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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. 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. 58 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 facilities 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 suppliers. As such, we are exposed to risks relating to the quality of such products. In |
the event that any of our products prove to be defective, we may be required to recall or redesign such products, which would result |
in significant unexpected costs. We |
are also exposed to potential claims arising from the conduct of our employees and contractors, for which we may be contractually |
liable. We have in the past been, and may in the future be, subject to penalties and other liabilities in connection with injury or damage |
incurred in conjunction with the installation of our products. In |
addition, our contracts, particularly those with large single-family and multi-family homebuilders, contain certain performance and installation |
schedule requirements. Many factors, some of which our outside of our control, may affect our ability to meet these requirements, including |
shortages of material or skilled labor, unforeseen engineering problems, work stoppages, weather interference, floods, unanticipated |
cost increases, and legal or political challenges. If we do not meet these requirements, we may be subject to liquidated damages or other |
penalties, as well as claims for breach of contract. 59 Product |
liability, workmanship warranty, casualty, negligence, construction defect, breach of contract and other claims and legal proceedings |
can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless |
of the ultimate outcome. In addition, lawsuits relating to construction defects typically have statutes of limitations that can run as |
long as ten years. Claims of this nature could also have a negative impact on customer confidence in us and our services. Although we |
currently maintain what we believe to be suitable and adequate insurance, we may be unable to maintain such insurance on acceptable terms |
or such insurance may not provide adequate protection against potential liabilities. In addition, some liabilities may not be covered |
by our insurance. Current or future claims could have a material adverse effect on our reputation, business, financial condition and |
results of operations. If |
we are unable to compete successfully with our competitors, our financial condition and results of operations may be harmed. We |
operate in a highly fragmented and very competitive industry. Our competitors include national and local carpentry manufacturers. These |
can be large, consolidated operations which house their manufacturing facilities in large and efficient plants, as well as relatively |
small, local cabinetmakers. Although we believe that we have superior name and reputation of direct marketing of custom designed carpentry, |
we compete with numerous competitors in our primary markets in which we operate, with reputation, price, workmanship and services being |
the principal competitive factors. Some of our competitors have achieved substantially more market penetration in certain of the markets |
in which we operate. Some of our competitors have greater resources available and are less highly leveraged, which may provide them with |
greater financial flexibility. We also compete against retail chains, including Sears, Costco, Builders Square, Sam’s Warehouse |
Club and other stores, which offer similar products and services through licensees. We compete, to a lesser extent, with small home improvement |
contractors and with large “home center” retailers such as Home Depot and Lowes. As a result of the implementation of our |
business strategy to conduct more remodel, condo/multi-family, and commercial projects in the new construction markets, we anticipate |
that we will compete to a greater degree with large “home center” retailers. To remain competitive, we will need to invest |
continuously in manufacturing, customer service and support, marketing and our dealer network. We may have to adjust the prices of some |
of our products to stay competitive, which would reduce our revenues or harm our financial condition and result of operations. We may |
not have sufficient resources to continue to make such investments or maintain our competitive position within each of the markets we |
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