EnSync (ESNC) Risk Analysis
Risk Overview Q3, 2018
Source: the company's latest filing for the period ended Sep 30, 2018, filed Nov 13, 2018
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1SPI has significant influence over key decision making and may choose to exert its influence in a manner that is not in the best interests of our shareholders generally.
On July 13, 2015, in connection with the closing of the transaction between the Company and SPI, we issued to SPI shares of Series C convertible preferred stock ("Series C Preferred Stock") and a warrant that, assuming full conversion and exercise, would result in the ownership by SPI of an additional 92,000,600 shares of our common stock. As the result of the termination of the Supply Agreement we entered into with SPI, it is no longer possible for SPI to satisfy the conditions that would have enabled it to convert its shares of Series C Preferred Stock into shares of common stock or exercise such warrant. However, the certificate of designations, preferences, rights and limitations of the Series C Preferred Stock allows holders to vote on an as-converted basis on amendments to the Company's Articles of Incorporation and By-laws. Additionally, we are party to a Governance Agreement with SPI (the "Governance Agreement"). Under the Governance Agreement, SPI is entitled to nominate one director to our board of directors for so long as SPI holds at least 10,000 convertible preferred shares or 25 million shares of common stock or common stock equivalents (the "Requisite Shares"). The Governance Agreement also provides that for so long as SPI holds the Requisite Shares, we will not take certain actions without the affirmative vote of SPI, including the following: (a) change the number or manner of appointment of the directors on the board; (b) other than in the ordinary course of conducting the Company's business, cause the incurrence, issuance, assumption, guarantee or refinancing of any debt if the aggregate amount of such debt and all other outstanding debt of the Company exceeds $10 million; (c) cause the acquisition of an interest in any entity or the acquisition of a substantial portion of the assets or business of any entity or any division or line of business thereof or any other acquisition of material assets, in any such case where the consideration paid exceeds $2 million, or cause the Company to engage in certain other Fundamental Transactions (as defined in the certificate of designation of preferences, rights and limitations of the Series C Convertible Preferred Stock); (d) cause the entering into by the Company of any agreement, arrangement or transaction with an affiliate that calls for aggregate payments (other than payment of salary, bonus or reimbursement of reasonable expenses) in excess of $120,000; (e) cause the commitment to capital expenditures in excess of $7 million during any fiscal year; (f) cause the selection or replacement of our auditors; (g) enter into of any partnership, consortium, joint venture or other similar enterprise involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $5 million; (h) amend or otherwise change our Articles of Incorporation or By-laws or equivalent organizational documents of the Company or any subsidiary in any manner that materially and adversely affects any rights of SPI; or (i) grant, issue or sell any equity securities (with certain limited exceptions, including firm commitment underwritten public offerings such as this offering). These veto rights provide SPI with significant influence over the Company's operations and strategy. The Governance Agreement does not expressly provide that termination of the Supply Agreement would terminate SPI's rights under the Governance Agreement. SPI may choose to exert its influence in a manner that is not generally in the best interests of our shareholders.
Risk Highlights Q3, 2018
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 40
- Share Price & Shareholder Rights - Risk 1Our stock price could be volatile and our trading volume may fluctuate substantially.
The price of our Common Stock has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of $0.13 to a high of $30.00 since June 18, 2007, the first day our stock was traded on the NYSE American. Many factors could have a significant impact on the future price of our Common Stock, including: - the various risks and uncertainties discussed herein;- general domestic and international economic conditions and other external factors;- general market conditions; and - the degree of trading liquidity in our Common Stock. In addition, the stock market has from time to time experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies which may be unrelated to the operating performance of those particular companies. These broad market fluctuations may adversely affect our share price, notwithstanding our operating results. For the three-month period ended June 30, 2018, the daily trading volume for shares of our Common Stock ranged from 9,529 to 3,033,889 shares traded per day, and the average daily trading volume during such three-month period was 247,505 shares traded per day. Accordingly, our investors who wish to dispose of their shares of Common Stock on any given trading day may not be able to do so or may be able to dispose of only a portion of their shares of Common Stock.
- Share Price & Shareholder Rights - Risk 2If we fail to satisfy all required continued listing requirements, our Common Stock may be delisted from the NYSE American, which would cause our Common Stock to become less liquid.
Our shares have been listed on the NYSE American since June 18, 2007. We are required to comply with all reporting and listing requirements on a timely manner and maintain our corporate governance and independent director standards. The NYSE American imposes, among other requirements, listing maintenance standards including minimum shareholders' equity, minimum stock price and market capitalization requirements. If we are unable to remain in compliance with applicable listing requirements and our Common Stock is delisted by NYSE American, it could lead to a number of negative implications, including reduced liquidity in our Common Stock, greater volatility in the price of our Common Stock and greater difficulty in obtaining financing. There can be no assurance that our Common Stock will remain eligible for trading on the NYSE American.
- Share Price & Shareholder Rights - Risk 3The Melodious Group could sell or transfer a substantial number of shares of our Common Stock, which could depress the price of our securities or result in a change of control of the Company.
The Melodious Group currently owns 16,550,993 shares of our Common Stock. The Melodious Group does not have any contractual restrictions on its ability to sell or transfer our Common Stock on the open market, in privately negotiated transactions or otherwise, and these sales or transfers could create substantial declines in the price of our securities or, if these sales or transfers were made to a single buyer or group of buyers, could contribute to a transfer of control of the Company to a third-party. Sales by the Melodious Group of a substantial number of shares, or the expectation of such sales, could cause a significant reduction in the market price of our Common Stock.
- Share Price & Shareholder Rights - Risk 4The Melodious Group has acquired a significant portion of our Common Stock and may choose to exert its influence in a manner that is not generally in the best interests of our shareholders.
Based on an Amendment No. 6 to Schedule 13D jointly filed with the SEC on August 8, 2017 (the "Schedule 13D") by (i) Melodious Investments Company Limited, a British Virgin Islands Company ("MICL") and wholly owned subsidiary of Melodious International Investments Group Limited ("MIIGL"), (ii) MIIGL, a British Virgin Islands company wholly owned by Jilun He, and (iii) Jilun He, who is the sole director of both MICL and MIIGL (together with MICL and MIIGL, the "Reporting Persons"), the Reporting Persons indicated they shared power to vote or direct the vote of 8,000,000 shares of the Company's Common Stock as of such filing date. In addition, as of such filing date, Jilun He had the sole power to vote or direct the vote of 8,550,993 shares of the Company's Common Stock and had the sole power to dispose or to direct the disposition of such shares. As of June 30, 2018, collectively, such shares represented approximately 27.8% of our total shares of Common Stock outstanding. However, due to the provisions of the Wisconsin Business Corporation Law (the "WBCL") described below, the voting power of the Reporting Persons held as of June 30, 2018 would be limited to 12,360,099 votes or approximately 22.4% of total votes. Under the WBCL and the control share voting restrictions provided therein, the voting power of shares of a Wisconsin corporation held by any person or persons "acting as a group for the purpose of acquiring or holding securities" (including shares issuable upon conversion of convertible securities or upon exercise of options or warrants) in excess of 20% of the voting power in the election of directors is limited to 10% of the full voting power of those shares. This voting restriction applies to shareholders of a Wisconsin corporation unless such corporation has affirmatively provided otherwise in its articles of incorporation or another exemption applies. These control share voting restrictions are applicable to the Reporting Persons because the Company has not affirmatively opted out of such restrictions in its Articles of Incorporation and no other exemption applies. Although the Melodious Group's current voting power and its ability to increase such voting power is thus severely limited, the Melodious Group nevertheless has significant voting power and may therefore be able to exercise a substantial level of control over all matters requiring shareholder approval, including the election of directors, amendment of our Articles of Incorporation and approval of significant corporate transactions. As a shareholder, the Melodious Group is entitled to vote its shares in their own interest, which may not always be in the interest of our shareholders generally.
- Share Price & Shareholder Rights - Risk 5Our business could be negatively affected as a result of actions by activist shareholders.
Campaigns by shareholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term shareholder value through various corporate actions such as proxy contests, financial or operational restructuring, or sales of assets or the entire company. In the Schedule 13D, the Melodious Group stated, among other things, that they intend to appoint several candidates to the Company's board of directors. There can be no assurance that these shareholders' interests will not conflict with the interests of our other shareholders. Actions by shareholder activists, including proxy contests for director elections, could adversely affect our business because: - responding to a proxy contest and other actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;- perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and - if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our business strategy and create shareholder value.
- Share Price & Shareholder Rights - Risk 6We have implemented, and Wisconsin law contains, anti-takeover provisions that may adversely affect the rights of holders of our Common Stock.
Our Articles of Incorporation and By-Laws contain provisions that could have the effect of discouraging or making it more difficult for someone to acquire us through a tender offer, a proxy contest or otherwise, even though such an acquisition might be economically beneficial to our shareholders. These provisions include a board of directors divided into three classes of directors serving staggered terms of three years each, an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors, and requiring approval by three quarters of our outstanding Common Stock to amend our Articles of Incorporation or By-Laws. Additionally, we are subject to the WBCL, which contains several provisions that could have the effect of discouraging non-negotiated takeover proposals or impeding a business combination. These provisions include: - requiring a supermajority vote of shareholders, in addition to any vote otherwise required, to approve business combinations with certain "significant shareholders" not meeting adequacy of price standards;- prohibiting some business combinations between an "interested shareholder" and us for a period of three years, unless the combination was approved by our board of directors prior to the time the shareholder became a 10% or greater beneficial owner of our shares or under some other circumstances;- limiting actions that we can take while a takeover offer for us is being made or after a takeover offer has been publicly announced; and - limiting the voting power of certain shareholders who own more than 20% of our stock. These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Wisconsin, the Wisconsin control share acquisition statute and Wisconsin's "fair price" and "business combination" provisions, in addition to other provisions of Wisconsin law, would apply and limit the ability of an acquiring person to engage in certain transactions or to exercise the full voting power of acquired shares under certain circumstances. As a result, offers to acquire us, which may represent a premium over the available market price of our Common Stock, may be withdrawn or otherwise fail to be realized.
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