RM2 International (RMTO) Risk Analysis

We face an inherent risk of exposure to product liability claims.  We sell components for medical and dental, aerospace, automotive, defense, consumer durable, and electronic device industries, any of which may be susceptible to failure that may cause physical injury or death.  We may incur significant losses due to lawsuits, including potential class actions, resulting from such adverse events.  We may also incur losses from lawsuits relating to the improper use of any of our products and components.  In addition, claims or lawsuits related to products that we sell or the unavailability of insurance for product liability claims, could result in the elimination of these products from our product line thus reducing revenues, possibly significantly.  Although we maintain production quality controls and procedures, we cannot assure that the products sold will be free from defects.  In addition, when manufacturing our products, we also use components manufactured by third parties, which may have defects.  We maintain insurance coverage for product liability claims.  The insurance policies have limits, however, and may not be sufficient to cover claims made.  In addition, this insurance may not continue to be available at a reasonable cost.  With respect to components manufactured by third-party suppliers, the contractual indemnification that we may seek from our third-party suppliers may be limited and thus insufficient to cover claims made against us.  If insurance coverage or contractual indemnification is insufficient to satisfy product liability claims made against us, the claims could have an adverse effect on our business and financial condition.  Even claims without merit could harm our reputation, reduce demand for our products, cause us to incur substantial legal costs and distract the attention of our management.  The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition, and results of operations.

We have a large and complex tax profile in various jurisdictions.  Variability in the mix and profitability of domestic and international activities, repatriation of earnings from our foreign subsidiary in Hungary, changes in tax laws, identification and resolution of various tax uncertainties, and the inability to use net operating losses and other carry forwards included in deferred tax assets, among other matters, may significantly impact our effective income tax rate in the future.  A significant increase in our quarterly or annual effective income tax rate could have a material adverse impact on our results of operations.

The market for many of our products is, in part, dependent upon the goodwill engendered by trademarks and trade names.  The failure to protect our trademarks and trade names may have a material adverse effect on our business, financial condition, and results of operations.  Litigation may be required to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of proprietary rights of others.  Any action we take to protect our intellectual property rights could be costly and could absorb significant management time and attention.  As a result of any such litigation, we could lose any proprietary rights we have.  In addition, it is possible that others will independently develop technology that will compete with our technology.  The development of new technologies by competitors that may compete with our technologies could reduce demand for our products and affect our financial performance.  The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition, and results of operations.

We receive, process, store, and transmit, often electronically, the confidential data of our customers and others.  Unauthorized access to our computer systems or stored data could result in the theft or improper disclosure of confidential information, the deletion or modification of records, or could cause interruptions in our operations.  These cyber-security risks increase when we transmit information from one location to another, including transmissions over the Internet or other electronic networks.  Despite implemented security measures, our facilities, systems, and procedures, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming and/or human errors, or other similar events which may disrupt our delivery of services or expose the confidential information of our customers and others.  Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our customers or others, whether by us or a third party, could: (i) subject us to civil and criminal penalties; (ii) have a negative impact on our reputation; or (iii) expose us to liability to our customers, third parties or government authorities.  Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.

We rely on our enterprise resource planning systems to support such critical business operations as processing sales orders, invoicing, inventory control, purchasing and supply chain management, human resources, and financial reporting.  If we are unable to successfully implement major systems initiatives and maintain critical information systems with adequate redundancy and backup resources as well as sufficient levels of security to protect against unauthorized access or damage to our information systems, we could encounter difficulties that could have a material adverse impact on our business, internal controls over financial reporting, or our ability to timely and accurately report our financial results.

We sell most of our products in highly fragmented and competitive prototyping and production manufacturing and 3D printing markets, including those serviced by traditional and additive manufacturing suppliers.  We believe that our principal challenges of competition in these markets are: - ability to meet customer specifications and quantities within competitive time periods responsive to high customization demands from our customers;- application expertise and engineering capabilities using novel materials that vary widely according to our customers' requirements;- product quality and brand name in different industrial manufacturing areas, which may take years to develop;- timeliness of delivery of raw materials to our plants and finished products to our customers;- competitive pricing of our products at levels sufficient to attract and retain customers;- quality of our aftermarket sales and support for customers utilizing our products in widely variable physical and environmental conditions;- our ability to develop new advanced materials or related capabilities;- our applied research and development capabilities that rely mainly on individual initiatives and experience of our employees; and - our 3D printing services, which currently constitute only a small portion of our overall business. In each of our major traditional manufacturing, advanced manufacturing, and 3D printing product lines, we compete with a substantial number of foreign and domestic companies, some of which have greater resources (financial or otherwise) or lower operating costs than we have.  Competitors' actions, such as price reductions or introduction of new innovative products, may have a material adverse impact on our sales and profitability.  In addition, the rapid technological changes occurring in the design and engineering industry could lead to the entry of new competitors in traditional manufacturing and 3D printing.  We cannot provide assurance that we will continue to compete successfully with our existing competitors or with new competitors. Some of our traditional manufacturing, advanced manufacturing and 3D printing competitors are larger than us and have greater financial, technical, marketing, and other resources than we have.  These larger competitors may be in a better position to withstand any significant reduction in capital spending by customers in our markets.  They may have broader product lines and greater market focus and may not be as susceptible to downturns in a single market.  These competitors may also be able to bundle their products together to meet the needs of a particular customer and may be capable of delivering more complete solutions than we are able to provide.  To the extent large enterprises that currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would likely intensify. Further, some of our competitors that have greater financial resources have offered, and in the future may offer, their products at lower prices than we offer for our competing products or on more attractive financing or payment terms, which may cause us to lose sales opportunities and the resulting revenue or to reduce our prices in response to that competition.  Reductions in prices for any of our products could have a material adverse effect on our operating margins and revenue.  In addition, many of our competitors have been in operation longer than we have and, therefore, have more long-standing and established relationships with domestic and foreign customers, making it difficult for us to sell to those customers. If any of our competitors' traditional manufacturing, advanced manufacturing, and 3D printing products or technologies were to become the industry standard, our business would be seriously harmed.  If our competitors are successful in bringing their products to market earlier than us, or if these products are more technologically capable than ours, our revenue could be materially and adversely affected.  Our competitors may decide to expand their presence in this market through mergers and acquisitions.  The consolidation of our manufacturing and 3D printing competitors could have a significant negative impact on our business. If we are unable to compete in the traditional manufacturing, advanced manufacturing, and 3D printing sectors at the same level as we have in the past, in any of our markets, or are forced to reduce the prices of our products in order to continue to be competitive, our operating results, financial condition, and cash flows would be materially and adversely affected. In order to maintain and enhance our traditional manufacturing, advanced manufacturing, and 3D printing competitive position, we intend to continue our investment in technology, marketing, customer service, and support, and distribution networks.  We may not have sufficient resources to continue to make these investments, and we may not be able to maintain our competitive position.  Our competitors may develop products that are superior to our traditional manufacturing, advanced manufacturing, and 3D printing products, develop methods of more efficiently and effectively providing products and services, or adapt more quickly than us to new technologies or evolving customer requirements.  We may not be able to compete successfully with our competitors.  If we fail to compete successfully, the failure may have a material adverse effect on our business, financial condition, and results of operations.

Our operating results and financial position could be affected by fluctuations in foreign currency exchange markets.  Significant fluctuations in the exchange rate may adversely impact the values of foreign currency-denominated product sales, materials costs, and production costs in factories overseas.  In addition, conversion of foreign currency-denominated assets and liabilities, and the foreign currency-denominated financial statements of overseas subsidiary into U.S. dollar for disclosure may also affect our companies' assets and liabilities, as well as earnings and expenses.  In particular, our AFT operations in Hungary could be subject to liabilities and obligations that must be paid in the Hungarian currency of forints.  The value of the forint has been subject to substantial volatility against the U.S. dollar over the past several years.  If the forint increases in value against the dollar, the costs of our prospective Hungarian operations may increase and adversely affect the anticipated results expected to be derived from the Hungarian business.  In addition, increases and/or decreases in value of other currencies on which we have predicated our business model may also adversely affect our results of operations. We may experience problems moving funds out of the countries in which the funds were earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle is longer.  We may hedge certain currency transactions which might protect us against certain fluctuations in currency value, but such actions might also correspondingly increase our costs of doing business which could adversely affect our competiveness.  There can be no assurance that our risk management strategies will be effective.