Management Discussion & Analysis significantly increase transportation and manufacturing costs and possibly disrupt its  business. Also, the imposition of trade sanctions by Canada, the USA or China  against any of the products imported by Solowave could significantly increase  Solowave’s manufacturing costs.  74  2011 Annual Report  Alaris Royalty Corp. Seasonal Business  Risks  The majority of Solowave’s back yard active play sets are shipped for delivery and sold  by its customers between February and August. As such, any interruption to the  shipment of product to Solowave’s customers during its peak selling season can result  in a permanent loss of sales revenue for both Solowave and its customers, as well as an  increase in Solowave’s inventory carrying costs. Both of these items could potentially  adversely affect Solowave’s financial condition. In addition, a failure by Solowave to  properly manage its seasonal sales cycle could result in a temporary or permanent loss  of orders from customers, a strain on Solowave’s working capital or a shortage of  labour, all of which would adversely affect Solowave’s financial condition and  operating results. Natural or Other  Disasters  The risk to Solowave’s financial condition would depend on the severity of the  damage caused; the length of time the affected operations were off-line; the length of  time for Solowave to realize upon its insurance coverage; and the extent of damage  covered by Solowave’s business interruption insurance. A fire or other unforeseen  disaster could interrupt Solowave’s manufacturing or distribution operation, or cause  damage to Solowave’s inventory or equipment. Such disaster could adversely affect  Solowave’s financial condition and operating results. Product Recall  Risk  As a manufacturer of products that are used by children, Solowave is subject to strict  product safety regulations and guidelines. A major product recall instituted either by  the governing bodies or by Solowave, could adversely affect Solowave’s financial  condition; and could lead to a permanent loss of revenue. Customer Risk  Any cause that would reduce the affordability to pay for private healthcare will  negatively affect KMH’s volumes and revenue. A loss or reduction of personal income,  due to continued unemployment in the U.S., and uncertain economic conditions, has  a direct impact on the ability of U.S. citizens to pay for private insurance. Medical  Reimbursement  Rates  KMH derives the majority of its revenue from public health insurance programs.  Therefore, any major change in these programs would negatively impact KMH. The  largest risk KMH faces in the U.S. is the fact that reimbursement rates are dictated by  Medicare. If Medicare decides to cut these rates significantly, all issuers follow, leading  to a substantial decrease in margins. Risks Relating Specifically to KMH 