Unique Fabricating (UFABQ) Risk Analysis
Risk Overview Q3, 2022
Source: the company's latest filing for the period ended Sep 30, 2022, filed Nov 08, 2022
Risk Change Over Time
- Accounting & Financial Operations - Risk 1The Company's consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, as a result of violations by us of loan financial covenants in our senior secured credit facility which, to date, have not been amended or waived. This condition raises substantial doubt about the Company's ability to continue as a going concern.
As of December 31, 2020, and March 31, 2021, the Company was in violation of a number of its loan covenants. Absent amendment of such covenants and waiver of the violations, failure to be in compliance with the Company's financial covenants constitute a default when reported. Such a default, if not waived by our lenders, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time. If the maturity of the debt were accelerated, the Company would not have sufficient available liquidity to repay such debt within one year after the date that the financial statements are issued. This condition raises substantial doubt about the Company's ability to continue as a going concern. The Company has been actively discussing its results and the Company's failure to meet its financial covenants with the Administrative Agent and has entered into a forbearance agreement and amendments to this forbearance agreement, providing a period commencing on April 9, 2021 and currently through May 30, 2022, during which the Company will be able to borrow on its revolving line of credit, subject to the terms and conditions to making a revolving credit advance, including availability based on our accounts receivable and inventory, and the Lenders have agreed, subject to the terms of the forbearance agreement, to forbear from enforcing their rights or seeking to collect payment of the Company's debt or disposing of the collateral securing the debt. However, entering into a forbearance agreement has not and will not alleviate the substantial doubt about the Company's ability to continue as a going concern. The Company has used the forbearance period to continue negotiations with the Lenders to enter into an amendment and waiver to cure the defaults. There can be no assurance that the Company will be able to enter into an amendment or waiver with the Lenders or if it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. Without an amendment and waiver that cures the default, substantial doubt about the Company's ability to continue as a going concern remains.
- Accounting & Financial Operations - Risk 2We incur costs as a result of being a public company, and potentially will incur more after if we are no longer a "smaller reporting company". Our management devotes substantial time to public company compliance programs and will be required to continue to devote substantial time in the future.
As a public company, we incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff is required to perform additional tasks. We expect that these expenses will increase if we no longer qualify as a "smaller reporting company". We have invested and intend to invest resources to comply with evolving laws, regulations and standards. This investment has resulted in increased general and administrative expenses and may divert management's time and attention from product development and commercial activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us, and our business may be harmed. In addition, if we are unable to continue to meet these requirements, we may not be able to maintain the listing of our common stock on the NYSE American, which would likely have a material adverse effect on the trading price of our common stock. In the future, it may be more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit and compensation committees. Our internal control over financial reporting as a public company requires us to meet the standards required by Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act has and, in the future, could result in material misstatements of our annual or interim financial statements and have a material adverse effect on our business and share price. We are required to comply with the SEC's rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. This requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. This assessment includes the disclosure of any material weaknesses or significant deficiencies in our internal control over financial reporting identified by our management or our independent registered public accounting firm. A "material weakness" is a deficiency, or a 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. A "significant deficiency" is a deficiency, or a combination of deficiencies, in internal controls over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting, including the audit committee of the board of directors.
- Accounting & Financial Operations - Risk 3We have identified inadequate internal controls over financial reporting which led to material weaknesses. We may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate our material weakness or if we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our business and our ability to comply with the requirements of our senior secured credit facility or other financing agreements and adversely impact the trading price of our securities.
Our management is responsible for establishing and maintaining internal controls over financial reporting, disclosure controls, and complying with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. In connection with the preparation of our 2020 financial statements, we identified material weaknesses, primarily related to ineffective controls over the financial close process. Throughout 2021, the Company remediated the material weaknesses by focusing resources on refining and implementing controls around the financial reporting process. If we are unable to successfully maintain adequate financial reporting controls, and if we are unable to produce accurate and timely financial statements, our financial statements and other disclosures could contain material misstatements or omissions that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our shares to decline or otherwise materially adversely affect our financial results or condition.
- Debt & Financing - Risk 4We have substantial debt and we have failed to comply with certain of the covenants in our secured credit agreement, which allows our lenders to take action that that, if taken, would likely cause our stockholders to lose their entire investment in us.
As of December 31, 2021, we had approximately $48.4 million of debt outstanding under our senior secured credit facility. Substantially all our assets are pledged to the lenders to secure this outstanding debt. As a result of our failure to comply with financial and other covenants contained in the senior secured credit facility, the lenders have declared an event of default, although they have not accelerated the amounts outstanding or sought to foreclose on the collateral securing such indebtedness. We have entered into a forbearance agreement and amendments during which our Lenders have agreed, among other things, during the period commencing on April 9, 2021 through and including May 30, 2022 to forbear from enforcing their rights or seeking to collect payment of the Company's debt or disposing of collateral securing the debt. There can be no assurance that the Company, during the forbearance period, will be able to enter into an amendment or waiver curing the defaults. If the Company does not obtain an amendment or waiver of the defaults or if the lenders take the position that the Company has not complied with the terms of the forbearance agreement, there can be no assurance that the lenders will not take action to collect payment of our debt or dispose of collateral securing the debt. In such event, we could be forced to file for bankruptcy protection and stockholders would likely lose their entire investment in us.
Risk Highlights Q3, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 31
- Share Price & Shareholder Rights - Risk 1If our executive officers, directors and principal stockholders choose to act together, they will be able to exert significant influence over us and our significant corporate decisions and may act in a manner that advances their best interests and not necessarily those of other stockholders.
Our executive officers, directors, and certain of our large stockholders and their affiliates, to our knowledge, beneficially own approximately 19% of our outstanding common stock. As a result, these persons, if they were to act together, have the ability to significantly influence the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets, and they could act in a manner that advances their best interests and not necessarily those of other stockholders, by among other things: ?delaying, deferring or preventing a change in control of the Company;?entrenching our management and/or our board of directors;?impeding a merger, consolidation, takeover or other business combination involving the Company;?discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company; or ?causing us to enter into transactions or agreements that are not in the best interests of all stockholders.
- Share Price & Shareholder Rights - Risk 2Securities analysts may not initiate or continue coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of our common stock.
There has been limited coverage of our common stock by securities analysts. We believe that the lack of research coverage has and may adversely affect the market price and trading volume for our common stock. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elect to cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and a global settlement among the Securities and Exchange Commission, or the SEC, other regulatory agencies and a number of investment banks, which was reached in 2003, many investment banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for a company such as ours, with a smaller market capitalization, to attract independent financial analysts that will cover our common stock. This likely has had and could have a negative effect on the market price of and trading volume for our stock.
- Share Price & Shareholder Rights - Risk 3Future sales of our common stock in the public market may cause our stock price to decline and impair our ability to raise future capital through the sale of our equity securities.
As of December 31, 2021, we had outstanding 11,733,147 shares of common stock, including 2,702,500 shares of our common stock issued in our initial public offering, 9,030,647 shares of common stock owned by non-affiliates and issued in private placements, and 1,954,000 shares issued in a private placement in September 2021, the resale of which has been registered. The shares owned by non-affiliates issued before our initial public offering can be traded without restriction under Rule 144 or otherwise at this time. In addition, approximately 2,194,112 shares of common stock are owned by affiliates but can be traded subject to restrictions under Rule 144. In addition, we have registered all shares that may be issued pursuant to our 2013 Stock Incentive Plan and the 2014 Omnibus Performance Award Plan. Sales of a large number of these securities on the public market or the perception that a large number of shares may be sold could reduce the market price of our common stock or impair our ability to raise capital.
- Share Price & Shareholder Rights - Risk 4Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and restated bylaws contain provisions that could discourage, delay or prevent a merger, acquisition or other change in control of our company or changes in our board of directors that our stockholders might consider favorable, including transactions in which you might receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove management. These provisions: ?allow the authorized number of directors to be changed only by resolution of our board of directors;?provide for a classified board of directors, such that not all members of our board will be elected at one time;?prohibit our stockholders from filling board vacancies, limit who may call stockholder meetings, and prohibit the taking of stockholder action by written consent; and ?require advance written notice of stockholder proposals that can be acted upon at stockholder's meetings and of director nominations to our board of directors. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. Any delay or prevention of a change in control transaction or changes in our board of directors could cause the market price of our common stock to decline.
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.
