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Schmitt Industries (SMIT) Risk Analysis

Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning. Schmitt Industries disclosed 30 risk factors in its most recent earnings report. Schmitt Industries reported the most risks in the “Finance & Corporate” category.

Risk Overview Q2, 2022

Source: the company's latest filing for the period ended May 31, 2022, filed Oct 13, 2022

Risk Distribution
30Risks
Sector Avg.Finance & CorporateTech & InnovationLegal & RegulatoryProductionAbility to SellMacro & Political
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Risk Change Over Time

No filing history is available.

Risks removedRisks addedRisks changedSchmitt Industries Risk Factors
Risk Changed (1)
  • Accounting & Financial Operations - Risk 1
    We may face litigation and other risks as a result of the material weaknesses in our internal control over financial reporting.

    The Company has restated its unaudited interim condensed   consolidated financial statements for the fiscal periods beginning August 31, 2021, through February 28, 2022. As a result of material weaknesses that we have identified in our internal control over financial reporting, the restatement, the adjustments relating to certain liabilities and expenses incurred that the Company failed to accrue for within the proper reporting periods, and other matters raised or that may in the future be raised by the SEC or others, we may be subject to potential litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in our internal control over financial reporting and the preparation of our financial statements. We can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

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Legal & Regulatory (1)
Macro & Political (1)

Risk Highlights Q2, 2022

Main Risk Category
Finance & Corporate
With 8 Risks
Number of Disclosed Risks
30
+3
From last report
S&P 500 Average: 32
Recent Changes
3Risks added
0Risks removed
1Risks changed
Since May 2022
Number of Risk Changed
1
-1
From last report
S&P 500 Average: 1

Risk Word Cloud

the seasonality of our sales and new store openings can have a significant impact on our financial results from quarter to quarter.seasonality of our salesnegative publicity, including complaints on social media platforms and other internet-based communications, could damage our reputation and harm our guest traffic, and in turn, negatively impact our business, financial condition, results of operations and prospects.harm our guest trafficcompetition is intense and the company's failure to compete effectively would adversely affect its business.failure to compete effectivelythe company may not be able to ramp up manufacturing to satisfy increasing orders, which may lead to the loss of significant revenue opportunities.loss of significant revenue opportunitiesif the small business administration ("sba") does not grant forgiveness of our loans under the paycheck protection program ("ppp"), our business operations and cash flow likely will be adversely affected, and we may be limited in our ability to grow our operations until the unforgiven portion of this loan is repaid.grant forgiveness of our loansthe company may not be able to ramp up manufacturing to satisfy increasing orders, which may lead to the loss of significant revenue opportunities.manufacturing to satisfy increasing ordersthe company may not be able to reduce operating costs quickly enough if revenues decline.to reduce operating costs quicklychanges in securities laws and regulations have increased and could continue to increase company expenses.continue to increase company expensesproduction time and the overall cost of products could increase if any of the primary suppliers are lost or if a primary supplier increased the prices of raw materials.prices of raw materialsthe company may experience increased pricing pressure.experience increased pricing pressure

Risk Factors Full Breakdown - Total Risks 30

Accounting & Financial Operations3 | 10.0%
  • Accounting & Financial Operations - Risk 1
    We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.

    Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As disclosed in Item 9A, management identified material weaknesses in our internal control over financial reporting related to the financial reporting cycle. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of our material weaknesses, management concluded that our internal control over financial reporting was not effective. Management has developed a remediation plan in response to the material weakness identified. During Fiscal 2022, management added additional experienced accounting personnel and continued to leverage external accounting resources to strengthen the financial close and reporting process so as to more effectively detect such misstatements in a more timely fashion. The Company intends to continue strengthening its internal resources while utilizing an external consulting firm to support public reporting requirements. The remediation plan includes both management's assessment and recommendations from independent accounting advisors used in the review process. This remediation plan is intended to address the identified material weaknesses and enhance our overall control environment. Material weaknesses in our internal control over financial reporting have required us to restate our financial statements and if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our Consolidated Financial Statements may contain material misstatements and we could be required to restate our financial results. We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

  • Accounting & Financial Operations - Risk 2
    We have incurred significant losses and have an accumulated deficit. If we cannot achieve profitability, the market price of our common stock could decline significantly.

    As  of May 31, 2022, we had cash and cash equivalents of $1,050,910 and working capital deficiency of $1,822,078 compared to cash and cash equivalents of $4,032,690 and working capital of $2,947,953 as of May 31, 2021 for continuing operations. Our primary sources of cash are cash generated from the sale of assets as the Company realigns its operating businesses and a loan from Sententia Capital Management. We incurred a net loss of $3,283,776 for the fiscal year ended May 31, 2022, compared to a net loss of $8,089,672 for the fiscal year ended May 31, 2021, and have incurred additional net losses since inception. At May 31, 2022, we had an accumulated deficit of $11,737,552. Our ability to increase our revenues from the sale of our products will depend on our ability to successfully implement our growth strategy and the continued expansion of our markets. If our revenues do not grow or if our operating expenses continue to increase, we may not be able to become profitable and the market price of our common stock could decline. In addition, to the extent that we continue to incur losses or want to expand our operations, we may need to seek additional financing. There can be no assurance that we will be able to obtain additional financing and any additional financing could be dilutive to our stockholders.

  • Accounting & Financial Operations - Risk 3Added
    We may face litigation and other risks as a result of the material weaknesses in our internal control over financial reporting.

    The Company has restated its unaudited interim condensed   consolidated financial statements for the fiscal periods beginning August 31, 2021, through February 28, 2022. As a result of material weaknesses that we have identified in our internal control over financial reporting, the restatement, the adjustments relating to certain liabilities and expenses incurred that the Company failed to accrue for within the proper reporting periods, and other matters raised or that may in the future be raised by the SEC or others, we may be subject to potential litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in our internal control over financial reporting and the preparation of our financial statements. We can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

Debt & Financing2 | 6.7%
Corporate Activity and Growth3 | 10.0%

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.

FAQ

What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky. The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment. They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result. It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process. Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”. Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report. According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing. You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector. Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements. A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below. 1. Financial & Corporate Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results. Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing. Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments. Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances. 2. Legal & Regulatory Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company. Regulation – risks related to compliance, GDPR, and new legislation. Environmental / Social – risks related to environmental regulation and to data privacy. Taxation & Government Incentives – risks related to taxation and changes in government incentives. 3. Production Costs – risks related to costs of production including commodity prices, future contracts, inventory. Supply Chain – risks related to the company’s suppliers. Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls. Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation. 4. Technology & Innovation Innovation / R&D – risks related to innovation and new product development. Technology – risks related to the company’s reliance on technology. Cyber Security – risks related to securing the company’s digital assets and from cyber attacks. Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying. 5. Ability to Sell Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers. Competition – risks related to the company’s competition including substitutes. Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration. Brand & Reputation – risks related to the company’s brand and reputation. 6. Macro & Political Economy & Political Environment – risks related to changes in economic and political conditions. Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19. International Operations – risks related to the global nature of the company. Capital Markets – risks related to exchange rates and trade, cryptocurrency.