What changed in this filing

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Item 1A. Risk Factors

2025-08-21 compared with 2024-08-27 · 144 added, 134 removed, 156 unchanged (64% of the section changed)

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Risk Factors Related to our Operations

People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.

Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs.

Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles.

We have built our business on a set of core values, and we attempt to hire and retain employees who are committed to these values and our culture of providing exceptional service to our channel sales partners and suppliers.

In order to compete and to continue to grow, we must attract, retain and motivate employees, including those in executive, senior management, sales, marketing, logistics, technical support and other operating positions.

Many of our employees work in small teams to provide specific services to channel sales partners and suppliers.

They are trained to develop their knowledge of products, services, programs and practices and channel sales partners business needs, as well as to enhance the skills required to provide exceptional service and to manage our business.

As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses.

Therefore, to retain our employees and attract new ones, we have to provide a satisfying work environment and competitive compensation and benefits.

Acquisitions - Our growth strategy includes acquisitions of companies that complement or expand our existing business.

Acquisitions involve unique risks and uncertainties, including difficulty in identifying and completing potential acquisitions.

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We have acquired, and may continue to acquire, companies that complement or expand our existing business in the United States and internationally, and some of these acquisitions may be in business lines where we have little, if any, experience.

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Our personnel, systems, procedures and controls may not be adequate to effectively manage our future operations, especially as we employ personnel in multiple domestic and some international locations.

We may not be able to hire, train, retain and manage the personnel required to address our growth.

We may not be able to hire, train, retain and

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manage the personnel required to address our growth.

Failure to effectively manage our acquisition opportunities could damage our reputation, limit our future growth, and adversely affect our business, financial condition and operating results.

We may be unable to identify acquisitions or strategic relationships we deem suitable.

Even if we do, we may be unable to successfully complete any such transactions on favorable terms or at all, or to successfully integrate an acquired business, facilities, technologies, or products into our business or retain any key personnel, suppliers, or customers.

Furthermore, even if we complete such transactions and effectively integrate the newly acquired business or strategic alliance into our existing operations, we may fail to realize the anticipated returns and/or fail to capture the expected benefits, such as strategic or operational synergies or cost savings.

People - If we cannot continue to hire and retain high quality employees, our business and financial results may be negatively affected.

Our operating results could be adversely affected by increased competition for employees, difficulty in recruiting employees, higher employee turnover or increased compensation and benefit costs.

Our employees are important to our success and we are dependent in part on our ability to retain the services of our employees in key roles.

Many of our employees work in small teams to provide specific services to customers and suppliers.

They are trained to develop their knowledge of products, services, programs and practices and customer business needs, as well as to enhance the skills required to provide exceptional service and to manage our business.

As they gain experience and develop their knowledge and skills, our employees become highly desired by other businesses.

Therefore, to retain our employees and attract new ones, we have to provide a satisfying work environment and competitive compensation and benefits.

Organic growth strategies - If we fail to effectively manage and implement our operating strategies, we may experience a negative effect on our business and financial results.

A significant component of our growth strategy is to expand our channels and expand our existing products and services in our existing channels and entry into new channels.

These efforts may divert our resources and systems, require additional resources that might not be available (or available on acceptable terms), result in new or more intense competition, require longer implementation times or greater expenditures than anticipated and otherwise fail to achieve timely desired results, if at all.

If we are unable to increase our sales and earnings by expanding our product and service offerings in a cost-effective manner, our results may suffer.

Our ability to successfully manage our organic growth will require continued enhancement of our operational, managerial and financial resources, controls, and models.

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

IT Systems - Our ability to manage our business and monitor results is highly dependent upon information and communication systems.

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Any disruption to our business due to such issues, or an increase in our costs to cover these issues, could have an adverse effect on our financial results and operations.

Our customers rely on our electronic ordering, information systems and website for product information, including availability, pricing and placing orders.

A ransomware incident in 2023 disrupted our systems, and there can be no assurance that our

Index to Financial Statements

systems will not fail or experience disruptions again in the future.

Our channel sales partners rely on our electronic ordering, information systems and website for product information, including availability, pricing and placing orders.

A ransomware incident in 2023 disrupted our systems, and there can be no assurance that our systems will not fail or experience disruptions again in the future.

Any significant failure or disruption of these systems could prevent us from making sales, ordering and delivering products and otherwise conducting our business.

Organic growth strategies - If we fail to effectively manage and implement our operating strategies, we may experience a negative effect on our business and financial results.

A significant component of our growth strategy is to expand our channels and expand our existing products and services in our existing channels and entry into new channels.

If we are unable to increase our sales and earnings by expanding our product and service offerings in a cost-effective manner, our results may suffer.

Our ability to successfully manage our organic growth will require continued enhancement of our operational, managerial and financial resources, controls, and models.

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

Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling customer orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Our business depends on the timely supply of products in order to meet the demands of our customers.

Supply Chain issues, include a shortage of products, may increase our costs or cause a delay in fulfilling channel sales partner orders, completing services or purchasing products and services needed to support our internal operations, resulting in an adverse impact on our financial results.

Our business depends on the timely supply of products in order to meet the demands of our channel sales partners.

Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics or other public health crises or other adverse occurrences affecting any of our suppliers’ facilities, could further disrupt our supply chain.

We could experience product constraints due to the failure of suppliers to accurately forecast customer demand or to manufacture sufficient quantities of product to meet customer demand (including as a result of shortages of product components), among other reasons.

We could experience product constraints due to the failure of suppliers to accurately forecast channel sales partner demand or to manufacture

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sufficient quantities of product to meet channel sales partner demand (including as a result of shortages of product components), among other reasons.

Our supply chain is also exposed to risks related to international operations.

While we purchase our products primarily in the markets we serve (for example, products for United States customers are primarily sourced in the United States), our vendor partners manufacture or purchase a significant portion of the products we sell outside of the United States, primarily in Asia.

Political, social or economic instability in Asia, or in other regions in which our vendor partners purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the United States.

While we purchase our products primarily in the markets we serve (for example, products for United States channel sales partners are primarily sourced in the United States), our suppliers manufacture or purchase a significant portion of the products we sell outside of the United States, primarily in Asia.

Political, social or economic instability in Asia, or in other regions in which our suppliers purchase or manufacture the products we sell, could cause disruptions in trade, including exports to the United States.

Supply chain issues, including a shortage of technology products and available services, may increase our costs or cause a delay in purchasing technology products needed to support our internal systems and infrastructure or operations, resulting in an impact on our operations and availability of our systems, which could result in a materially adverse effect on our operations and financial results.

Credit exposure - We have credit exposure to our customers.

Credit exposure - We have credit exposure to our channel sales partners.

Any adverse trends or significant adverse incidents in their businesses could cause us to suffer credit losses.

As is customary in our industry, we extend credit to our customers, and most of our sales are on open accounts.

We also provide financing to some Intelisys customers based on their future commission flows.

As is customary in our industry, we extend credit to our channel sales partners, and most of our sales are on open accounts.

We also provide financing to some Intelisys advisors based on their future commission flows.

As we grow and compete for business, our typical payment terms tend to get longer, increasing our credit risk.

While we evaluate our customers' qualifications for credit and monitor our extensions of credit, these efforts cannot prevent all credit losses and any credit losses negatively impact our performance.

While we evaluate our channel sales partners' qualifications for credit and monitor our extensions of credit, these efforts cannot prevent all credit losses and any credit losses negatively impact our performance.

In addition, for financial reporting purposes, we estimate future credit losses and establish reserves.

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If there is deterioration in the collectability of our receivables, or if we fail to take other actions to adequately mitigate such credit risk, our earnings, cash flows and our ability to utilize receivable-based financing could deteriorate.

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In addition, extending credit to international customers involves additional risks.

It is often more difficult to evaluate credit risk with a customer or obtain credit protections in our international operations.

In addition, extending credit to international channel sales partners involves additional risks.

It is often more difficult to evaluate credit risk with a channel sales partner or obtain credit protections in our international operations.

Also, credit cycles and collection periods are typically longer in our international operations.

As a result of these factors and other challenges in extending credit to international customers, we generally face greater credit risk from international sales compared to domestic sales.

As a result of these factors and other challenges in extending credit to international channel sales partners, we generally face greater credit risk from international sales compared to domestic sales.

Reliance on third parties - We are dependent on third parties for some services, including the delivery of a majority of our products, logistics and warehousing.

Changes in shipping terms or the failure or inability of our third-party shippers to perform could have an adverse impact on our business and results of operations.

We rely on third parties to perform certain services for our business and for our customers, which, if not performed by these third parties in accordance with the terms of the arrangement, could result in significant disruptions or costs to our organization, including monetary damages and an adverse effect on our customer relationships.

We rely on third parties to perform certain services for our business and for our channel sales partners, which, if not performed by these third parties in accordance with the terms of the arrangement, could result in significant disruptions or costs to our organization, including monetary damages and an adverse effect on our channel sales partner relationships.

In particular, we are dependent upon major shipping companies, including FedEx and UPS, for the shipment of our products to and from our centralized warehouses.

Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our customers.

Changes in shipping terms, or the inability of these third-party shippers to perform effectively, could affect our responsiveness to our channel sales partners.

From time to time, we have experienced significant increases in shipping costs due to increases in fuel costs and transit losses due to a congested supply chain.

Increases in our shipping costs or transit losses may adversely affect our financial results if we are unable to pass on these higher costs to our customers.

Increases in our shipping costs or transit losses may adversely affect our financial results if we are unable to pass on these higher costs to our channel sales partners.

In Brazil, we use third parties to provide warehousing and logistics services in order to provide cost-effective operations and scale in certain regions.

The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our customers, for any reason could disrupt our business and harm our reputation and operating results.

The failure or inability of one or more of these third parties to deliver products from suppliers to us, or products from us to our channel sales partners, for any reason could disrupt our business and harm our reputation and operating results.

We work closely with our third-party logistics and warehousing providers to anticipate issues, and also review public information regarding their financial health.

However, issues may not be timely identified, which may lead to lack of or poor execution of services, loss or litigation.

Additionally, deterioration of the financial condition of our logistical and warehousing providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our customers and thus may adversely affect our business, financial condition and results of operations.

Additionally, deterioration of the financial condition of our logistical and warehousing

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providers could result in delayed responsiveness or delivery failure, which would ultimately affect our responsiveness to our channel sales partners and thus may adversely affect our business, financial condition and results of operations.

Inventory - The value of our inventory may be adversely affected by market and other factors.

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Our future success is highly dependent on our relationships with our suppliers.

A significant percentage of our net sales relates to products we purchase from relatively few suppliers, including Cisco and Zebra.

As a result of such concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations.

A significant percentage of our net sales relates to products we purchase from relatively few supplie rs, including Cisco and Zebra.

As a result of s uch concentration risk, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key suppliers could adversely affect our operating margins, revenue or the level of capital required to fund our operations.

Our suppliers have the ability to make adverse changes in their sales terms and conditions, such as reducing the level of purchase discounts and rebates they make available to us.

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In certain product categories, limited price protection or return rights offered by our suppliers may have a bearing on the amount of product we are willing to stock.

Our inability to pass through to our customers the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.

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We receive purchase discounts and rebates from some suppliers based on various factors, including goals for quantitative and qualitative sales or purchase volume and customer related metrics.

Our inability to pass through to our channel sales partners the impact of these changes, as well as if we fail to develop or maintain systems to manage ongoing supplier programs, could cause us to record inventory write-downs or other losses and could have significant negative impact on our gross margins.

We receive purchase discounts and rebates from some suppliers based on various factors, including goals for quantitative and qualitative sales or purchase volume and channel sales partner related metrics.

Certain purchase discounts and rebates may affect gross margins.

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Our operating results could be adversely impacted if these rebates or discounts are reduced or eliminated or if our suppliers significantly increase the complexity of their refund procedures and thus increase costs for us to obtain such rebates.

Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill customer orders on a timely basis is critical to our success.

Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill channel sales partner orders on a timely basis is critical to our success.

Our suppliers have experienced product supply shortages from time to time due to the inability of certain of their suppliers to supply products on a timely basis.

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As a result, we have experienced, and may in the future continue to experience, short-term shortages of specific products or be unable to purchase our desired volume of products.

Suppliers that currently distribute their products through us, may decide to shift to or substantially increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-customers.

Suppliers have, from time to time, made efforts to reduce the number of distributors with which they do business.

This could result in more intense competition as distributors strive to secure distribution rights with these suppliers, which could have an adverse impact on our operating results.

We cannot provide any assurances that suppliers will maintain an adequate supply of products to fulfill all of our customer orders on a timely basis.

Our reputation, sales and profitability may suffer if suppliers are not able to provide us with an adequate supply of products to fulfill our customer orders on a timely basis or if we cannot otherwise obtain particular products or product lines.

We cannot provide any assurances that suppliers will maintain an adequate supply of products to fulfill all of our channel sales partner orders on a timely basis.

Our reputation, sales and profitability may suffer if suppliers are not able to provide us with an adequate supply of products to fulfill our channel sales partner orders on a timely basis or if we cannot otherwise obtain particular products or product lines.

Increasingly, our suppliers are combining and merging, leaving us with fewer alternative sources.

Supplier consolidation may also lead to changes in the nature and terms of relationships with our suppliers.

In addition, suppliers may face liquidity or solvency issues that in turn could negatively affect our business and operating results.

In addition, suppliers may face liquidity or

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solvency issues that in turn could negatively affect our business and operating results.

Any loss or deterioration of a major supplier relationship could adversely affect our business, financial condition and results of operations.

Channel Sales Partners - We operate in a highly competitive environment and good channel sales partner relations are critical to our success.

There can be no assurance that we will be able to retain and expand our channel sales partner relationships or acquire new channel sales partners.

Meeting our channel sales partners’ needs quickly and fairly is critical to our business success.

Transactions with our channel sales partners generally are performed on a purchase order basis rather than under long term supply agreements.

Therefore, our channel sales partners can choose to purchase from other sources, such as from competing distributor or directly from the supplier.

From time to time, we experience shortages in availability of some products from suppliers, and this impacts channel sales partner decisions regarding whether to make purchases from us.

Anything that negatively influences channel sales partner relations can also negatively impact our operating results.

As a distributor in a channel business model our offerings could create channel conflict, and the channel programs offered by our supplier can change.

These perceived channel conflicts and channel programs could impact our channel sales partner relationships and negatively impact our operating results and our ability to retain channel sales partners.

Channel sales partner consolidation also may lead to changes in the nature and terms of relationships with our channel sales partners.

The loss or deterioration of a major channel sales partner relationship could adversely affect our business, financial condition and results of operations.

Economic recession, higher interest rates and inflation could result in some of our channel sales partners shuttering their businesses, thus negatively impacting our business.

Liquidity and capital resources - Market factors and our business performance may increase the cost and decrease the availability of capital.

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We have an increased demand for capital when our business is expanding, including through acquisitions and organic growth.

Changes in payment terms with either suppliers or customers could also increase our capital requirements.

Changes in payment terms with either suppliers or channel sales partners could also increase our capital requirements.

We have historically relied on cash generated from operations, borrowings under our revolving credit facility and secured and unsecured borrowings to satisfy our capital needs and to finance growth.

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We have a multi-currency senior secured credit facility with JPMorgan Chase Bank N.A., as administrative agent, and a syndicate of banks (the “Amended Credit Agreement”).

The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants.

Specifically, our Leverage Ratio must be less than or equal to 3.50:1.00 at all times.

In addition, our Interest Coverage Ratio (as such term is defined in the Amended Credit Agreement) must be at least 3.00:1.00 as of the end of each fiscal quarter.

The Amended Credit Agreement includes customary representations, warranties and affirmative and negative covenants, including financial covenants such as a Leverage Ratio and Interest Coverage Ratio (each as such term is defined in the Amended Credit Agreement).

In the event of a default, customary remedies are available to the lenders, including acceleration and increased interest rates.

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however, we are exposed to risk of loss on such funds or we may experience significant disruptions in our liquidity needs if one or more of these financial institutions were to fail or suffer bankruptcy or similar restructuring.

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Customers - We operate in a highly competitive environment and good customer relations are critical to our success.

There can be no assurance that we will be able to retain and expand our customer relationships or acquire new customers.

Meeting our customers’ needs quickly and fairly is critical to our business success.

Transactions with our customers generally are performed on a purchase order basis rather than under long term supply agreements.

Therefore, our customers can choose to purchase from other sources.

From time to time, we experience shortages in availability of some products from suppliers, and this impacts customer decisions regarding whether to make purchases from us.

Anything that negatively influences customer relations can also negatively impact our operating results.

As a distributor in a channel business model our offerings can create channel conflict.

These perceived channel conflicts can impact or customer relationships and negatively impact our operating results and our ability to retain those customers.

Customer consolidation also may lead to changes in the nature and terms of relationships with our customers.

The loss or deterioration of a major customer relationship could adversely affect our business, financial condition and results of operations.

Economic recession, higher interest rates and inflation could result in some of our customers shuttering their businesses, thus negatively impacting our business.

Litigation - We routinely are involved in litigation that can be costly and lead to adverse results.

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We are routinely involved in litigation related to commercial disputes surrounding our business activities, intellectual property disputes, employment disputes and accounts receivable collection activity.

In addition, as a public company with a large shareholder base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we or our officers and directors make (or do not make) and our other activities.

In addition, as a public company with a large shareholder

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base, we are susceptible to class-action lawsuits and other litigation resulting from disclosures that we or our officers and directors make (or do not make) and our other activities.

Litigation is expensive to bring and defend, and the outcome of litigation can be adverse and significant.

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An uninsured, under-insured or non-indemnified adverse outcome in significant litigation could have an adverse effect on our business, financial condition and results of operations.

We can make no assurances that we will ultimately be successful in any dispute that we are a party to.

We can make no assurances that we will ultimately be successful in any dispute to which we are a party.

“Legal Proceedings” for further discussion of our material legal matters.

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On at least an annual basis, we are required to assess our goodwill and other intangible assets, including but not limited to customer relationships, trademarks and trade names, for impairment.

This includes continuously monitoring events and circumstances that could trigger an impairment test outside of our annual impairment testing date in the fourth quarter of each year.

This includes continuously monitoring events and circumstances that could trigger an impairment test outside of our annual impairment testing date in the fourth quarter of each year, such as significant or sustained declines in the price of our common stock, substantial declines in business performance or changes in business management and strategy.

Testing goodwill and other intangibles for impairment requires the use of significant estimates and other inputs outside of our control.

If the carryi ng value of goodwill in any of our goodwill reporting units or other intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges.

If the carrying value of goodwill in any of our goodwill reporting units or other intangible assets is determined to exceed their respective fair values, we may be required to record significant impairment charges.

In addition, our decision to dispose of certain of our operations has in the past and may in the future require us to recognize an impairment to the carrying value of goodwill and other intangible assets attendant to those operations.

As of June 30, 2024, the Specialty Technology Solutions and Modern Communications & Cloud reporting units' goodwill balances are $16.4 million and $189.9 million, resp ectively.

The fair value of the reporting units exceeded its carrying value by 11% and 33% , respectively, as of the annual goodwill impairment testing date.

Heightened volatility in the securities markets caused by macroeconomic factors, changes in U.S.

trade policy, geopolitical tensions and other factors outside of our control could also lead to impairment charges.

Any declines resulting in a goodwill impairment or long-lived asset impairment may result in material non-cash charges to our earnings.

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We currently have significant facilities outside the United States.

For fiscal year ending June 30, 2024, approximately 10.4% of our revenue is derived from our international operations outside of the United States and Canada.

For fiscal year ending June 30, 2025, approximately 7.9% of our revenue was derived from our operations outside of the United States and Canada.

These operations are subject to a variety of risks that are different from the risks that we face domestically or are similar risks but with potentially greater exposure.

These risks include:

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• Fluctuations of foreign currency and exchange rates, which can impact sales, costs of goods sold and the reporting of our results from operations and financial conditions, including the value of certain assets on our financial statements;

• Changes in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license requirements, restrictions on the export of certain technology and tariff changes, or the imposition of new or increased trade sanctions;

• Changes in international trade laws, trade agreements, or trading relationships affecting our import and export activities, including export license requirements, restrictions on the export of certain technology and tariff changes (including additional or retaliatory tariffs), or the imposition of new or increased trade sanctions;

• Difficulties in collecting accounts receivable and longer collection periods;

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Foreign Corrupt Practices Act and similar laws of other jurisdictions, governing our business activities outside the United States, the violation of which could result in severe penalties, including monetary fines, criminal proceedings and suspension of export or import privileges;

• Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or those of our customers, suppliers or service providers.

We have substantial operations in Brazil and face risks related to these countries’ complex tax, labor, trade compliance and consumer protection laws and regulations.

• Terrorist or military actions that result in destruction or seizure of our assets or suspension or disruption of our operations or those of our channel sales partners, suppliers or service providers.

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We have substantial operations in Brazil and face risks related to Brazil's complex tax, labor, trade compliance and consumer protection laws and regulations.

Additionally, developing markets such as Brazil have greater political volatility and vulnerability to infrastructure and labor disruptions, are more likely to experience market and interest rate fluctuations and may have higher inflation.

In addition, doing business in foreign countries poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, agents and service providers, among other risks.

Furthermore, in developing markets it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S.

In addition, doing business in foreign countries such as Brazil poses additional challenges, such as finding and retaining qualified employees, particularly management-level employees, navigating underdeveloped infrastructure and identifying and retaining qualified suppliers, resellers, advisors and service providers, among other risks.

Furthermore, in developing markets, such as Brazil, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S.

Foreign Corrupt Practices Act or similar local anti-bribery laws.

Our commitment to legal compliance could put us at a competitive disadvantage, and any lapses in our compliance could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.

In addition, competition in developing markets is increasing.

In 2025, the U.S.

announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response.

Although the implementation of many of these tariffs and retaliatory measures have been paused or delayed, negotiations and the state of international trade policy and relations continue to evolve.

Additional tariffs, or the uncertainty around such tariffs, may cause disruptions to foreign and domestic supply chains or result in price increases.

We have incurred, and expect to continue to occur, costs as it relates to these tariffs for the remainder of fiscal 2025 and the foreseeable future.

We expect to continue to pass any price increases from our suppliers from tariffs to our channel sales partners, which may reduce demand.

However, we cannot predict the ultimate impact of tariffs and their effects on the global macroeconomic environment on our financial condition or results of operations.

In addition, competition in Brazil is increasing.

If we cannot successfully increase our business, our product sales, our financial condition and results of operations could be adversely affected.

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In order to be as efficient as possible, we centralize a number of critical functions.

For instance, we currently distribute products to the majority of North America from a single warehouse.

For instance, we currently distribute products to the majority of North America from a single warehouse in Southaven, Mississippi.

Similarly, for our primary business operations, we utilize a single information system based in the United States for the majority of our North American operations, while our Brazilian operations utilize a separate system.

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In addition, the centralization of these functions increases our exposure to local risks, such as the availability of qualified employees and increased competition for, or lack of access to, critical services, such as freight and communications.

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Risk Factors Related to our Industry

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Our markets are fiercely competitive.

We compete on the basis of price, product and service availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability and terms, ability to tailor solutions to the needs of our customers, quality and breadth of product line and services and availability of technical and product information.

Our competitors include local, regional, national and international distributors as well as hardware and service suppliers that sell directly to resellers and to end-customers.

In addition, we compete with resellers and master agents that sell to franchisees, third-party dealers and end-customers.

Certain of our current and potential competitors have greater financial, technical, marketing and other resources than we have and may be able to respond more quickly to new or emerging technologies and changes in customer requirements.

Certain smaller, regional competitors, that are specialty two-tier or mixed model master resellers may be able to respond more quickly to new or emerging technologies and changes in customer requirements in their regions.

We compete on the basis of price, product and service availability, speed and accuracy of delivery, effectiveness of sales and marketing programs, credit availability and terms, ability to tailor solutions to the needs of our channel sales partners, quality and breadth of product line and services and availability of technical and product information.

Our competitors include local, regional, national and international distributors as well as hardware and service suppliers that sell directly to resellers and to end users.

In addition, we compete with resellers and technology solutions

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distributors that sell to franchisees, third-party dealers and end users.

Certain of our current competitors have, and potential competitors could have, greater financial, technical, marketing and other resources than we have and may be able to respond more quickly to new or emerging technologies and changes in channel sales partner requirements.

Also, certain regional competitors, that are specialty two-tier or mixed model master resellers may be able to respond more quickly to new or emerging technologies and changes in channel sales partner requirements in their regions.

Competition has increased for our sales units as broad-line and other value-added distributors have entered into the specialty technology markets.

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As a result of intense price competition in our industry, our gross margins and our operating profit margins historically have been narrow, and we expect them to continue to be narrow in the future.

To remain competitive, we may be forced to offer more credit or extend payment terms to our customers.

This could result in an increase in our need for capital, increase our financing costs, increase our bad debt expenses and have an adverse impact on our financial condition and results of operations.

To remain competitive, we may be forced to offer more credit or extend payment terms to our channel sales partners.

This could result in an increase in our capital requirements, increase our financing costs, bad debt expenses and could have an adverse impact on our financial condition and results of operations.

We may lose market share, reduce our prices in response to actions of our competitors, or withdraw from geographical markets where we do not believe we can earn appropriate margins.

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Our inability to compete successfully against current and future competitors could cause our revenue and earnings to decline.

Disruptive technology - We may not be able to respond and adapt to rapid technological changes, evolving industry standards or changing customer needs or requirements, and thus may become less competitive.

The market for some of our products and services is subject to rapid technological change, evolving industry standards and changes in customer demand, which can contribute to a decline in value or obsolescence of inventory.

Disruptive technology - We may not be able to respond and adapt to rapid technological changes, evolving industry standards or changing channel sales partner needs or requirements, and thus may become less competitive.

The market for some of our products and services is subject to rapid technological change, evolving industry standards and changes in channel sales partner demand, which can contribute to a decline in value or obsolescence of inventory.

Although some of our suppliers provide us with certain protections from a loss in value of inventory (such as price protection and certain return rights), we cannot be sure that such protections will fully compensate for any loss in value, or that such suppliers will choose to, or be able to, honor such agreements.

Our ability and our suppliers’ ability to anticipate and react quickly to new technology trends and customer requirements is crucial to our overall success, financial condition and results of operations.

Our ability and our suppliers’ ability to anticipate and react quickly to new technology trends, including artificial intelligence developments, and channel sales partner requirements is crucial to our overall success, financial condition and results of operations.

If our suppliers fail to evolve their product and service offerings, or if we fail to evolve our product and service offerings or to engage with desirable suppliers in time to respond to, and remain ahead of, new technological developments, our ability to retain or increase market share, profit margins and revenue could be adversely affected.

Some of our competitors and our suppliers’ competitors may be better at adapting to disruptive technology or entering new markets.

Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet customer needs at prices that our customers are willing to pay.

Our future success depends, in part, on our ability to adapt and manage our product and service offerings to meet channel sales partner needs at prices that our channel sales partners are willing to pay.

General Risk Factors

Cybersecurity risk - If we are the subject of a ransomware or other cyberattack, we could lose valuable financial and operational data, we could be prevented from processing customer orders, ordering and tracking inventory, and efficiently operating our business, and we could lose revenue and profits and incur significant costs.

In addition, we could be subject to legal claims in the event of loss, disclosure or misappropriation of, or loss of access to, our customers’, business partners’ or our own information.

Cybersecurity risk - Ransomware or other cyberattacks, could cause us to lose valuable financial and operational data, we could be prevented from processing channel sales partner orders, ordering and tracking inventory, and efficiently operating our business, and could cause us to lose revenue and profits and incur significant costs.

In addition, we could be subject to legal claims in the event of loss, disclosure or misappropriation of, or loss of access to, our channel sales partners’, business partners’ or our own information.

We make extensive use of online services and integrated information systems, including through third-party service providers.

The secure maintenance and transmission of customer information is a critical element of our operations.

Our information technology and other systems that maintain and transmit customer or employee information or those of our service providers or business partners may be compromised by a malicious third-party penetration of network security or impacted by the advertent or inadvertent actions or inactions of our employees, third-party service providers or business partners.

With constant changes

The secure maintenance and transmission of channel sales partner information is a critical element of our operations.

Our information technology and other systems that maintain and transmit channel sales partner or employee information or those of our service providers or business partners may be compromised by a malicious third-party penetration of network security or impacted by the advertent or inadvertent actions or inactions of our employees, third-party service providers or business partners.

With constant changes in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service providers and business partners, and misappropriate or compromise confidential information, create system disruptions or cause shutdowns.

As a result, our channel sales partners’ information may be lost, disclosed, accessed or taken without our channel sales partners’ consent.

We are subject to laws and regulations relating to channel sales partner privacy and the protection of personal information.

Any such loss, disclosure or misappropriation of, or access to, our channel sales partners’ or business partners’ information or our information or other data breach affecting such information can result in legal claims or legal proceedings, including regulatory

Index to Financial Statements

in the security landscape, experienced computer programmers and hackers may be able to penetrate our network security, or that of our third-party service providers and business partners, and misappropriate or compromise confidential information, create system disruptions or cause shutdowns.

As a result, our customers’ information may be lost, disclosed, accessed or taken without our customers’ consent.

We are subject to laws and regulations relating to customer privacy and the protection of personal information.

Any such loss, disclosure or misappropriation of, or access to, our customers’ or business partners’ information or our information or other data breach affecting such information can result in legal claims or legal proceedings, including regulatory investigations and actions, and may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.

investigations and actions, and may have a serious impact on our reputation and may adversely affect our businesses, operating results and financial condition.

In May 2023, we learned that we had been the subject of a ransomware attack.

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Although restoration is complete, there can be no assurance that we will not be a victim of a ransomware or other cyberattack again in the future.

Any insurance proceeds received related to the cybersecurity incident will be recorded in selling, general and administrative expenses of the consolidated income statement for the relevant period.

Increased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end-customers of products that we sell.

Certain of our customers sell our products to government entities, which requires us to comply with additional laws, regulations and contractual requirements relating to how we conduct business.

In complying with such laws, regulations and other requirements, we may incur additional costs.

In addition, non-compliance with such laws, regulations and other requirements also may expose us to fines and penalties, including contractual damages or the loss of certain contracts or business.

We also may be subject to increased scrutiny and investigation into our business practices, which may increase operating costs and increase legal liability, as well as expose us to additional reputational risk.

Although we have insurance to offset financial losses incurred for events such as the ransomware attack we experienced in May 2023, there can be no guarantee that we will recover all insurance proceeds claimed or that the insurance will be sufficient in type or amount to cover us against claims related to cybersecurity breaches, cyberattacks and other related breaches.

Insurance proceeds received related to the cybersecurity incident were recorded in selling, general and administrative expenses of the consolidated income statement for the relevant period.

Economic weakness - Economic weakness and uncertainty, including the possibility of recession and heightened levels of inflation, tariffs and geopolitical uncertainty could adversely affect our results and prospects.

Our financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for our products and services, and the financial condition of our channel sales partners and suppliers.

The macroeconomic environment, including the economic impacts of growth outlook, inflation, tariffs and shifting relations between the U.S.

and other countries , continues to create significant uncertainty and may adversely affect our consolidated results of operations.

In 2025, the U.S.

announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response.

We are actively monitoring changes to the global macroeconomic environment and assessing the potential impacts these challenges may have on our financial condition, results of operations and liquidity.

We are also mindful of the potential impact these conditions could have on our channel sales partners, suppliers and end-user demand.

We expect that any price increases from our suppliers resulting from tariffs would be passed through to our channel sales partners.

We are mitigating these risks through strategic planning and maintaining financial flexibility, but we cannot predict the outcome of our mitigation strategies or the ultimate impact of tariffs and the global macroeconomic environment on our financial condition or results of operations.

Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in reduced demand for products resulting in decreased sales, margins and earnings.

Economic weakness and geopolitical uncertainty may also lead us to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions or adjust our operating strategy and reduce expenses in response to decreased sales or margins.

We may not be able to adequately adjust our cost structure in a timely fashion, which may adversely impact our profitability.

Uncertainty about economic conditions also may increase foreign currency volatility in such markets, which may negatively impact our results.

Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect channel sales partner receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.

Periods of elevated inflation contribute to increased costs for labor, materials and services.

Although U.S.

inflation rates have shown sings of moderating, the re-emergence of high levels of inflation in the countries in which we operate could further increase our costs and otherwise adversely impact our results of operations and financial condition.

We monitor changes to the macroeconomic environment;

however, we cannot predict any future trends in the rate of inflation or the general state of the economy.

Foreign currency - Our international operations expose us to fluctuations in foreign currency exchange rates that could adversely affect our results of operations.

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Volatility in foreign exchange rates increase our risk of loss related to products and services purchased in a currency other than the currency in which those products and services are sold.

We maintain policies to reduce our net exposure to foreign currency exchange rate fluctuations through the use of derivative financial instruments, however there can be no assurance that fluctuations in foreign currency exchange rates will not materially affect our financial results.

We maintain policies to reduce our net exposure to foreign currency exchange rate fluctuations through the use of derivative financial instruments;

however, there can be no assurance that

Index to Financial Statements

fluctuations in foreign currency exchange rates will not materially affect our financial results.

Because our consolidated financial statements are presented in U.S.

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In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect our earnings from foreign markets.

Economic weakness - Economic weakness and uncertainty, including the possibility of recession and heightened levels of inflation, and geopolitical uncertainty could adversely affect our results and prospects.

Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in reduced demand for products resulting in decreased sales, margins and earnings.

Index to Financial Statements

reduce expenses in response to decreased sales or margins.

We may not be able to adequately adjust our cost structure in a timely fashion, which may adversely impact our profitability.

Uncertainty about economic conditions also may increase foreign currency volatility in such markets, which may negatively impact our results.

Economic weakness and geopolitical uncertainty also make it more difficult for us to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.

Although U.S.

inflation rates have shown signs of moderating, periods of elevated inflation contribute to increased costs for labor, materials and services.

The re-emergence of high levels of inflation could further increase our costs and otherwise adversely impact our results of operations and financial condition.

Although we monitor changes to the macroeconomic environment, we cannot predict any future trends in the rate of inflation or the general state of the economy.

Volatility of Stock Price - The trading price of our common stock fluctuates.

The market price of our common stock could be subject to wide fluctuations.

This volatility could significantly reduce the price of our common stock at any time, without regard to our own operating performance, particularly because we are designated as a small cap stock that is thinly traded.

Our stock price can be affected by numerous factors such as variations in our quarterly operating results or expectations with regard thereto;

revisions in securities analysts’ estimates;

announcements by us or our competitors of significant acquisitions, transactions, partnerships, joint ventures or capital commitments;

interest rates;

business conditions in our industry or the general state of the securities markets and the economy.

A material decline in the price of our common stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or investigations against us.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, if needed, and the inability for you to obtain a favorable price at which you could sell your shares.

Increased government regulation - We may be subject to additional costs and subject to fines and penalties because certain governmental entities are end users of products that we sell.

Certain of our channel sales partners sell our products to government entities, which requires us to comply with additional laws, regulations and contractual requirements relating to how we conduct business.

In complying with such laws, regulations and other requirements, we may incur additional costs.

In addition, non-compliance with such laws, regulations and other requirements also may expose us to fines and penalties, including contractual damages or the loss of certain contracts or business.

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

What changed 10-K

Item 1A. Risk Factors