CCUR Holdings (CCUR) Risk Analysis
Risk Overview Q4, 2020
Source: the company's latest filing for the period ended Dec 31, 2020, filed Feb 16, 2021
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1We are a holding company whose subsidiaries are given certain degree of independence and our failure to integrate our subsidiaries may adversely affect our financial condition.
We have given our subsidiary companies and their executives a certain degree of independence in decision-making. On the one hand, this independence may increase the sense of ownership at all levels, on the other hand, it has also increased the difficulty of the integration of operation and management, which has resulted in increased difficulty of management integration. In the event we are not able to successfully manage our subsidiaries, this will result in operating difficulties and have a negative impact on our business.
- Accounting & Financial Operations - Risk 2Our limited operating history makes it difficult to evaluate our future business prospects and to make decisions based on our historical performance.
Although our executive officers have been engaged in the industries in which we operate for varying degrees of time, we did not begin operations of our current business until recently. We have a very limited operating history in our current form, which makes it difficult to evaluate our business on the basis of historical operations. As a consequence, it is difficult, if not impossible, to forecast our future results based upon our historical data. Reliance on our historical results may not be representative of the results we will achieve, and for certain areas in which we operate, will not be indicative at all. Because of the uncertainties related to our lack of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in sales, product costs or expenses. If we make poor budgetary decisions as a result of unreliable historical data, we could be less profitable or incur losses, which may result in a decline in our stock price.
- Debt & Financing - Risk 3If our MCA transactions are characterized as loans, we face potential legal and financial risks.
As the MCA industry has gained popularity, more focus has been placed on the contractual obligations in MCA agreements. An ambiguous and unclear contract may result in the transaction being regarded as a loan. Currently, the common law rules in each state, generally, hold that an unconditional repayment obligation classifies an advance as a "loan." An MCA that is classified as a "loan" creates potential legal and financial risks, including, but not limited to: (i) non-compliance with federal and state regulations; (ii) breach of good faith and classification as an unconscionable contract; and (iii) non-possession of the required lending licenses. In order to prevent an MCA from being classified as a "loan," we take the following actions: (i) create a clear and unambiguous agreement between a funder and a merchant; (ii) establish conditional and non-illusory repayment terms that are contingent on the future sales receipts of a merchant; (iii) restrict the use of collateral and the requirement of absolute repayment; and (iv) ensure the conditional repayment obligations for both the business and the personal guaranty are equivalent. Notwithstanding the steps we take to clarify that our MCA transactions are not loans, courts may interpret our agreements differently.
- Debt & Financing - Risk 4Due diligence in MCA transactions is not as stringent as that of traditional loans, which presents a greater risk of fraud and inaccurate valuations.
The required information to be provided by a merchant for an MCA is less stringent and differs from that provided for traditional capital advances and loans from institutional lenders, giving rise to numerous risks. These risks include, but are not limited to, a Funder receiving fraudulent or inaccurate financial data from a merchant, entering into a transaction with a merchant who has historical and/or current credit related issues, and facing market shifts which may outdate the market research a Funder uses to create its approval methodology. Although the Uniform Commercial Code governs MCA transactions as commercial transactions and provides for certain legal protections, the lack of collateral required in MCA transactions presents a risk of total and unrecoverable loss.
- Corporate Activity and Growth - Risk 5We have an evolving business model, which increases the complexity of our business.
Our business model has evolved in the past and continues to do so. In prior years we have added additional types of services and product offerings and, in some cases, we have modified or discontinued those offerings. We intend to continue to try to offer additional types of products or services, and we do not know whether any of them will be successful. From time to time, we have also modified aspects of our business model relating to our product mix. We do not know whether these or any other modifications will be successful. The additions and modifications to our business have increased the complexity of our business and placed significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. Future additions to or modifications of our business are likely to have similar effects. Further, any new business or website we launch that is not favorably received by the market could damage our reputation or our brand. The occurrence of any of the foregoing could have a material adverse effect on our business.
- Corporate Activity and Growth - Risk 6If we make any additional acquisitions, they may disrupt or have a negative impact on our business.
We have plans to eventually make additional acquisitions beyond the LuxeMark Acquisition. Whenever we make acquisitions, we could have difficulty integrating the acquired companies' personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees, and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following: - difficulty of integrating acquired products, services, or operations; - potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies; - difficulty of incorporating acquired rights or products into our existing business; - difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities; - difficulties in maintaining uniform standards, controls, procedures, and policies; - potential impairment of relationships with employees and customers as a result of any integration of new management personnel; - potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers; - effect of any government regulations which relate to the business acquired; and - potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition, or modify the marketing and sales of acquired products or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition. Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with these acquisitions, many of which cannot be presently identified. These risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses, and adversely affect our results of operations.
- Corporate Activity and Growth - Risk 7No assurance of successful expansion of operations.
Our increase in the scope and the scale of our operations, including the hiring of additional personnel, has resulted in higher operating expenses. We anticipate that our operating expenses will continue to increase. Expansion of our operations may also make significant demands on our management, finances, and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures, and controls. We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and improve such systems, procedures, and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on our business, financial condition, and results of operations. We cannot assure that attempts to expand our marketing, sales, manufacturing, and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the expansion of our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels, we expect to continue to experience significant fluctuations in our results of operations.
Risk Highlights Q4, 2020
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 55
- Share Price & Shareholder Rights - Risk 1AddedWe are a holding company whose subsidiaries are given certain degree of independence and our failure to integrate our subsidiaries may adversely affect our financial condition.
We have given our subsidiary companies and their executives a certain degree of independence in decision-making. On the one hand, this independence may increase the sense of ownership at all levels, on the other hand, it has also increased the difficulty of the integration of operation and management, which has resulted in increased difficulty of management integration. In the event we are not able to successfully manage our subsidiaries, this will result in operating difficulties and have a negative impact on our business.
- Share Price & Shareholder Rights - Risk 2We face risks associated with the trend of increased stockholder activism.
Publicly traded companies have increasingly become subject to campaigns by investors seeking to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or of the entire company. Given our significant cash and other asset balances as of June 30, 2020, market capitalization, and other factors, it is possible that stockholders may in the future attempt to effect such changes or acquire control over us. Responding to proxy contests and other actions by activist stockholders would be costly and time-consuming, disrupt our operations, and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition.
- Share Price & Shareholder Rights - Risk 3We may issue additional shares of common stock or other equity or equity-linked securities to complete business combinations or under employee incentive plans. Any such issuances would dilute the interest of our stockholders and likely present other risks.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue shares of our common stock or preferred stock, from time to time, in their business judgment, up to the amount of our then-authorized capitalization. We may issue a substantial number of additional shares of our common stock, shares of our preferred stock, and/or securities convertible into our common stock, in order to complete business combinations, raise additional capital, or under employee incentive plans. These issuances: - may significantly dilute stockholders' equity interests;- may subordinate the rights of holders of shares of our common stock if shares of preferred stock are issued with rights senior to those afforded our common stock;- could cause a change in control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our NOLs, and could result in the resignation or removal of our present officers and directors; and - may adversely affect prevailing market prices for our common stock.
- Share Price & Shareholder Rights - Risk 4We have implemented certain anti-takeover provisions that could make it more difficult for a third-party to acquire us.
Provisions of Delaware law and our restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are subject to certain Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation from engaging in a business combination involving a merger or sale of more than 10% of our assets with any stockholder, including affiliates and associates of the stockholder, who owns 15% or more of the outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation's stock, except under limited circumstances. There are provisions in our restated certificate of incorporation and our amended and restated bylaws that also may delay, deter, or impede hostile takeovers or changes of control. Additionally, see the risk factor below that discusses our formal amendment to our certificate of incorporation adopted by our stockholders at our 2018 Annual Meeting of Stockholders held on November 8, 2018, designed to limit our exposure to an ownership change, and as further discussed in Note 9 to the consolidated financial statements.
- Share Price & Shareholder Rights - Risk 5We may engage in future acquisitions that dilute the ownership interest of our stockholders, cause us to incur debt or assume contingent liabilities, or present other challenges, such as integration issues, for our business, which, if not successfully resolved, would adversely affect our business.
We are currently reviewing acquisition prospects, and in the event of any future acquisitions, we could issue equity securities that would dilute current stockholders' percentage ownership, incur substantial debt, or assume contingent liabilities. These actions could materially adversely affect our operating results, financial condition, and cash flows. Acquisitions also entail numerous risks, including: - difficulties in the assimilation of acquired operations, technologies, or services;- unanticipated costs associated with the acquisition;- diversion of management's attention from other business concerns;- adverse effects on existing business relationships;- risks associated with entering markets in which we have no or limited prior experience; and - potential loss of key employees of acquired companies. We cannot assure that we will be able to integrate successfully any businesses, products, technologies, or personnel that we might acquire in the future. Our failure to do so could materially adversely affect our business, operating results, and financial condition.
- Share Price & Shareholder Rights - Risk 6Insiders and large stockholders have or could have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our directors, executive officers, and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 43.1% of the outstanding shares of our common stock, based on the number of shares outstanding as of June 30, 2020. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions, or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree, and which may be averse to your interests. This concentration of ownership might ultimately affect the market price of our common stock.
- Share Price & Shareholder Rights - Risk 7Trading on the OTCQB Venture Market operated by the OTC Markets Group Inc. (the "OTCQB market") may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTCQB market. Trading in stock quoted on the OTCQB market is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB market is not a stock exchange, and trading of securities on the OTCQB market is often more sporadic than the trading of securities listed on a stock exchange like the NASDAQ Stock Market (the "NASDAQ") or the New York Stock Exchange (the "NYSE"). Accordingly, our stockholders may have difficulty reselling any of their shares.
- Share Price & Shareholder Rights - Risk 8We may be unable to relist our common stock on the NASDAQ or any other exchange.
If the Board of Directors determines that it is in the best interests of the Company to resume trading our common stock on the NASDAQ or trading on another stock exchange if and when we meet the applicable listing requirements, we will need to reapply to the NASDAQ or apply to such other exchange to have our stock listed. The application process can be lengthy, and there is no assurance that the NASDAQ or such other exchange will relist our common stock. If we are unable to relist our common stock, or even if our common stock is relisted, no assurance can be provided that an active trading market will develop or, if one develops, will continue.
- Share Price & Shareholder Rights - Risk 9Changes in market conditions may impact any stock repurchases, and stock repurchases could increase the volatility of the price of our common stock.
On March 5, 2018, we announced that the Board of Directors had authorized the repurchase of up to one million shares of the Company's common stock. In January 2019, we completed the purchase of the authorized one million shares and the Board of Directors authorized the repurchase of an additional 500,000 shares of the Company's common stock under a new repurchase program that replaces and supersedes the prior repurchase program. Purchases are made through private transactions or open market purchases, which may be made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Board of Directors, in its discretion, may resolve to discontinue stock repurchases at any time. Any repurchases pursuant to our stock repurchase program could affect our stock price and add volatility. There can be no assurance that the repurchases will be made at the best possible price. The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. There can be no assurance that stock repurchases will create value for stockholders because the market price of the stock may decline significantly below the levels at which we repurchased shares of stock. Our stock purchase program is intended to deliver stockholder value over the long term, but short-term stock price fluctuations can reduce the program's effectiveness.
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