SMG Industries (SMGI) Risk Analysis
Risk Overview Q2, 2023
Source: the company's latest filing for the period ended Jun 30, 2023, filed Aug 14, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1The Barnhart Companies may have liabilities that are not known to us.
The Barnhart Companies may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigation in connection with the Acquisition. We may learn additional information about the Barnhart Companies that materially and adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Moreover, the Barnhart Companies may be subject to audits, reviews, inquiries, investigations, and claims of non-compliance and litigation by federal and state regulatory agencies, which could result in liabilities or other sanctions. Any such liabilities or sanctions, individually or in the aggregate, could have an adverse effect on our business, financial condition, and results of operations.
- Debt & Financing - Risk 2If we fail to pay principal, premium, if any, and interest on our indebtedness or to otherwise comply with the covenants in our Credit Agreements, we may be forced into bankruptcy or liquidation by our lenders.
In connection with the Acquisition of the Barnhart Companies, each of the Company, the 5J Transportation Group and the Barnhart Companies entered into the Term Loan Credit Agreement with Great Rock and the ABL Credit Agreement with JP Morgan. Pursuant to the terms of the Credit Agreements, Great Rock and JP Morgan have been granted liens on substantially all of the assets of the Borrowers. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in a Credit Agreement, we could be in default under the terms of the Credit Agreement governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Credit Agreement could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under a Credit Agreement to avoid being in default. If we or any of our subsidiaries breach the covenants under a Credit Agreement and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under a Credit Agreement, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
- Debt & Financing - Risk 3Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional indebtedness, which could further exacerbate the risks associated with our substantial financial leverage.
We and our subsidiaries may be able to incur additional indebtedness in the future because the terms of our Credit Agreements do not fully prohibit us or our subsidiaries from doing so. Subject to covenant compliance and certain conditions, our Credit Agreements permit additional borrowing. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify.
- Corporate Activity and Growth - Risk 4We may not realize the expected benefits of the Acquisition.
To be successful after the Acquisition, we need to combine and integrate the assets and operations of the Barnhart Companies. Integration will require substantial management attention and resources and could detract attention and resources from our day-to-day business. We could encounter difficulties in the integration process, such as: - complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies in a seamless manner that minimizes any adverse impact on customers, clients, employees, lenders, and other constituencies;- the loss of key employees, customers, suppliers, vendors or partners;- insufficient capital and liquidity to achieve our business plan;- the inability of the combined company to meet its cost expectations;- performance shortfalls as a result of the diversion of management's attention caused by completing the Acquisition; and - potential unknown liabilities and unforeseen increased expenses or delays associated with the Acquisition. If we cannot successfully integrate the assets and operations of the Barnhart Companies, we may fail to realize the expected benefits of the Acquisition, including cost savings, new service offerings and other synergies and growth opportunities. Even if the integration of the Barnhart Companies is successful, we may not realize all of the anticipated benefits of the Acquisition during the anticipated time frame, or at all.
Risk Highlights Q2, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 40
- Share Price & Shareholder Rights - Risk 1AddedThe Barnhart Companies may have liabilities that are not known to us.
The Barnhart Companies may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigation in connection with the Acquisition. We may learn additional information about the Barnhart Companies that materially and adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Moreover, the Barnhart Companies may be subject to audits, reviews, inquiries, investigations, and claims of non-compliance and litigation by federal and state regulatory agencies, which could result in liabilities or other sanctions. Any such liabilities or sanctions, individually or in the aggregate, could have an adverse effect on our business, financial condition, and results of operations.
- Share Price & Shareholder Rights - Risk 2There is a limited trading market for our shares. You may not be able to sell your shares if you need money.
Our common stock is traded on the OTCQB Venture Market (herein "OTC Market"), an inter-dealer automated quotation system for equity securities. According to OTC Markets, during the thirty days preceding filing of this report, the average daily trading volume of our common stock was approximately 19,000 shares traded per day, on average, and currently is thinly traded. As of March 31, 2023, we had 894 record holders of our common stock (not including an indeterminate number of stockholders whose shares are held by brokers in "street name"). There has been limited trading activity in our stock, and when it has traded, the price has fluctuated widely. We consider our common stock to be "thinly traded" and any last reported sale prices may not be a true market-based valuation of the common stock. Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our common stock.
- Share Price & Shareholder Rights - Risk 3We are subject to the penny stock rules and these rules may adversely affect trading in our common stock.
Our common stock is a "low-priced" security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.
- Share Price & Shareholder Rights - Risk 4Transfers of our securities may be restricted by virtue of state securities "blue sky" laws which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.
Transfers of our common stock may be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as "blue sky" laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions may prohibit the secondary trading of our common stock. Investors should consider the secondary market for our securities to be a limited one.
- Share Price & Shareholder Rights - Risk 5Our Officers, Directors and ten percent or greater shareholders collectively own a substantial portion of our outstanding common stock and fixed exercise price convertible notes, and as long as they do, they may be able to control the outcome of stockholder voting.
Our Officers, Directors and ten percent or greater shareholders are collectively the beneficial owners of approximately 76.6% of the outstanding shares of our common stock as of the date of this report, assuming the conversion of all of the convertible securities held by our Officers, Directors and ten percent or greater shareholders. As long as our Officers, Directors and ten percent or greater shareholders collectively own a significant percentage of our common stock, our other shareholders may generally be unable to affect or change the management or the direction of our company without the support of our Officers, Directors and ten percent or greater shareholders. As a result, some investors may be unwilling to purchase our common stock. If the demand for our common stock is reduced because our Officers, Directors and ten percent or greater shareholders have significant influence over our company, the price of our common stock could be materially depressed. Upon the conversion of all of our outstanding convertible notes, an additional 79,467,400 shares of our common stock would be issued and outstanding resulting in substantial dilution of our current shareholders voting power and ownership interests. The Officers, Directors and ten percent or greater shareholders will be able to exert significant influence over the outcome of all corporate actions requiring stockholder approval, including the election of Directors, amendments to our certificate of incorporation and approval of significant corporate transactions.
- Share Price & Shareholder Rights - Risk 6We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Certificate of Incorporation authorizes the Board of Directors to issue up to 250,000,000 shares of common stock and up to 1,000,000 shares of preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval. Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment.
- Share Price & Shareholder Rights - Risk 7By issuing preferred stock, we may be able to delay, defer or prevent a change of control.
Our Certificate of Incorporation permits us to issue, without approval from our shareholders, a total of 1,000,000 shares of preferred stock, none of which are currently outstanding. Our Board of Directors can determine the rights, preferences, privileges and restrictions granted to, or imposed upon, the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series. It is possible that our Board of Directors, in determining the rights, preferences and privileges to be granted when the preferred stock is issued, may include provisions that have the effect of delaying, deferring or preventing a change in control, discouraging bids for our common stock at a premium over the market price, or that adversely affect the market price of and the voting and other rights of the holders of our common stock.
- Share Price & Shareholder Rights - Risk 8Our stock price is volatile.
The trading price of our common stock has been and continues to be subject to fluctuations. The stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, the operating and stock performance of other companies that investors may deem as comparable and news reports relating to trends in the marketplace, among other factors. Significant volatility in the market price of our common stock may arise due to factors such as: - our developing business - relatively low price per share - relatively low public float - variations in quarterly operating results - changes in our cash flow from operations or earnings estimates - general market trends and economic conditions in the industries in which we do business - Domestic and international economic, legal and regulatory factors unrelated to our performance - the number of holders of our common stock - the interest of securities dealers in maintaining a market for our common stock As long as there is only a limited public market for our common stock, the sale of a significant number of shares of our common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered and could cause a severe decline in the price of our common stock.
- Share Price & Shareholder Rights - Risk 9Increased dealer compensation could adversely affect our stock price.
The dealer's spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of shares of our common stock on the OTC Markets if the stock must be sold immediately. Further, purchasers of shares of our common stock may incur an immediate "paper" loss due to the price spread. Moreover, dealers trading on the OTC Markets may not have a bid price for shares of our common stock on the OTC Markets. Due to the foregoing, demand for shares of our common stock on the OTC Markets may be decreased or eliminated.
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