Risks Relating Specifically to Solowave Design Customer Risk  Solowave’s four largest customers represent approximately 78% of Solowave’s  revenues. Although Solowave has increased revenues from other customers in the last  three years, these four customers continue to represent a large portion of Solowave’s  revenues. Should these four customers experience difficulties in fulfilling their  financial obligations to Solowave, cease to do business with Solowave, or significantly  reduce orders from Solowave, there could be a material adverse effect to Solowave’s  business, financial condition and cash flows, which could in turn have a material  adverse effect on Alaris. Solowave has accounts receivable insurance in place to protect  payments, but the insurance recovery process could take time to realize. In addition,  should any of Solowave’s major customers seek price reductions, additional financial  incentives, or changes in sale terms, Solowave’s business could be adversely affected. International  Operations Risk  Solowave sources certain component parts from Asia and assembles some of its goods  in leased space in China. In addition, Solowave distributes a large number of its  products through its distribution centre in Buffalo, New York, USA. These operations  are subject to the risks normally associated with international operations, including  but not limited to: currency conversion risks and currency fluctuations; political  instability; civil unrest and economic instability; complications in complying with laws  in several jurisdictions; changes in governmental policies; rising costs of raw materials;  rising energy prices; blackouts due to energy shortages; transportation delays,  interruptions and strikes; and the potential imposition of tariffs. Should Solowave’s  operations in China or the USA be impacted as a result, Solowave would need to shift  additional business volumes to its Canadian manufacturing centre, which would  Alaris Royalty Corp. 2011 Annual Report   73  Management Discussion & Analysis  Supplier Base  LMS relies on key suppliers for the supply of raw materials. Disruption of any one  supplier could have a material adverse effect on the ability of LMS to secure its  supplies, as well as an increase in the cost of those supplies adversely affecting its  financial results.  Labour Relations  Risk  Approximately one-half of LMS's employees are unionized or governed by collective  trade agreements. Although these agreements are with multiple union locals within  diverse regions, a labour dispute with any union or employee association could  adversely affect LMS’ business.  Trade Policy  Restrictions  LMS is a significant importer of commodity steel products that are sourced both  domestically and globally. Steel is often the subject of cross border trade disputes. Any  material dispute that is not resolved in LMS's favour could have a material adverse  effect on LMS's results.  decreased its reported gross profit for 2008 and a significant drop in its gross profit in  2009. The decline was based on both reduced volumes caused by the economic  environment and credit crisis as well as by temporarily depressed margins that were  caused by high priced inventory that resulted from cancelled projects. As a result of  these factors, LMS’ distribution to Alaris in 2010 decreased. Since 2009, LMS’ gross  profits have continued to be impaired due to construction market conditions across  Western Canada, Since 2011, LMS has seen sales volume steadily improve in all of its  regions and has seen corresponding improvement in gross profit. However,  challenging market conditions might continue to have a negative impact on LMS'  business, financial condition, results of operation and cash flows and could have a  material adverse effect on Alaris. 