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has been and may continue to be adversely affected by general economic conditions. In declining economies, consumers often defer regular |
vehicle maintenance and may forego purchases of nonessential performance and accessories products, which can result in a decrease in demand |
for auto parts in general. Consumers also defer purchases of new vehicles, which immediately impacts performance parts and accessories, |
which are generally purchased in the first six months of a vehicle’s lifespan. In addition, during economic downturns, some |
competitors may become more aggressive in their pricing practices, which would adversely impact our gross margin. Certain suppliers may |
exit the industry which may impact our ability to procure parts and may adversely impact gross margin as the remaining suppliers increase |
prices to take advantage of limited competition. Vehicle miles driven, |
vehicle accident rates and insurance companies’ willingness to accept a variety of types of parts in the repair process have fluctuated |
and may decrease, which could result in a decline of our revenues and negatively affect our results of operations. We and our industry depend |
on the number of vehicle miles driven, vehicle accident rates and insurance companies’ willingness to accept a variety of types |
of parts in the repair process. Decreased miles driven reduce the number of accidents and corresponding demand for parts, and reduce the |
wear and tear on vehicles with a corresponding reduction in demand for vehicle repairs and parts. If consumers were to drive less in the |
future and/or accident rates were to decline, as a result of higher gas prices, increased use of ride-shares, the advancement of driver |
assistance technologies, or otherwise, our sales may decline and our business and financial results may suffer. We will be required |
to collect and pay more sales taxes, and could become liable for other fees and penalties, which could have an adverse effect on our business. We have historically |
collected sales or other similar taxes only on the shipment of goods to customers in the state of New York. However, following the U.S. |
Supreme Court decision in South Dakota v. Wayfair , we are now required to collect sales tax in any state which passes legislation |
requiring out-of-state retailers to collect sales tax even where they have no physical nexus. We have historically enjoyed a competitive |
advantage to the extent our competitors are already subject to those tax obligations. By collecting sales tax in additional states, we |
will lose this competitive advantage as total costs to our customers will increase, which could adversely affect our sales. Moreover, if we fail |
to collect and remit or pay required sales or other taxes in a jurisdiction or qualify or register to do business in a jurisdiction that |
requires us to do so or if we have failed to do so in the past, we could face material liabilities for taxes, fees, interest and penalties. |
If various jurisdictions impose new tax obligations on our business activities, our sales and net income in those jurisdictions could |
decrease significantly, which could harm our business. Higher wage and |
benefit costs could adversely affect our business. Changes in federal and |
state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefit costs. Increased |
labor costs brought about by changes in minimum wage laws, other regulations or prevailing market conditions could increase our expenses |
and have an adverse impact on our profitability. 61 We face exposure |
to product liability lawsuits. The automotive industry |
in general has been subject to a large number of product liability claims due to the nature of personal injuries that result from car |
accidents or malfunctions. As a distributor of auto parts, including parts obtained overseas, we could be held liable for the injury or |
damage caused if the products we sell are defective or malfunction regardless of whether the product manufacturer is the party at fault. |
While we carry insurance against product liability claims, if the damages in any given action were high or we were subject to multiple |
lawsuits, the damages and costs could exceed the limits of our insurance coverage or prevent us from obtaining coverage in the future. |
If we were required to pay substantial damages as a result of these lawsuits, it may seriously harm our business and financial condition. |
Even defending against unsuccessful claims could cause us to incur significant expenses and result in a diversion of management’s |
attention. In addition, even if the money damages themselves did not cause substantial harm to our business, the damage to our reputation |
and the brands offered on our websites could adversely affect our future reputation and our brand and could result in a decline in our |
net sales and profitability. Business interruptions |
in our facilities may affect the distribution of our products and/or the stability of our computer systems, which may affect our business. Weather, terrorist activities, |
war or other disasters, or the threat of them, may result in the closure of one or more of our facilities, or may adversely affect our |
ability to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty. Most of our |
products are imported from other countries and these goods could become difficult or impossible to bring into the United States, and we |
may not be able to obtain such products from other sources at similar prices. Such a disruption in revenue could potentially have |
a negative impact on our results of operations, financial condition and cash flows. We rely extensively on |
our computer systems to manage inventory, process transactions and timely provide products to our customers. Our systems are subject |
to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches or other catastrophic events. |
If our systems are damaged or fail to function properly, we may experience loss of critical data and interruptions or delays in |
our ability to manage inventories or process customer transactions. Such a disruption of our systems could negatively impact revenue |
and potentially have a negative impact on our results of operations, financial condition and cash flows. Security threats, |
such as ransomware attacks, to our IT infrastructure could expose us to liability, and damage our reputation and business. It is essential to our |
business strategy that our technology and network infrastructure remain secure and is perceived by our customers to be secure. Despite |
security measures, however, any network infrastructure may be vulnerable to cyber-attacks. Information security risks have significantly |
increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized |
crime, hackers, terrorists and other external parties, including foreign private parties and state actors. We may face cyber-attacks that |
attempt to penetrate our network security, including our data centers, to sabotage or otherwise disable our network of websites and online |
marketplaces, misappropriate our or our customers’ proprietary information, which may include personally identifiable information, |
or cause interruptions of our internal systems and services. If successful, any of these attacks could negatively affect our reputation, |
damage our network infrastructure and our ability to sell our products, harm our relationship with customers that are affected and expose |
us to financial liability. We maintain a comprehensive |
system of preventive and detective controls through our security programs; however, given the rapidly evolving nature and proliferation |
of cyber threats, our controls may not prevent or identify all such attacks in a timely manner or otherwise prevent unauthorized access |
to, damage to, or interruption of our systems and operations, and we cannot eliminate the risk of human error or employee or vendor malfeasance. In addition, any failure |
by us to comply with applicable privacy and information security laws and regulations could cause us to incur significant costs to protect |
any customers whose personal data was compromised and to restore customer confidence in us and to make changes to our information systems |
and administrative processes to address security issues and compliance with applicable laws and regulations. In addition, our customers |
could lose confidence in our ability to protect their personal information, which could cause them to stop shopping on our sites altogether. |
Such events could lead to lost sales and adversely affect our results of operations. We also could be exposed to government enforcement |
actions and private litigation. 62 Failure to comply |
with privacy laws and regulations and failure to adequately protect customer data could harm our business, damage our reputation and result |
in a loss of customers. Federal and state and |
regulations may govern the collection, use, sharing and security of data that we receive from our customers. In addition, we have and |
post on our websites our own privacy policies and practices concerning the collection, use and disclosure of customer data. Any failure, |
or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, U.S. Federal Trade Commission |
requirements or other federal, state or international privacy-related laws and regulations could result in proceedings or actions against |
us by governmental entities or others, which could potentially harm our business. Further, failure or perceived failure to comply with |
our policies or applicable requirements related to the collection, use or security of personal information or other privacy-related matters |
could damage our reputation and result in a loss of customers. The regulatory framework for privacy issues is currently evolving and is |
likely to remain uncertain for the foreseeable future. Challenges by OEMs |
to the validity of the aftermarket auto parts industry and claims of intellectual property infringement could adversely affect our business |
and the viability of the aftermarket auto parts industry. OEMs have attempted to |
use claims of intellectual property infringement against manufacturers and distributors of aftermarket products to restrict or eliminate |
the sale of aftermarket products that are the subject of the claims. The OEMs have brought such claims in federal court and with the United |
States International Trade Commission. We have received in the past, and we anticipate we may in the future receive, communications alleging |
that certain products we sell infringe the patents, copyrights, trademarks and trade names or other intellectual property rights of OEMs |
or other third parties. The United States Patent |
and Trademark Office records indicate that OEMs are seeking and obtaining more design patents and trademarks than they have in the past. |
In some cases, we have entered into license agreements that allow us to sell aftermarket parts that replicate OEM patented parts in exchange |
for a royalty. In the event that our license agreements, or other similar license arrangements are terminated, or we are unable to agree |
upon renewal terms, we may be subject to restrictions on our ability to sell aftermarket parts that replicate parts covered by design |
patents or trademarks, which could have an adverse effect on our business. Litigation or regulatory |
enforcement could also result in interpretations of the law that require us to change our business practices or otherwise increase our |
costs and harm our business. We may not maintain sufficient, or any, insurance coverage to cover the types of claims that could be asserted. |
If a successful claim were brought against us, it could expose us to significant liability. If we are unable |
to protect our intellectual property rights, our reputation and brand could be impaired and we could lose customers. We regard our patents, |
trademarks, trade secrets and similar intellectual property as important to our success. We rely on patent, trademark and copyright law, |
and trade secret protection, and confidentiality and/or license agreements with employees, customers, partners and others to protect our |
proprietary rights. We cannot be certain that we have taken adequate steps to protect our proprietary rights, especially in countries |
where the laws may not protect our rights as fully as in the United States. In addition, our proprietary rights may be infringed or misappropriated, |
and we could be required to incur significant expenses to preserve them. In the past we have filed litigation to protect our intellectual |
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