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
Adverse changes in general economic
conditions, including from the impact of the COVID-19 pandemic, or uncertainty about future economic conditions could materially and 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 or other global health situation, inflation, and any recessionary impacts.
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.
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. While the COVID-19 pandemic did not have a material adverse effect on our reported
results for fiscal year 2022, we continue to closely monitor the impact of the COVID-19 pandemic and emerging variants on all aspects
of our business, including the impact to our customers, employees and supply chain. The health of our workforce, customers and communities
continues to be of primary concern and we have taken, and may take in the future, actions as may be required by government authorities
or as we determine are in the best interests of our employees, customers and others. These actions have required, and may continue to
require, expenditures of significant time, attention and resources to manage the effects of the pandemic on our business and workforce.
The extent to which our operations may be impacted by the COVID-19 pandemic or any global health situation will depend largely on future
developments which are highly uncertain and we are unable to predict the ultimate impact that it may have on our business, future results
of operations, financial position or cash flows. Even while government restrictions and responses to the COVID-19 pandemic have lessened,
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. 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 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 pandemic is still
ongoing 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,
or fear of acquiring COVID-19 while performing essential business functions. During the fourth quarter of fiscal year 2022, we experienced
a higher than usual rate of employee absenteeism related to COVID-19, which resulted in additional employee related costs which, in turn,
impacted our operational costs. We cannot predict the extent to which the COVID-19 pandemic may disrupt our workforce and internal operations
and we cannot guarantee that we will be able to adequately staff our operations when needed.
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Rising inflation may result in
increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect
on our results of operations and the market price of our common stock. Inflation has accelerated in the U.S. and globally due
in part to global supply chain issues, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions
related to the COVID-19 pandemic. An inflationary environment can increase our cost of labor as well as our energy and other operating
costs which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the
number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest rates have
increased and are expected to increase further, inflation may continue. Further, increased interest rates could have a negative effect
on the securities markets generally which may, in turn, have a material adverse effect on the market price of our common stock.
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, or the emergence of
new competitors could also increase competition and adversely affect our business or results of operations.
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, including as a result of any
global hostilities, 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.
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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 the event of diminished trade relations between the U.S. and other countries, as well as any 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 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 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. Some of our office personnel work in remote 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. We maintain insurance intended
to cover certain cybersecurity events, but such insurance may not cover all risks and losses that we experience. 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 our remote users. If we were to experience a prolonged
system disruption in the IT systems that involve our interactions with customers or suppliers,
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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 for
products we sell and services we provide 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
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
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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 purchases. These rebates effectively reduce our costs for products.
During fiscal year 2022, we saw a number of our vendors continue to reduce the rebates offered to us as a result of current economic conditions.
If suppliers adversely change the terms of some or all of these programs, 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, or if supply chain delays, interruptions, or product shortages occur, our revenue and gross profit could suffer. Similar
to other distributors in our industry, we occasionally experience supplier shortages and are unable to purchase our desired volume of
products. Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply
from manufacturers and other suppliers. Any disruption in our sources of supply, particularly of the most commonly sold items, could result
in a loss of revenues, reduced margins, and damage to our relationships with customers. Supply shortages may occur as a result of unanticipated
increases in demand or difficulties in production or delivery. In addition, we may be adversely impacted by disruptions within our supply
chain network. Such disruptions may result from weather-related events, natural disasters, international trade disputes or trade policy
changes or restrictions, tariffs or import-related taxes, third-party strikes, lock-outs, work stoppages or slowdowns, shortages of supply
chain labor and truck drivers, shipping capacity constraints, military conflicts, acts of terrorism, public health issues (including pandemics
or quarantines), civil unrest or other factors beyond our control. For example, in fiscal year 2022, our supply chains have been and may
continue to be negatively impacted by the COVID-19 pandemic and general economic factors such as rising inflation. When shortages occur,
our suppliers often allocate products among distributors. The loss of, or a substantial decrease in the availability of, products from
our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows,
as well as our ability to benefit from ongoing supply chain initiatives.
Due to current global supply chain
disruptions, 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. 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 materially. 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 26, 2022, we owed $48.5 million to our secured
creditor, a commercial bank, including $8.5 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
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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 and the Euro. During fiscal years 2022 and 2021, less than 10% of our total revenues were denominated in Canadian dollars and Euros.
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 and the Euro impact
our revenues, cost of revenues and operating margins and result in foreign currency transaction gains and losses. During fiscal year 2022,
the value of the U.S. dollar relative to one Canadian dollar and to one Euro ranged from 1.20 to 1.29 and from 0.81 to 0.92, respectively.
We continually utilize short-term foreign
exchange forward contracts to reduce the risk that future earnings denominated in Canadian dollars 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 or the Euro, 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 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 three acquisitions during fiscal year 2022 and one acquisition during fiscal year 2021. 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;
●
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;
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Our exposure to unforeseen liabilities of acquired companies; and
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The loss of key employees of an acquired operation.
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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;
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Contingent consideration payments;
●
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
economic downturns or other matters of national or 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;
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Developments in our relationships with current or future manufacturers of products we distribute;
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Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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Litigation or governmental proceedings or announcements involving us or our industry;
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Economic and other external factors, such as inflation, recession, disasters or other national or global crises;
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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;
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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 35,000 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
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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%. Any additional modifications
to key aspects of the tax code 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.