Overview

Draft and validate the Risk Factors section of a Form 10-K under Reg S-K Item 105: organize by materiality, write company-specific narratives, add a two-page summary when the section exceeds 15 pages, and validate structure and compliance.

Example Conversation

You: We’re updating our 10-K risk factors. Our main concerns are concentration in two big retail customers, supply chain for components from Asia, and the new credit facility we closed in Q3. Can you draft Item 1A from that and our prior year risk factors in the workspace?

Agent: I’ll use your prior year filing and the three areas you highlighted to build a risk inventory, then map them to standard categories and order by materiality. I’ve loaded the risk categories reference and Reg S-K Item 105.

From your prior Item 1A and your inputs, I’m proposing this order: (1) Customer concentration, (2) Supply chain and geographic reliance, (3) Indebtedness and credit facility, then your existing risks on competition, cybersecurity, and legal/regulatory. I’ll draft company-specific narrative for each — no generic “any company” language — and keep a General Risk Factors catch-all at the end if needed.

You: That order works. Go ahead and draft.

Agent: I’ve created output/risk-factors-item-1a.md with headings and narrative for each risk, tied to your business (customer names withheld as placeholders for you to confirm), the new $400M facility terms, and the Asia sourcing percentages from your MD&A. The section is under 15 pages, so no two-page summary is required. Running the validator now.

Agent: Running validate_risk_factors on output/risk-factors-item-1a.md…

0 errors | 0 warnings | 3 info

Structure: 8 risk factor sections found. Length ≈12 pages (under 15-page threshold; no summary required). All sections include company-specific language. Ready for legal and disclosure review.

Sample Output Excerpt

Below is a representative excerpt from a Risk Factors (Item 1A) draft: two risk headings with company-specific narrative.

Item 1A. Risk Factors

Concentration of Customer Base

A significant portion of our revenue is derived from a limited number of customers. In fiscal 2024, our two largest customers accounted for approximately 34% and 22% of net revenue, respectively, and our top five customers together represented approximately 61% of net revenue. The loss of, or a material reduction in orders from, any of these customers could materially and adversely affect our operating results. Our largest customer has not committed to minimum purchase volumes beyond the current contract year, and we have experienced periodic renegotiations of terms. There can be no assurance that we will retain these customers or maintain current order levels. A concentration of revenue also increases our exposure to credit risk and to operational or strategic decisions by a single counterparty that may be outside our control.

Supply Chain and Geographic Sourcing

We rely on third-party manufacturers and suppliers, many of which are located in Asia, for key components and finished goods. Approximately 40% of our cost of goods sold in fiscal 2024 was attributable to components sourced from or through facilities in China and Vietnam. Disruptions in these regions—including those resulting from trade policy, tariffs, geopolitical tensions, labor shortages, natural disasters, or public health crises—could delay production, increase costs, or limit our ability to meet demand. We have begun qualifying alternative suppliers in other regions, but transitioning sources can take 12 to 18 months and may not fully offset capacity or cost impacts. Our inability to secure adequate supply or to pass through cost increases could materially adversely affect our margins and our ability to fulfill customer commitments.

Extension Tools

The skill includes one extension tool that validates a drafted Risk Factors section for Reg S-K Item 105 compliance.

validate_risk_factors scans the draft and reports errors, warnings, and informational findings in four areas:

Structure — Ensures the document has risk factor headings (## or ###) and that each section has sufficient narrative (at least ~20 words). Item 105 requires logical headings and company-specific explanation for each risk. Sections with very little text are flagged as possible placeholders.

Length and summary (Item 105) — Uses a heuristic word count (≈500 words per printed page) to estimate section length. If the main body—excluding any “Summary of Principal Risk Factors” block—exceeds approximately 7,500 words (~15 pages), the tool requires that a summary section be present. It looks for headings such as “Summary of Principal Risk Factors,” “Principal Risk Factors Summary,” or “Two-Page Summary.” If the section is long and no summary is found, it reports an error.

Generic language — Flags phrasing that often indicates boilerplate or non-company-specific risk disclosure, which the SEC has criticized under Item 105. Detected patterns include: “we may not succeed,” “any company in our industry/sector,” “could be adversely affected,” “our business could be materially adversely affected,” “there can be no assurance,” and “generally applicable to companies/businesses.” Such phrases trigger a warning to tailor the risk to the registrant.

Registrant tie — For each risk section with at least ~20 words, checks for company-specific cues such as “our,” “we,” “the Company,” “registrant,” percentages, dollar amounts, or years. Sections that have enough text but no such cues are flagged as possibly generic, with a warning to explain how the risk affects this registrant.

The validator outputs a short report (errors, warnings, info) that the agent can use to revise the draft before finalization.

Getting Started

Add your source materials (risk inventory, prior filings, or draft) to the project workspace, then activate the 10-K Risk Factors (Item 1A) skill. The agent will gather risks, map them to standard categories, order by materiality, draft company-specific narratives, and add a two-page summary when the section exceeds 15 pages.