Overview
Global
Diversified Marketing Group Inc. (the “Company”) was incorporated on December 1, 2017 as a Delaware corporation under the
name “Dense Forest Acquisition Corporation,” and became subject to the Exchange Act reporting requirements by filing a Form
10 Registration Statement with the SEC on January 19, 2018. On June 13, 2018, the Company effected a change in control with (i) the resignation
of the then-officers and directors, (ii) the contribution back to the Company of 19,500,000 shares of the 20,000,000 outstanding shares
of its Common Stock by these former directors and officers, and (iii) the appointment of Paul Adler as the new director and officer of
the Company. In connection thereof, on June 13, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation
with the Delaware Secretary of State, changing the name of the Company to “Global Diversified Marketing Group Inc.” On June
14, 2018, the Company issued 12,500,000 shares of its Common Stock to its new director and officer, Paul Adler.
On
November 26, 2018, the Company effected the acquisition of Global Diversified Holdings, Inc., a private New York corporation in the snack
and gourmet food business (“GDHI”), pursuant to the terms of an acquisition agreement (the “Acquisition”). Upon
the consummation of the Acquisition, the Company issued 200 shares of the Company’s Common Stock to Paul Adler, the sole stockholder
of GDHI, in exchange for all of the outstanding shares of GDHI, and GDHI became a wholly owned operating subsidiary of the Company. The
transaction was accounted for as a combination of entities under common control since the date of the Acquisition. Prior to the Acquisition,
the Company had no business and no operations. Pursuant to the Acquisition, the Company acquired the operations and business plan of
GDHI.
Business
We
are an early-stage global multi-line consumer packaged goods (“CPG”) company with branded product lines, and are a food and
snack manufacturer, marketer and distributor in the United States, Canada, and Europe. The Company is focused on developing and marketing
products that appeal to consumers’ growing preference for healthy snack food and operates through snacks segments offering Italian
Wafers, French Madeleines, Italian Croissants, Macaron Cookies, Wafer Pralines, and other wholesome snacks. Our sole officer often attends
global food trade shows to seek out unique products and snacks. Once the Company identifies products that fit within its distribution
channels, it will seek to enter into non-exclusive manufacturing and licensing agreements with such distributors to distribute products
under the Company’s own trademarked brands for sale in the United States and/or global markets. Currently, the Company maintains
six trademarks for its brands registered with the US Patent and Trademark Office; each trademark covers numerous product lines with a
variety of unique identifiers (known as SKUs) offered under the applicable brand name. The Company has non-contractual on-going relationships
with many Fortune 500 companies, including club and retail chain stores to whom the Company directly sells its products.
The
Company sells its products directly in the United States and global markets through various distribution channels comprising specialty,
grocery retailers, food-service distributors and direct store delivery (“DSD”), as well as the vending, pantry, and the micro-market
segment. Our buyers typically represent recognized large retail chain stores. The products are then distributed by the chains to their
local outlets. The Company seeks out and develops snacks and gourmet foods to brand under its trademarks based on market trends and input
from the buyers as to consumer demand. The Company works closely with buyers to evaluate products with the intent to identify products
that have likely customer demand. We recently re-branded and launched all new snack marketplace and will seek to gain market share in
the ecommerce segment. Our re-branded website will serve as snack marketplace which will carry its own branded products and other gourmet
snacks and products
We
intend to develop additional gourmet foods and snack products under its trademarked brands and to expand the Company’s offering
portfolio by identifying, producing and marketing new products. Management believes that the strategy of acquiring small brands regional
brands and adding these to the Company’s national distribution can prove beneficial for the Company.
Vending
Operations
In
addition to placing its products with large retail specialty chains, the Company supplies products to vending channels throughout the
United States through food service distributors. These vending machines are located in malls, service stations, and schools. The Company
works with vending companies that have, in the aggregate, more than 100,000 machines nationwide. The Company supplies vending companies
with products. The Company works directly with some vending companies and with others through its food service distributors. The broker
pre-sells the products and the distributor services the accounts. When the distributor services the accounts, the distributor buys the
product directly. Vending machine sales represent approximately one percent our revenues.
Products
and Trademarked Brands
The
Company currently owns six trademark brands. Each brand encompasses numerous SKUs that are brought to the market from time to time. The
Company produces its products primarily on an “on request” basis from its retail chain buyers for sale through such chains.
The Company’s trademarks are listed below as follows:
Country | |
Mark | |
Status | |
Class | |
Serial Number | |
Registration Number | |
Registration Date | |
Owner Name | |
Expiration Date |
USA | |
BISCOTTELLI | |
Live | |
030 | |
86579810 | |
4994327 | |
3/28/2015 | |
Paul Adler | |
3/27/25 |
USA | |
DOLCIBONO | |
Live | |
030 | |
88639475 | |
6078602 | |
10/2/2019 | |
Global Diversified Holdings, Inc. | |
10/1/29 |
USA | |
BONBONS DE PARIS | |
Live | |
030 | |
87296805 | |
544000 | |
1/11/2017 | |
Paul Adler | |
1/10/27 |
USA | |
FRUTTATA | |
Live | |
029 | |
88519630 | |
6171561 | |
7/19/2019 | |
Global Diversified Holdings, Inc. | |
7/18/29 |
USA | |
COCO BLISS | |
Live | |
030 | |
87256922 | |
5351910 | |
12/5/2016 | |
Paul Adler | |
12/4/26 |
USA | |
EZLYV | |
Live | |
| |
97001930 | |
Pending | |
8/30/2021 | |
Global Diversified Holdings, Inc. | |
8/29/31 |
Retail
Chain Buyers
The
primary distribution of our products has been through specialty retail chains. We work with the buying office that determines placement
for our products. The retail chain will then distribute the products to its retail outlets.
Our
Strategy and Strengths
We
believe a variety of favorable consumer trends, including a greater focus on health and wellness, increased consumption of smaller, more
frequent meals throughout the day and a preference for convenient gourmet foods and snacks will continue to drive overall snacking growth
within the overall market. Our Management believes that
the Company’s products appeal to a wide range of consumers, including most age brackets. The young snackers, classified as those
being between the ages of 18-34, tend to consume more snacks than average adults but the gourmet foods reach the broader adult market.
The senior market tends to reduce snacks and gourmet foods. We expect to explore the development
and acquisition of small regional brands and adding them to the Company’s national distribution within the United States
and globally.
We
anticipate that our marketing strategy will use the internet and social media including Facebook, Instagram, and Twitter. Our distribution
channels consist of retailers, distributors, online e-commerce, and vending companies. The Company’s marketing strategy is primarily
targeted at the vendors and retail chain stores.
The
Company anticipates utilizing the following opportunities to further their marketing program, to obtain information to adjust and modify,
as needed, the marketing program, and to create direct interest in its products:
Networking.
Networking could be a low-cost but often effective means for us to generate partnerships and growth while bolstering personal commitments
to the Company. Management will join wholesalers’ associations to network with other food manufacturers and distributors.
Trade
Shows. The Company plans to attend trade shows and exhibitions related to the food manufacturing industry, such as SIAL, PLMA Amsterdam,
Thaifex, Fancy Food, CIBUS, ISM, and ANUGA among others. Through attendance at conventions and trade shows, management remains knowledgeable
and informed about advancements, trends, and issues of concern in the market.
Direct
Sales. The Company plans to employ a dedicated sales team to enact precise sales and promotional efforts in the near future.
Social
Media and Food Blogging. The Company will manage its brands on social media sites, such as Facebook, Instagram, and Twitter. Twitter
has proven an effective platform to conduct customer satisfaction surveys as well as solicit customer feedback on food products.
The
rise in popularity of the food blogging community has given consumers a massive platform on which to share their opinion and make their
voices heard. This has led to a rise in consumer concerns about food, with increasing emphasis being placed on healthy eating and organic
produce. The Company will use food blogging websites to promote its products and highlight benefits that appeal to a new generation of
socially-aware consumers.
Websites.
A well-optimized website has been constructed, with proper site structure, page layout, and clear and easy navigation, along with
targeted keywords embedded throughout the site to ensure prominent search engine placement and saturation. The Company’s websites:
www.360worldsnacks.com,
www.biscottelli.com, www.gdmginc.com, www.dolcibono.com, www.fruttatasnacks.com, and www.ezlyv.com are important
marketing assets.
We
anticipate that we will primarily target teens and adults up to age 65. The primary target market is “Young Snackers” that
are 18-34 years old and tend to eat more snacks than other age groups. The trend of snacks between meals is especially strong with millennials
and younger Americans. A quarter of American millennials, age 23 to 40, reported eating four or more times a day, compared to just 10%
of Gen X and 9% of Baby Boomers. The Company believes that the senior age bracket (over 65) is not a strong snack market.
The
Company use of co-packers for manufacturing and packaging of its products provides the most efficient and cost-effective means of operations
for a small company like we are. It allows us to scale-up and meet growing demand, without having
to invest in our own industrial setting and without the high overhead costs of hiring salespeople as employees of the Company.
The Company intends to employ this model strategy in the future and also to attract and retain experienced sales team.
Competition
The
snack food industry in the United States is very competitive, particularly in the savory and salty snack segment. In the United States,
a study conducted and published by the Packaging Strategies magazine reported that snacks account for 51% of all food sales, and 92%
of adults in the US have snacked within the last 24 hours.
The
Company has observed an increased demand for “healthy” snacks. In the United States, companies are finding success in the
“snackable” fruit and vegetable category, such as grapes or baby carrots.
A
challenge facing entrants in the snack and gourmet food market is the dominance of leading snack food producers, particularly the industry
leader PepsiCo. Large producers may experience a high degree of brand and consumer loyalty and typically possess sufficient capital to
invest in extensive advertising and promotions to obtain a greater market share. Furthermore, companies such as PepsiCo often benefit
from higher profit margins when compared with small- to medium-sized operators, enabling them to lower their product prices and to engage
in price-based competition with competitors. Multinational producers may also experience lower per-unit costs due to economies of scale
and scope
Employees
The
Company currently has two employees, including one executive officer, and a director of operations, and a staff employee.
Subsidiaries
The
wholly-owned subsidiary, Global Diversified Holdings, Inc., is the Company’s only subsidiary.
Investing
in our common stock involves a high degree of risk. Before investing in our common stock, you should carefully consider the risks described
below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes.
In addition, we may face additional risks and uncertainties not currently known to us, or which as of the date of this registration statement
we might not consider significant, which may adversely affect our business. If any of the following risks occur, our business, financial
condition and results of operations could be materially adversely affected. In such case the trading price of our common stock could
decline due to any of these risks or uncertainties, and you may lose part or all of your investment.
Risks
Related to our Business and Industry.
The
Company depends on its President and Chief Financial Officer, to manage its business effectively and loss of the President and Chief
Financial Officer could significantly impair the Company’s results.
The
Company, through its subsidiary, has a developed track record of bringing successful new products to the retail chain buyers for the
placement and sale of the Company’s products. This track record has been developed by the President and Chief Financial Officer
of the Company, Paul Adler, and his ability to locate and produce unique and quality snack and gourmet foods attractive to the buyer’s
market. The loss of Mr. Adler as the Company’s President and Chief Financial Officer, or in active management of the Company, could
have a significant negative impact of the operations of the Company. Such a loss could impact the production of current product, the
relationship with the retail chain stores and development of future products.
Our
independent auditors have expressed their concern as to our ability to continue as a going concern.
On
a consolidated basis, the Company has incurred significant operating losses since inception and has a working capital deficit and accrued
liabilities. As of December 31, 2021, the Company had cash on hand of $312,574, and an accumulated deficit of $27,543,659.The consolidated
financials have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments
that might result from the outcome of this uncertainty. The Company’s existing operational cash flow may not be sufficient to fund
presently anticipated operations, and the Company will need to raise additional funds through alternative sources of financing. There
is no assurance that we will be able to obtain additional funding when it is needed, or that such funding, if available, will be obtainable
on terms acceptable to us. If we cannot obtain needed funds, we may be forced to reduce or cease our activities with consequent loss
to investors. In addition, should we incur significant presently unforeseen expenses or delays, we may not be able to accomplish our
goals. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. If the
Company is unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially
and adversely affected, and we may be unable to continue as a going concern.
The
gourmet and snack food markets are dominated by several large strong food producers.
A
challenge facing potential new or expanding entrants in the market is the dominance of leading snack food producers, particularly industry
leader PepsiCo. Large producers experience a high degree of brand and consumer loyalty and possess sufficient capital to invest in extensive
advertising and promotions to obtain a greater market share. Furthermore, companies such as PepsiCo benefit from higher profit margins
when compared with small- to medium-sized operators, enabling them to lower their product prices to engage in price-based competition
with competitors. Multinational producers also experience lower per-unit costs due to economies of scale and scope. Although these factors
do not prevent a prospect from entering the industry, they may hamper the success of new entrants.
In
addition, many industry players have established relationships with downstream retailers, which may be difficult for new entrants to
secure. Typically, supermarkets give companies with established brands the most optimal shelf space. Moreover, larger producers have
established relationships with upstream suppliers, an advantage that new entrants may find difficult to replicate.
During
the last two fiscal years the Company has had four to five major customers that accounted for between 91- 99 % of its sales.
Historically,
the Company has relied on a small number of customers to generate a large portion of its revenue. In 2021, five customers accounted for
approximately 99% of the Company revenues. In 2020, customers accounted for approximately __% of the Company’s revenues. Loss of
any one of these four customers would have a material adverse impact on our profitability and liquidity. Although we believe that we
could locate replacement customers, the initial loss of such revenues could hamper on going production and distribution of the Company.
No
assurance of commercial success of any additional products.
The
Company intends to seek and produce new products to add to its trademarked brands and to offer its buyers. The Company may spend a large
portion of its revenues in locating and producing such products and the possible inability to market such products to the retail chain
buyers, or the failure of such products to sell successfully once marketed could significantly impact the operations of the Company and
impact its future ability to market other new products.
Failure
to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating
results.
Failure
to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating
results. To manage our growth effectively, we must continually evaluate and evolve our business and manage our employees, operations,
finances, technology and development, and capital investments efficiently. Our efficiency, productivity and the quality of our business
may be adversely impacted if we fail to appropriately coordinate across our business operations. Additionally, rapid growth may place
a strain on our resources, infrastructure, and ability to maintain the quality of our production. If and when our structure becomes more
complex as we add additional staff, we will need to improve our operational, financial and management controls as well as our reporting
systems and procedures. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues.
As
a food production company, all of our products must be compliant with regulations by the Food and Drug Administration, or FDA. Any non-compliance
with the FDA could harm our business.
We
must comply with various FDA rules and regulations, including those regarding product manufacturing, food safety, required testing and
appropriate labeling of our products. While our products are compliance with current regulations by the FDA, it is possible that regulations
by the FDA and its interpretation thereof may change over time. As such, there is a risk that our products could become non-compliant
with the FDA’s regulations and any such non-compliance could harm our business.
Our
intellectual property rights are critical to our success, and the loss of such rights could materially adversely affect our business.
We
regard our trademarks and other intellectual property rights as critical to our success and attempt to protect such intellectual property
with registered and common law trademarks, restrictions on disclosure and other actions to prevent infringement. However, there can be
no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some
or all of our intellectual property rights, our business may be materially adversely affected.
We
may be subject to claims alleging the intellectual property subject to our licensing agreements is violating the intellectual property
rights of others.
We
may face significant expense and liability as a result of litigation or other proceedings relating to intellectual property rights of
others. We could be required to participate in interference proceedings involving issued patents and pending applications of another
entity. The cost to us of any such proceeding could be substantial. An adverse outcome in an interference proceeding could require us
to cease using the technology, substantially modify it or to license rights from prevailing third parties. There is no guarantee that
any prevailing owner of intellectual property would offer us a license so that we could continue to engage in our activities, or that
such a license is made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future,
assert other intellectual property infringement claims against us with respect to our services, technologies or other matters.
We
may be subject to significant liability should the consumption of any of our products cause or be claimed to cause illness or physical
harm.
We
sell products for human consumption, which involves risks such as product contamination or spoilage, product tampering, other adulteration,
mislabeling and misbranding. Under certain circumstances, we may be required to, or may voluntarily, recall or withdraw products. Such
withdrawal may negatively and significantly impact our sales and profitability for a period of time and could result in significant losses
depending on the costs of the recall, the destruction of product inventory, product availability, competitive reaction and customer and
consumer reaction. We may also be subject to claims or lawsuits resulting in liability for actual or claimed injuries, illness or death.
Any of these events may result in a material adverse effect on our business. Even if a product liability claim or lawsuit is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could adversely
affect our reputation with existing and potential customers and consumers and our corporate and brand image. Moreover, certain claims
or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against
others. We maintain product liability insurance in an amount that is required by our customers/retailers. However, we cannot be sure
that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product
liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition,
results of operations or liquidity.
Limitations
on director and officer liability and indemnification of our officers and directors by us may discourage stockholders from bringing suit
against a director.
Our
Certificate of Incorporation and Bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer
shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions. During
2021, the Company obtained $5.0 million of Directors and Officers insurance.
Risks
Related to COVID-19
The
uncertainty and extent of the COVID-19 pandemic may continue to have an adverse effect on our operations and on the global capital markets.
The
current outbreak of COVID-19 could continue to have a material and adverse effect on the Company’s business operations. We sell
our products throughout the United States and global markets to buyers which typically represent recognized large retail chain stores.
Any disruptions or restrictions on the Company’s ability to travel or to distribute its products in the United States and in global
markets, as well as temporary closures of production facilities would likely impact our sales and operating results. In addition, Covid-19
has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many other countries, resulting
in an economic downturn that could affect demand for our products and significantly impact our operating results.
The
extent to which our results continue to be affected by COVID-19 will largely depend on future developments which cannot be accurately
predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the
global economy, demand for our products, and our ability to provide our products, particularly as result of our employees working remotely
and/or the closure of certain offices and production facilities. While these factors are uncertain, the COVID-19 pandemic or the perception
of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, or cash
flows.
Risks
Related to Our Common Stock
The
Company’s sole officer beneficially owns and will continue to own a majority of the Company’s common stock and, as a result,
can exercise control over shareholder and corporate actions.
Paul
Adler, the founder and President of the Company, is currently the beneficial owner of approximately ___% of the Company’s outstanding
Common Stock, and assuming that Williamsburg purchases the maximum number of the Shares pursuant to the Purchase Agreement, will own
approximately 68.7% of the Company’s then outstanding Common Stock. In addition, Mr. Adler owns 1,000 shares of Series A Super
Voting Preferred Stock as such, he will have approximately 95.2% of the voting power in the Company and thus be able to control all matters
requiring approval by shareholders, including the election of directors and approval of significant corporate transactions.
The
Company has authorized the issuance of preferred stock with certain preferences.
The
Company is authorized to issue up to 20,000,000 shares of $0.0001 par value preferred stock. The board of directors of the Company (the
“Board”) has the power to establish the dividend rates, liquidation preferences, and voting rights of any series of preferred
stock, and these rights may be superior to the rights of holders of the Shares. The Board may also establish redemption and conversion
terms and privileges with respect to any shares of preferred stock. Any such preferences may operate to the detriment of the rights of
the holders of the Shares, and further, could be used by the Board as a device to prevent a change in control of the Company. To the
Company has designated 1,000,000 shares of Series A Super Voting Preferred Stock, each of which votes with the Common Stock and has 100,000
votes. Mr. Adler, our sole officer and a member of the Board, owns all the issued 1,000 shares of this class of preferred stock which
gives him an additional 100,000,000 voting rights in any shareholder meeting.
Future
capital raises may dilute our existing shareholders’ ownership, the value of their equity securities and/or have other adverse
effects on our operations.
If
we raise additional capital by issuing equity securities in connection with equity financings, our existing shareholder’ percentage
ownership may decrease, and these shareholders may experience substantial dilution. If we raise additional funds by issuing debt instruments,
these debt instruments could impose significant restrictions on our operations, including liens on our assets. If we raise additional
funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or products,
or to grant licenses on terms that are not favorable to us or could diminish the rights of our shareholders. Furthermore, if we offer
to sell our shares of Common Stock in subsequent offerings for the purchase price that is less than the purchase price of shares of Common
Stock offered pursuant to this Report, this may impact the value of equity securities of the shareholders that are purchasing our shares
of Common Stock in the offering pursuant to this Report. In addition, the issuance of such additional shares may impact the ability of
any investor to sell their shares once such shares are eligible for sale.
The
sale of shares of our Common Stock to Williamsburg may cause dilution, and the subsequent resale of the shares of our Common Stock acquired
by Williamsburg, or the perception that such resales may occur, could cause the price of our Common Stock to fall.
Under
the Purchase Agreement, we may require Williamsburg to purchase up to $5.0 million of our Common Stock, except that, pursuant to the
terms of the Purchase Agreement, we would be unable to sell shares to Williamsburg if such purchase would result in its beneficial ownership
of more than 4.99% of our outstanding Common Stock. After Williamsburg has acquired our shares, it may sell all, some, or none of those
shares. Therefore, sales to Williamsburg by us could result in substantial dilution to the interests of other holders of our Common Stock.
Additionally, the sale of a substantial number of shares of our Common Stock to Williamsburg, or the anticipation of such sales, could
make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise
wish. Under the Purchase Agreement, Williamsburg’s per-share purchase price for our shares will be equal to 90% of the VWAP average
of the Common Stock during five consecutive days immediately following the clearing date associated with the applicable put notice during
which the purchase price is valued. Depending on market liquidity at the time, resales of these shares may cause the trading price of
our Common Stock to fall.
Williamsburg
will pay less than the then-prevailing market price for our Common Stock.
We
will sell shares of our Common Stock to Williamsburg pursuant to the Purchase Agreement at 90% of the VWAP average of the Common Stock
during five consecutive days immediately following the clearing date associated with the applicable put notice during which the purchase
price is valued. Williamsburg has a financial incentive to sell our Common Stock immediately upon receiving the shares to realize the
profit equal to the difference between the discounted price and the market price. If Williamsburg sells the shares, the market price
of our Common Stock could decrease.
The
Company’s election not to opt out of JOBS Act extended accounting transition period may not make its financial statements easily
comparable to other companies.
Pursuant
to the JOBS Act, as an emerging growth company, the Company can elect to opt out of the extended transition period for any new or revised
accounting standards that may be issued by the PCAOB or the SEC. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the standard for the private company. This may make comparison of the Company’s financial
statements with any other public company which is not either an emerging growth company nor an emerging growth company which has opted
out of using the extended transition period difficult or impossible as possible different or revised standards may be used.
“Penny
Stock” rules may make buying or selling our Common Stock difficult. Limitations upon Broker-Dealers Effecting Transactions in “Penny
Stocks”
Trading
in our Common Stock is subject to material limitations as a consequence of regulations which limit the activities of broker-dealers effecting
transactions in “penny stocks.” Pursuant to Rule 3a51-1 under the Exchange Act, our Common Stock is a “penny stock”
because it (i) is not listed on any national securities exchange (ii) has a market price of less than $5.00 per share, and (iii) its
issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or
$5,000,000 (if the issuer has been in business for less than three (3) years).
Rule
15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on “penny stocks”, which makes selling
our Common Stock more difficult compared to selling securities which are not “penny stocks.” Rule 15a-9 restricts the solicitation
of sales of “penny stocks” by broker-dealers unless the broker first (i) obtains from the purchaser information concerning
his financial situation, investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient
knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in “penny stocks”,
and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser’s investment
experience and financial sophistication.
Rules
15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in “penny stocks”
first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying
the risks inherent in investing in “penny stocks”, (ii) all compensation received by the broker-dealer in connection with
the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair
market value of the securities.
There
can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any
such broker-dealer likely would have a material adverse effect on the market price of our Common Stock.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described below, FINRA has adopted rules that 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. The 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.
Because
our Common Stock is deemed a low-priced “penny stock,” it will be cumbersome for brokers and dealers to trade in our Common
Stock, making the market for our Common Stock less liquid and negatively affect the price of our stock.
We
will be subject to certain provisions of the Exchange Act, commonly referred to as the “penny stock” rules as defined in
Rule 3a51-1. A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject
to certain exceptions. Since our stock is deemed to be a penny stock, trading is subject to additional sales practice requirements of
broker-dealers. These require a broker-dealer to:
|
● |
Deliver
to the customer, and obtain a written receipt for, a disclosure document; |
|
● |
Disclose
certain price information about the stock; |
|
● |
Disclose
the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
|
● |
Send
monthly statements to customers with market and price information about the penny stock; and |
|
● |
In
some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
Consequently,
penny stock rules and FINRA rules may restrict the ability or willingness of broker-dealers to trade and/or maintain a market in our
Common Stock. Also, prospective investors may not want to get involved with the additional administrative requirements, which may have
a material adverse effect on the trading of our shares.
We
are an “emerging growth company” under the JOBS Act of 2012 and a “smaller reporting company” and, as a result
of the reduced disclosure and governance requirements applicable to emerging growth companies and smaller reporting companies, our Common
Stock may be less attractive to investors.
We
are an “emerging growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not “emerging growth companies” including,
but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments
not previously approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions.
If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and
our stock price may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting
standards.
We
will remain an “emerging growth company” until the earlier of (i) the last day of the year following the fifth anniversary
of the date of the completion of our initial public offering, (ii) the last day of the year in which we have total annual gross revenue
of at least $1.07 billion, (iii) the last day of the year in which we are deemed to be a “large accelerated filer” as defined
in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock held by non-affiliates exceeded $700.0
million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0
billion in non-convertible debt securities during the prior three-year period..
Even
after we no longer qualify as an “emerging growth company,” we may still qualify as a “smaller reporting company,”
which would allow us to continue to take advantage of many of the same exemptions from disclosure requirements, including, among other
things, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, presenting only
the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and reduced disclosure obligations
regarding executive compensation in this Report and our periodic reports and proxy statements.
Our
status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need
it.
Because
of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will
have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors
and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with
other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry.
If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially
and adversely affected.
Since
we are traded on the OTC Pink Market, an active, liquid trading market for our Common Stock may not develop or be sustained. If and when
an active market develops the price of our common stock may be volatile.
Presently,
our Common Stock is traded on the OTC Pink Market. There is a very limited trading in our stock and there is no assurance that an active
market will develop. In the absence of an active trading market, investors may have difficulty buying and selling or obtaining market
quotations, market visibility for shares of our Common Stock may be limited, and a lack of visibility for shares of our Common Stock
may have a depressive effect on the market price for shares of our Common Stock. The lack of an active market impairs your ability to
sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also
reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations
by selling shares.
Trading
in stocks quoted on the OTC Pink Market is often thin and characterized by wide fluctuations in trading prices, due to many factors that
may have little to do with our operations or business prospects. The securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may
also materially and adversely affect the market price of shares of our Common stock. Moreover, the OTC Pink Market is not a stock exchange
and is not an established market, and trading of Securities is often more sporadic than the trading of securities listed on a national
stock exchange like the NYSE. Accordingly, you may have difficulty reselling any shares of Common Stock.