product improvements and user education, “spoof” and “phishing” remain a serious problem that may damage our brands, discourage use of our websites, and increase our costs.

Our security measures may not prevent security breaches.

We may need to expend resources to protect against security breaches or to address problems caused by breaches.

If unauthorized third parties were able to penetrate our security and gain access to, or otherwise misappropriate, our customers’ personal information or be able to access their telephone calls, it could harm our reputation and, therefore, our business and we could be subject to liability.

Such liability could include claims for misuse of personal information or unauthorized use of credit cards.

These claims could result in litigation, our involvement in which, regardless of the outcome, could require us to expend significant financial resources.

Internet privacy is a rapidly changing area and we may be subject to future requirements and legislation that are costly to implement and negatively impact our results.

Risks Related to Our Brand Portfolio

Risks Related to Our Consumer Segment

If Targus fails to innovate and develop new products in a timely and cost-effective manner for its new and existing product categories, our business and operating results could be adversely affected.

Targus product categories are characterized by short product life cycles, intense competition, frequent new product introductions, rapidly changing technology, dynamic consumer demand and evolving industry standards.

As a result, we must continually innovate in our new and existing product categories, introduce new products and technologies, and enhance existing products in order to remain competitive.

The success of our product portfolio depends on several factors, including our ability to:

• Identify new features, functionality and opportunities;

• Anticipate technology, market trends and consumer preferences;

• Develop innovative, high-quality, and reliable new products and enhancements in a cost-effective and timely manner;

• Distinguish our products from those of our competitors;

• Offer our products at prices and on terms that are attractive to our customers and consumers.

If we do not execute on these factors successfully, products that we introduce or technologies or standards that we adopt may not gain widespread commercial acceptance, and our business and operating results could suffer.

In addition, if we do not continue to differentiate our products through distinctive, technologically advanced features, designs, and services that are appealing to our customers and consumers, as well as continue to build and strengthen our brand recognition and our access to distribution channels, our business could be adversely affected.

The development of new products and services can be very difficult and requires high levels of innovation.

The development process also can be lengthy and costly.

There are significant initial expenditures for research and development, tooling, manufacturing processes, inventory, and marketing, and we may not be able to recover those investments.

If we fail to accurately anticipate technological trends or our users’ needs or preferences, are unable to complete the development of products and services in a cost-effective and timely fashion, or are unable to appropriately increase production to fulfill customer demand, we will be unable to successfully introduce new products and services into the market or compete with other providers.

Even if we complete the development of our new products and services in a cost-effective and timely manner, they may not be competitive with products developed by others, they may not achieve acceptance in the market at anticipated levels or at all, they may not be profitable or, even if they are profitable, they may not achieve margins as high as our expectations or as high as the margins we have achieved historically.

As we introduce new or enhanced products, integrate new technology into new or existing products, or reduce the overall number of products offered, we face risks including, among other things, disruption in customers’ ordering patterns, excessive levels of new and existing product inventories, revenue deterioration in our existing product lines, insufficient supplies of new products to meet customers’ demand, possible product and technology defects, and a potentially different sales and support environment.

Premature announcements or leaks of new products, features or technologies may exacerbate some of these risks by reducing the effectiveness of our product launches, reducing sales volumes of current products due to anticipated future products, making it more difficult to compete, shortening the period of differentiation based on our product innovation, straining relationships with our partners or increasing market expectations for the results of our new products before we have had an opportunity to demonstrate the market viability of the products.

Our failure to manage the transition to new products and services or the integration of new technology into new or existing products and services could adversely affect our business, results of operations, operating cash flows and financial condition.

We rely on third parties to sell and distribute our products, and we rely on their information to manage our business.

Targus primarily sells products to a network of distributors, retailers and e-tailers (together with our direct sales channel partners).

We are dependent on those direct sales channel partners to distribute and sell our products to indirect sales channel partners and ultimately to consumers.

The sales and business practices of all such sales channel partners, their compliance with laws and regulations, and their reputations - of which we may or may not be aware - may affect our business and our reputation.

Our sales channel partners also sell products offered by our competitors and in the case of retailer house brands and original equipment manufacturers, may also be our competitors.

If product competitors offer our sales channel partners more favorable terms, have more products available to meet their needs, or utilize the leverage of broader product lines sold through the channel, or if our sales channel partners show preference for their own house brands, our sales channel partners may de-emphasize or decline to carry our products.

In addition, certain of our sales channel partners could decide to de-emphasize the product categories that we offer in exchange for other product categories that they believe provide them with higher returns.

If we are unable to maintain successful relationships with these sales channel partners or to maintain our distribution channels, our business will suffer.

As we expand into new product categories and markets in pursuit of growth, we will have to build relationships with new channel partners and adapt to new distribution and marketing models.

These new partners, practices, and models may require significant management attention and operational resources and may affect our accounting, including revenue recognition, gross margins, and the ability to make comparisons from period to period.

Entrenched and more experienced competitors will make these transitions difficult.

If we are unable to build successful distribution channels or successfully market our products in these new product categories, we may not be able to take advantage of the growth opportunities, and our business and our ability to grow our business could be adversely affected.

We reserve for cooperative marketing arrangements, incentive programs, and pricing programs with our sales channel partners.

These reserves are based on judgments and estimates, using historical experience rates, inventory levels in distribution, current trends, and other factors.

There could be significant differences between the actual costs of such arrangements and programs and our estimates.

We use sell-through data, which represents sales of our products by our direct retailer and e-tailer customers to consumers, and by our distributor customers to their customers, along with other metrics, to assess consumer demand for our products.

Sell-through data is subject to limitations due to collection methods and the third-party nature of the data and thus may not be an accurate indicator of actual consumer demand for our products.

The customers supplying sell-through data vary by geographic region and from period to period, but typically represent a majority of our retail sales.

In addition, we rely on channel inventory data from our sales channel partners.

If we do not receive this information on a timely and accurate basis, if this information is not accurate, or if we do not properly interpret this information, our results of operations and financial condition may be adversely affected.

Targus’ business is heavily reliant on the general demand for IT and personal computer-related devices.

Targus' business of selling products that relate primarily to the computer accessory markets makes our business performance sensitive to the general demand for IT and personal computer-related devices.

As such, declines in the overall demand for personal computers and tablet devices can directly impact the demand for our accessory products as often our products are sold as an attachment to the original equipment manufacturer device that is being sold.

The failure of our licensees to sell products that generate royalties to us, to pay us royalties pursuant to their license agreements with us, or to renew these agreements could negatively affect our results of operations and financial condition.

Our revenues are dependent on royalty payments made to us under our license agreements.

Our brand investment portfolio revenues are dependent on royalty payments made to us under our license agreements.

Although some of our license agreements guarantee a minimum royalty payment to us each year, the failure of our licensees to satisfy these or the other obligations under their agreements with us, their decision to not renew their agreements with us or their inability to grow or maintain their sales of products bearing our brands or their businesses generally could cause our revenues to decline.

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and liquidity and capital resources risks.

The consumer goods and services sector was severely impacted by the ongoing COVID-19 pandemic, which resulted in mandatory store closures of uncertain duration due to social distancing measures imposed to control the pandemic and our licensees may continue to have difficulty selling their merchandise and meeting their financial obligations to us as the sector evolves following the acute phase of the pandemic.

The failure by any of our key licensees or the concurrent failure by several licensees to meet their financial obligations to us or to renew their respective license agreements with us could materially and adversely impact our results of operations and our financial condition.

Our brand investment portfolio is subject to intense competition.

We hold a majority interest in a brand investment portfolio that is focused on generating revenue through the licensing of trademarks.

Therefore, our degree of success is dependent on the strength of our brands, consumer acceptance of our brands and our licensees’ ability to design, manufacture and sell products bearing our brands, all of which is dependent on the ability of us and our licensees responding to ever-changing consumer demands.

We cannot control the level of consumer acceptance of our brands and changing preferences and trends may lead customers to purchase other products.

Further, we cannot control the level of resources that our licensees commit to supporting our brands, and our licensees may choose to support products bearing other brands to the detriment of our brands because our agreements generally do not prevent them from licensing or selling other products, including products bearing competing brands.

In addition, we compete with companies that own other brands and trademarks, as these companies could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally.

These arrangements could be with our existing retail and wholesale partners, thereby competing with us for consumer attention and limited floor or rack space in the same stores in which our branded products are sold, and vying with us for the time and resources of the retailers and wholesale licensees that manufacture and distribute our products.

These companies may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing.

We may not be able to compete effectively against these companies.

If we or our brands are unable to compete successfully against current and future competitors, we may be unable to sustain or increase demand for products bearing our brands, which could have a material adverse effect on our reputation, prospects, performance and financial condition.

Risks Related to Competition

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Some of our competitors may have certain competitive advantages, which may cause us to be unable to effectively compete with or gain market share from our competitors.

We face competition with respect to all of our service areas.

The level of competition depends on the particular service area and, in the case of our asset and liquidation services, the category of assets being liquidated or appraised.

We face competition with respect to all of our service and product areas.

The level of competition depends on the particular service or product area and, in the case of our asset and liquidation services, the category of assets being liquidated or appraised.

We compete with other companies and investment banks to help clients with their corporate finance and capital needs.

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We also compete with other providers of valuation and advisory services.

Competitive pressures within the Financial Consulting and other Advisory Services and real estate services markets, including a decrease in the number of engagements and/or a decrease in the fees which can be charged for these services, could affect revenues from our Financial Consulting and other Advisory Services and real estate services as well as our ability to engage new or repeat clients.

Competitive pressures within the Financial Consulting and other Advisory Services and real estate services markets, including a decrease in the number of

engagements and/or a decrease in the fees which can be charged for these services, could affect revenues from our Financial Consulting and other Advisory Services and real estate services as well as our ability to engage new or repeat clients.

We believe that given the relatively low barriers to entry in the Financial Consulting and other Advisory Services and real estate services markets, these markets may become more competitive as the demand for such services increases.

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Many of these firms may have the ability to support investment banking, including financial advisory services, with commercial banking, insurance and other financial services in an effort to gain market share, which could result in pricing pressure in our businesses.

UOL competes with numerous providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers, many of whom are large and have significantly more financial and marketing resources.

The businesses in our communications segment compete competes with numerous communications providers, many of whom are large and have significantly more financial and marketing resources.

The principal competitors for UOL’s mobile broadband and DSL services include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers.

magicJack competes with the traditional telephone service providers, which provide telephone service using the public switched telephone network.

magicJack, Lingo, and BullsEye compete with the traditional telephone service providers, which provide telephone service using the public switched telephone network.

Certain of these traditional providers have also added, or are planning to add, broadband telephone services to their existing telephone and broadband offerings.

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In addition, we compete with independent broadband telephone service providers.

Our brand investment portfolio competes with companies that own other brands and trademarks, as these companies could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally.

Our consumer segment, consisting of Targus and our brand investment portfolio, competes with companies that make consumer retail products and/or own other brands and trademarks.

Targus operates in an intensely competitive marketplace along with many other makers of consumer and enterprise productivity products.

With respect to our brand investment portfolio, other brand licensors could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally.

These companies may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing.

Competitors to our consumer segment may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing.

If we are unable to attract and retain qualified personnel, we may not be able to compete successfully in our industry.

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The loss of any of our executive officers or other key management personnel would disrupt our operations and divert the time and attention of our remaining officers and management personnel which could have an adverse effect on our results of operations and potential for growth.

also face competition for highly skilled employees with experience in the industries in which we operate, and some of which requires

a unique knowledge base.

We may be unable to recruit or retain existing technical, sales and client support personnel that are critical

to our ability to execute our business plan, with such difficulties exacerbated by the labor shortages that arose during the COVID-19

pandemic and persist throughout the economy.

Additionally, the ongoing COVID-19 pandemic could affect the availability of our key personnel.

Risks Related to Data Security

We also face competition for highly skilled employees with experience in the industries in which we operate, and some of which requires a unique knowledge base.

We may be unable to recruit or retain existing technical, sales and client support personnel that are critical to our ability to execute our business plan, with such difficulties exacerbated by the labor shortages that arose during the COVID-19 pandemic and persist throughout the economy.

Risks Related to Data Security and Intellectual Property

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information

and that of our customers, clients and business partners, and personally identifiable information of our employees, in our servers and

on our networks.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, clients and business partners, and personally identifiable information of our employees, in our servers and on our networks.

The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.

Despite our security measures, our information technology and infrastructure is vulnerable to attacks by hackers or breach due to employee

error, malfeasance or other disruptions.

Any such breach could compromise our networks and the information stored there could be accessed,

publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings,

liability under laws that protect the privacy of personal information, and regulatory penalties.

In addition, such a breach could disrupt

our operations and the services we provide to our clients, damage our reputation, and cause a loss of confidence in our services, which

could adversely affect our business and our financial condition.

Despite our security measures, our information technology and infrastructure is vulnerable to attacks by hackers or breach due to employee error, malfeasance or other disruptions.

Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.

In addition, such a breach could disrupt our operations and the services we provide to our clients, damage our reputation, and cause a loss of confidence in our services, which could adversely affect our business and our financial condition.

Significant disruptions of information technology systems, breaches of data security, or unauthorized disclosures of sensitive data or personally identifiable information could adversely affect our business, and could subject us to liability or reputational damage.

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Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations.

Because of the rapidly moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.

addition, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy regulation (“GDPR”)

in 2016 that took effect in May 2018 and governs the collection and use of personal data in the European Union.

The GDPR, which is wide-ranging

in scope, will impose several requirements relating to the consent of the individuals to whom the personal data relates, the information

provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party

processors in connection with the processing of the personal data.

The GDPR also imposes strict rules on the transfer of personal data

out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including

the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater.

the California Consumer Privacy Act effective since January 1, 2020 applies to for-profit businesses that conduct business in California

and meet certain revenue or data collection thresholds.

The CCPA established new requirements regarding handling of person data to entities

serving or employing California residents, and gave consumers the right to request disclosure of information collected about them, and

whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain

exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against

for exercising these rights.

Such rights will be expanded under the California Privacy Rights Act (“CPRA”) once it goes into

effect on January 1, 2023.

Because of the rapidly

moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.

In addition, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy regulation (“GDPR”) in 2016 that took effect in May 2018 and governs the collection and use of personal data in the European Union.

The GDPR, which is wide-ranging in scope, will impose several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of the personal data.

The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater.

In addition, the California Consumer Privacy Act effective since January 1, 2020 applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds.

The CCPA established new requirements regarding handling of personal data to entities serving or employing California residents, and gave consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising these rights.

Such rights will be expanded under the California Privacy Rights Act (“CPRA”) once it goes into effect on January 1, 2023.

In addition, similar laws have and may be adopted by other states where the Company does business.

of the CCPA and other state privacy laws on the Company’s business is yet to be determined.

During the initial phase of the COVID-19 pandemic, most of our personnel shifted to working remotely and many personnel continue to work remotely.

Additional waves of the pandemic have, and may continue to, cause us to require periods of remote work for certain personnel or locations.

We cannot predict the duration of these disruptions or the durability of the more general trend toward remote work.

While we have made substantial investments on our information security infrastructure, this shift has could put stress on our information security infrastructure and increase the risk of a data breach and could require us to make further investments in our cybersecurity program.

The impact of the CCPA and other state privacy laws on the Company’s business is yet to be determined.

We may be unsuccessful in protecting our proprietary rights or may have to defend ourselves against claims of infringement, which could impair or significantly affect our business.

Our future success depends in part on our proprietary technology, technical know-how, and other intellectual property.

We rely on a combination of patent, trade secret, copyright, trademark and other intellectual property laws, and confidentiality procedures and contractual provisions such as nondisclosure terms and licenses, to protect our intellectual property.

We hold various United States patents and pending applications, together with corresponding patents and pending applications from other countries.