Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
You should carefully consider the following risks
and all other information included in this report. The risks and uncertainties described below and elsewhere in this report are not the
only ones facing our business. If any of the following risks were to actually occur, our business, financial condition or results of operations
would likely suffer.
Macroeconomic and Business Risks
Our business, results of operations and
financial condition may be adversely impacted by the COVID-19 pandemic . The COVID-19 pandemic has negatively affected the U.S.
and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, and created significant
disruption of the financial markets. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including
how it is
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impacting our customers, employees and supply
chain. Given the critical nature of the services and products that we provide, our calibration labs, distribution centers and support
offices have remained open during the pandemic. While the COVID-19 pandemic did not have a material adverse effect on our reported results
for fiscal year 2021, we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial
position or cash flows. The extent to which our operations may be impacted by the COVID-19 pandemic and recovery will depend largely on
future developments, which are highly uncertain and cannot be accurately predicted. We may experience additional operating costs due to
increased challenges with our workforce (including as a result of illness, absenteeism or government orders), access to supplies, capital,
and fundamental support services (such as shipping and transportation). Even after the COVID-19 pandemic has subsided, we may experience
materially adverse impacts to our business due to any resulting supply chain disruptions, economic recession or depression. Furthermore,
the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets
remain unknown.
The impact of the COVID-19 pandemic may also
exacerbate other risks discussed in this section, any of which could have a material adverse effect on us. This situation is changing
rapidly and additional impacts may arise that we are not aware of currently.
The COVID-19 pandemic may significantly
disrupt our workforce and internal operations . The COVID-19 pandemic may significantly disrupt our workforce if a significant
percentage of our employees are unable to work due to illness, quarantines, government actions, facility closures in response to the pandemic,
fear of acquiring COVID-19 while performing essential business functions, or as a result of changes to unemployment insurance where unemployed
workers can receive, in the short-term, benefits in excess of what would be offered for working for us. As part of our response to the
pandemic, during the first quarter of fiscal year 2021,we instituted hazard pay for certain employees that perform essential work at customer
sites. While we remain fully operational as an essential business, we cannot guarantee that we will be able to adequately staff our operations
when needed. We cannot predict the extent to which the COVID-19 pandemic may disrupt our workforce and internal operations.
We have taken certain precautions due to
the COVID-19 pandemic that could negatively impact our business . In response to the COVID-19 pandemic, we have taken measures
intended to protect the health and well-being of our employees, customers, and communities, which could negatively impact our business.
These measures include temporarily requiring all non-essential employees (personnel whose roles allow) to work remotely, restricting work-related
travel except for direct onsite service to our customers, restricting non-essential visitors from entering our sites, increasing the frequency
and extent of cleaning and disinfecting facilities, workstations, and equipment, developing social distancing plans, and instituting specialized
training to ensure the safe handling of our customers’ critical equipment. The health of our workforce, customers and communities
is of primary concern and we may take further actions as may be required by government authorities or as we determine are in the best
interests of our employees, customers and others. In addition, our management team has, and will likely continue to, spend significant
time, attention and resources monitoring the COVID-19 pandemic and seeking to manage its effects on our business and workforce. The extent
to which the pandemic and our precautionary measures may impact our business will depend on future developments, which are highly uncertain
and cannot be predicted at this time.
The industries in which we compete are
highly competitive, and we may not be able to compete successfully. Within our Service segment, we provide calibration services
and compete in an industry that is highly fragmented and is composed of companies ranging from internationally recognized and accredited
corporations to non-accredited sole proprietors, resulting in a tremendous range of service levels and capabilities. Also, within our
Service segment, we provide compliance services and compete in an industry that is composed of both small local and regional service providers
and large multi-national companies who are also OEMs. Within our Service segment, some of our larger competitors may have broader service
capabilities and may have greater name recognition than us. Some manufacturers of the products we sell may also offer calibration and
compliance services for their products.
Within our Distribution segment, we compete with
numerous companies, including several major manufacturers and distributors. Most of our products are available from several sources and
our customers tend to have relationships with several distributors. Competitors in the product distribution industry could also obtain
exclusive rights to market particular products, which we would then be unable to market. Manufacturers could also increase their efforts
to sell directly to end-users and bypass distributors like us. Industry consolidation among distributors, the unavailability of products,
whether due to our inability to gain access to products or interruptions in supply from manufacturers, including as a result of the COVID-19
pandemic, or the emergence of new competitors could also increase competition and adversely affect our business or results of operations.
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In each of the industries in which we compete,
some of our competitors have greater financial and other resources than we do, which could allow them to compete more successfully. In
the future, we may be unable to compete successfully and competitive pressures may reduce our sales.
Competition in our Distribution segment
is changing with an increase in web-based distributors. We may not be able to compete successfully. We face substantial and increased
competition throughout the world, especially in our Distribution segment. The competition is changing, with web-based distributors becoming
more prevalent and increasing their market share. Some of our competitors are much larger than us. Changes in the competitive landscape
pose new challenges that could adversely affect our ability to compete. Entry or expansion of other vendors into this market may establish
competitors that have larger customer bases and substantially greater financial and other resources with which to pursue marketing and
distribution of products. Their current customer base and relationships, as well as their relationships and ability to negotiate with
manufacturers, may also provide them with a competitive advantage. If we are unable to effectively compete with our current and future
competitors, our ability to sell products could be harmed and could result in a negative impact on our Distribution segment. Any erosion
of our competitive position could have a material adverse effect on our business, results of operations, and financial condition.
Volatility in the oil and gas industry
has had, in the past, and could have in the future, a negative impact on our operating results. A portion of our products and
services customer base is directly or indirectly related to the oil and gas industry. As a result, demand for some of our products is
dependent on the level of expenditures by the oil and gas industry. In addition to the more significant impact on our Distribution segment,
an extended downturn in the oil and gas industry or continued volatility in oil and gas prices could impact customers’ demand for
some of our services (generally excluding life sciences, our largest industry customer sector), which could have a material adverse effect
on our financial condition, results of operations and cash flows.
Our Service segment has a concentration
of customers in the life science and other FDA-regulated and industrial manufacturing industries. A number of our Service segment
customers operate in the pharmaceutical and other FDA-regulated or industrial manufacturing industries. This concentration of our customer
base affects our overall risk profile, since a significant portion of our customers would be similarly affected by changes in economic,
political, regulatory, and other industry conditions. An abrupt or unforeseen change in conditions in these industries could adversely
affect customer demand for our services, which could have a material adverse effect on our financial results.
Adverse changes in general economic conditions
or uncertainty about future economic conditions, including economic uncertainty from the current pandemic, could adversely affect us.
We are subject to the risks arising from adverse changes in general economic market conditions, including the negative impact
to the U.S. and global economy from the COVID-19 pandemic. Uncertainty about future economic conditions could negatively affect our current
and prospective customers causing them to delay the purchase of necessary services or test and measurement instruments. Poor economic
conditions could harm our business, financial condition, operating results and cash flows.
Tariffs imposed by the U.S. and those imposed
in response by other countries, as well as rapidly changing trade relations, could have a material adverse effect on our business and
results of operations. Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result
in, tariffs on imports into and exports from the U.S. In response, some foreign governments have proposed or implemented their own tariffs
on certain products, increasing our costs of doing business. If we are unable to recover these costs, our profit margins may be negatively
impacted. In addition, significant changes to U.S. trade policy may occur as a result of the change in the U.S. President and administration,
including the U.S. re-entering, withdrawing from or renegotiating various trade agreements, or other actions that would change current
U.S. trade policies. We cannot predict which, if any, of these actions will be taken or, if taken, their ultimate effect. Continued diminished
trade relations between the U.S. and other countries, as well as the continued escalation of tariffs, could have a material adverse effect
on our financial performance and results of operations.
Any impairment of goodwill or intangible
assets could negatively impact our results of operations. Our goodwill and intangible assets are subject to an impairment test
on an annual basis and are also tested whenever events and circumstances indicate that goodwill and/or intangible assets may be impaired.
Any excess goodwill and/or indefinite-lived intangible assets value resulting from the impairment test must be written-off in the period
of determination. Intangible assets (other than goodwill and indefinite-lived intangible assets) are generally amortized over the useful
life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record
goodwill based on the purchase price and the value of the acquired tangible and intangible assets. We may subsequently experience unforeseen
issues with the businesses we acquire, which may adversely affect the anticipated returns of the business or value of the intangible assets
and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations
of significant write-offs of
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goodwill or intangible assets because of an impairment
test or any accelerated amortization of other intangible assets could have a material negative impact on our results of operations and
financial condition.
Operational Risks
Cybersecurity incidents could adversely
affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage
to our business relationships, all of which could negatively impact our business, results of operations or financial condition. We
rely extensively on information technology (“IT”) systems, some of which are provided by third parties, to support our business
activities, including for orders and the storage, processing and transmission of our electronic, business-related, information assets
used in or necessary to conduct business. The data we store and process may include customer payment information, personal information
concerning our employees, confidential financial information and other types of sensitive business-related information. Numerous and evolving
cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability
and integrity of our data. To mitigate the spread of COVID-19, some of our office personnel transitioned to remote work environments which
may exacerbate various cybersecurity risks to our business, including an increased risk of phishing and other social engineering attacks,
and an increased risk of unauthorized dissemination of sensitive personal, proprietary or other confidential information. Global cybersecurity
threats can range from uncoordinated individual attempts to gain unauthorized access to our IT systems to sophisticated and targeted measures
known as advanced persistent threats. The techniques used in these attacks change frequently and may be difficult to detect for periods
of time and we may face difficulties in anticipating and implementing adequate preventative measures. While we employ comprehensive measures
to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, management
training, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents,
depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical
data or proprietary information and the disruption of business operations. The potential consequences of a material cybersecurity incident
include reputational damage, compromised employee, customer, or third-party information, litigation with third parties, regulatory actions,
and increased cybersecurity protection and remediation costs, which in turn could adversely affect our business and results of operations.
In addition, the laws and regulations governing security of data on IT systems and otherwise held by companies is evolving and adding
layers of complexity in the form of new requirements and increasing costs of attempting to protect IT systems and data and complying with
new cybersecurity regulations.
If we experience a significant disruption in,
or breach in security of, our IT systems, or if we fail to implement new systems and software successfully, our business could be adversely
affected. Our IT systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication
failures, user errors, catastrophes or other unforeseen events. Our IT systems also may experience interruptions, delays or cessations
of service or produce errors in connection with system integration, software upgrades or system migration work that takes place from time
to time. In addition, technology resources may be strained due to the increase in the number of remote users in response to the COVID-19
pandemic. If we were to experience a prolonged system disruption in the IT systems that involve our interactions with customers or suppliers,
it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.
Our revenue and ability to achieve our
stated corporate objectives depends on our senior management and our ability to retain recruit, train and retain quality employees.
Our success is dependent on our senior management and our ability to attract, retain and motivate qualified personnel, especially skilled
service technicians. Competition for senior management is intense, and we may not be successful in attracting and retaining key personnel.
Qualified skilled service technicians are in high demand and are subject to competing offers. The ability to meet our labor needs while
controlling costs associated with hiring and training new employees is subject to external factors such as unemployment levels and prevailing
wage rates. The loss of services of any member of our senior management team or key employees, and the inability to attract and retain
other qualified personnel, especially skilled service technicians, could affect our ability to achieve our stated corporate objectives
and could adversely impact our business and results of operations.
We expect that our quarterly results of
operations will fluctuate. Such fluctuations could cause our stock price to decline. A large portion of our expenses for our Service
segment, including expenses for facilities, equipment and personnel are relatively fixed. Accordingly, if revenues decline or do not grow
as we anticipate, we may not be able to correspondingly reduce our expenses in any particular quarter. Our quarterly revenues and operating
results have fluctuated in the past and are likely to do so in the future. Historically, our fiscal third and fourth quarters have been
stronger than our fiscal first and second quarters due to industrial operating cycles. Fluctuations in industrial demand
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for products we sell and services we provide,
including as a result of the COVID-19 pandemic, could cause our revenues and operating results to fluctuate. If our operating results
in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline.
If we do not effectively compete in the
rental test and measurement equipment market, our operating results may be adversely affected. We compete in the rental market
on the basis of a number of factors, including equipment availability, price, service and reliability. Some of our competitors may offer
similar equipment for rent at lower prices and may offer more extensive servicing, or financing options. In addition, if the supply of
rental equipment available on the market significantly increases, demand for and pricing of our rental products could be adversely impacted
lowering our gross margins on rentals. Further, customers confronting competing budget priorities and more limited resources as a result
of the COVID-19 pandemic could lead to less demand for rental equipment and increased pressure on pricing. Failure to adequately forecast
the adoption of and demand for equipment may cause us not to meet our customers’ rental equipment requirements and may adversely
affect our operating results.
If we fail to adapt our technology to meet
customer needs and preferences, the demand for our products and services may diminish. Our future success will depend on our ability
to develop services and solutions that keep pace with technological change, evolving industry standards and changing customer preferences
in the markets we serve. We cannot be sure that we will be successful in adapting existing or developing new technology or services in
a timely or cost-effective manner or that the solutions we do develop will be successful in the marketplace. Our failure to keep pace
with changes in technology, industry standards and customer preferences in the markets we serve could diminish our ability to retain and
attract customers and retain our competitive position, which could adversely impact our business and results of operations.
We rely on our CalTrak® , Application
Plus (our enterprise resource planning system) and other management information systems for inventory management, distribution, workflow,
accounting and other functions. If our CalTrak® , Application Plus or other management information systems fail to adequately
perform these functions, experience an interruption in their operation or a security breach, our business and results of operations could
be adversely affected. The efficient operation of our business depends on our management information systems. We rely on our CalTrak®,
Application Plus and other management information systems to effectively manage accounting and financial functions, customer service,
warehouse management, order entry, order fulfillment, inventory replenishment, documentation, asset management, and workflow. Our management
information systems are vulnerable to damage or interruption from computer viruses or hackers, natural or man-made disasters, vandalism,
terrorist attacks, power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruptions
to our management information systems could disrupt our business and could result in decreased revenues, increased overhead costs, excess
inventory and product shortages, causing our business and results of operations to suffer. In addition, our management information systems
are vulnerable to security breaches. Our security measures or those of our third-party service providers may fail to detect or prevent
such security breaches. Security breaches could result in the unauthorized publication of our confidential business or proprietary information,
the unauthorized release of customer, vendor, or employee data and payment information, the violation of privacy or other laws, and the
exposure to litigation, any of which could harm our business and results of operations.
Our enterprise resource planning system
is aging, and we may experience issues from any implementation of a new enterprise resource planning system. We have an enterprise
resource planning system (“ERP”) to assist with the collection, storage, management and interpretation of data from our business
activities to support future growth and to integrate significant processes. Although we use current versions of software and have support
agreements in place, due to the age of our ERP, we anticipate that a new ERP will be required to be implemented sometime in the future.
ERP implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities,
as well as changes in business processes. Our ERP system is critical to our ability to accurately maintain books and records, record transactions,
provide important information to our management and prepare our consolidated financial statements. ERP implementations also require the
transformation of business and financial processes in order to reap the benefits of the ERP system; any such transformation involves risks
inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations.
Any disruptions, delays or deficiencies in the design and implementation of a new ERP system could adversely affect our ability to process
orders, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate
our business. Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting
could be adversely affected or our ability to assess it adequately could be delayed.
A change in vendor rebate programs could
adversely affect our gross margins and results of operations . The terms on which we purchase products from certain of our suppliers
entitle us to receive a rebate based on the volume of our
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purchases. These rebates effectively reduce our
costs for products. During fiscal year 2021, we saw a number of our vendors significantly reduce the rebates offered to us as they implemented
cost cutting measures in response to the COVID-19 pandemic. We recorded vendor rebates of $0.7 million and $1.6 million in fiscal years
2021 and 2020, respectively, as a reduction of cost of distribution sales. If suppliers adversely change the terms of some or all of these
programs, or COVID-19 pandemic related cost-cutting measures continue after the recovery from the pandemic, the changes may lower our
gross margins on products we sell and may have an adverse effect on our operating results.
We depend on manufacturers to supply inventory
to our Distribution segment and if our vendors fail to provide desired products to us, increase prices, or fail to timely deliver products,
our revenue and gross profit could suffer. Like other distributors in our industry, we occasionally experience supplier shortages
and are unable to purchase our desired volume of products. If we are unable to enter into and maintain satisfactory distribution arrangements
with leading manufacturers, if we are unable to maintain an adequate supply of products, or if manufacturers do not regularly invest in,
introduce to us, and/or make new products available to us for distribution, our Distribution segment sales could suffer considerably.
The COVID-19 pandemic has disrupted the supply of products, and we may experience increased difficulties in obtaining products at stable
pricing levels. As a result, we may need to restructure or change some of our product lines in the future. We cannot provide any assurance
that particular products, or product lines, will be available to us, or available in quantities sufficient to meet customer demand. This
is of particular significance to our Distribution segment business because the products we sell are often only available from one source.
Any limits to product access could materially and adversely affect our Distribution segment business.
Our future success may be affected by our
current and future indebtedness. Under our credit agreement, as of March 27, 2021, we owed $19.6 million to our secured creditor,
a commercial bank, including $10.6 million borrowed under a $15.0 million term loan to fund acquisitions and provide additional working
capital. We may borrow additional funds in the future to support our growth and working capital needs. We are required to meet financial
tests on a quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue
to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts
outstanding. Furthermore, we are dependent on credit from manufacturers of our products to fund our inventory purchases. If our debt burden
increases to high levels, such manufacturers may restrict our credit. Our cash requirements will depend on numerous factors, including
the rate of growth of our revenues, the timing and levels of products purchased, payment terms, and credit limits from manufacturers,
the timing and level of our accounts receivable collections and our ability to manage our business profitably. Our ability to satisfy
our existing obligations, whether or not under our secured credit facility, will depend upon our future operating performance, which may
be impacted by prevailing economic conditions and financial, business, and other factors described in this report, many of which are beyond
our control.
We face risks associated with foreign currency
rate fluctuations. We currently transact a portion of our business in foreign currencies, namely the Canadian dollar. During fiscal
years 2021 and 2020, less than 10% of our total revenues were denominated in Canadian dollars. Conducting business in currencies other
than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results.
Fluctuations in the value of the U.S. dollar relative to the Canadian dollar impact our revenues, cost of revenues and operating margins
and result in foreign currency transaction gains and losses. During fiscal years 2021 and 2020, the value of the U.S. dollar relative
to one Canadian dollar ranged from 1.24 to 1.42 and from 1.30 to 1.45, respectively.
We continually utilize short-term foreign exchange
forward contracts to reduce the risk that our earnings would be adversely affected by changes in currency exchange rates. However, this
strategy does not eliminate our exposure. If there is a significant or prolonged downturn in the Canadian dollar, it could have an adverse
impact on our business and financial condition.
Our inability to adequately enforce and
protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete. We
rely on intellectual property in order to maintain a competitive advantage. Our inability to defend against the unauthorized use of these
assets could have an adverse effect on our results of operations and financial condition. Litigation may be necessary to protect our intellectual
property rights or defend against claims of infringement. This litigation could result in significant costs and divert our management’s
focus away from operations.
Hurricanes, other adverse weather events, national
or regional catastrophes or natural disasters could negatively affect the local economies we serve or disrupt our operations, which could
have an adverse effect on our business or results of operations . Our market areas include the Gulf Coast and Mid-Atlantic regions
of the United States, and Puerto Rico, which are susceptible to hurricanes. Such weather events can disrupt our operations, result in
damage to our properties and negatively affect the local economies in which we operate. Future hurricanes could result in damage
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to certain of our facilities and the equipment located
at such facilities, or equipment on rent with customers in those areas. Even if our properties suffer no direct damage from such events,
the operations of our customers could be disrupted, and our supply chain impacted. In addition, climate change could lead to an increase
in intensity or occurrence of hurricanes or other adverse weather events, including severe winter storms. Future occurrences of these
events, as well as regional or national catastrophes or natural disasters, and their effects may adversely impact our business or results
of operations.
Risks Related to Acquisitions
We may not successfully integrate business
acquisitions. We completed one acquisition during fiscal year 2021 and three acquisitions during fiscal year 2020. If we fail
to accurately assess and successfully integrate any recent or future business acquisitions, we may not achieve the anticipated benefits,
which could result in lower revenues, unanticipated operating expenses, reduced profitability and dilution of our book value per share.
Successful integration involves many challenges, including:
●
The difficulty of integrating acquired operations and personnel
with our existing operations, which could be exacerbated by the impact of the COVID-19 pandemic;
●
The difficulty of developing and marketing new products and services;
●
The diversion of our management’s attention as a result of evaluating,
negotiating and integrating acquisitions;
●
Our exposure to unforeseen liabilities of acquired companies; and
●
The loss of key employees of an acquired operation.
In addition, an acquisition could adversely impact
cash flows and/or operating results, and dilute shareholder interests, for many reasons, including:
●
Charges to our income to reflect the impairment of acquired
intangible assets, including goodwill;
●
Interest costs and debt service requirements for any debt incurred in
connection with an acquisition or new business venture; and
●
Any issuance of securities in connection with an acquisition or new
business venture that dilutes or lessens the rights of our current shareholders.
If the integration of any or all of our acquisitions
or future acquisitions is not successful, it could have a material adverse impact on our operating results and stock price.
Our future business acquisition efforts
may not be successful, which may limit our growth or adversely affect our results of operations, and financing of any future acquisitions
could result in shareholder dilution and/or increase our leverage. Business acquisitions are an important part of our growth strategy.
If we identify an appropriate acquisition candidate, we may not be able to successfully negotiate terms or finance the acquisition. If
disruptions from the COVID-19 pandemic and related government measures, economic downturns or other matters of global concern continue
for an extensive period of time or recur, our ability to pursue and consummate potential acquisitions could be materially adversely affected.
In addition, to successfully complete targeted acquisitions, we may issue additional equity securities that could dilute our stockholders’
ownership, or we may incur additional debt, which could increase our leverage and our risk of default under our existing credit facility.
If we fail to successfully acquire businesses, our growth and results of operations could be adversely affected.
Risks Related to our Stock
Our stock price may be volatile. The
stock market, from time to time, has experienced significant price and volume fluctuations that are both related and unrelated to the
operating performance of companies. Our stock may be affected by market volatility and by our own performance. The following factors,
among others, may have a significant effect on the market price of our common stock:
●
The impact of the COVID-19 pandemic on the capital markets;
●
Developments in our relationships with current or future manufacturers
of products we distribute;
●
Announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
●
Litigation or governmental proceedings or announcements involving us
or our industry;
●
Economic and other external factors, such as disasters or other crises;
●
Sales of our common stock or other securities in the open market;
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●
Repurchases of our common stock on the open market or in
privately-negotiated transactions;
●
Period-to-period fluctuations in our operating results; and
●
Our ability to satisfy our debt obligations.
The relatively low trading volume of our
common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Market,
we have historically experienced a relatively low trading volume of approximately 30,000 shares a day. If our low trading volume continues
in the future, holders of our shares may have difficulty selling shares of our common stock in the manner or at a price that they desire.
If significant existing shareholders sell
large numbers of shares of our common stock, our stock price could decline. The market price of our common stock could decline
if a large number of our shares are sold in the public market by our existing shareholders or as a result of the perception that such
sales could occur. Due to the relatively low trading volume of our common stock, the sale of a large number of shares of our common stock
may significantly depress the price of our common stock.
Regulatory Risks
Tax rates applicable to us may change.
Tax legislation initiatives could adversely affect our net earnings and tax liabilities. We are subject to the tax laws and regulations
of the United States federal, state and local governments, as well as foreign jurisdictions. From time to time, various legislative initiatives
may be enacted that could adversely affect our tax positions. Tax laws and regulations are extremely complex and subject to varying interpretations.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made broad and complex changes to the U.S. tax code, including, but not
limited to reducing the Federal corporate income tax rate from 35% to 21%. The current U.S. President and administration, however, have
indicated that they intend to modify key aspects of the tax code, which could materially affect our tax obligations and negatively impact
our effective tax rate. Although we believe that our tax positions are sound and consistent with applicable laws, regulations and existing
precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful
in any such challenge.
Changes in accounting standards, legal
requirements and the Nasdaq Global Market listing standards, or our ability to comply with any existing requirements or standards, could
adversely affect our operating results. Extensive reforms relating to public company financial reporting, corporate governance
and ethics, the Nasdaq Global Market listing standards and oversight of the accounting profession have been implemented over the past
several years and continue to evolve. Compliance with these rules, regulations and standards that have resulted from such reforms has
increased our accounting and legal costs and has required significant management time and attention. In the event that additional rules,
regulations or standards are implemented or any of the existing rules, regulations or standards to which we are subject undergoes additional
material modification, we could be forced to spend significant financial and management resources to ensure our continued compliance,
which could have an adverse effect on our results of operations. In addition, although we believe we are in full compliance with all such
existing rules, regulations and standards, should we be or become unable to comply with any of such rules, regulations and standards,
as they presently exist or as they may exist in the future, our results of operations could be adversely affected and the market price
of our common stock could decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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