Mad Catz Interactive (MCZAF) Risk Analysis
Risk Overview Q4, 2016
Source: the company's latest filing for the period ended Dec 31, 2016, filed Feb 02, 2017
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1If we do not meet the New York Stock MKT Exchange ("NYSE MKT") continued listing requirements, the NYSE MKT may delist our common stock.
Our common stock is listed on the NYSE MKT, which imposes both objective and subjective requirements for continued listing. Continued listing criteria include standards relating to minimum average market capitalization, stockholder equity, average trading stock price, operating results, and other issues of financial condition. On January 20, 2017, we received a notice from the NYSE MKT indicating that because our securities have been selling for a low price per share for a substantial period of time, pursuant to Section 1003(f)(v) of the NYSE MKT Company Guide (the "Company Guide"), the continued listing of our common stock on the NYSE MKT is predicated on us effecting a reverse stock split of our common stock or otherwise demonstrating sustained price improvement. The NYSE MKT indicated that we have until July 20, 2017, to gain compliance with the NYSE MKT and Section 1003(f)(v) of the Company Guide. However, if we determine to remedy the non-compliance by taking action that will require shareholder approval, we must obtain shareholder approval by no later than our next annual meeting, and implement such action promptly thereafter. At the present time, we anticipate that we will seek shareholder approval to effectuate a reverse stock split of our currently issued and outstanding common stock at our next annual meeting. In addition, if our common stock trades below $0.06 per share, the NYSE MKT will determine that our stock is no longer suitable for listing on the NYSE MKT and will halt trading in and commence proceedings to delist our stock from the NYSE MKT immediately. The Company may appeal the delisting, but our stock will continue to be suspended from trading on the NYSE MKT during the appeal process and the appeal may be unsuccessful. Further, the NYSE MKT also will consider suspending dealings in, or delisting, securities of an issuer that, among other criteria, has stockholders' equity of less than: (A) $2 million, if that issuer has sustained losses from continuing operations and/or net losses in two of the last three most recent fiscal years; (B) $4 million, if that issuer has sustained losses from continuing operations and/or net losses in three of the last four most recent fiscal years; or (C) $6 million, if that issuer has sustained losses from continuing operations and/or net losses in its five most recent fiscal years. The Company has had a loss from operations and net loss in three of its last four fiscal years and we expect to incur a loss from operations and net loss for fiscal 2017. Furthermore, as of December 31, 2016, the Company's stockholders' equity was a negative $2.67 million. Accordingly, in addition to the low selling price noted above (or any other failure to satisfy the various distribution or financial criteria set forth in the Company Guide), the NYSE MKT may determine that the Company is no longer suitable for listing and may commence delisting proceedings pursuant to one or more subsections of Section 1003(a) of the Company Guide. Thus, there is no assurance that we will be able to obtain compliance with NYSE MKT continued listing standards and/or policies. A delisting of our common stock from the NYSE MKT, and our inability to list or transfer the stock to an alternate exchange or trading market, could negatively impact us by: (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees. While a delisting of our common stock would not constitute a specific event of default under the documents governing our credit facilities, our lenders could claim that a delisting would trigger a default under the material adverse change covenant or related provisions under such documents. Further, our ability to issue common stock is currently limited by the NYSE MKT's shareholder approval requirements. If our common stock is delisted from the NYSE MKT, we would no longer be subject to such shareholder approval requirements, and we could issue shares in acquisitions or financing transactions without shareholder approval. Any such issuance would dilute the ownership of our current stockholders. In addition, following a delisting of our common stock, we would no longer be subject to the NYSE MKT rules requiring us to meet certain corporate governance standards, which could decrease investor interest in our common stock.
- Debt & Financing - Risk 2We depend upon the availability of capital under our loan agreements to finance our operations. Any additional financing that we may need may not be available on favorable terms, or at all.
In addition to cash flow generated from sales of our products, we finance our operations with a Loan and Security Agreement (the "Loan Agreement") provided to MCI by Sterling National Bank ("SNB"), formerly NewStar Business Credit LLC, an unrelated party and a Master Facilities Agreement (the "Facilities Agreement") provided to MCE by Faunus Group International, Inc. ("FGI"), an unrelated party. The Facilities Agreement has a three-year term, although FGI may terminate the facility at any time upon at least three months' notice. The Loan Agreement expires on June 30, 2018. The Loan Agreement contains financial and other covenants that we are obligated to maintain. If we violate any of these covenants, we will be in default under the Loan Agreement. If a default occurs and is not timely cured or waived by SNB, SNB could seek remedies against us, including: (1) penalty rates of interest, (2) immediate repayment of the debt or (3) foreclosure on assets securing the Loan Agreement. The Loan Agreement is asset based and can only be drawn down in an amount to which eligible collateral exists in North America, and can be negatively impacted by extended collection of accounts receivable, unexpectedly high product returns and slow moving inventory, among other factors. We are required to meet a monthly financial covenant based on a trailing twelve months' Adjusted EBITDA, as defined. The Company is required to meet a monthly financial covenant based on a trailing twelve months' adjusted earnings before income taxes, depreciation and amortization ("EBITDA"), as defined. Our trailing twelve months' Adjusted EBITDA as of November 30 and December 31, 2016 were lower than the required threshold and, accordingly, we were not in compliance with this covenant as of December 31, 2016. On January 31, 2017, we received confirmation from SNB that a forbearance will be issued for this non-compliance through April 28, 2017. Once finalized, if applicable, the material terms of the forbearance will be set forth and filed as a current report on SEC Form 8-K. There can be no assurance that we will be able to meet the covenants subsequent to December 31, 2016 or that we would be able to obtain a waiver or forbearance from SNB to the extent we are not in compliance with the covenants. We depend upon the availability of capital under our Loan and Facility Agreements to finance our operations. Compliance with the monthly Adjusted EBITDA covenants in fiscal 2017, which are tied closely to our internal forecasts, depends on our ability to increase net sales excluding Rock Band 4 products and reduce operating expenses. Also, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future sales and expenses. If we are unable to comply with the Adjusted EBITDA covenants contained in the Loan Agreement, SNB may declare the outstanding borrowings under the agreement immediately due and payable. If we need to obtain additional funds as a result of the termination of the Loan or Facilities Agreement or the acceleration of amounts due thereunder, there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all. Our failure to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that no alternative financing is available, we would be forced to drastically curtail operations, or dispose of assets, or cease operations altogether.
Risk Highlights Q4, 2016
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 46
- Share Price & Shareholder Rights - Risk 1ChangedIf we do not meet the New York Stock MKT Exchange ("NYSE MKT") continued listing requirements, the NYSE MKT may delist our common stock.
Our common stock is listed on the NYSE MKT, which imposes both objective and subjective requirements for continued listing. Continued listing criteria include standards relating to minimum average market capitalization, stockholder equity, average trading stock price, operating results, and other issues of financial condition. On January 20, 2017, we received a notice from the NYSE MKT indicating that because our securities have been selling for a low price per share for a substantial period of time, pursuant to Section 1003(f)(v) of the NYSE MKT Company Guide (the "Company Guide"), the continued listing of our common stock on the NYSE MKT is predicated on us effecting a reverse stock split of our common stock or otherwise demonstrating sustained price improvement. The NYSE MKT indicated that we have until July 20, 2017, to gain compliance with the NYSE MKT and Section 1003(f)(v) of the Company Guide. However, if we determine to remedy the non-compliance by taking action that will require shareholder approval, we must obtain shareholder approval by no later than our next annual meeting, and implement such action promptly thereafter. At the present time, we anticipate that we will seek shareholder approval to effectuate a reverse stock split of our currently issued and outstanding common stock at our next annual meeting. In addition, if our common stock trades below $0.06 per share, the NYSE MKT will determine that our stock is no longer suitable for listing on the NYSE MKT and will halt trading in and commence proceedings to delist our stock from the NYSE MKT immediately. The Company may appeal the delisting, but our stock will continue to be suspended from trading on the NYSE MKT during the appeal process and the appeal may be unsuccessful. Further, the NYSE MKT also will consider suspending dealings in, or delisting, securities of an issuer that, among other criteria, has stockholders' equity of less than: (A) $2 million, if that issuer has sustained losses from continuing operations and/or net losses in two of the last three most recent fiscal years; (B) $4 million, if that issuer has sustained losses from continuing operations and/or net losses in three of the last four most recent fiscal years; or (C) $6 million, if that issuer has sustained losses from continuing operations and/or net losses in its five most recent fiscal years. The Company has had a loss from operations and net loss in three of its last four fiscal years and we expect to incur a loss from operations and net loss for fiscal 2017. Furthermore, as of December 31, 2016, the Company's stockholders' equity was a negative $2.67 million. Accordingly, in addition to the low selling price noted above (or any other failure to satisfy the various distribution or financial criteria set forth in the Company Guide), the NYSE MKT may determine that the Company is no longer suitable for listing and may commence delisting proceedings pursuant to one or more subsections of Section 1003(a) of the Company Guide. Thus, there is no assurance that we will be able to obtain compliance with NYSE MKT continued listing standards and/or policies. A delisting of our common stock from the NYSE MKT, and our inability to list or transfer the stock to an alternate exchange or trading market, could negatively impact us by: (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees. While a delisting of our common stock would not constitute a specific event of default under the documents governing our credit facilities, our lenders could claim that a delisting would trigger a default under the material adverse change covenant or related provisions under such documents. Further, our ability to issue common stock is currently limited by the NYSE MKT's shareholder approval requirements. If our common stock is delisted from the NYSE MKT, we would no longer be subject to such shareholder approval requirements, and we could issue shares in acquisitions or financing transactions without shareholder approval. Any such issuance would dilute the ownership of our current stockholders. In addition, following a delisting of our common stock, we would no longer be subject to the NYSE MKT rules requiring us to meet certain corporate governance standards, which could decrease investor interest in our common stock.
- Share Price & Shareholder Rights - Risk 2Penny stock rules may negatively impact the liquidity of our common stock.
Our common stock is subject to rules promulgated by the SEC relating to "penny stocks," which apply to certain companies whose shares trade at less than $5.00 per share and which do not meet certain other financial requirements specified by the SEC. These rules require brokers who sell "penny stocks" to persons other than established customers and "accredited investors" to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our common stock and may affect the secondary market for our common stock. These rules could also have a detrimental effect upon our ability to raise funds through an offering of our common stock.
- Share Price & Shareholder Rights - Risk 3There can be no assurance that the holders or purchasers of our common stock will be able to resell their shares at prices equal to or greater than their cost.
The market price of our common stock could be subject to significant fluctuations in response to quarterly variations in our operating results, announcements of technological innovations through new products by us or our competitors, changes in financial estimates by securities analysts or other events or factors, many of which are beyond our control. In addition, the stock markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many companies whose businesses are dependent on technology and that often have been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock. There can be no assurance that the holders or purchasers of our common stock will be able to resell their shares at prices equal to or greater than their cost.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
