EVI Industries (EVI) Risk Analysis

The Company's customers require demanding specifications for product performance and reliability. Product defects or other failures to perform to specifications or as expected could result in higher service costs and may damage the Company's customer relationships and industry reputation and/or otherwise negatively impact the Company's business, operations and results. Further, the Company may be subject to lawsuits if, among other things, any of the products it distributes fails to operate properly or causes property or other physical damage.

The Company attempts to ensure that its assets, including the equipment and parts that it sells, are adequately insured to cover property and casualty losses as well as any other liabilities to which the Company is reasonably expected to be subject. However, insurance may be expensive or difficult to obtain, and there are certain types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, floods, hurricanes, earthquakes, pollution, fire or environmental disasters or other matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. In addition, there may in certain cases be questions as to when the risk of loss related to products sold is transferred to the customer. If the equipment suffers a loss and risk of loss is deemed not to have transferred to the customer, the Company may be liable for the loss, which may not be insured. If the Company's insurance coverage is not adequate, or the Company otherwise incurs uninsured losses, the Company's operating results and financial condition would be adversely impacted. The Company may also be subject to insured losses relating to breaches of its information technology systems. See also "The Company could be negatively affected by cyber or other security threats or other disruptions or failures to maintain the integrity of internal or customer, employee or vendor data" below.

The Company may from time to time become subject to litigation and other legal and regulatory proceedings. Litigation and other legal and regulatory proceedings may require the Company to incur significant expenses, including those relating to legal and other professional fees. In addition, litigation and other legal and regulatory proceedings are inherently uncertain, and adverse outcomes in litigation or other legal proceedings could adversely affect the Company's financial condition and operating results.

The Company's revenues from foreign sales relate principally to the Company's sales of commercial and industrial laundry and dry cleaning equipment and boilers to Canada, the Caribbean, and Latin America. All of the Company's foreign sales require the customer to make payment in United States dollars. Foreign sales may be affected by the strength of the United States dollar relative to the currencies of the countries in which customers and competitors are located, as well as the strength of the economies of the countries in which the Company's customers are located. Further, conducting an international business inherently involves a number of difficulties, risks and uncertainties, such as: - export and trade restrictions;- inconsistent and changing regulatory requirements;- tariffs and other trade barriers;- cultural issues;- problems in collecting accounts receivable;- political instability and international hostilities;- local economic downturns; and - potentially adverse tax consequences. Any of the above factors may materially and adversely affect the Company's business, prospects, operating results or financial condition.

In the ordinary course of its business, the Company processes, transmits and stores sensitive Company information as well as sensitive information, including personal information, about its customers, employees and vendors. The Company's customers, employees and vendors have a high expectation that their personal information will be adequately protected and, accordingly, the integrity and protection of such information is critical to the Company. The processing, transmission and storage of customer, employee and vendor information requires the appropriate and secure utilization of such information and subjects the Company to risks relating thereto, including risks relating to increased focus regarding the Company's data security compliance. Cyber-attacks, including ransomware, malware and phishing, designed to gain access to sensitive information by breaching systems are constantly evolving. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad, including requirements for varying levels of customer notification in the event of a data breach. These laws are changing rapidly and vary among jurisdictions. Requirements imposed on the Company by the payment card industry surrounding information, security and privacy are also increasingly demanding. The Company will continue its efforts to meet applicable privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase the Company's costs. In addition, the Company's systems may be unable to satisfy changing requirements and employee and customer expectations, or may require significant additional investments or time in order to do so. Further, as the risk of cyber-attacks increases, related insurance premiums and the cost of defensive measures may also increase. In addition, the costs to remediate security incidents or breaches that may occur could be material. Despite the security measures and processes the Company has in place, efforts to protect sensitive Company, customer, employee and vendor information may not be successful in preventing a breach in the Company's systems or detecting and responding to a breach on a timely basis. The Company has experienced threats to, and incidents involving, its systems and information, and while none have been material to date, cyber-attacks are generally becoming more frequent, intense, and sophisticated. As a result of a security incident or breach in the Company's systems, the Company's systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties. The Company's systems may also be disrupted or damaged, and/or sensitive information could be released, due to other system failures, viruses, operator error or inadvertent releases of data.  In the event of a data or security breach, the Company's customers, employees or vendors could lose confidence in the Company's ability to protect their information, which could result in the loss of key customers, employees or vendors, or the Company's reputation could otherwise be negatively impacted, any of which may have a material adverse impact on the Company's business or results. In addition, as the regulatory environment relating to the protection of sensitive data becomes stricter, a failure to comply with applicable regulations could potentially subject the Company to fines, penalties, other regulatory sanctions, or lawsuits with the possibility of substantial damages. In addition, damage or disruption to the Company's systems could adversely impact the Company's ability to manage or operate its business. Further, conversions to new information technology systems require effective change management processes and may result in cost overruns, delays or business interruptions. If the Company's information technology systems are disrupted, become obsolete or do not adequately support the Company's strategic, operational or compliance needs, the Company's business, financial position, results of operations or cash flows may be adversely affected. The Company could also make faulty decisions if the data it maintains regarding its customers, employees or vendors is inaccurate or incomplete.

The Company is dependent upon a variety of internal computer and telecommunication systems to operate its business, including its enterprise resource planning ("ERP") systems. The Company is consolidating across a number of its subsidiaries ERP software systems and related processes to perform various functions and improve on the efficiency of the Company's business. This is a lengthy and expensive process that diverts resources from other operations, and may result in cost overruns, project delays or business interruptions. Any disruptions, delays or deficiencies in the design and/or implementation of the new ERP system, or in the performance of legacy systems, particularly any disruptions, delays or deficiencies that impact the Company's operations, could adversely affect the Company's ability to effectively run and manage its information systems. Further, as the Company is dependent upon its ability to gather and promptly transmit accurate information to key decision makers, the Company's business, results of operations and financial condition may be adversely affected if the Company's information systems do not allow the Company to transmit accurate information, even for a short period of time. Failure to properly or adequately address these issues could impact the Company's ability to perform necessary business operations, which could adversely affect the Company's reputation, competitive position, business, results of operations and financial condition. In addition, the information systems of acquired businesses may not be sufficient to meet the Company's standards or the Company may not be able to successfully convert them to provide acceptable information on a timely and cost-effective basis. Furthermore, the Company must attract and retain qualified personnel to operate its systems, expand and improve them, integrate new programs effectively with its existing programs, and convert to new systems efficiently when required. Any disruption to the Company's business due to such issues, or an increase in costs to cover these issues that is greater than anticipated, could have an adverse effect on the Company's financial results and operations.

The commercial and industrial laundry distribution and service business is highly competitive and fragmented, with over 500 full-line or partial-line equipment distributors and service providers in the United States. The Company's management believes that no single competitor of the Company has a major share of the market, substantially all competitors are independently owned, and, with the exception of several regional distributors, distributors operate primarily in local markets. In the United States, the Company's primary competition is from a number of independently owned distributors and certain manufacturers which own distribution businesses operating in North America. In foreign markets, the Company also competes with independently owned distributors and manufacturer-owned distribution businesses. Certain of the Company's competitors may have greater financial and other resources than the Company. In addition, some of the Company's competitors may have less indebtedness than the Company, and therefore may have more cash and working capital available for business purposes other than debt service. The Company's results and financial condition would be materially and adversely impacted if the Company is unable to compete effectively. Further, the Company may not be able to adjust efficiently or effectively or otherwise operate profitably if the competitive environment changes. The Company also competes for qualified employees and, in light of labor market disruptions, such competition has been more intense and led to increases in the costs of labor. See "Labor shortages and increases in labor costs may have a material adverse impact on the Company's business and results of operations" above.