Item 1A. Risk Factors
An investment in the Company’s securities involves significant risks, including the risks described below. The risks included below are not the only ones that the Company faces. Additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any such additional risks and uncertainties actually occur, our business, prospects, financial condition or results of operations could be negatively affected.
Risks Related to Our Business
We have a history of operating losses.
We have a history of operating losses and may not achieve or sustain profitability. These operating losses have been generated while we market to potential customers. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability and our failure to do so would adversely affect the Company’s business, including our ability to raise additional funds.
If we continue to suffer losses from operations, our working capital may be insufficient to support our ability to expand our business operations as rapidly as we would deem necessary at any time, unless we are able to obtain additional financing. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to pursue our business objectives and would be required to reduce our level of operations, including reducing infrastructure, promotions, sales and marketing programs, personnel and other operating expenses. These events could adversely affect our business, results of operations and financial condition. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be significantly limited.
We completed our first acquisition in the fourth quarter of 2025. Growth by acquisitions involves risks, and we may not be able to effectively integrate the business we acquired to achieve the objectives of the acquisition or implement the contract manufacturing agreement.
We completed the acquisition of Arps Dairy in October 2025. The Acquisition is subject to various risks and uncertainties and could have a negative impact on our business, financial condition, and/or results of operations. These risks include the inability to integrate effectively the operations, products, and personnel of the acquired company which is located a significant distance from our existing business, the inability to complete construction that was in progress on the New Facility at the time of the Acquisition within the anticipated timeframe and budget, the inability to achieve anticipated cost savings or operating synergies, the management of risks associated with manufacturing operations including product quality and safety, and the risk we may not be able to effectively manage our operations at an increased scale of operations resulting from the Acquisition.
By acquiring Arps Dairy, we are now exposed to operational risk in dairy processing.
Operating a dairy processing plant involves significant operational, regulatory, and market-related risks. The plant is highly dependent on a consistent supply of raw milk, which may be affected by factors outside of our control. In addition, dairy processing facilities must comply with stringent food safety, environmental, and occupational health regulations; failure to maintain compliance could result in fines, recalls, suspension of operations, or reputational damage. Equipment breakdowns, labor shortages, or disruptions in energy and water supply could materially impact production capacity and increase costs. Moreover, given the perishable nature of dairy products, disruptions in transportation or refrigeration systems pose heightened risks of spoilage and product loss. These factors, individually or in combination, may adversely affect the plant’s operational performance, profitability, and long-term viability.
Our operations depend on the consistent availability and quality of raw milk.
The supply and cost of raw milk are influenced by factors outside of our control, including seasonal fluctuations, weather conditions, feed and fuel costs, disease outbreaks, and general agricultural market conditions. Interruptions in raw milk supply or significant increases in input costs could materially and adversely affect our ability to produce and sell dairy products, and could negatively impact our operating results.
Dairy processing facilities are subject to extensive regulation.
Our dairy processing facility will need to comply with regulations by federal, state, and local authorities, including requirements related to food safety, sanitation, labeling, environmental protection, and occupational health and safety. Failure to comply with applicable laws and regulations could result in fines, mandatory product recalls, product seizures, suspension of operations, reputational harm, and liability for damages. Compliance costs may also increase over time as regulations become more stringent. Any such outcomes could have a material adverse effect on our business and financial performance.
Our dairy processing operations are dependent on reliable performance of our equipment.
The operations at Arps Dairy rely on specialized processing equipment, refrigeration systems, and a reliable supply of utilities such as water and energy. Equipment breakdowns, malfunctions, or prolonged utility outages could disrupt our production and distribution activities, cause product spoilage, and increase operating costs. Because dairy products are perishable, even brief disruptions in equipment or infrastructure can result in significant product loss and revenue reduction.
We require reliable and trained personnel for our dairy operations.
Our success depends on maintaining a trained and reliable workforce to operate our dairy processing facilities. Labor shortages, increased wage pressures, or work stoppages could impair our ability to operate efficiently. In addition, recruiting and retaining qualified personnel in rural or specialized markets may be difficult. Labor-related challenges could increase costs, reduce production capacity, or negatively impact product quality and safety.
It is difficult to predict the timing and amount of our sales because our distributors and national accounts may not be required to place minimum orders with us.
Our distributors are not required to place minimum monthly or annual orders for our products. Accordingly, we cannot predict the timing or quantity of purchases by any of our independent distributors or whether any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. Additionally, our larger distributors and partners may make orders that are larger than we have historically been required to fill. Shortages in inventory levels, supply of raw materials or other key supplies could negatively affect us.
As an increasing portion of our sales is coming from school districts, our business is becoming more seasonal, which presents certain challenges with respect to cash flow.
With sales to school districts representing an increasing percentage of our total sales, we require a significant amount of working capital to fund the production of inventory during the third calendar quarter. Revenues from sales to school districts generally are reflected in our first quarter and third quarter results. We continue efforts to have less fluctuation with respect to working capital – for example by developing a frozen juice pop product which we expect to be more popular during warmer months of the year – but such efforts require time to be accepted in the marketplace.
Issues with a manufacturer have resulted in significant losses, as well as other negative impacts.
As described more fully in Item 7, we experienced product quality issues with a contract manufacturer (the “Manufacturer”) that provided approximately 52% of our products in the year ended December 31, 2022. Complaints from customers led us to withdraw product from the market and destroy existing inventory.
In addition to the financial damage from the product withdrawal, we were forced to obtain suitable replacement contract manufacturers and regain the confidence of our customers and investing public, all while seeking a resolution with the Manufacturer. These tasks required substantial amounts of personnel and capital resources in 2023, 2024, and 2025, including production trial and other start-up costs.
Disruption within our supply chain, contract manufacturing or distribution channels has had and may continue to have an adverse effect on our business, financial condition and results of operations.
Our ability, through our suppliers, business partners, contract manufacturers, independent distributors and retailers, to produce, transport, distribute and sell products is critical to our success.
In the past, damage or disruption to our suppliers or to manufacturing or distribution capabilities due to weather, natural disaster, fire or explosion, terrorism, pandemics such as COVD-19 and influenza, labor strikes or other reasons, has impaired the manufacture, distribution and sale of our products. Many of these events were outside of our control.
Our experience with the Manufacturer demonstrated how our reliance on a limited number of manufacturers and suppliers increased this risk. Most of our suppliers and manufacturers produce similar products for other companies, and our products may represent a small portion of their businesses. Further, it takes a newly engaged manufacturer typically up to nine months of retrofitting/ preparation before it can begin producing our products. Starting in 2023 and continuing through the third quarter of 2025 we did not have contracts in place to produce sufficient units to meet projected demand. If one of our manufacturers failed to perform, we were faced with a significant interruption in our supply chain. If one of our manufacturers or suppliers failed to perform or deliver products, for any reason, our sales and results of operations were adversely affected, and led to the possible loss of customers.
Our contract manufacturer that supplied 54% of our product in 2024 and 43% in 2025 (“Manufacturer A”) gave notice that it would not renew our contract when it concluded in February 2026. Additionally, in December 2025, our manufacturer that supplied 38% of our product in 2024 and 40% in 2025 (“Manufacturer B”) discontinued manufacturing our products.
The Acquisition is a significant step towards protecting against or mitigating the likelihood or potential impact of such events, and their adverse effect on our business, financial condition and results of operations. Since the Acquisition, Arps Dairy is now producing virtually all of our product lines, manufacturing 18% of cases produced in the fourth quarter of 2025.
If we do not adequately manage our inventory levels, our operating results could be adversely affected.
We need to maintain adequate inventory levels to be able to deliver products to distributors on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products, seasonal promotions and new markets. If we materially underestimate demand for our products or are unable to maintain sufficient inventory, we might not be able to satisfy demand on a short-term basis. If we overestimate distributor or retailer demand for our products, we may end up with too much inventory, resulting in increased working capital requirements, higher storage costs, increased trade spending and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships with our distributors and retailers and could delay or lose sales opportunities, which would impact our future sales and affect our operating results. In addition, if the inventory of our products held by our distributors and retailers is too high, they will not place orders for additional products, which would also impact our sales and affect our operating results.
We need financing to complete the New Facility and may need additional financing in the future, which may not be available when needed or may be costly and dilutive.
Completion of the New Facility, including the installation of equipment and the buildout of production lines is required in the near term.
We may require additional financing to support our capital expenditure and working capital needs in the future. The amount of additional capital we may require, the timing of our capital needs and the availability of financing to fund those needs will depend on a number of factors, including our strategic initiatives and operating plans, the performance of our business and the market conditions for debt or equity financing. Additionally, the amount of capital required will depend on our ability to meet our case sales goals and otherwise successfully execute our operating plan. We believe it is imperative to meet these sales objectives in order to lessen our reliance on external financing in the future. Although we believe various debt and equity financing alternatives will be available to us to support our capital expenditure and working capital needs, financing arrangements on acceptable terms may not be available to us when needed. Additionally, these alternatives may require significant cash payments for interest and other costs or could be highly dilutive to our existing shareholders. Any such financing alternatives may not provide us with sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic transactions that we consider to be in the best interest of the Company and our shareholders, which may include, without limitation, public or private offerings of debt or equity securities, and other strategic alternatives; however, these options may not ultimately be available or feasible.
Failure to complete the New Facility within the projected budget and timeframe will likely impact negatively our projected new revenue and adjusted EBITDA estimates.
Our ability to achieve our projected growth, including the timing of new revenue and adjusted EBITDA estimates, depends in large part on the successful execution of the completion of the New Facility and installation of the production lines. These projects involve significant capital expenditures and are subject to numerous risks, many of which are outside of our control.
Construction costs may exceed current estimates due to factors such as labor shortages, increased wage rates, supply chain disruptions, availability and pricing of materials, changes in scope, contractor performance issues, or unforeseen site conditions. In addition, delays or complications in obtaining required zoning approvals, building permits, inspections, or other governmental approvals could adversely affect project timelines and increase costs. Project schedules may also be impacted by adverse weather conditions, labor availability, contractor capacity, or logistical challenges, any of which could delay completion or commencement of operations. If construction is delayed or costs exceed budgeted amounts, we may be required to deploy additional capital, defer or modify other planned investments, or seek alternative financing on less favorable terms.
Any material delays in project completion or cost overruns could postpone the realization of anticipated revenues, reduce near-term margins, and negatively impact the Company’s projected or guided adjusted EBITDA. There can be no assurance that current cost estimates, construction schedules, or expected financial returns will be achieved, and any such variances could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows.
A worsening of economic conditions or a decrease in consumer spending may adversely impact our ability to implement our business strategy.
Our success depends largely on government funding of school nutrition programs, which is influenced by government policy, and to a lesser extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. There is no certainty regarding economic conditions in the United States, and credit and financial markets and confidence in economic conditions could deteriorate at any time. Accordingly, we may experience declines in revenue during economic turmoil or during periods of uncertainty including uncertainty resulting from war, terrorism or contagious disease.
The challenges of competing with the many food services businesses may result in reductions in our revenue and operating margins.
We compete with many well-established companies, food service and otherwise, on the basis of taste, quality and price of product offered, customer service, and overall experience. Our success depends, in part, upon the popularity of our products and our ability to develop new menu items that appeal to consumers across all four day parts. Shifts in consumer preferences away from our products, our inability to develop new menu items that appeal to consumers across all day parts, or changes in our menu that eliminate items popular with some consumers could harm our business. We compete primarily with other food manufacturers that participate in the K-12 market. Many of our competitors or potential competitors have substantially greater financial and other resources than we do, which may allow them to react to changes in the market more quickly than we can. In addition, aggressive pricing by our competitors or the entrance of new competitors into our markets, could reduce our revenue and operating margins. We also compete with other employers in our markets for workers and may become subject to higher labor costs as a result of such competition.
Increases in costs of packaging, ingredients and contract manufacturing tolling fees may have an adverse impact on our gross margin.
Packaging costs such as paper and aluminum cans have experienced industry-wide price increases in the past and there is always the risk that the Company may be unable to pass on these costs, thereby significantly impacting the gross margin.
Fluctuations in various food and supply costs, particularly fruit and dairy, could adversely affect our operating results.
Supplies and prices of the various ingredients that are used in the manufacture of our products can be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics and economics in the producing countries.
These factors subject us to shortages or interruptions in product supplies, which could adversely affect our revenue and profits. In addition, the prices of fruit and dairy, which are the main ingredients in our products, can be highly volatile. The fruit of the quality we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we are going to use in our products could have a significant adverse effect on our profitability. We cannot assure you that we will be able to secure our fruit supply.
Our business depends substantially on the continuing efforts of our senior management and other key personnel, and our business may be severely disrupted if we lose their services.
Our future success heavily depends on the continued service of our senior management and other key employees. If one or more of our senior executives is unable or unwilling to continue to work for us in his or her present position, we may have to spend a considerable amount of time and resources searching, recruiting, and integrating a replacement into our operations, which would substantially divert management’s attention from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy.
We may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.
Our success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future, we may find recruiting and retention efforts more challenging. If we do not succeed in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively. Our inability to attract highly skilled personnel with sufficient experience in our industries could harm our business.
Product liability exposure may expose us to significant liability.
We may face an inherent business risk of exposure to product liability and other claims and lawsuits in the event that the development or use of our technology or prospective products is alleged to have resulted in adverse effects. We may not be able to avoid significant liability exposure. Although we believe our insurance coverage to be adequate, we may not have sufficient insurance coverage, and we may not be able to obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products. A product liability claim could hurt our financial performance. Even if we ultimately avoid financial liability for this type of exposure, we may incur significant costs in defending ourselves that could hurt our financial performance and condition.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We may become party to litigation claims and legal proceedings. Litigation involves significant risks, uncertainties and costs, including distraction of management attention away from our business operations. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves and disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. Our policies and procedures require strict compliance by our employees and agents with all U.S. and local laws and regulations applicable to our business operations, including those prohibiting payments to government officials. Nonetheless, our policies and procedures may not ensure full compliance by our employees and agents with all applicable legal requirements. conduct by our employees or agents could our reputation or lead to or legal proceedings that could result in civil or , including substantial monetary , as well as of profits.
Our litigation with the Manufacturer was voluntarily withdrawn from the court system in January 2023 and refiled in August 2023, as we were unable to reach a suitable resolution. While we believe that that our claims have merit, there is no assurance of a favorable outcome to this case. In 2024, we obtained litigation financing to pursue our claims without risk to our financial position or operating results.
Our inability to protect our intellectual property rights may force us to incur unanticipated costs.
Our success may depend, in part, on our ability to obtain and maintain protection in the United States and internationally for certain intellectual property incorporated into our products. Our intellectual property rights may be challenged, narrowed, invalidated or circumvented, which could limit our ability to prevent competitors from marketing similar solutions that limit the effectiveness of our patent protection and force us to incur unanticipated costs. In addition, existing laws of some countries in which we may provide services or solutions may offer only limited protection of our intellectual property rights.
Our products may infringe the intellectual property rights of third parties, and third parties may infringe our proprietary rights, either of which may result in lawsuits, distraction of management and the impairment of our business.
As the number of patents, copyrights, trademarks and other intellectual property rights in our industry increases, products based on our technology may increasingly become the subject of infringement claims. Third parties could assert infringement claims against us in the future. Infringement claims with or without merit could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, might not be available on terms acceptable to us, or at all. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. to determine the validity of any , whether or not the is resolved in our favor, could result in significant expense to us and the efforts of our technical and management personnel from productive tasks. If there is an ruling us in any , we may be required to pay substantial , the use and sale of products and expend significant resources to develop non- technology or obtain licenses to technology. Our to develop or license a substitute technology could prevent us from selling our products.
We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives and corporate governance practices.
As a public company, we will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make some activities more time-consuming and costly.
We cannot predict or estimate the amount of additional costs we may incur to continue to operate as a public company, nor can we predict the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Failure to maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.
Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”). Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lack of controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and a in the market price of our common stock. We cannot you that we will be to timely remediate any material that may be identified in future periods or maintain all of the controls necessary for continued compliance. Likewise, we cannot you that we will be to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.
Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
As a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Some foreign companies, including some that may compete with our Company, may not be subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time to time in countries in which we conduct our business. However, our employees or other agents may engage in conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
Our use of information technology and third-party service providers exposes us to cybersecurity breaches and other business disruptions.
We use information technology and third-party service providers to support our business processes and activities, including supporting critical business operations such as manufacturing and distribution; communicating with our suppliers, customers and employees; maintaining effective accounting processes and financial and disclosure controls; executing corporate transactions; conducting research and development activities; and meeting regulatory, legal and tax requirements. Shared service centers managed by third parties provide an increasing number of services important to conduct our business, including accounting, internal control, human resources and computing functions.
Continuity of business applications and services has been, and may in the future be, disrupted by events such as infection by viruses or malware; other cybersecurity attacks; issues with or errors in systems’ maintenance or security; power outages; hardware or software failures; denial of service attacks; telecommunication failures; natural disasters; terrorist attacks; and other catastrophic occurrences. Our use of new and emerging technologies such as cloud-based services and mobile applications continues to evolve, presenting new and additional risks in managing access to our data, relying on third parties to manage and safeguard data, ensuring access to our systems and availability of third-party systems. In addition, we are experiencing new and more frequent attempts by third parties to gain access to our systems, such as through increased email phishing of our workforce
We leverage third parties for various technology and business services who may experience cybersecurity breaches, whether from circumvention of security systems, denial-of-service attacks or other cyberattacks such as hacking, phishing attacks, computer viruses, ransomware or malware, cyber extortion, employee or insider error, malfeasance, social engineering, physical breaches or other actions or attempts to exploit vulnerabilities may cause confidential information or Personally Identifiable Information belonging to us or our employees, customers, consumers, partners, suppliers, or governmental or regulatory authorities to be misused or breached. These risks could be magnified since the number of employees, contractors and others working outside of offices increased since the COVID-19 pandemic. Additionally, continued geopolitical turmoil, including the ongoing wars in Ukraine and the Middle East, has heightened the risk of . When risks such as these materialize, the need for us to coordinate with various third-party service providers and for third-party service providers to coordinate amongst themselves might increase and costs to related issues. Our information security program includes capabilities designed to evaluate and mitigate cyber risks arising from third-party service providers. Cyber to externally hosted technology and business services are beyond our control. Additionally, new initiatives, such as those related to digital commerce and direct sales, that increase the amount of confidential information that we process and maintain increase our potential exposure to a cybersecurity . Furthermore, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. If our controls, recovery and business continuity plans or those of our third-party providers do not effectively respond to or the issues related to any such in a timely manner, our product sales, financial condition, results of operations and stock price may be materially and affected, and we might experience in reporting our financial results, of intellectual property and to our reputation or brands.
Risks Related to Ownership of Our Common Stock
If we are unable to adequately fund our operations, we may be forced to voluntarily file for deregistration of our common stock with the SEC.
Compliance with the periodic reporting requirements required by the SEC consumes a considerable amount of both internal, as well external, resources and represents a significant cost for us. If we are unable to continue to devote adequate funding and the resources needed to maintain such compliance, while continuing our operations, we could be forced to deregister with the SEC. After the deregistration process, our common stock would only be tradable on the “Pink Sheets” and could suffer a decrease in or absence of liquidity.
We may not be able to continue to comply with Nasdaq listing standards.
Nasdaq Listing Rule 5550 requires companies that list on The Nasdaq Stock Market to maintain certain financial metrics. In May 2023, we received a letter from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5550(b), which requires companies listed on The Nasdaq Stock Market with a history of losses to maintain either a minimum market value of listed securities of $35,000,000 or a minimum of $2,500,000 in stockholders’ equity. While we regained compliance with this Rule in 2023, our stockholders’ equity at December 31, 2025 was only $1,330,000. We have instead maintained compliance based on the $35,000,000 minimum market value requirement. Unless and until we are able to achieve and maintain annual net income from continuing operations of $500,000, fluctuations in the market value of our listed securities may cause us to fail to meet Nasdaq listing standards and result in our common stock only being tradable in the over-the-counter markets.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline.
The trading market for our common stock may be impacted, in part, by research and reports that securities or industry analysts publish about our business or us. There can be no assurance that analysts will cover us, continue to cover us or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price may decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Because we became public by means of a “reverse merger”, we may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we became public through a “reverse merger”. Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of our Company in the future.
Future sales of our common stock in the public market could lower the price of our common stock and impair our ability to raise funds in future securities offerings.
Future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering of our securities.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors or the Company itself.
Because we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in value.
We have never declared or paid any cash dividends on our preferred stock or common stock. For the foreseeable future, it is expected that earnings, if any, generated from our operations will be used to finance the growth of our business, and that no dividends will be paid to holders of the Company’s common stock. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There can be no guarantee that our common stock will appreciate in value.
The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
actual or anticipated variations in our operating results;
announcements of developments by us or our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
adoption of new accounting standards affecting our industry;
additions or departures of key personnel;
introduction of new products by us or our competitors;
sales of our common stock or other securities in the open market; and
other events or factors, many of which are beyond our control.
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and Company resources, which could harm our business and financial condition.
Investors may experience dilution of their ownership interests because of future issuances of additional shares of our common stock.
We recently obtained financing through the issuance of convertible debt securities and warrants to fund our operations. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions or for other business purposes. The future issuance of any such additional shares of common stock will result in dilution to our shareholders and may create downward pressure on the trading price of our common stock.
Provisions in our Company charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our Company that stockholders may consider favorable, including transactions in which they might otherwise receive a premium for their shares. These provisions could also 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. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our board of directors controls a significant percentage of the outstanding shares of voting stock.
At present, members of our board of directors and/or their affiliated entities control approximately 37% of the outstanding shares of voting stock, and therefore have significant power to influence all matters requiring the approval of our stockholders, including the election of directors and the approval of mergers and other significant corporate transactions.
