Overview
We
operate primarily in the healthcare industry and provide services
that include management consulting related to sales, marketing,
business development and advisory board functions to healthcare
organizations; and financial incentive program services to identify
grants, tax credits and other government incentives for companies
across a variety of industries including healthcare. We conduct all
our operations through our wholly owned subsidiary, HBR Business
Development, LLC and HBR Pointclear, LLC. Unless context requires
otherwise, references to “we,” “our,”
“us” and “our Company” refer to Healthcare
Business Resources Inc., a Delaware corporation, and all
subsidiaries.
Principal Services
We
are in our development stage. We plan to generate revenue by
providing consulting services. These services include:
●
management
consulting related to sales, marketing, business development and
advisory board functions to healthcare organizations;
and
●
financial
incentive program services to identify grants, tax credits and
other government incentives for companies across a variety of
industries including healthcare.
Our management, board of advisors and board of
directors have extensive experience in market expansion strategies,
financial analysis, acquisition integration, management consulting
and training, healthcare law, corporate law, capital markets,
mergers and acquisitions. We believe the combined experience,
knowledge, credibility and connections of our people are unique and
potentially valuable to prospective clients. As a result, even
though we are a new business with no revenues to date, we believe
we will successfully execute our business plan. See
“Description
of Business - Our Competitive Strengths.”
Management consulting services
Our
management consulting services are designed to help clients
increase revenue, improve overall efficiency of their operations,
grow strategically and increase profitability. We provide clients
with advice and assistance tailored to address each client’s
challenges and opportunities, with a focus on healthcare
organizations that face operational and financial changes. We
believe that distressed companies respond to challenges by
restructuring their business and capital structure, while healthy
companies strive to capitalize on opportunities by improving
operations, reducing costs and maximizing revenue. Many
organizations have limited resources dedicated to respond
effectively to challenges and opportunities. As a result, we
believe many organizations seek to supplement their internal
resources with experienced independent consultants like
us.
As
part of our management consulting services, we will perform an
initial review of a prospective clients relevant financial, tax and
business documentation at no cost to determine areas for potential
corporate improvement and growth opportunities.
We plan to charge clients a fee for our management
consulting services based on time (e.g. hourly or monthly) or based
on a percentage of cost savings or incremental revenue (e.g.
revenue or cost savings). As of the date of this report on
Form 10-K, we have acquired one
customer who has contracted with us to market its services in
exchange for a performance-based fee equal to 50% of any fee
collected by this customer from business referred by our Company to
this customer. We cannot estimate the value of the fee or fees we
may obtain from this engagement, if any. As of the date of
this report on Form 10-K, have
not generated any management consulting services revenue and we are
unable to determine how long, if ever, it will take to generate any
management consulting services revenue. We cannot assure you that
we will ever generate enough management consulting revenue to
sustain our operations.
Financial incentive program services
Our
financial incentive program services are designed to identify
grants, tax credits and other government incentives for companies
across a variety of industries including healthcare. We will assist
with advising on and documenting business processes related to such
credits and rebates and work with certified public accounting firms
and business owners to compile reports and documentation required
to apply for various financial incentive programs.
As
part of our financial incentive program services, we will perform
an initial review of a prospective client’s relevant
financial, tax and business documentation at no cost to determine
the potential economic benefits from various federal and state
incentive programs.
We
plan to charge clients a fee primarily based on the economic
benefit we facilitate from any incentive programs, when permitted
by any applicable rules and guidelines. Where contingency fees are
not permissible, fixed fee contracts may be used. As part of our
incentive program services, we may be at risk for certain
third-party accounting, legal and consulting fees until such time
as we are reimbursed by our client, if ever.
As of the date of this report on
Form 10-K, we have acquired one
customer who has contracted with us to assess, evaluate and
implement our financial incentive program services. Specifically,
we contracted with a software company that delivers structured
reporting and coding solutions to healthcare facilities ranging
from small practices to large hospital systems. The client is owned
by a non-affiliate Selling Stockholder. We contracted to provide
financial incentive services, including assistance to identify
potential grants, incentives, refunds, tax credits and future
savings/and or programs that might be available as well as to make
recommendations to optimize growth and profitability. Under the
terms of the agreement, we and our third-party consultants, will
pursue any economic benefits identified on behalf of our client but
performing additional services, including but not limited to
further review of financial and tax information, tax planning,
program application, accounting work and preparation and filing of
tax returns and/or amendments and work with the client to optimize
process improvement and documentation. Under the terms of our
agreement, our fees are 5% of the economic benefit obtained as a
result of our services, are earned upon performing of the services
but we have agreed to accept payment for services rendered to
within 10 days of our client receiving any financial incentives
from the United States Treasury or other Government organization.
While we estimate the value of our fee for this engagement to be
approximately $7,500, there is no assurance we will be successful
at providing the Services or that the client will receive the
estimated economic benefit.
Currently,
have multiple consulting opportunities in various stages of active
review by potential customers; however, we cannot assure you that
any of these potential customers will engage our Company for
services. Further, we cannot assure you that we will ever generate
enough financial incentive program revenue to sustain our
Company’s operations.
Strategy
The
key elements of our business model and growth strategy are as
follows:
1.
Attract highly
qualified advisors and consultants. We believe performance-based compensation,
including stock option plan participation, will enable us to
attract top talent. In the near term, we plan to primarily engage
independent advisors and consultants to minimize our fixed
operating expenses. To date, we have entered into advisory board
agreements with advisors who have healthcare industry experience in
market expansion strategies, financial analysis, acquisition
integration, management consulting and training, healthcare law,
corporate law, capital markets, mergers and
acquisitions.
2.
Grow our network of
potential clients. We plan to
grow our network of healthcare and other organizations that could
benefit from our services. To be successful, we must establish and
strengthen the awareness of our brand. We believe that
maintaining and enhancing our brand recognition is an important
aspect of our efforts to generate revenue. In the near term, we
plan to promote awareness of our services through public relations
efforts, social media outreach, Internet marketing and business
development partnerships. Our goal is to attract healthcare
and other organizations who are primarily interested in growing
their business through sales, marketing and business
development.
3.
Pursue strategic
acquisitions. We intend to
evaluate select acquisitions of complementary businesses as another
means to broaden the scope of our capabilities and our client base.
For example, we are interested in acquiring companies that provide
consulting, training, education, marketing, audits, cost recovery,
group purchasing, compliance, certification, security, information
technology and other non-clinical healthcare business services. We
believe strategic acquisitions can enable us to scale our revenue
with less business risk. While we have not pursued any potential
acquisition targets to date or have any agreements to acquire any
business at this time, any future acquisition may result in
unforeseen operating difficulties and expenditures particularly if
the key personnel of the acquired company choose not to work for us
and we may have difficulty retaining the customers of any acquired
business due to changes in management and ownership. Acquisitions
may also disrupt our ongoing business, divert our resources and
require significant management attention that would otherwise be
available for ongoing development of our
business.
Sales and Marketing
We
presently identify prospective management consulting and financial
incentive program opportunities through personal and professional
relationships of our CEO Stephen Epstein. In the future, we plan to
pay for online advertisements and may enter into third-party
marketing agreements to expand our reach.
We
also plan to position ourselves as an opinion leader in the field
through the creation of media and content; podcasts, articles,
essays and other such materials to build good PR for the business
and attract interest for our various consulting and advisory
services. This includes possibly exhibiting and speaking at
conferences and advertising in trade journals, associations, etc.
We also plan to generate referral and word-of-mouth programs to
drive interest for services.
Our
marketing budget is subject to several factors, including our
results of operations and cash flow. If our results of operations
exceed our expectations over the next twelve months, we expect to
increase significantly our marketing budget, which we expect will
enable us to increase revenues. At present, there is no direct
correlation between revenues and marketing expenses.
Competition
We
operate in a highly competitive industry. The market for our
services is competitive and rapidly changing, and the barriers to
entry are relatively low. We experience competition from large
established businesses possessing large, existing customer bases,
substantial financial resources and established distribution
channels. We expect competition to persist and intensify in the
future. Competition could result in reduced sales, reduced margins
or the failure of our services to achieve or maintain more
widespread market acceptance, any of which could harm our business
and our operating results could be harmed. Our principal
competitors include any entity or individual providing consulting
services, but not limited to business consultants, growth
consultants, sales consultants, marketing consultants, distribution
consultants and financial consultants.
Our
current and potential competitors have significantly more
financial, technical, marketing and other resources than we do and
may be able to devote greater resources to the development,
promotion, sale and support of their offerings. Our current and
potential competitors have more extensive customer bases and
broader customer relationships than we have. If we are unable to
compete with such companies, the demand for our offering could
substantially decline.
Our Competitive Strengths
We
believe our competitive strength comes from our people, our
approach to business and our business model.
1.
Our
people: Our management, board
of advisors and board of directors have extensive experience and
relationships in market expansion strategies, financial analysis,
acquisition integration, management consulting and training,
healthcare law, corporate law, capital markets, mergers and
acquisitions. We believe the combined experience, knowledge,
credibility and connections of our people are unique and
potentially valuable to prospective clients.
2.
Our business
approach: We believe that
the best business relationships provide tangible benefits to each
party. A central tenet of our business approach is to ensure that
we can provide significant value to a prospective client before
entering into any services agreement. To understand the scope of a
potential engagement and ensure we can satisfy the prospective
clients’ primary objectives of any engagement, we are willing
and able to spend time with their management team, on a completely
complimentary basis, to discuss challenges and opportunities and
perform an initial review of their relevant financial, tax and
business circumstances. We believe the business approach of
investing time and effort upfront and before any service
engagement, helps establish trust and credibility, while enabling
us and the prospective client to better determine if and how we can
add value before entering into any agreement.
3.
3.Our business
model: Aside from the
traditional management consulting services model where compensation
is based on an hourly or monthly fee, our business model supports
the engagement with clients on a performance basis. We believe that
offering select clients the option to compensate us based entirely
on the tangible value we provide is uncommon in our field and may
enable us to attract and retain clients in competitive
scenarios.
Intellectual
Property
We
do not own anHealthcareBusinessResources.com domain name. To
protect our proprietary rights, we will generally rely on
copyright, trademark and trade secret laws, confidentiality
agreements with employees and third parties.
Third
parties may copy or obtain and use our proprietary ideas, know-how
and other proprietary information without authorization or
independently develop similar or superior intellectual property.
Our competitors may obtain proprietary rights that would prevent,
or limit or interfere with our ability to sell our services. If we
are found to infringe on the proprietary rights of others and may
be required to incur substantial costs to defend any litigation,
cease offering our services, obtain a license from the holder of
the infringed intellectual property right or redesign our
services.
Legal
standards relating to the validity, enforceability and scope of
protection of certain proprietary rights are still evolving. We
cannot be sure of the future viability or value of any of our
proprietary rights or of similar rights of other companies within
this market. We cannot be certain that the steps taken by us will
prevent misappropriation or infringement of our proprietary
information.
Any litigation might result in substantial costs and diversion of
resources and management attention and could have a material
adverse effect on our business, results of operations and financial
condition.
Technology
We
currently use off the shelf technology to operate our
business.
Regulation of our Business
We
are not currently subject to direct regulation by any governmental
agency other than laws and regulations generally applicable to
businesses. We are subject to common business, tax and regulations
pertaining to the operation of our business. We believe that
compliance of governmental regulations will be additional
responsibilities of our management.
Employees
We
have one full-time employee and one part-time subcontracted
accountant in the United States. From time to time, we expect to
employ additional independent contractors as well as legal,
accounting and other specialized professionals to support our
sales, marketing, business development and administrative
needs.
Our
success will depend on our ability to hire and retain additional
qualified marketing, sales, technical and other personnel.
Qualified personnel are in high demand. We face considerable
competition from other management consulting service firms for
these personnel, many of which have significantly greater resources
than we have.
Properties
Our
corporate headquarters is in Nashville, Tennessee. Substantially
all our operating activities are conducted from 400 square feet of
office space provided by our CEO at no charge. We believe that
additional space may be required as our business expands and
believe that we can obtain suitable space as needed.
Material agreements
The descriptions of the following
agreements are not intended to be complete and are qualified
in their entirety by the full text of the agreements, copies
of which are included as exhibits to this report on
Form 10-K.
Option Agreement To Purchase Business Assets
On March 12, 2021, our Company, through its wholly
owned subsidiary HBR Pointclear, LLC, a Delaware limited liability
company (“HBRP”); and PointClear Solutions, Inc., an
Alabama corporation (“PointClear”) entered into an Option Agreement To
Purchase Business Assets (the “Option
Agreement”). The term of
the Option (the “Option Term”) commenced on March 12, 2021 and
automatically expires on August 1, 2022 (the
“Option Termination
Date”), unless duly
extended, exercised, or sooner terminated as provided in the Option
Agreement.
PointClear is a health care focused information
technology solutions company that provides its clients technology
driven solutions based upon its three core competencies; (i)
Strategic planning, (ii) Digitization and Design, and (iii)
Production and Implementation (the “Business”). Pursuant to the Option Agreement,
PointClear granted to HBRP an exclusive non-cancelable option (the
“Option”) to require PointClear to enter into an
Asset Purchase Agreement (the “Asset Purchase
Agreement”) under which,
HBRP may (i) purchase all of PointClear’s tangible and
intangible assets used in, or useful to the Business (the
“Business
Assets”), and (ii) the
assume certain defined liabilities and contracts related to the
Business. The Option provides HBRP the right, but not the
obligation, to (i) enter into the Asset Purchase Agreement at any
time until August 1, 2022 (the “Option Term”), and (ii), require PointClear to sell the
Business Assets and perform under the Asset Purchase
Agreement.
Pursuant to the Option, HBRP shall arrange for a
loan of up to $750,000 to PointClear (the
“Improvement
Loan”) pursuant to the
Improvement Loan Agreement (the “Improvement Loan
Agreement”), as
consideration for obtaining rights under the Option. PointClear is
required to use the proceeds under the Improvement Loan to improve
the Business and offset operating costs. If HBRP elects to exercise
the Option it shall be obligated to pay to PointClear the
consideration set forth in the Asset Purchase Agreement and comply
with such other terms and conditions that are set forth in the
Asset Purchase Agreement. The repayment of any monies lent under
the Improvement Loan Agreement to PointClear will be determined
based on whether or not HBRP elects to exercise the Option and
enter into the Asset Purchase Agreement with Pointclear. The
Option Agreement contains customary representations, warranties and
covenants
of PointClear and HBRP.
Improvement Loan Agreement
In
connection with the Option Agreement, on March 12, 2021, HBRP and
PointClear entered into the Improvement Loan
Agreement. The Improvement Loan Agreement contains
customary representations, warranties and covenants
of PointClear and HBRP.
Pursuant to the Improvement Loan Agreement, HBRP
established for a period commencing on the March 12, 2021 (the
“Effective
Date”) and ending on the
earlier of August 1, 2022 or the Closing Date (as defined in the
Improvement Loan Agreement) (the “Maturity
Date”) a line of credit
(the “Credit Line”) for PointClear in the principal amount of
up to Seven Hundred Fifty Thousand Dollars ($750,000) (the
“Credit Limit”) which indebtedness shall be evidenced by
and repaid in accordance with the terms of a promissory note for
the amount borrowed against the Credit Limit (the
“Promissory
Note”). All sums advanced
on the Credit Line or pursuant to the terms of the Improvement Loan
Agreement (each an “Advance”) shall become part of the principal of the
Promissory Note. All sums advanced pursuant to the Improvement Loan
Agreement shall bear interest from the date each Advance is made
until paid in full at an interest rate equal to 6.0% per annum. In
the event that the parties do not enter into the Purchase Agreement
before August 1, 2022, then the Promissory Note shall be converted
into a 60 month term loan with payments based on a 10 year
amortization (the “Term Note”). The principal of the Term Note will be
the principal and interest owed under the Credit Line at the
Maturity Date, less any unpaid Option Fee (as such term is defined
in the Option Agreement) owed to PointClear under the Option
Agreement.
Third Party Promissory
Note
On March 15, 2021, our Company issued
to Mark Huber a Promissory Note in the aggregate
principal amount of $200,000 (the “Third Party Promissory
Note”). The principal
amount of $200,000 plus all interest under the Third Party
Promissory Note will be due and payable two hundred seventy
(270) days from March 15, 2021 (the “Maturity
Date”). Interest on the
Third Party Promissory Note will accrue at a rate of 3.0% per
annum, beginning on March 15, 2021 until the principal amount and
all accrued but unpaid interest shall have been paid. The Third
Party Promissory Note is an unsecured debt obligation of the
Company.
Letter Agreement with Stephen Epstein
We
entered into a letter agreement with Stephen Epstein on July 22,
2020 which set forth the terms of employment between Mr. Epstein
and the Company whereby Mr. Epstein agreed to serve as Chief
Executive Officer of the Company at no salary. Mr. Epstein will be
reimbursed by the Company for reasonable business expenses incurred
in connection with his employment with the Company and he is
eligible to receive any healthcare or other benefits afforded to
any other full-time employees of the Company. At such time as the
Company’s board of directors determines that the Company can
reasonably afford to pay Mr. Epstein a salary, the Company will
enter into a new employee agreement with Mr. Epstein which shall
contain a provision for a reasonable salary for his services, in
addition to other customary provisions.
On August 8, 2020, we granted Mr. Epstein
non-qualified stock options to purchase up to 750,000 shares of our
common stock at the exercise price of $.50 per share for
performing additional
unanticipated work involved with executing the Company’s
business plan. This grant was not made in connection with his
Letter Agreement with the Company. On February 1, 2020,
Mr. Epstein voluntarily surrendered to the Company
without consideration all of the non-qualified stock options
to purchase up to 750,000 shares of our common stock in order to allow the Company to
allocate the shares underlying the surrendered options to other
Company employees.
Advisory Board Agreement with Kenneth Hawkins
Mr.
Hawkins is a seasoned mergers and acquisitions executive with more
than 40 years of experience in driving market expansion strategies,
closing transactions, public company reporting, financial analysis
and transaction integration. Mr. Hawkins previously served as
Senior Vice President of Acquisitions and Development at Community
Health Systems (NYSE: CYH) where he completed more than 200
hospitals, physician and services transactions to help grow
revenues from $700 million to over $19 billion.
We
entered into an advisory board agreement with Kenneth Hawkins on
October 28, 2019. Mr. Hawkins was engaged as an independent
contractor to act as an advisor to the board and management. The
agreement expires on November 8, 2021. Upon founding of our
company, Mr. Hawkins was issued 3,000,000 shares of common stock at
the par value.
We
entered into a second agreement with Kenneth Hawkins on November 8,
2019 where he was issued an additional 1,500,000 shares of common
stock at the par value. Of these additional shares, 500,000 vested
when Mr. Hawkins joined our board of directors on May 15, 2020 and
500,000 shares vest on May 15, 2021.
On August 8, 2020, we granted Mr. Hawkins a
non-qualified stock options to purchase up to 750,000 shares of our
common stock at the exercise price of $.50 per share for performing
additional unanticipated work involved with executing the
Company’s business plan. This grant was not made in
connection with his advisory board agreement or his director
agreement with the Company. On February 1, 2020,
Mr. Hawkins voluntarily surrendered to the Company
without consideration all of the non-qualified stock options
to purchase up to 750,000 shares of our common stock in order to allow the Company to
allocate the shares underlying the surrendered options to other
Company employees.
Advisory Board Agreement with Howard T. Wall, III
Mr.
Wall is a healthcare attorney and business executive with over 37
years of healthcare law and business experience. He previously
served as Executive Vice President and Chief Administrative
Officer, General Counsel and Secretary of Regional Care Hospital
Partners since 2011. Prior to that, he served as Senior Vice
President, General Counsel and Secretary for Capella Healthcare,
Senior Vice President, General Counsel and Secretary for Province
Healthcare and an attorney in private practice with Waller Lansden
Dortch & Davis.
We
entered into an advisory board agreement with Howard T. Wall, III
on November 8, 2019. Mr. Wall was engaged as an independent
contractor to act as an advisor to the board and management. The
agreement expires November 8, 2022. Mr. Wall was issued 500,000
shares of common stock at par value. Mr. Wall joined our board of
directors on May 15, 2020.
On
August 8, 2020, we granted Mr. Wall a non-qualified stock options
to purchase up to 750,000 shares of our common stock at the
exercise price of $.50 per share for performing additional
unanticipated work involved with executing the Company’s
business plan. This grant was not made in connection with his
advisory board agreement or his director agreement with the
Company.
Advisory Board Agreement with Scott Leune
Mr.
Leune is the co-founder and CEO of Dental Whale, a management
consulting, training and support service firm in dentistry. Mr.
Leune founded, merged or acquired eleven companies under the Dental
Whale brand. He has experience integrating dental industry related
consulting, training and service companies.
We
entered into an advisory board agreement with Scott Leune on
November 8, 2019. Mr. Leune was engaged as an independent
contractor to act as an advisor to the board and management. The
agreement expires November 8, 2022. Mr. Leune was issued 500,000
shares of common stock at par value.
Advisory Board Agreement with Richard Tinsley
Mr.
Tinsley is the President and CEO of Stoneridge Partners, a
middle-market home healthcare mergers and acquisitions advisory
firm. Mr. Tinsley has a practical background in both law and tax,
having worked as a tax consultant at Ernst & Young and as a
practicing attorney.
We
entered into an advisory board agreement with Richard Tinsley, Esq.
& CPA on November 8, 2019. Mr. Tinsley was engaged as an
independent contractor to act as an advisor to the board and
management. The agreement expires November 8, 2022. Mr. Tinsley was
issued 300,000 shares of common stock at par value.
Advisory Board Agreement with Michael Portacci
Mr.
Portacci’s background includes mergers and acquisitions,
integration and experience in working with executive teams and
physician constituents. He completed his 30-year career with
Community Health Systems, Inc. (NYSE: CYH) as Division President,
where he oversaw 30+ hospitals in seven states with revenues of
approximately $4 billion and EBITDA in excess of $600
million.
We
entered into an advisory board agreement with Michael Portacci on
November 8, 2019. Mr. Portacci was engaged as an independent
contractor to act as an advisor to the board and management. The
agreement expires November 8, 2022. Mr. Portacci was issued 200,000
shares of common stock at par value.
No Non-Compete Agreements with
Advisory Board Members.
None of our advisors have a non-competition
agreement with our Company. However, none of our advisors are
currently separately engaged, nor do they anticipate being
separately engaged, by any potential client of our Company.
Advisors who also serve as members of our board of directors owe
certain fiduciary obligations to our Company, including a duty of
loyalty, pursuant to applicable provisions
of Delaware General
Corporation Law (DGCL). Generally, this means that Board members
must refrain from personal or professional dealings that put their
own self-interest or that of another person or business above the
interest of our Company.
Consulting Agreement with Meraki Partners, LLC
We
entered into an agreement with Meraki Partners, LLC, a Florida
limited liability company, to provide us with business consulting
services until September 9, 2020, including to consult and advise
about: (a) our corporate structure and strategic advice in
connection with going public; (b) engaging appropriate SEC
counsel, auditors, transfer agents and other professionals for the
purpose of going public as a registered fully reporting public
company; (c) assistance in the compilation of information necessary
for preparation of a S-1 registration statement; (d) advice on
responses to the registration statement comments by the Securities
and Exchange Commission and comments by FINRA regarding quotation
of our securities and (e) compilation of the information necessary
to achieve a Standard Manual exemption for secondary trading. We
paid Meraki Partners, LLC 3,500,000 shares of our common stock at
par value for the services described above.
On August 8, 2020, we granted Joel Arberman,
managing member of Meraki Partners, LLC, non-qualified stock
options to purchase up to 750,000 shares of our common stock at the
exercise price of $.50 per share for performing additional
unanticipated work involved with executing the Company’s
business plan. This grant was not made in connection with Meraki
Partners, LLC’s consulting agreement with the Company.
On February 1, 2020, Mr.
Arberman voluntarily
surrendered to the Company without consideration all of the
non-qualified stock options to purchase up to 750,000 shares of our
common stock in order to
allow the Company to allocate the shares underlying the surrendered
options to other Company employees.
Legal proceedings
We
may from time to time be involved in routine legal matters
incidental to our business; however, we are currently not involved
in any litigation, nor are we aware of any threatened or impending
litigation.
Corporate Information
Healthcare Business Resources Inc. was
incorporated in Delaware on September 9, 2019. We conduct all our
operations through our wholly owned subsidiaries, HBR Business
Development, LLC which was incorporated in Delaware on January 21,
2020 and HBR Pointclear, LLC, a Delaware limited liability company
which was incorporated on March
5, 2021. Our business address is 718 Thompson Lane, Suite 108-273,
Nashville, Tennessee 37204 and our telephone number is
615-856-5542. Our website address is www.HealthcareBusinessResources.com. In
this report on Form 10-K,
unless context requires otherwise, references
to “we,” “our,” “us” and
“our Company” refer to Healthcare Business Resources
Inc., a Delaware corporation, and all subsidiaries. Information
contained on our website does not constitute part of this
report on Form
10-K.
An investment in our securities involves a high degree of risk. You
should consider carefully all of the material risks described
below, together with the other information contained in this report
on Form 10-K. If any of the following events occur, our business,
financial condition, results of operations and cash flows may be
materially adversely affected. The risks described below are not
the only ones that we face. Additional risks not presently known to
us or that we currently deem immaterial may also significantly
impair our business operations and could result in a complete loss
of your investment.
RISKS RELATED TO OUR BUSINESS
Because we have a limited operating history, you may not be able to
accurately evaluate our operations.
We have
had limited operations to date. Therefore, we have a limited
history upon which to evaluate the merits of investing in our
Company. You should be aware of the difficulties normally
encountered by new companies and the high rate of failure of such
enterprises. The likelihood of success must be
considered considering the problems, expenses, difficulties,
complications and delays encountered in connection with the
operations that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems
relating to the ability to generate enough cash flow to operate our
business, and additional costs and expenses that may exceed current
estimates. We may incur significant losses into the foreseeable
future. We recognize that if the effectiveness of our
business plan is not forthcoming, we will not be able to continue
business operations. There is no history upon which to
base any assumption as to the likelihood that we will prove
successful, and it is doubtful that we will ever achieve profitable
operations. If we are unsuccessful in addressing these
risks, our business will most likely fail.
We have experienced operating losses in the past and we may not
generate enough funds to sustain a level of profitability in the
future.
Since
our inception, we have incurred significant losses and experienced
negative operating cash flow. We incurred a net loss from
operations of 1,627,628 and $19,857 as of February 28, 2021 and
from inception to February 29, 2020, respectively, and we
anticipate that we will continue to incur significant operating
losses through at least 2021. Additionally, we expect to continue
to make significant operating and capital expenditures in 2019 and
beyond in connection with our growth and expansion plans. As a
result, we may require additional debt or equity financing to
sustain our operations, generate revenue and achieve profitability,
and we cannot assure you that either of these things will ever
occur.
Our profitability is tied to the strength of the companies from
whom we provide consulting services, which are subject to general
business and macroeconomic conditions beyond our
control.
Our
profitability will be closely related to the strength of companies
from whom we provide consulting services, which can be cyclical in
nature and affected by changes in national, state and local
economic conditions which are beyond our control. Macroeconomic
conditions that could adversely impact the growth of our business
and those we consult to include, but are not limited to, economic
slowdown or recession, increased unemployment, increased energy
costs, reductions in the availability of credit or higher interest
rates, increased costs of conducting business, inflation,
disruptions in capital markets, declines in the stock market,
adverse tax policies or changes in other regulations, lower
consumer confidence, lower wage and salary levels, war or terrorist
attacks, pandemics, natural disasters or adverse weather events, or
the public perception that any of these events may occur.
Unfavorable general economic conditions, such as a recession or
economic slowdown, in the United States or other markets we enter
and operate within could negatively affect the affordability of,
and consumer demand for, our services, or the services of the
companies with whom we have royalty stream agreements, which could
have a material adverse effect on our business and
profitability.
We may never generate enough income to become
profitable.
Our
ability to generate income from consulting services and become
profitable will depend, among other things, upon our ability to
successfully prospect for clients, negotiate consulting agreements,
become engaged by clients, add value and collect our payment for
consulting services rendered. Even if we are able to successfully
do these and other things that are within our control, there are
numerous other factors, some of which are not within our control,
that could impact our ability to generate income or cash flows or
be profitable, including those discussed in these risk
factors.
We are
unable to predict the timing or amount of future cash receipts, or
when or whether we will be able to achieve or maintain
profitability. Even if we secure consulting agreements as described
above, we anticipate incurring significant costs associated with
our efforts to achieve or maintain profitability. Further, we may
not receive the cash amounts that we expect, or any at all, from
any of our current or future consulting agreements.
We expect our Company’s business model to continue to
evolve.
As our Company moves forward with its business plans, our
Company’s business model may need to evolve. From time to
time, we may materially modify aspects of our business model
relating to our product and service offerings. We cannot offer any
assurance that these or any other modifications will be successful
or will not result in harm to our business. Such circumstances
would have a material adverse effect on the ability of our Company
to continue as a going concern, which would harm the business,
prospects or operations of the Company and potentially the value of
our common stock.
Our business strategy depends on our ability to enter into
consulting agreements with healthcare organizations. We may not be
able to enter additional contracts in the future or enter into the
number of additional contracts that we anticipate would be
necessary to support our business model.
Our
strategy depends in large part on our ability to benefit from
economies of scale. Accordingly, we are actively pursuing
additional consulting contracts that we intend to enter into in the
future. However, we have no current commitments to enter any other
contracts.
We do
not know if future potential clients will agree to enter consulting
agreements and we may not be able to attract enough additional
contracts. For example, future potential clients may not view our
consulting services as an attractive value proposition to them due
to any number of factors, including differing expectations of an
appropriate purchase price, which may be based on any number of
factors. As a result, we may be forced to revise our business
model.
It is difficult to estimate with precision the projected consulting
payments under any agreement because such estimation is necessarily
based on future events that may or may not occur and that could
change based on a number of factors that are hard to
control.
Due to
the inherent uncertainty in predicting the future, it is difficult
to estimate with precision the projected future payments associated
with our consulting agreements. These estimations are based on
future events that may or may not occur. Additionally, future
events change based on several factors that are difficult or
impossible to control. As a result, it is difficult to predict an
accurate stream of revenue and our competitive position, results of
operations, financial condition and cash flows could be materially
adversely impacted if we receive less revenue from royalty
interests than estimated.
Acquisitions, partnerships and joint ventures are part of our
growth strategy and any acquisitions, partnerships or joint
ventures that we make or enter into could disrupt our business and
harm our financial condition.
Acquisitions, partnerships and joint ventures are part of our
growth strategy. We evaluate, and expect in the future to evaluate,
potential acquisitions of, and partnerships or joint ventures with,
complementary businesses, services or technologies. We may not be
successful in identifying acquisition, partnership, and joint
venture targets. In addition, we may not be able to successfully
finance or integrate any businesses, services, or technologies that
we acquire or with which we form a partnership or joint venture,
and we may lose customers as a result of any acquisition,
partnership, or joint venture. Furthermore, the integration of any
acquisition, partnership, or joint venture may divert
management’s time and resources from our core business and
disrupt our operations. We may spend time and money on projects
that do not increase our revenue or impinge on our current business
plans.
Our business may be adversely affected by competitive market
conditions and we may not be able to execute our business
strategy.
We
expect to increase revenue and cash flow over time through a
business strategy which requires us, among other things, to enter
into consulting agreements with healthcare organizations. We face
competition from other consulting firms and may not be successful
in securing favorable agreements. Expanding our client base will
require sustained management focus, organization and coordination
over significant periods of time. The results of our strategy and
the success of our implementation of this strategy will not be
known for some time in the future. If we are unable to implement
our strategy successfully or properly react to changes in market
conditions, our financial condition, results of operations and cash
flows could be adversely affected.
Our failure
to perform under the Option Agreement with PointClear, or PointClear’s breach of the
Option Agreement, could have a material
adverse effect on our business.
The Option Agreement To
Purchase Business Assets (the “Option
Agreement”)
with
PointClear Solutions,
Inc.
requires us to arrange for a
loan of up to $750,000 to PointClear (the
“Improvement
Loan”) as consideration
for obtaining the option rights pursuant to the Option Agreement.
PointClear is required to use the proceeds under the Improvement
Loan to improve its business and offset operating costs. Currently,
we
are highly dependent on this Option Agreement for the development
of our business plan. If we fail to perform our obligations under
the Option Agreement, with respect to the Improvement Loan or
otherwise, or if PointClear breaches the Option
Agreement, our Company’s business could be adversely
affected. For additional
information on the Option Agreement, See Note 7 – Subsequent
Events in the notes
to the financial statements appearing elsewhere in this report on
Form 10-K.
We will be required to repay the aggregate principal amount of our
outstanding promissory note, including accrued interest, in cash,
on December 10, 2021.
We will be required to repay the aggregate principal amount of our
outstanding promissory note (“Third Party Note”),
including accrued interest, in cash, on December 10, 2021. Based on
our current cash balance and projected net uses of cash in the
future, it is highly unlikely that we would be able to repay the
aggregate principal amount at maturity in cash without securing
additional capital or other financing. Such additional debt
financing may not be available on favorable terms, or at all, and
could increase our Company’s debt balance and result in
significant expense to our Company. If our Company is unable to
raise additional debt financing, we may be forced to raise
additional equity financing. Again, such equity financing may
not be available on favorable terms, if at all. Management efforts
to raise either additional debt or equity financing likely would
require substantial time and effort and may divert management from
implementation of our business plans. In the event the
Company is unable to raise additional debt or equity financing, we
may: (i) have to cease operations, in which case we may file a
petition for bankruptcy in U.S. Bankruptcy Court under Chapter 7,
whereby a trustee will be appointed to sell off our assets, and the
money will be used to pay off our debts in order of their priority.
With respect to priority, stockholders, will be behind all of the
Company’s secured and unsecured creditors, including the
holder of the Third Party Note; or (ii) file a petition for
bankruptcy in U.S. Bankruptcy Court under Chapter 11 to restructure
our debt. The Chapter 11 reorganization plan will describe
stockholders’ rights and what stockholders can expect to
receive, if anything, from the Company. For additional information
on the Third Party Note, See Note 7 – Subsequent
Events - in the notes to the
financial statements appearing elsewhere in this report on Form
10-K.
Our level of indebtedness and other potential financial obligations
may limit our financial flexibility.
Our Company’s indebtedness pursuant to the Third Party Note
and other potential financial obligations pursuant to the Option
Agreement may affect our operations in several ways, including, but
not limited to: (i) putting our Company at a competitive
disadvantage compared to similar companies that have less debt and
financial obligations; and (ii) preventing us from obtaining
additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate or other purposes, or
causing us to incur higher costs and include more restrictive
covenants for such financing. These factors and other factors that
could affect our ability to obtain additional financing, some of
which may be beyond our control, could adversely affect our ability
to take advantage of strategic opportunities that might otherwise
benefit our Company, and could make our Company less attractive to
potential acquirers. For additional information on the Third Party
Note and Option Agreement, See Note 7 – Subsequent
Events in the notes to
the financial statements appearing elsewhere in this report on Form
10-K.
Unpredictable events, such as the COVID-19 outbreak, and associated
business disruptions could seriously harm our revenues and
financial condition, delay our operations, increase our costs and
expenses, and impact our ability to raise capital.
Our operations could be subject to unpredictable events, such as
earthquakes, power shortages, telecommunications failures, water
shortages, floods, hurricanes, typhoons, fires, extreme weather
conditions, hostilities and social unrest, medical epidemics or
pandemics such as the COVID-19 outbreak, changes in government
policies, and other natural or manmade disasters or business
interruptions, for which we are predominantly self-insured. We do
not carry insurance for all categories of risk that our business
may encounter. The occurrence of any of these business disruptions
could seriously harm our operations and financial condition, delay
our marketing efforts, and increase our costs and
expenses.
The spread of the novel coronavirus, or COVID-19, underscores
certain investment risks, such as the severe impact on all economic
activity in the United States for an uncertain duration, including,
without limitation, risks of liquidity and cash flows in the
financial markets, and uncertainty for all market
participants. While some of this uncertainty and recent
market volatility may be mitigated by the March 27, 2020 passage of
the Coronavirus Aid, Relief, and Economic Security Act, or
“the CARES Act,” the rapid development and fluidity of
this situation precludes any prediction as to any ultimate adverse
effects of COVID-19 on the Company or the markets in which we
operate and plan to operate. Neither the duration nor scope of the
disruptions resulting from COVID-19 can be accurately
predicted.
The ultimate impact of such unpredictable events on our Company is
unknown, but our operations and financial condition could suffer in
the event of any of these types of events. Further, any significant
uninsured liability may require us to pay substantial amounts,
which would adversely affect our business, results of operations,
financial condition and cash flows.
We may need additional capital in the future, which may not be
available to us on favorable terms, or at all, and may dilute your
ownership of our securities.
We have
historically relied on outside financing and cash from operations
to fund our operations, capital expenditures and expansion. We may
require additional capital from equity or debt financing in the
future to fund our operations. We may not be able to secure timely
additional financing on favorable terms, or at all. The terms of
any additional financing may place limits on our financial and
operating flexibility. If we raise additional funds through
issuances of equity, convertible debt securities or other
securities convertible into equity, our existing shareholders could
suffer significant dilution in their percentage ownership of our
Company, and any new securities we issue could have rights,
preferences and privileges senior to those of the securities we are
offering herein. If we are unable to obtain adequate financing or
financing on terms satisfactory to us, when we require it, our
ability to grow or support our business and to respond to business
challenges could be significantly limited.
We may expand through acquisitions of, or investments in, other
companies or through business relationships, all of which may
divert our management’s attention, resulting in additional
dilution to our shareholders and consumption of resources that are
necessary to sustain our business.
We may
acquire competing or complementary services, technologies or
businesses. Any future acquisition, investment or business
relationship may result in unforeseen operating difficulties and
expenditures. We may encounter difficulties assimilating or
integrating the acquired businesses, technologies, products,
personnel or operations of the acquired companies, particularly if
the key personnel of the acquired company choose not to work for us
and we may have difficulty retaining the customers of any acquired
business due to changes in management and ownership. Acquisitions
may also disrupt our ongoing business, divert our resources and
require significant management attention that would otherwise be
available for ongoing development of our business. Moreover, we
cannot assure you that the anticipated benefits of any acquisition,
investment or business relationship would be realized or that we
would not be exposed to unknown liabilities, nor can we assure you
that we will be able to complete any acquisitions on favorable
terms or at all.
If we fail to develop our brand cost-effectively, our business may
be adversely affected.
Successful
promotion of our brand will depend largely on the effectiveness of
our marketing efforts and on our ability to provide reliable and
useful services at competitive prices. Brand promotion activities
may not yield increased revenue, and even if they do, any increased
revenue may not offset the expenses we incur in building our
brands. If we fail to successfully promote and maintain our brand
or incur substantial expenses in an unsuccessful attempt to promote
and maintain our brand, we may fail to attract enough new operators
to the extent necessary to realize a sufficient return on our
brand-building efforts, and our business and results of operations
could suffer.
The market in which we participate is competitive and, if we do not
compete effectively, our operating results could be
harmed.
We
operate in a highly competitive industry. The market for our
services is competitive and rapidly changing, and the barriers to
entry are relatively low. We experience competition from large
established businesses possessing large, existing customer bases,
substantial financial resources and established distribution
channels. We expect competition to persist and intensify in the
future. Competition could result in reduced sales, reduced margins
or the failure of our services to achieve or maintain more
widespread market acceptance, any of which could harm our business
and our operating results could be harmed. Our principal
competitors include any entity or individual providing consulting
services, but not limited to business consultants, growth
consultants, sales consultants, marketing consultants, distribution
consultants and financial consultants.
Our
current and potential competitors have significantly more
financial, technical, marketing and other resources than we do and
may be able to devote greater resources to the development,
promotion, sale and support of their offerings. Our current and
potential competitors have more extensive customer bases and
broader customer relationships than we have. If we are unable to
compete with such companies, the demand for our offering could
substantially decline.
We incur significant costs complying with our obligations as a
reporting issuer, which will decrease our
profitability.
We file
periodic reports with the U.S. Securities and Exchange Commission
(“SEC”), including financial statements and disclosure
regarding changes in our operations. In order to comply with these
requirements, our independent registered public accounting firm
will have to review our financial statements on a quarterly basis
and audit our financial statements on an annual basis. Moreover,
our legal counsel will have to review and assist in the preparation
of such reports. The costs charged by these professionals for such
services cannot be accurately predicted at this time because
factors such as the number and type of transactions that we engage
in and the complexity of our reports cannot be determined at this
time and will have a major impact on the amount of time to be spent
by our auditors and attorneys. However, we estimate that these
costs will exceed $100,000 per year for the next few years. Those
fees will be higher if our business volume and activity
increases. Those obligations will reduce our resources
to fund our operations and may prevent us from meeting our normal
business obligations. Compliance costs will be charged to
operations and will negatively impact our
profitability.
RISKS RELATED TO OUR MANAGEMENT
We are highly dependent on our ability to attract, train and retain
consultants.
Our
business is highly dependent on our ability to attract, train and
retain consultants. In addition, because consultants become more
productive as they gain experience, retaining those individuals is
very important for our success. If we are unable to attract, train
and retain effective consultants, our business, financial
condition, cash flows or results of operations could be adversely
affected. If we are unable to attract and retain consultants in our
business, it could adversely affect our business, financial
condition, cash flows and results of operations.
If we fail to retain our key personnel, we may not be able to
achieve our anticipated level of growth and our business could
suffer.
Our
future depends, in part, on our ability to attract and retain key
personnel. Our future also depends on the continued contributions
of our executive officers, each of whom would be difficult to
replace. Stephen Epstein is our Chief Executive Officer and is
critical to the management of our business and operations and the
development of our strategic direction. The loss of the services of
any of our executive officers or key personnel and the process to
replace any of our key personnel would involve significant time and
expense and may significantly delay or prevent the achievement of
our business objectives. Our anticipated growth could strain our
personnel resources and infrastructure, and if we are unable to
implement appropriate controls and procedures to manage our
anticipated growth, we may not be able to successfully implement
our business plan.
Because our officers and directors engage in other business
activities, they may not be able or willing to devote a sufficient
amount of time to our business operations, causing our business to
fail.
Stephen
Epstein, our Chief Executive Officer, currently devotes
approximately 40 hours per week providing management services to
us. While he presently possess adequate time to attend to our
interests, it is possible that his demands from his other
obligations could increase, with the result that he would no longer
be able to devote sufficient time to the management of our
business. The loss of any of our officers or directors could
negatively impact our business development.
We are anticipating a period of rapid growth in our operations,
which may place, to the extent that we are able to sustain such
growth, a significant strain on our management and our
administrative, operational and financial reporting
infrastructure.
Our
success will depend in part on the ability of our senior management
to manage this expected growth effectively. To do so, we believe we
will need to continue to hire, train and manage new employees or
contractors as needed. If our new team members perform poorly, or
if we are unsuccessful in hiring, training, managing and
integrating these new team members, or if we are not successful in
retaining our existing employees or contractors, our business may
be harmed. To manage the expected growth of our operations and
personnel, we will need to continue to improve our operational and
financial controls and update our reporting procedures and systems.
The expected addition of new team members and the capital
investments that we anticipate will be necessary to manage our
anticipated growth will increase our cost base, which will make it
more difficult for us to offset any future revenue shortfalls by
reducing expenses in the short term. If we fail to successfully
manage our anticipated growth, we will be unable to execute our
business plan.
If we are unable to implement and maintain effective internal
control over financial reporting in the future, investors may lose
confidence in the accuracy or completeness of our financial reports
and the market price of our common stock may decline.
We need
to improve the design, implementation, and testing of the internal
controls over financial reporting requirements. If we are unable to
remedy material weaknesses or if our independent registered public
accounting firm is unable to express an opinion as to the
effectiveness of its internal control over financial reporting when
required, investors may lose confidence in the accuracy and
completeness of our financial reports and the market price of the
Common Stock could be negatively affected. We also could become
subject to investigations by the stock exchange if we are ever
listed on an exchange, Securities and Exchange Commission, or other
regulatory authorities, which could require additional financial
and management resources.
We do
not have written documentation of our internal control policies and
procedures. Due to our size and nature, segregation of all
conflicting duties may not always be possible and may not be
economically feasible. To the extent possible, the initiation of
transactions, the custody of assets and the recording of
transactions should be performed by separate individuals. As of
February 28, 2021, the initiation of transactions and recording of
transactions are performed solely by Stephen Epstein, our Chief
Executive Officer.
We do not have a compensation or an audit committee, so
shareholders will have to rely on our directors to perform these
functions.
We do
not have an audit or compensation committee comprised of
independent directors. These functions are performed by the members
of our board of directors. Until we have an audit committee, there
may be less oversight of management decisions and activities and
little ability for minority shareholders to challenge or reverse
those activities and decisions, even if they are not in the best
interests of minority shareholders.
Our officers and directors own a controlling interest in our voting
stock and investors will not have any voice in our management,
which could result in decisions adverse to our general
shareholders.
Our
officers and directors, in the aggregate, will beneficially own or
have the right to vote 73.2% of our outstanding common shares on a
fully diluted basis, assuming all the shares we are offering are
sold and assuming none of the shares are purchased by any of our
officers or directors. As a result, these shareholders,
acting together, will have the ability to control substantially all
matters submitted to our shareholders for approval including:
election of our board of directors; removal of any of our
directors, amendment of our certificate of incorporation or
by-laws; and adoption of measures that could delay or prevent a
change in control or impede a merger, takeover or other business
combination involving us.
As a
result of their ownership and positions, our officers and directors
collectively can influence all matters requiring shareholder
approval, including the election of directors and approval of
significant corporate transactions. The interests of our officers
may differ from the interests of the other shareholders, and they
may influence decisions with which the other shareholders may not
agree. Such decisions may be detrimental to our business plan
and/or operations and they may cause the business to fail in which
case you may lose your entire investment.
We rely on third party consultants and other outside advisors
for many aspects of our business,
which creates additional risk.
We rely on third party consultants and other outside advisors for
many aspects of our business, including accounting legal and
compliance. If the third parties that we rely on do not perform
satisfactorily, our operations could be disrupted, which could
result in customer dissatisfaction, damage our reputation, harm our
business or reduce the value of our shares.
RISKS RELATED TO OUR SYSTEMS
Cybersecurity incidents could disrupt business operations, result
in the loss of critical and confidential information, and adversely
impact our reputation and results of operations.
We face
growing risks and costs related to cybersecurity threats to our
data and customer, employee data, including but not limited
to:
●
the failure or
significant disruption of our operations from various causes,
including human error, computer malware, ransomware, insecure
software, zero-day threats, or other events related to our critical
information technologies and systems
●
the increasing
level and sophistication of cybersecurity attacks, including
distributed denial of service attacks, data theft, fraud or
malicious acts on the part of trusted insiders, social engineering,
or other unlawful tactics aimed at compromising the systems and
data of our officers, employees, operators and their customers
(including via systems not directly controlled by us, such as those
maintained by independent sales agents, joint venture partners and
third party service providers)
●
the reputational
and financial risks associated with a loss of data or material data
breach (including unauthorized access to our proprietary business
information or personal information of our customers, employees and
independent sales agents), the transmission of computer
malware.
Global
cybersecurity threats can range from uncoordinated individual
attempts to gain unauthorized access to information technology
systems via viruses, worms, and other malicious software, to
phishing to advanced and targeted hacking launched by individuals
or organizations. These attacks may be directed at the Company, its
employees, operators, third-party service providers, joint venture
partners and others.
In the
ordinary course of our business, we and our third-party service
providers store sensitive data, including our proprietary business
information and intellectual property and that of our clients as
well as personally identifiable information, sensitive financial
information and other confidential information of our employees and
customers. Additionally, we increasingly rely on third-party data
processing, storage providers, and critical infrastructure
services, including cloud solution providers. The secure
processing, maintenance and transmission of this information are
critical to our operations and with respect to information
collected and stored by our third-party service providers, we are
reliant upon their security procedures. A breach or attack
affecting one of our third-party service providers or partners
could harm our business even if we do not control the service that
is attacked.
In
addition, the increasing prevalence and the evolution of
cyber-attacks and other efforts to breach or disrupt our systems or
those of our employees, customers, third-party service providers
and/or joint venture partners will likely continue to lead, to
increased costs to us with respect to preventing, investigating,
mitigating and remediating these risks, as well as any related
attempted or actual fraud.
Our facilities and systems are vulnerable to natural disasters and
other unexpected events and any of these events could result in an
interruption of our ability to execute our business
operations.
We will
depend on the efficient and uninterrupted operations of our
third-party data centers and hardware systems. The data centers and
hardware systems are vulnerable to damage from earthquakes,
tornados, hurricanes, fire, floods, power loss, telecommunications
failures and similar events. If any of these events results in
damage to third-party data centers or systems, we may be unable to
provide our clients with our service until the damage is repaired
and may accordingly lose clients and revenues. In addition, subject
to applicable insurance coverage, we may incur substantial costs in
repairing any damage.
Any significant disruption in service on our website or in our
computer systems, or in our customer support services, could reduce
the attractiveness of our services and result in a loss of
customers.
The
satisfactory performance, reliability and availability of our
services are critical to our operations, level of customer service,
reputation and ability to attract new customers and retain
customers. Most of our computing hardware are co-located in
third-party hosting facilities. None of the companies who host our
systems guarantee that our customers’ access to our products
will be uninterrupted, error-free or secure. Our operations depend
on their ability to protect their and our systems in their
facilities against damage or interruption from natural disasters,
power or telecommunications failures, air quality, temperature,
humidity and other environmental concerns, computer viruses or
other attempts to harm our systems, criminal acts and similar
events. If our arrangements with third-party data centers are
terminated, or there is a lapse of service or damage to their
facilities, we could experience interruptions in our service as
well as delays and additional expense in arranging new facilities.
Any interruptions or delays in access to our services, whether as a
result of a third-party error, our own error, natural disasters or
security breaches, whether accidental or willful, could harm our
relationships with customers and our reputation. These factors
could damage our brand and reputation, divert our employees’
attention, reduce our revenue, subject us to liability and cause
customers to cancel their accounts, any of which could adversely
affect our business, financial condition and results of
operations.
We do not have a disaster recovery system, which could lead to
service interruptions and result in a loss of
customers.
We do
not have any disaster recovery systems. In the event of a disaster
in which our software or hardware are irreparably damaged or
destroyed, we would experience interruptions in access to our
services. Any or all these events could cause our customers to lose
access to our services.
We rely on third-party computer hardware and software that may be
difficult to replace or that could cause errors or failures of our
service, which could cause us to suffer a decline in revenues and
profitability.
We rely
on computer hardware purchased and software licensed from third
parties in order to offer our services. This hardware and software
may not continue to be available on commercially reasonable terms,
or at all. If we lose the right to use any of this hardware or
software or such hardware or software malfunctions, our customers
could experience delays or be unable to access our services until
we can obtain and integrate equivalent technology or repair the
cause of the malfunctioning hardware or software. Any delays or
failures associated with our services could upset our customers and
harm our business.
RISKS RELATED TO OUR SECURITIES
Because we can issue additional shares of common stock, our
stockholders may experience dilution in the future.
We are
authorized to issue up to 200,000,000 shares of common stock. As of
the date of this report on Form 10-K, we will have approximately
19,625,000 shares of common stock issued and outstanding. Our board
of directors has the authority to cause us to issue additional
shares of common stock without the consent of any of our
shareholders. Consequently, you may experience more dilution in
your ownership of our securities in the future.
We do not intend to pay any cash dividends on our shares of common
stock, so stockholders will not be able to receive a return on
their investment unless they can sell their shares.
We
intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash
dividends on our shares of common stock. Unless we pay dividends,
our stockholders will not be able to receive a return on their
investment unless they can sell their shares.
There is no current trading market for shares of common stock and
if a trading market does not develop, our stockholders may have
difficulty selling their shares.
There
is currently no established public trading market for our shares of
common stock and an active trading market in our shares of common
stock may not develop or, if developed, may not be sustained.
We intend to apply for admission to quotation of our common
stock on the OTCQB. If for any reason our shares are not
quoted on the OTCQB or a public trading market does not otherwise
develop, stockholders may have difficulty selling their shares
should they desire to do so. No market makers have committed
to becoming market makers for our common shares and it may be that
none will do so. As a result, stockholders must be prepared to hold
their shares for an indefinite period.
Financial Industry Regulatory Authority (FINRA) sales practice
requirements may limit your ability to buy and sell our
shares.
FINRA
rules require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending
speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax
status, investment objectives and other information. Under
interpretations of these rules, FINRA believes that there is a high
probability that speculative low-priced securities will not be
suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers
buy our common stock, which may limit your ability to buy and sell
our stock and have an adverse effect on the market for our shares,
depressing our share price.
State securities laws may limit secondary trading, which may
restrict the states in which, and conditions under which, you can
sell the securities sold in this offering.
Secondary
trading in securities sold in this offering will not be possible in
any state in the U.S. unless and until the securities are qualified
for sale under the applicable securities laws of the state or there
is confirmation that an exemption, such as listing in certain
recognized securities manuals, is available for secondary trading
in such state. We cannot assure you that we will be successful in
registering or qualifying our securities for secondary trading or
identifying an available exemption for secondary trading in our
securities in every state. If we fail to register or qualify,
or to obtain or verify an exemption for the secondary trading of,
the securities in any state, the securities could not be offered or
sold to, or purchased by, a resident of that state. If a
significant number of states refuse to permit secondary trading in
our securities, the market for our securities could be adversely
affected.
We will be subject to the penny stock rules adopted by the
Securities and Exchange Commission that require brokers to provide
extensive disclosure to their customers prior to executing trades
in penny stocks. These disclosure requirements may cause a
reduction in the trading activity of our common stock, which would
likely make it difficult for our stockholders to sell their
securities.
Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the
definition of a “penny stock,” for purposes relevant to
us, as any equity security that has a minimum bid price of less
than $5.00 per share or with an exercise price of less than $5.00
per share, subject to a limited number of exceptions which are not
available to us. This classification could severely and adversely
affect any market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the
penny stock rules require that a broker or dealer approve a
person’s account for transactions in penny stocks and the
broker or dealer receive from the investor a written agreement to
the transaction setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person’s
account for transactions in penny stocks, the broker or dealer must
obtain financial information and investment experience and
objectives of the person and make a reasonable determination that
the transactions in penny stocks are suitable for that person and
that that person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in
a penny stock, a disclosure schedule prepared by the SEC relating
to the penny stock market, which, in highlight form, sets
forth:
|
●
|
The
basis on which the broker or dealer made the suitability
determination; and
|
|
●
|
That
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny
stocks.
Because of these regulations, broker-dealers may not wish to engage
in the above-referenced necessary paperwork and disclosures and/or
may encounter difficulties in their attempt to sell shares of our
common stock, which may affect the ability of Selling Stockholders
or other holders to sell their shares in any secondary market and
have the effect of reducing the level of trading activity in any
secondary market. These additional sales practice and disclosure
requirements could impede the sale of our common stock. In
addition, the liquidity for our common stock may decrease, with a
corresponding decrease in the price of our common stock. Our common
stock, in all probability, will be subject to such penny stock
rules for the foreseeable future and our stockholders will, in all
likelihood, find it difficult to sell their shares of common
stock.
The price of our common stock may fluctuate
significantly.
The
market price for shares of our common stock could fluctuate
significantly for various reasons, many of which are outside our
control. Broad market and industry factors may materially reduce
the market price of our common stock, regardless of our operating
performance. In addition, price volatility may be greater if the
public float and trading volume of our common stock is low. If any
of the foregoing occurs, it could cause our stock price to fall and
may expose us to litigation, including class action lawsuits that,
even if unsuccessful, could be costly to defend and a distraction
to management.
Our Bylaws designate the Court of Chancery of the State of Delaware
as the sole and exclusive forum for certain types of actions and
proceedings that may be initiated by our stockholders, which could
limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers,
employees or agents.
Our bylaws provide that unless we consent in writing to the
selection of an alternative forum, the Court of Chancery of the
State of Delaware (or, if the Court of Chancery does not have
jurisdiction, the federal district court for the District of
Delaware) shall be the sole and exclusive forum for:
●
any
derivative action or proceeding brought on behalf of our
Company;
●
any
action asserting a claim for breach of a fiduciary duty owed by any
director, officer, employee, or agent of the Company to the Company
or the Company's stockholders;
●
any
action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, the Certificate of Incorporation,
or these by-laws; or
●
any
action asserting a claim governed by the internal affairs
doctrine;
This
provision may have the effect of discouraging lawsuits against our
directors and officers.
The enforceability of similar choice of forum provisions in other
companies’ bylaws and certificates of incorporation has been
challenged in legal proceedings, and it is possible that, in
connection with any action, a court could find the choice of forum
provisions contained in our bylaws to be inapplicable or
unenforceable in such action. Additionally, these provisions would
not apply to suits brought to enforce a duty or liability created
by the Exchange Act, Securities Act or any other claim for which
the federal courts have exclusive or concurrent jurisdiction. Any
person or entity purchasing or otherwise acquiring any interest in
our securities shall be deemed to have notice of and consented to
these provisions. Our exclusive forum provision will not relieve us
of our duties to comply with the federal securities laws and the
rules and regulations thereunder, and our shareholders will not be
deemed to have waived our compliance with these laws, rules and
regulations.