American Power Group (APGI) Risk Analysis

8 Followers

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.

American Power Group disclosed 23 risk factors in its most recent earnings report. American Power Group reported the most risks in the “Finance & Corporate” category.

Risk Overview Q2, 2017

Risk Distribution

57% Finance & Corporate

13% Tech & Innovation

9% Production

9% Ability to Sell

9% Macro & Political

4% Legal & Regulatory

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

American Power Group Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q2, 2017

Main Risk Category

Finance & Corporate

With 13 Risks

Finance & Corporate

With 13 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

1Risks added

0Risks removed

1Risks changed

Since Jun 2017

1Risks added

0Risks removed

1Risks changed

Since Jun 2017

Number of Risk Changed

From last report

S&P 500 Average: 3

From last report

S&P 500 Average: 3

See the risk highlights of American Power Group in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 23

Finance & Corporate

Total Risks: 13/23 (57%)Above Sector Average

Share Price & Shareholder Rights5 | 21.7%

Share Price & Shareholder Rights - Risk 1

Added

The information in this Form 10-Q has not been reviewed by our independent accountants.

Due to our cash position and our inability to pay amounts owed to our independent accountants, the information contained in this Form 10-Q for the three and nine months ended June 30, 2017, including our interim financial statements and notes to the interim financial statements, have not been reviewed by our independent accountants. Investors, therefore, cannot rely on the information contained in this Form 10-Q, including such interim financial statements and notes, as having been subject to an auditor's review using professional review standards and procedures. In addition, because such a review is required by Form 10-Q and the rules and regulations of the Securities and Exchange Commission, the Commission considers this Form 10-Q to be deficient and considers the Company to be neither current nor timely in its filings under the Exchange Act. There can be no assurance that the Commission will not initiate enforcement action against the Company. Except as set forth above, there have been no material changes from the risk factors disclosed under Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.

Share Price & Shareholder Rights - Risk 2

Our stock price may be volatile, which could result in substantial losses for our shareholders.

Our Common Stock is thinly traded and an active public market for our stock may not develop. Consequently, the market price of our Common Stock may be highly volatile. Additionally, the market price of our Common Stock could fluctuate significantly in response to the following factors, some of which are beyond our control: - we are traded on the OTC Market's Group's OTCQB tier; - changes in market valuations of similar companies; - announcements by us or by our competitors of new or enhanced products, technologies or services or significant contracts, acquisitions, strategic relationships, joint ventures or capital commitments; - regulatory developments; - additions or departures of senior management and other key personnel; - deviations in our results of operations from the estimates of securities analysts; and - future issuances of our Common Stock or other securities.

Share Price & Shareholder Rights - Risk 3

We have options, warrants and convertible preferred stock currently outstanding. Their exercise and/or conversion will cause dilution to existing and new shareholders. We expect to significantly increase the number of options we may grant in the future.

As of September 30, 2016, we had options and warrants outstanding to purchase 187,991,989 additional shares of Common Stock. These reserved shares include the following: 1,540,000 shares for issuance upon exercise of awards granted under our 2005 Stock Option Plan, 10,330,000 shares for issuance upon exercise of awards granted under our 2016 Stock Option Plan, and 112,846,787 shares for issuance upon exercise of stock purchase warrants. In addition, at that date we had convertible preferred stock which is convertible into 63,275,202 shares of our Common Stock. The non-binding term sheet described above in Recent Developments, contemplates that we will amend the 2016 Stock Option Plan, to provide for the issuance of options to purchase up to 90,000,000 shares of Common Stock, subject to shareholder approval of an increase in the number of authorized shares of our Common Stock from 350,000,000 to 600,000,000. The exercise of options and warrants outstanding today, or which may be issued in the future, and the conversion of the various series of convertible preferred stock will cause additional shares of Common Stock to be issued, resulting in dilution to investors and our existing stockholders. As of September 30, 2016, approximately 50 million shares of our Common Stock were eligible for sale in the public market exclusive of the options, warrants and convertible preferred stock described above.

Share Price & Shareholder Rights - Risk 4

Our directors, executive officers and principal stockholders own a significant percentage of our shares, which will limit the ability of other shareholders to influence corporate matters.

Our directors, executive officers and other principal stockholders owned or had beneficial ownership of approximately 76 percent of our outstanding Common Stock on an as-converted basis as of September 30, 2016. The ownership and beneficial ownership of these directors, executive officers and other principal stockholders would increase substantially if we complete the financing contemplated by the term sheet described above. Accordingly, these stockholders could have a significant influence over the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and also could prevent or cause a change in control. The interests of these stockholders may differ from the interests of our other stockholders. Third parties may be discouraged from making a tender offer or bid to acquire us because of this concentration of ownership.

Share Price & Shareholder Rights - Risk 5

Anti-takeover provisions in our charter documents and Delaware law could discourage potential acquisition proposals and could prevent, deter or delay a change in control of our company.

Certain provisions of our Restated Certificate of Incorporation and By-Laws could have the effect, either alone or in combination with each other, of preventing, deterring or delaying a change in control of our company, even if a change in control would be beneficial to our stockholders. Delaware law may also discourage, delay or prevent someone from acquiring or merging with us.

Accounting & Financial Operations3 | 13.0%

Accounting & Financial Operations - Risk 1

We incur substantial costs to operate as a public reporting company.

We incur substantial legal, financial, accounting and other costs and expenses to operate as a public reporting company. We believe that these costs are a disproportionately larger percentage of our revenues than they are for many larger companies, and they contribute significantly to our operating losses. In addition, the rules and regulations of the Securities and Exchange Commission impose significant requirements on public companies, including ongoing disclosure obligations and mandatory corporate governance practices. Our limited senior management and other personnel need to devote a substantial amount of time to ensure ongoing compliance with these requirements. Our Common Stock is currently quoted on the OTC Markets Group's OTCQB tier. OTC Markets Group imposes no specific quotation requirements for its OTCQB tier other than that issuers must be current in their reporting to the Securities and Exchange Commission. If we are successful in listing our stock for trading on a national securities exchange or having our stock quoted on the Nasdaq Stock Market, we will be subject to additional disclosure and governance obligations. There can be no assurance that we will continue to meet all of the public company requirements to which we are subject on a timely basis, or at all, or that our compliance costs will not continue to be material.

Accounting & Financial Operations - Risk 2

We are required to pay substantial cash dividends on our 10% Convertible Preferred Stock

During the fiscal years ended September 30, 2016 and 2015, we paid cash dividends on our Convertible Preferred Stock of $0 and $475,355, respectively. Our Board of Directors has determined that our cash resources are not currently sufficient to permit the payment of cash dividends in respect of the 10% Convertible Preferred Stock. The Board of Directors has therefore determined to suspend the payment of cash dividends, commencing with the dividend payable on September 30, 2015, until such time as the Board of Directors determines that the Company possesses funds legally available for the payment of dividends. We will continue to offer the option for holders to take shares of our Common Stock in lieu of cash. Although these dividends do not directly affect our net income, the requirement to pay them in cash significantly reduces the amount of cash we have available to fund operations and invest in our business.

Accounting & Financial Operations - Risk 3

We have never paid dividends on our Common Stock and we do not anticipate paying any cash dividends in the foreseeable future.

We have paid no cash dividends on our Common Stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our Common Stock will be the shareholders' sole source of gain for the foreseeable future. The terms of our convertible preferred stock restrict our ability to pay dividends on our Common Stock if the dividends due on the convertible preferred stock are unpaid.

Debt & Financing3 | 13.0%

Debt & Financing - Risk 1

We require additional funding to operate and grow our business, Such funding may not be available to us on favorable terms or at all. If we do not obtain funding, our business will be materially and adversely affected and we may fail. In addition, if we have to sell securities in order to obtain financing, the rights of our current holders may be adversely affected.

Substantial expenditures have been required and may be required in the future to enable us to obtain the necessary additional vehicular engine family approvals from the EPA to accelerate our ability to sell our vehicular dual fuel solution in the United States. In addition, we need additional capital to continue operations. Although our Board approved a non-binding term sheet with entities related to two of our Directors and an existing shareholder to raise up to $3 million in new capital, there can be no assurance that we will obtain sufficient capital on acceptable terms, if at all, or that we will generate revenues from operations. Failure to generate such operating revenues or obtain such capital would have a material adverse impact on our financial position, our results of operations and our ability to continue as a going concern. We may also seek funding for the manufacturing and marketing of our products through strategic partnerships and other arrangements with corporate partners. There can be no assurance that such collaborative arrangements or additional funds will be available when needed, or on terms acceptable to us if at all. Operating and capital requirements during the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities for services and products. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. The Series D Preferred Stock financing was highly dilutive to stockholders and imposed substantial liquidation preferences over our existing Preferred Stock and Common Stock. The Series E 12.5% Convertible Preferred Stock financing contemplated by the term sheet is also expected to be highly dilutive to stockholders and to impose substantial liquidation preferences over our existing Preferred Stock and Common Stock. Any additional equity financing may be further dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing Common Stock and/or Preferred Stock.

Debt & Financing - Risk 2

Changed

We have discontinued our flare gas capture and recovery business. Our dual fuel conversion business has lost money in each of the last eight consecutive fiscal years. We have extremely limited working capital and have substantially reduced our headcount. We are evaluating several alternatives, but no assurances can be given that the company will not fail.

We do not foresee any material positive changes in conditions in the flare gas capture and recovery market in the near term and, therefore, we announced on August 15, 2017 that we have elected to discontinue that initiative. The fundamental conditions facing our dual fuel business over the last several years have not changed. With oil prices remaining below $50 per barrel, the price differential between oil and natural gas remains extremely tight. The resulting delays in customer orders have negatively impacted our dual fuel operations and have made them no longer sustainable. Our efforts since June to secure licensing relationships, master distributorship relationships and/or joint marketing relationships with several of the largest domestic natural gas retail/wholesale gas suppliers have not generated material traction. As of June 30, 2017, we had $212,166 of cash and cash equivalents and a working capital deficit of $5,053,549, which includes $3,000,000 of Subordinated Contingent Convertible Promissory Notes due on October 27, 2017, and $500,000 under our working capital line of credit with Iowa State Bank, which expires on September 14, 2017. As of August 21, 2017, we had we had approximately $60,000 of cash and cash equivalents and approximately $150,000 of accounts receivable. We have reduced our employee head count from 20 to 8, and have terminated a majority of our third party consulting agreements. Our primary focus going forward has been on our North American stationary dual fuel business as well as vehicular dual fuel business in Latin America. Thus far, neither has yet to generate any measureable revenue since June. We are currently managing our business on a week to week basis. We are pursuing several financing options to fund and continue our dual fuel operations. No assurances can be given, however, that additional capital will be available on terms acceptable to the company or at all. As a result of the foregoing and our limited access to additional near term capital, our Board of Directors is evaluating several alternatives, including the possible sale of the company. No assurances can be given that we will enter into any new licensing, master distributorship and/or joint marketing relationships, raise any capital or sell the company. If these endeavors are not successful in the immediate future, the company will fail and we will be forced to discontinue all operations.

Debt & Financing - Risk 3

The creditworthiness of our distributors may be an ongoing concern.

We may not always be able to collect all funds owed to us by our distributors. Some distributors may experience financial difficulties that may adversely impact our collection of accounts receivable. We regularly review the collectability and creditworthiness of our distributors to determine an appropriate allowance for credit to such distributors. If our uncollectible accounts exceed our expectations, this would adversely impact our operating results. We attempt to minimize this concern with international customers by selling most of our products by way of advanced deposits and letters of credit or similar payment methods.

Corporate Activity and Growth2 | 8.7%

Corporate Activity and Growth - Risk 1

If we acquire other companies or businesses we will be subject to risks that could hurt our business.

A part of our business strategy may be based on future acquisitions or significant investments in businesses that offer complementary products and services. Promising acquisitions are difficult to identify and complete for a number of reasons. Any acquisitions we may complete may be made at a premium over the fair value of the net assets of the acquired companies and competition may cause us to pay more for an acquired business than its long-term fair market value. There can be no assurance that we will be able to complete future acquisitions on terms favorable to us or at all. In addition, we may not be able to integrate any future acquired businesses at all or without significant distraction of management into our ongoing business. In order to finance acquisitions, it may be necessary for us to issue shares of our capital stock to the sellers of the acquired businesses and/or to seek additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to us and, in the case of an equity financing or the use of our stock to pay for an acquisition, may result in dilution to our existing stockholders.

Corporate Activity and Growth - Risk 2

As we grow, we are subject to growth related risks.

We are subject to growth-related risks, including capacity constraints and pressure on our internal systems and personnel. In order to manage current operations and any future growth effectively, we will need to continue to implement and improve our operational, financial and management information systems and to hire, train, motivate, manage and retain employees. We may be unable to manage such growth effectively. Our management, personnel or systems may be inadequate to support our operations, and we may be unable to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth. Any such failure could have a material adverse impact on our business, operations and prospects. In addition, the cost of opening new facilities and the hiring of new personnel for those facilities could significantly decrease our profitability, if the new facilities do not generate sufficient additional revenue.

Tech & Innovation

Total Risks: 3/23 (13%)Above Sector Average

Trade Secrets2 | 8.7%

Trade Secrets - Risk 1

We may not be able to protect our intellectual property rights adequately.

Our ability to compete is affected by our ability to protect our intellectual property rights. Our dual fuel solution relies on a single licensed patent, as well as on trademarks, copyrights, trade secrets, confidentiality procedures and licensing arrangements to protect our intellectual property rights. Our flare capture and recovery processing operations rely on trade secrets, confidentiality procedures and licensing arrangements to protect our intellectual property rights. Despite these efforts, we cannot be certain that the steps we take to protect our proprietary information will be adequate to prevent misappropriation of our technology or protect that proprietary information. Companies in our industry often own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we gain increasing market share, the possibility of intellectual property rights claims against our licensed dual fuel technology could grow. Although the owner of our licensed patent is responsible for defending all claims against the licensed dual fuel technology, it may not have the resources to defend such claims adequately. Such claims, whether having merit or otherwise, could be time consuming and expensive to litigate or settle and could divert management resources and attention. No assurance can be given that, if challenged, our licensed patent or any other patents we may obtain will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. Although our dual fuel technology and our flare capture and recovery processing technology are licensed from two different related parties, if we should default on the payment of royalties or other material terms of either license, the license can be terminated. Such termination would have a material adverse effect on our business and on our results of operations. Many of our distribution agreements require us to indemnify the distributor for third-party intellectual property infringement claims and may require that we pay the damages if there were an adverse ruling in any such claims and the licensor was unable to adequately indemnify us. If litigation is successfully brought by a third party against us and/or our licensor in respect to intellectual property, we may be required to cease distributing or marketing certain products or obtain licenses from the holders of the intellectual property at material cost, redesign affected products in such a way as to avoid infringing intellectual property rights, either of which could materially adversely affect our business, financial condition and results of operations. If those intellectual property rights are held by a competitor, we or the licensor may be unable to obtain the intellectual property at any price, which could also adversely affect our competitive position.

Trade Secrets - Risk 2

There is uncertainty relating to our ability to enforce our rights under international distribution agreements.

Several of our exclusive distribution agreements are with foreign entities and are governed by the laws of foreign jurisdictions. If a distributor breaches such agreement, then we may incur the additional costs of determining our rights and obligations under the agreement and under applicable foreign laws, and enforcing the agreement in a foreign jurisdiction. In addition, some of the exclusive distribution agreements contain arbitration provisions that govern disputes and there is uncertainty with respect to the enforceability of these arbitration provisions under the laws of certain foreign jurisdictions. If a dispute were to arise under an exclusive distribution agreement and the related arbitration provision was not effective, then we would be exposed to the additional costs of resolving the dispute through traditional legal avenues rather than through an arbitration process.

Technology1 | 4.3%

Technology - Risk 1

We are exposed to risks related to technological obsolescence and competition.

We operate in competitive and evolving markets locally, nationally and globally. These markets are subject to technological changes and changes in demand. In seeking market acceptance of our dual fuel products, we encounter competition from many sources, including other well-established and larger dominant original equipment providers such as CAT, Cummings, Detroit Diesel, Volvo and Mercedes as well as several other companies that offer dual fuel conversion solutions on both an invasive as well as non-invasive basis. Many of these competitors have substantially greater financial resources as well as substantially greater experience in conducting testing, manufacturing and marketing of products than we do. As a result, they may be able to adapt more quickly to new or emerging technologies, changes in customer requirements, or devote greater resources to the promotion and sale of their products and services. In both our dual fuel and flare capture and recovery businesses our competitors might succeed in developing or purchasing technologies and products that are more effective than those that we are developing or that would render our technology and products obsolete or noncompetitive. Competition could increase if new companies enter the markets in which we operate or our existing competitors expand their service lines.

Production

Total Risks: 2/23 (9%)Below Sector Average

Employment / Personnel1 | 4.3%

Employment / Personnel - Risk 1

Our success depends on the retention of our senior management and other key personnel.

Our success depends largely on the skills, experience and performance of our senior management. Our senior management consists of two officers, our President/Chief Executive Officer, who has held that position for ten years, and our Chief Financial Officer, who has held that position for eighteen years. The loss of either member of our senior management could have a material adverse effect on our business. In addition, in the event that either our President or Chief Financial Officer is terminated by us without cause, the officer will be entitled to receive severance payments equal to nine and six months respectively (subsequently changed to three months for both individuals), of salary and certain benefits. In addition, to increase revenues, we may be required to hire additional sales and marketing people and to develop a larger and more effective sales force. There can be no assurance that we will be able to hire, motivate and retain skilled marketing and sales personnel.

Supply Chain1 | 4.3%

Supply Chain - Risk 1

We depend on the manufacture and installation capabilities of third parties.

An important element of our strategy for the marketing and release of our dual products is to enter into arrangements with multiple distribution and installation entities. The success and commercialization of our dual fuel products will be dependent, in part, upon our ability to enter into additional similar arrangements and upon the ability of these third parties to perform their responsibilities. Although we believe that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources to be devoted to these activities may not be within our control. There can be no assurance that any such arrangements will be available on terms acceptable to us, or at all, that the parties to any such agreements will perform their obligations as expected, or that any revenue will be derived from such arrangements. If we are not able to enter into such arrangements, we could encounter delays in introducing our products into the market. We currently install and operate all our flare capture and recovery systems. We assemble our dual fuel installation kits in-house after receiving components from outside vendors. The assembled kits are then installed by independent certified installers. Therefore, we may be dependent on contract manufacturers for the production of certain critical components for dual fuel products as well as their installation. Our flare capture and recovery processing equipment is purchased from and configured by third parties. In the event that we are unable to obtain or retain the necessary components and services on acceptable terms, we may not be able to continue to commercialize and market our products as planned. There can be no assurance that we will be able to obtain adequate supplies of our products in a timely fashion at acceptable quality and prices, enter into arrangements for the manufacturing of our products with manufacturers whose facilities and procedures comply with our requirements. There can be no assurance that such manufacturers will be able to adequately supply us with our product needs. Our dependence upon others for the manufacturing of certain critical components may adversely affect our ability to develop and deliver products on a timely and competitive basis.

Ability to Sell

Total Risks: 2/23 (9%)Below Sector Average

Demand2 | 8.7%

Demand - Risk 1

Improvement in our business depends on our ability to increase demand for our products and services.

We must substantially increase revenues by increasing demand for our dual fuel products and services as well as our flare capture and recovery business. Factors that could limit demand for our products and services include changes in the price spread between diesel fuel and natural gas and potential additional changes in the regulatory environment. Other possible adverse circumstances may include changes in economic conditions affecting markets for our products and services, potential delays in product development, product and service flaws which could result in material warranty claims, changes in technology and the availability of competitive products and services could also delay or limit demand for our products and services. There can be no assurance that our efforts will be successful, that all of our products will prove to meet the anticipated levels of approval or effectiveness, or that we will be able to obtain and sustain customers as well as distribution approval.

Demand - Risk 2

We rely on significant customers and relationships, the loss of one or more of which could adversely affect our operating results, financial condition and business prospects.

During the fiscal year ended September 30, 2016, three dual fuel vehicular customers accounted for 59% of consolidated net sales. One of the customers is a domestic vehicular Dealer/Certified Installer that focuses specifically on rebuilding Class 8 "Glider" tractors. A Glider is a new tractor with rebuilt or remanufactured powertrain components and in some cases can weigh 1,000 pounds less than a new tractor, making it more cost effective to operate. The second customer is a vehicular Dealer/Certified Installer located in Mexico that focuses specifically on Class 8 tractor maintenance and repair opportunities. The third is an APG direct end customer. During the fiscal year ended September 30, 2015, one dual fuel vehicular customer accounted for 14% of consolidated net sales. This customer is a vehicular Dealer/Certified Installer that focuses specifically on Class 8 tractor maintenance and repair opportunities, but is not one of the three dual fuel customers identified above. We believe the loss of this direct end customer and the Dealer/Certified Installers would have a short term negative impact on our business. During the fiscal year ended September 30, 2016, one oil and gas stationary customer accounted for 10% of consolidated net sales. The customer also accounted for 39% of consolidated net sales in fiscal year ended September 30, 2015. This customer is one of our stationary Dealer/Certified Installers that focuses specifically on the oil and gas industry. We believe the loss of this Dealer/Certified Installer would have a short term negative impact on our business.

Macro & Political

Total Risks: 2/23 (9%)Below Sector Average

Natural and Human Disruptions1 | 4.3%

Natural and Human Disruptions - Risk 1

Seasonal factors may affect our quarterly operating results.

Seasonality may cause our total revenues to fluctuate as prices for our NGL products will tend to be higher in the colder winter months due to their use in heating applications and lower in the summer months for the same reason.

Capital Markets1 | 4.3%

Capital Markets - Risk 1

Inflation and changing prices may hurt our business.

We are generally exposed to the effects of inflation and changing prices. Due to increased oil reserves and a decrease in the growth rate of demand throughout certain parts of the world, the price of oil in the U.S. has dropped to the $35 - $50 per barrel range from almost $100 per barrel two years ago, which has resulted in a decrease in diesel prices. Given that our dual fuel conversion technology replaces a certain percentage of diesel fuel with natural gas, we have been negatively impacted by the reduction in global oil prices and the resulting changes in the net fuel savings between the two fuels.

Legal & Regulatory

Total Risks: 1/23 (4%)Below Sector Average

Regulation1 | 4.3%

Regulation - Risk 1

We are subject to federal, regional, state, local and foreign regulations that may impair our ability to sell our products in different jurisdictions, and more stringent regulations in the future may impair our ability to market our products.

Our dual fuel conversion business and operations are affected by various federal, regional, state, local and foreign laws, rules, regulations and authorities. The primary domestic governing body is the EPA, which is responsible for monitoring and enforcing emissions standards and safety requirements. All domestic dual fuel conversion systems are subject to the requirements of the EPA, the primary environmental requirement of which is that the addition of our dual fuel conversion system to an existing diesel engine does not negatively impact the current emission profile of the engine or the engine's original emission profile. All vehicles and components on vehicles that operate on public highways must comply with the Federal Clean Air Act and meet specific EPA or CARB emission and safety guidelines or face anti-tampering infractions. Because our vehicular dual fuel system has not been previously EPA or CARB certified as a new system, due to our primary focus being aftermarket diesel engines, we must demonstrate to the EPA or CARB that our technology has sound engineering design and does not degrade the emissions level of the model year that would be requested for commercialization. Our flare capture and recovery business and operations are primarily governed by the various state and local rules, regulations and authorities. In addition to our operations in the United States, we currently have dealers in Australia, Canada and Latin America. We intend to market our products and technologies in other international markets, including both industrialized and developing countries. Prior to marketing our dual fuel solution in countries outside the United States, we must ensure our technology is compliant with the appropriate in-country rules and regulations and there is no assurance our technology will comply with such rules and regulations. Any new or revised government regulation that affects our dual fuel conversion business, whether at the foreign, federal, state, or local level, may increase our costs and the price of our products. As a result, these regulations could have a significant negative impact on our business, financial condition and results of operations.

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.