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managers could materially adversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. |
All of our officers and other U.S. employees are at-will employees, meaning that they may terminate their employment relationship with |
us at any time, and their knowledge of our business and industry would be extremely difficult to replace. If we do not succeed in attracting |
well-qualified employees or retaining and motivating existing employees, our business, financial condition and operating results may be |
materially adversely affected. We may not be able to adequately protect |
our intellectual property rights. We regard our customer lists, domain names, trade |
dress, trade secrets, proprietary technology and similar intellectual property as critical to our success, and we rely on trade secret |
protection, agreements and other methods with our employees and others to protect our proprietary rights. We might not be able to obtain |
broad protection for all of our intellectual property. The protection of our intellectual property rights may require the expenditure |
of significant financial, managerial and operational resources. We may initiate claims or litigation against others for infringement, |
misappropriation or violation of our intellectual property rights or proprietary rights or to establish the validity of such rights. Any |
litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical |
and management personnel, which may materially adversely affect our business, financial condition and operating results. Moreover, the |
steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating |
our proprietary rights, and we may not be able to broadly enforce all of our intellectual property rights. Any of our intellectual property |
rights may be challenged by others or invalidated through administrative process or litigation. Additionally, the process of obtaining |
intellectual property protections is expensive and time-consuming, and we may not be able to pursue all necessary or desirable actions |
at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these protections will adequately safeguard |
our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other |
intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire |
equivalent or superior technology or intellectual property rights. We may also be exposed to claims from third parties claiming infringement |
of their intellectual property rights, or demanding the release or license of open source software or derivative works that we developed |
using such software (which could include our proprietary code) or otherwise seeking to enforce the terms of the applicable open source |
license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions |
of our source code, be limited in or cease using the implicated software unless and until we can re-engineer such software to avoid infringement |
or change the use of the implicated open source software. 53 We may be accused of infringing intellectual |
property rights of third parties. The e-commerce industry is characterized by vigorous |
protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. |
We may be subject to claims and litigation by third parties that we infringe their intellectual property rights. The costs of supporting |
such litigation and disputes are considerable, and there can be no assurances that favorable outcomes will be obtained. As our business |
expands and the number of competitors in our market increases and overlaps occur, we expect that infringement claims may increase in number |
and significance. Any claims or proceedings against us, whether meritorious or not, could be time-consuming, result in considerable litigation |
costs, require significant amounts of management time or result in the diversion of significant operational resources, any of which could |
materially adversely affect our business, financial condition and operating results. We have received in the past, and we may receive |
in the future, communications alleging that certain items posted on or sold through our sites violate third-party copyrights, designs, |
marks and trade names or other intellectual property rights or other proprietary rights. Brand and content owners and other proprietary |
rights owners have actively asserted their purported rights against online companies. In addition to litigation from rights owners, we |
may be subject to regulatory, civil or criminal proceedings and penalties if governmental authorities believe we have aided and abetted |
in the sale of counterfeit or infringing products. Such claims, whether or not meritorious, may result |
in the expenditure of significant financial, managerial and operational resources, injunctions against us or the payment of damages by |
us. We may need to obtain licenses from third parties who allege that we have violated their rights, but such licenses may not be available |
on terms acceptable to us, or at all. These risks have been amplified by the increase in third parties whose sole or primary business |
is to assert such claims. We are engaged in legal proceedings that |
could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention. From time to time, we are subject to litigation |
or claims that could negatively affect our business operations and financial position. Litigation disputes could cause us to incur unforeseen |
expenses, result in site unavailability, service disruptions, and otherwise occupy a significant amount of our management’s time |
and attention, any of which could negatively affect our business operations and financial position. We also from time to time receive |
inquiries and subpoenas and other types of information requests from government authorities and we may become subject to related claims |
and other actions related to our business activities. While the ultimate outcome of investigations, inquiries, information requests and |
related legal proceedings is difficult to predict, such matters can be expensive, time-consuming and distracting, and adverse resolutions |
or settlements of those matters may result in, among other things, modification of our business practices, reputational harm or costs |
and significant payments, any of which could negatively affect our business operations and financial position. Risks Related to Our Custom Carpentry Business The loss of any of our key customers could |
have a materially adverse effect on our results of operations. Historically, a few long-term recurring contractor |
customers have accounted for a majority of our revenues. There can be no assurance that we will maintain or improve the relationships |
with those customers. Our major customers often change each period based on when a given order is placed. If we cannot maintain long-term |
relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales |
could have an adverse effect on our business, financial condition and results of operations. Our business primarily |
relies on U.S. home improvement, repair and remodel and new home construction activity levels, all of which are impacted by risks associated |
with fluctuations in the housing market. Downward changes in the general economy, the housing market or other business conditions could |
adversely affect our results of operations, cash flows and financial condition. Our business primarily |
relies on home improvement, repair and remodel and new home construction activity levels in the United States. The housing market is sensitive |
to changes in economic conditions and other factors, such as the level of employment, access to labor, consumer confidence, consumer income, |
availability of financing and interest rate levels. Adverse changes in any of these conditions generally, or in any of the markets where |
we operate, including due to the global pandemic, could decrease demand and could adversely impact our businesses causing consumers |
to delay or decrease homeownership; making consumers more price conscious resulting in a shift in demand to smaller, less expensive homes; |
making consumers more reluctant to make investments in their existing homes, including large kitchen and bath repair and remodel projects; |
or making it more difficult to secure loans for major renovations. 54 Increases in interest |
rates and the reduced availability of financing for home improvements may cause our sales and profitability to decrease. In general, demand for |
home improvement products may be adversely affected by increases in interest rates and the reduced availability of financing. Also, trends |
in the financial industry which influence the requirements used by lenders to evaluate potential buyers can result in reduced availability |
of financing. If interest rates or lending requirements increase and consequently, the ability of prospective buyers to finance purchases |
of home improvement products is adversely affected, our business, financial condition and results of operations may also be adversely |
impacted and the impact may be material. Our custom carpentry business is subject |
to seasonal and other periodic fluctuations, and affected by factors beyond our control, which may cause our sales and operating results |
to fluctuate significantly. Our custom carpentry business is subject to seasonal |
fluctuations. We believe that we can more effectively control and balance our direct labor resources and costs during seasonal variations |
in our custom carpentry business, depending on the dynamics of the market served. However, extreme winter weather conditions can have |
an adverse effect on appointments and installations which typically occur during our fourth and first quarters and can also negatively |
affect our net sales and operating results. In addition, sales and revenues may decline in the fourth quarter due to the holiday season. Difficulties in recruiting adequate personnel |
may have a material adverse effect on our ability to meet our growth expectations. In order to fulfill our growth expectations, we |
must recruit, hire, train and retain qualified sales and installation personnel. In particular, during the pandemic, we may experience |
greater difficulty in fulfilling our personnel needs since our employees are not able to work remotely for installations. When new construction |
and remodeling are on the rise, recruiting of independent contractors to perform our installations becomes more difficult. There can be |
no assurance that we will have sufficient contractors or employees to fulfill our installation requirements. Our inability to fulfill |
our personnel needs could have a material adverse effect on our ability to meet our growth expectations. Increases in the cost of labor, union organizing |
activity and work stoppages at our facility or the facilities of our suppliers could materially affect our financial performance. Our business is labor intensive, and, as a result, |
our financial performance is affected by the availability of qualified personnel and the cost of labor. Currently, none of our employees |
are represented by labor unions. Strikes or other types of conflicts with personnel could arise or we may become a target for union organizing |
activity. Some of our direct and indirect suppliers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these |
suppliers could result in slowdowns or closures of facilities where components of our products are manufactured. Any interruption in the |
production of our products could reduce sales of our products and increase our costs. In the event of a catastrophic loss of our |
key manufacturing facility, our business would be adversely affected. While we maintain insurance covering our facility, |
including business interruption insurance, a catastrophic loss of the use of all or a portion of our manufacturing facility due to accident, |
labor issues, weather conditions, natural disaster or otherwise, whether short or long-term, could have a material adverse effect on us. The nature of our custom carpentry business |
exposes us to product liability, workmanship warranty, casualty, negligence, construction defect, breach of contract and other claims |
and legal proceedings. We are subject to product liability, workmanship |
warranty, casualty, negligence, construction defect, breach of contract and other claims and legal proceedings relating to the products |
we install or manufacture that, if adversely determined, could adversely affect our financial condition, results of operations and cash |
flows. We rely on manufacturers and other suppliers to provide us with most of the products we install. Other than for products manufactured |
by Kyle’s, we generally do not have direct control over the quality of such products manufactured or supplied by such third-party |
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