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.

NextTrip disclosed 34 risk factors in its most recent earnings report. NextTrip reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2023

Risk Distribution

62% Finance & Corporate

12% Tech & Innovation

9% Production

6% Legal & Regulatory

6% Ability to Sell

6% Macro & Political

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

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

NextTrip 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 Q3, 2023

Main Risk Category

Finance & Corporate

With 21 Risks

Finance & Corporate

With 21 Risks

Number of Disclosed Risks

-1

From last report

S&P 500 Average: 31

-1

From last report

S&P 500 Average: 31

Recent Changes

1Risks added

0Risks removed

1Risks changed

Since Sep 2023

1Risks added

0Risks removed

1Risks changed

Since Sep 2023

Number of Risk Changed

-2

From last report

S&P 500 Average: 1

-2

From last report

S&P 500 Average: 1

See the risk highlights of NextTrip 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 34

Finance & Corporate

Total Risks: 21/34 (62%)Above Sector Average

Share Price & Shareholder Rights11 | 32.4%

Share Price & Shareholder Rights - Risk 1

Changed

There is no assurance that we will satisfy NASDAQ's continued listing requirements, and our common stock could be delisted.

On August 17, 2022, The Company received notice from Nasdaq that because our stockholders' equity as of June 30, 2023 was $2,391,289, we no longer comply with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on the Nasdaq Capital Market to maintain minimum stockholders' equity of $2,500,000, and do not meet the alternatives of market value of listed securities or net income from continuing operations. The notice stated that under Nasdaq Rules, we have 45 calendar days to submit a plan to regain compliance and that if our plan is accepted, Nasdaq can grant us an extension of up to 180 calendar days from the date of the notice to evidence compliance. On October 2, 2023, the Company submitted its plan to regain compliance to Nasdaq and requested an extension to February 13, 2023 to evidence compliance with the Rule and all other applicable criteria for continued listing on Nasdaq. On October 23, 2023, Nasdaq informed the Company that based on the submission, it had granted the requested extension until February 13, 2024 to demonstrate compliance with the Rule. Nasdaq further informed the Company that if the Company fails to evidence compliance upon filing its periodic report for the quarter ended March 31, 2024 with the SEC and Nasdaq, the Company may be subject to delisting. In such an event, Nasdaq rules would permit us to appeal the decision to reject our proposed compliance plan or any delisting determination to a Nasdaq Hearings Panel. Completion of the Acquisition is part of our plan submitted to Nasdaq to regain compliance with Nasdaq's minimum stockholders' equity requirement. If the Acquisition is not completed, it is likely that our common stock would be delisted from Nasdaq If our securities are delisted from Nasdaq, our stockholders could incur material, adverse consequences such as difficulty selling their shares of our common stock and reduced market prices for their shares. Delisting is also likely to have a material, adverse effect on our ability to sell and issue shares of our common stock in order to fund our operations, if any.

Share Price & Shareholder Rights - Risk 2

Our bylaws contain provisions for indemnifying our officers and directors.

Our bylaws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses actually and reasonably incurred by an officer or director paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been one of our directors or officers. To the extent that our directors' and officers' insurance policy does not provide reimbursement for such costs, charges, expenses and other amounts, we may incur substantial expenses in satisfying our indemnification obligations.

Share Price & Shareholder Rights - Risk 3

Historically, there has been a limited trading market in our common stock, and you may therefore have difficulty selling your securities at a price that you determine is satisfactory.

Our common stock is listed on The Nasdaq Capital Market. Historically, there has been a limited trading market for our common stock. There is no assurance that our common stock will actively trade in the public market at or above a price that you consider acceptable. If an active market for our common stock is not maintained, it may be difficult for you to sell your shares of common stock when you wish to sell them or at a price that you consider satisfactory. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling securities and may impair our ability to acquire other companies or technologies by using our securities as consideration.

Share Price & Shareholder Rights - Risk 4

You may experience additional dilution as a result of future equity offerings.

In order to raise additional capital, we may sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be lower than the price per share that you paid for our common stock.

Share Price & Shareholder Rights - Risk 5

We have broad discretion in the use of the net proceeds of our securities offerings and may not use them effectively.

We intend to use our cash for the development of our products and services, and to pursue a possible strategic investment or other transaction. Our management has broad discretion in the use of cash and will have the right to use our cash in ways that differ substantially from our current plans. Management may spend our cash in ways that do not improve our results of operations or enhance the value of our securities. The failure by management to apply funds effectively could result in financial losses that could have a material and adverse effect on our business and cause the market price of our securities to decline.

Share Price & Shareholder Rights - Risk 6

Our outstanding warrants may result in further dilution to our stockholders.

Certain of our outstanding warrants to purchase a total of up to approximately 898,806 shares of our common stock contain so-called full-ratchet anti-dilution adjustments in the event we sell or issue shares of common stock or common stock equivalents at an effective price less than the exercise price of such warrants, subject to certain exceptions. Of these warrants, warrants with an aggregate exercise price of $956,015 also provide for a ratable increase in the number of shares purchasable upon exercise of the warrants in the event the exercise price per share of the warrants is reduced. These anti-dilution adjustments resulted in a reduction in the exercise price of such warrants to $0.58 per share and an increase of 1,265,896 shares in the number of underlying warrant shares due to the grant of stock options to our directors and officers in January 2023. The anti-dilution adjustments of our outstanding warrants would be triggered by future issuances of shares of our common stock at a price per share below the then-exercise price of such warrants, which adjustments would have a further dilutive effect on our stockholders.

Share Price & Shareholder Rights - Risk 7

If securities or industry analysts do not publish research or reports about us, or if they issue adverse or misleading opinions regarding us or our securities, the market price of our securities and their trading volume could decline.

If we do not obtain and maintain research coverage by securities and industry analysts, the market price for our securities may be adversely affected. The market price of our securities also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our performance. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the market price of our securities and their trading volume to decline and possibly adversely affect our ability to engage in future financings.

Share Price & Shareholder Rights - Risk 8

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

As of December 31, 2022, we had 10,498,802 outstanding shares of common stock. Future sales of a large number of our shares or shares issuable upon exercise of our outstanding warrants and stock options, or the perception that a large number of shares may be sold, could have a material adverse effect on the trading price of our common stock.

Share Price & Shareholder Rights - Risk 9

The price of our securities is subject to volatility related or unrelated to our operations, which could result in substantial losses for our stockholders.

Between January 1, 2022 and December 31, 2022, the trading price of our common stock has ranged from a low of $0.40 to a high of $2.42 and could be subject to wide fluctuations in the future in response to various factors, some of which are beyond our control. These factors include those discussed previously in this "Risk Factors" section and others, such as: - delays or failures in the commercialization of our current or future products and services; - quarterly variations in our results of operations or those of our competitors;- changes in our earnings estimates or recommendations by securities analysts or adverse publicity about us or our products or services; - announcements by us or our competitors of new products and services, significant contracts, commercial relationships, acquisitions or capital commitments; - adverse developments with respect to our intellectual property rights; - commencement of litigation involving us or our competitors; - any major changes in our Board of Directors or management; - market conditions in our industry; and - general economic conditions in the United States and abroad. In addition, the stock market, in general, may experience broad market fluctuations, which may adversely affect the market price or liquidity of our securities.

Share Price & Shareholder Rights - Risk 10

Provisions in our articles of incorporation and bylaws could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our articles of incorporation and bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our Board of Directors. These provisions include the following: - a classified Board of Directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board of Directors; - no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; - the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors; - the ability of our Board of Directors to alter our bylaws without obtaining stockholder approval; - the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our articles of incorporation and bylaws regarding the election and removal of directors; - a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; - the requirement that a special meeting of stockholders may be called only by the chairman of the Board of Directors, the chief executive officer, the president (in the absence of a chief executive officer) or the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and - advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us. These provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.

Share Price & Shareholder Rights - Risk 11

We could issue one or more additional series of shares of preferred stock with the effect of diluting existing stockholders and impairing their voting and other rights.

Our Board of Directors is authorized to issue up to 10,000,000 shares of preferred stock and may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion, and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. As of December 31, 2022, 465 shares of our preferred stock are outstanding, consisting of 132 shares of Series D Preferred Stock and 333 shares of Series E Preferred Stock. In addition to the possible negative effect on the market price of our common shares resulting from the public sale or perceived sale of common shares issuable upon conversion or exercise of these securities, the Certificate of Designations for the Series D Preferred Stock provides that upon occurrence of certain triggering events described in the Certificate, including but not limited to, payment defaults, breaches of the transaction documents pertaining to the Series D Preferred Stock and failure to maintain listing on The Nasdaq Capital Market, the Series D Preferred Shares would become subject to redemption, at the option of the holder, at a 125% premium to the underlying value of the Series D Shares being redeemed.

Accounting & Financial Operations5 | 14.7%

Accounting & Financial Operations - Risk 1

We will incur significant costs to ensure compliance with U.S. and Nasdaq reporting and corporate governance requirements.

We incur significant costs associated with compliance with our SEC public company reporting requirements and with applicable U.S. and Nasdaq corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002. These rules and regulations may also make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers.

Accounting & Financial Operations - Risk 2

If we fail to maintain effective internal control over financial reporting, the market price of our securities may be adversely affected.

As a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure to establish such internal control, or any failure of such internal control once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted. In addition, management's assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting (including those weaknesses identified in our periodic reports), or disclosure of management's assessment of our internal control over financial reporting may have an adverse impact on the price of our securities.

Accounting & Financial Operations - Risk 3

We do not intend to pay dividends on our common stock, and your ability to achieve a return on your investment will depend on appreciation in the market price of our securities.

We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market price of our securities. There is no assurance that our securities will appreciate in price.

Accounting & Financial Operations - Risk 4

We are not profitable and may never become profitable.

We have incurred losses in every reporting period since we commenced business operations in 2010 and expect to continue to incur significant losses for the foreseeable future. Our net loss applicable to common stockholders for the years ended December 31, 2022 and 2021 was $8,749,304 and $7,488,172, respectively. As of December 31, 2022, our accumulated deficit was $49,342,484. There is no assurance that any revenues we generate will be sufficient for us to become profitable or to maintain profitability. Our revenues for the years ended December 31, 2022 and December 31, 2021 were $630,428 and $1,651,765, respectively, and our operating expenses for those periods were $9,029,502 and $9,571,185, respectively. Our current revenues are not sufficient to fund our operations. We cannot predict when, if ever, we might achieve profitability and we are not certain that we will be able to sustain profitability, if achieved. If we fail to achieve or maintain profitability, the market price of our securities is likely to be adversely affected.

Accounting & Financial Operations - Risk 5

Our operating history makes evaluation of our business difficult.

We are continuing to develop our technologies and to implement our business plan. Our ability to implement a successful business plan remains unproven, and there is no assurance that we will ever generate sufficient revenues to sustain our business. Our operating history, together with the other risks discussed in this "Risk Factors" section, may make it difficult for prospective investors and others to evaluate our business.

Debt & Financing2 | 5.9%

Debt & Financing - Risk 1

Added

We have curtailed certain business activities pending the completion of the Divergent and NextTrip transactions.

As of September 30, 2023, we had cash on hand of $556,087, and on October 13, 2023, we raised an additional $772,468 in net proceeds from the sale of common stock pursuant to our ATM Agreement. With these additional proceeds, the Company estimates that it has sufficient cash and working capital to fund its scaled-back operations as described below pending the completion our asset sale with Divergent Technologies, Inc. and our acquisition of NextTrip Holdings, Inc., or through March 2024. The Company reduced its employee headcount, and discontinued product development activities for the time being to ensure lowered expenses. The Company is continuing to operate and support its existing customers who have maintenance agreements and leases in place, supporting new installations in the field, and actively seeking potential sales of the PrintRite3D systems and software to customers who have lease agreements in place, systems on consignment, or otherwise express interest in Sigma's products available for sale. The Company completed two such sales in the quarter ended September 30, 2023, and believes additional sales are achievable going forward as we progress towards closing both transactions. There is no assurance, however, that we will be able to close either transaction. If we fail to complete the acquisition of NextTrip Holdings, Inc., we intend to proceed with the sale of assets to Divergent Technologies, Inc. and may seek to undertake another strategic transaction, if possible, or the dissolution and liquidation or the bankruptcy of the Company. For these reasons, there is substantial doubt about our ability to continue as a going concern.

Debt & Financing - Risk 2

We will require additional financing to continue our operations, and there is substantial doubt regarding our ability to continue as a going concern.

As of December 31, 2022, we had cash of $2,845,931. Our existing cash on hand and anticipated revenues are sufficient to fund our remaining anticipated operating costs and capital expenditure requirements only through May 2023. We will need to raise additional financings to fund our operations, maintain compliance with the NASDAQ listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business operations. We have no current understanding or arrangement to obtain any additional financing. To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business operations and may lose our NASDAQ listing. In light of the foregoing, there is substantial doubt our ability to continue as a going concern, and the report of our registered independent public accounting firm on our financial statements as of and for the year ended December 31, 2022 contains a going concern qualification.

Corporate Activity and Growth3 | 8.8%

Corporate Activity and Growth - Risk 1

We face the risks normally associated with a new business.

We face all of the risks inherent in a business based upon emerging technologies, including the expenses, difficulties, complications and delays frequently encountered in connection with conducting new operations and efforts to develop and commercialize technologies. These uncertainties include developing our technologies and our brand name, raising capital to meet our working capital requirements, and expanding our customer base, among others. If we are not effective in addressing these risks, we will not be able to achieve profitability in the future, and we may not have adequate working capital to meet our obligations as they become due.

Corporate Activity and Growth - Risk 2

We may not be able to effectively control and manage our growth, which would negatively impact our operations.

We have operated our current line of business for approximately eleven years, and we expect to grow in the future as our business develops and becomes further established. If our business grows as we anticipate, it will be necessary for us to manage our expansion in an orderly fashion. Any significant growth in our activities or in the market for our services will require extension of our managerial, operational, marketing and other resources. Future growth will also impose significant additional responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees. Our failure to manage growth effectively may lead to operational inefficiencies that will have a negative effect on our profitability. Additionally, if our growth comes at the expense of providing quality service and generating reasonable profits, our ability to successfully bid for contracts and our profitability will be adversely affected. We cannot assure investors that we will be able to effectively manage any future growth we may experience.

Corporate Activity and Growth - Risk 3

We may make acquisitions in the future that we are unable to effectively manage given our limited resources.

We may choose to grow our business by acquiring other entities. We may be unable to manage businesses that we acquire or to integrate them successfully without incurring substantial expenses, delays or other problems that could negatively impact our results of operations. Moreover, business combinations involve additional risks, including: - diversion of management's attention; - loss of key personnel; - our becoming significantly leveraged as a result of the incurrence of debt to finance an acquisition; - assumption of unanticipated legal or financial liabilities; - unanticipated operating, accounting or management difficulties in connection with the acquired entities; - amortization of acquired intangible assets, including goodwill; and - dilution to existing stockholders and our earnings per share. Also, client dissatisfaction or performance problems with an acquired firm could materially and adversely affect our reputation as a whole. Further, the acquired businesses may not achieve the revenues and earnings that we anticipated.

Tech & Innovation

Total Risks: 4/34 (12%)Below Sector Average

Innovation / R&D1 | 2.9%

Innovation / R&D - Risk 1

We may be unable to develop or commercialize new and rapidly evolving technologies.

Many of our activities involve developing products or processes that are based upon new, rapidly evolving technologies. The ability to commercialize or further develop these technologies could fail for a variety of reasons, both within and outside of our control.

Trade Secrets2 | 5.9%

Trade Secrets - Risk 1

We may be unable to protect our intellectual property rights.

Our success in part depends on the ability to protect our intellectual property and proprietary technology. To do so, we will be required to prosecute patent applications and maintain patents, obtain new patents and pursue trade secret and other intellectual property protection. There can be no assurance that our program for protection of intellectual property and proprietary technology will be sufficient to protect our intellectual property and proprietary technology from competitors. Our business is also subject to the risk that our issued patents will not provide us with significant competitive advantages if, for example, a competitor was to independently develop or obtain similar or superior technologies. In addition, our issued patents may be challenged or infringed upon by third parties. The enforcement of intellectual property rights is subject to considerable uncertainty and can be expensive and time-consuming. Patent reform laws and court decisions interpreting such laws, may create additional uncertainty around our ability to obtain and enforce patent protection. Any significant impairment of our intellectual property rights could harm our business and our ability to compete. The unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. Proprietary trade secrets and unpatented know-how are also very important to our business; however, trade secrets are difficult to protect. Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential or proprietary information.

Trade Secrets - Risk 2

We may be sued by third parties who claim that we have infringed their intellectual property rights.

We may be exposed to future litigation by third parties based on claims that our research, development and commercialization activities infringe the intellectual property rights of third parties to which we do not hold licenses or other rights, or that we have misappropriated the trade secrets of others. Any litigation or claims against us, whether or not valid, could result in substantial costs, and could place a significant strain on our financial and human resources. In addition, if successful, such claims could cause us to pay substantial damages. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Cyber Security1 | 2.9%

Cyber Security - Risk 1

A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.

Businesses have become increasingly dependent on digital technologies to conduct day-to-day operations. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. A cyber-attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption or result in denial of service on websites. We depend on digital technology, including information systems and related infrastructure, to process and record financial and operating data, and communicate with our employees and business partners. Our technologies, systems, networks, and those of our business partners may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of our business operations. The consequences of such loss, possible misuse of our proprietary and confidential information, or operational disruptions could include, among other things, unfavorable publicity, damage to our reputation, difficulty marketing our products, customer allegations of breach-of-contract, claims and litigation by affected parties, investigations by and other proceedings involving governmental authorities and possible financial liabilities for damages, any of which could materially adversely affect our business, financial condition, reputation and relationships with customers and partners. We also rely on a number of third-party service providers to host, store or otherwise process information for us, or to provide other facilities or infrastructure that we make use of, including "cloud-based" providers of corporate infrastructure services relating to, among other things, human resources, electronic communication services and some financial functions, and we are therefore dependent on the security systems of these providers. Any security breaches or incidents or other unauthorized access to, or disruptions of, our service-providers' systems or viruses, loggers, ransomware or other malfeasant code in their data or software, or unauthorized access to or acquisition of any data they process or otherwise maintain for us could expose us to information loss, corruption and unavailability, operational disruptions, and misappropriation of confidential information, and could have similar consequences to us as any incidents affecting our own systems or the data we process or maintain. We and our third parties face these threats from a variety of sources, including attacks from hackers, phishing and other forms of social engineering, and human error or employee or contractor malfeasance. Because the techniques used to obtain unauthorized access to or sabotage security systems change frequently and are often not recognized until after an attack, we and our third-party service providers may be unable to anticipate the techniques or implement adequate preventative measures, thereby exposing us to material adverse effects on our business, financial condition, results of operations and growth prospects. A security breach or other security incident impacting us or our third-party service providers could require a substantial level of financial resources to rectify and otherwise respond to, may be difficult to identify or address in a timely manner, and could result in claims, investigations, and inquires by private parties or governmental entities that may divert management's attention and require the expenditure of significant time and resources, and which may cause us to incur substantial fines, penalties, or other liability and related legal and other costs. Any actual or perceived security breach or other security incident may also harm our reputation and market position. Any of the foregoing matters could harm our operating results and financial condition. Although to-date we have not experienced any losses relating to cyber-attacks, there is no assurance that we will not suffer such losses in the future. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Production

Total Risks: 3/34 (9%)Below Sector Average

Employment / Personnel1 | 2.9%

Employment / Personnel - Risk 1

We are dependent on key personnel, and the loss of any of these individuals could harm our business.

We depend on key scientific and other personnel. The loss of any of these individuals could harm our business and significantly delay or prevent the achievement of our business objectives. In addition, our delivery of services will be labor-intensive: when we are awarded a contract, we may need to quickly hire project leaders and project management personnel. The additional staff may also create a concurrent demand for increased administrative personnel. The success of our business will require that we attract, develop, motivate and retain: - experienced and innovative executive officers; - senior managers who have successfully managed or designed programs in the public sector; and - information technology professionals who have designed or implemented complex information technology projects. Innovative, experienced and technically proficient individuals are in great demand and are likely to remain a limited resource. We may be unable to continue to attract and retain desirable executive officers, senior managers, and technology professionals. Our inability to hire sufficient personnel on a timely basis or the loss of significant numbers of executive officers and senior managers could adversely affect our business.

Costs2 | 5.9%

Costs - Risk 1

Failure to obtain adequate insurance coverage could put us at risk for uninsured losses.

Some or all of our customers may require insurance as a requirement to conduct business with us. Although we currently have product liability insurance, we may be unable to obtain or maintain adequate liability insurance on acceptable terms, if at all, and there is a risk that our insurance will not provide adequate coverage against our potential losses. Additionally, there are certain types of losses that may not be insurable at a cost that we can afford, and insurance may not be available at any cost with respect to certain losses. Claims or losses in excess of any insurance coverage we may obtain, or the lack of insurance coverage, could put us at risk of uninsured loss, which would have a material adverse effect on our business and financial condition.

Costs - Risk 2

Our operating costs could be significantly higher than we expect, and this could reduce our future profitability.

In addition to general economic conditions, market fluctuations and international risks, significant increases in operating, development and implementation costs could adversely affect us due to numerous factors, many of which are beyond our control.

Legal & Regulatory

Total Risks: 2/34 (6%)Below Sector Average

Litigation & Legal Liabilities2 | 5.9%

Litigation & Legal Liabilities - Risk 1

We could be subject to securities class action litigation.

Any sudden decline in the market price of our securities could trigger securities class action lawsuits against us. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject to damages claims if we are found to be at fault in connection with a decline in our market price of our securities.

Litigation & Legal Liabilities - Risk 2

We could incur significant damages if we are unable to adequately discharge our contractual obligations.

Our failure to comply with contract requirements or to meet our clients' performance expectations on a contract could materially and adversely affect our financial performance and our reputation. This, in turn, would impact our ability to compete for new clients and contracts. Our failure to meet contractual obligations could also result in substantial actual and consequential damages under the terms of such contracts. In addition, some of our contracts require us to indemnify clients for our failure to meet performance standards and/or contain liquidated damages provisions and financial penalties related to performance failures. Although we maintain liability insurance, the policy limits may not be adequate to provide protection against all such potential liabilities.

Ability to Sell

Total Risks: 2/34 (6%)Below Sector Average

Demand1 | 2.9%

Demand - Risk 1

Some of our clients may terminate our contracts prior to completion, which could result in revenue shortfalls and reduce profitability or cause losses on contracts.

Some of our contracts with clients contain initial or base periods of one or more years, as well as option periods typically covering more than one-half of the contract's initial duration. However, such clients are under no obligation to exercise the option to extend the contract term. The profitability of some of our contracts could be adversely impacted if such options are not exercised and the contract term is not extended accordingly. Additionally, our contracts contain provisions permitting a client to terminate the contract on short notice, with or without cause. The unexpected termination of significant contracts could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding reductions in expenses, our business could be adversely affected. We cannot anticipate if, when or to what extent a client might terminate its contracts with us.

Sales & Marketing1 | 2.9%

Sales & Marketing - Risk 1

We may be dependent on cash flow and payments from customers in order to meet our expense obligations.

A number of factors may cause our revenues, cash flow and operating results to vary from quarter to quarter, including the following: - the progression of contracts; - the rate of customer adoption of our new subscription pricing program; - the commencement, completion or termination of contracts during any particular quarter; - the schedules of government agencies and large multinational corporations for awarding contracts; - the failure of our customers to fulfill their obligations under contracts with us; and - the term of awarded contracts and potential acquisitions. Changes in the volume of activity and the number of contracts commenced, completed or terminated during any quarter may cause significant variations in our cash flow from operations because a significant portion of our expenses are fixed. Fixed expenses include, rent, payroll, insurance, employee benefits, taxes and other administrative costs and overhead. Moreover, we expect to incur significant operating expenses during the start-up and early stages of large contracts and typically do not receive corresponding payments in that same quarter.

Macro & Political

Total Risks: 2/34 (6%)Below Sector Average

Economy & Political Environment1 | 2.9%

Economy & Political Environment - Risk 1

Our business may be adversely affected by a global economic downturn.

Any economic downturn generally could cause a drop in government spending and business investment, which could have a material adverse effect on our business. Further, as a result of the current global economic and geopolitical situation, there may be a disruption or delay in performance by our third-party contractors and suppliers. If such third parties are unable to adequately satisfy their contractual commitments to us in a timely manner, our business could be adversely affected.

Natural and Human Disruptions1 | 2.9%

Natural and Human Disruptions - Risk 1

Our results of operations may be negatively impacted by the COVID-19 epidemic.

The potential reemergence of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put in place by businesses and governments, may have a material economic effect on our business. Additionally, the coronavirus may result in disruption of financial markets, which may reduce our ability to access capital on favorable terms or at all.

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.

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