Item 1A. RISK FACTORS
You should be aware that there are various risks to an investment in our common stock. You should carefully consider these risk factors, together with all of the other information included in this Report, before you decide to invest in shares of our common stock.
If any of the following risks develop into actual events, then our business, financial condition, results of operations and/or prospects could be materially adversely affected. If that happens, the market price of our common stock, if any, could decline, and investors may lose all or part of their investment.
Risks Related to the Business
1. DRH has virtually no financial resources. Our independent registered auditors’ report includes an explanatory
paragraph stating that there is substantial doubt about our ability to continue as a going concern.
DRH has virtually no financial resources. We have negative working capital and a stockholders’ deficit at January 31, 2013. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the fiscal year ended July 31, 2012 that states that this lack of resources causes substantial doubt about our ability to continue as a going concern. No assurances can be given that we will generate sufficient revenue or obtain necessary financing to continue as a going concern.
2. DRH is and will continue to be completely dependent on the services of our senior officers, Toby McBride and
Michael Jay Holley, the loss of whose services may cause our business operations s currently contemplated to cease,
and we will need to engage and retain qualified employees and consultants to further implement our strategy.
DRH’s operations and business strategy are completely dependent upon the knowledge and business connections of Toby McBride and Michael Jay Holley. They are under no contractual obligation to remain employed by us. If either or both should choose to leave us for any reason or if either becomes ill and is unable to work for an extended period of time before we have hired additional personnel, our operations will likely fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described in this prospectus. We will fail without the services of Messrs. McBride and Holley or an appropriate replacement(s).
We intend to acquire key-man life insurance on the lives of Messrs. McBride and Holley naming us as the beneficiary when and if we obtain the resources to do so and if they are insurable. We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors.
3. Many of our likely competitors have significantly greater financial and marketing resources than do we.
Many of our likely competitors have significantly greater financial and marketing resources than do we. Many of these competitors have sophisticated management, are in a position to purchase inventory at the lowest prices and have the ability to advertise in a wide variety of media, including television. There are no assurances that our brand will be successful.
4. Our license agreement with Dethrone Royalty, Inc. specifies minimum levels of sales which must be met. If we lost
that License Agreement, our operations as currently planned are likely to fail
Our License Agreement with Dethrone Royalty, Inc. specifies minimum levels of sales which, if not attained, gives Dethrone Royalty, Inc. the right to terminate the License Agreement. We will market our products very aggressively, but there are no assurances that we will be successful in meeting the targets set forth in the License Agreement. If we lost that License Agreement, our operations as currently planned are likely to fail.
5. We are subject to the periodic reporting requirements of the Exchange Act that will require us to incur audit fees
and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate
our ability to earn a profit.
We are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. 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 effect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
In no case will the proceeds of this offering be sufficient to assist us in any way to meet any portion of these incremental costs of being public.
6. Toby McBride and Michael Jay Holley, our principal officers, have no significant experience managing a public
company and no meaningful accounting or financial reporting education or experience and, accordingly, our ability
to meet Exchange Act reporting requirements on a timely basis will be dependent to a significant degree upon others.
Messrs. McBride and Holley have no significant experience managing a public company and no meaningful financial reporting education or experience. They are and will be heavily dependent on engaging and dealing with outside professional advisors, primarily lawyers and financial advisors/accountants who are and will not be affiliated with our independent auditors. We have no formal arrangements with professionals and cannot provide any assurances that we will be able to establish arrangements with professionals on terms or costs that are acceptable or affordable to us.
7. Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to
misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
- pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and/or directors of the
Company; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on the financial
statements.
Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
8. Having only two directors limits our ability to establish effective independent corporate governance procedures
and increases the control of our president over operations and business decisions.
We have only two directors, who are also our principal executive officers. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation or audit issues. In addition, a tie vote of board members is decided in favor of the chairman, which gives her significant control over all corporate issues, including all major decisions on operations and corporate matters such as approving business combinations.
Until we have a larger board of directors that would include some independent members, if ever, there will be limited oversight of our president’s 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.
Risks Related to Our Common Stock
9. Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through
issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissue. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders may further dilute common stock book value, and that dilution may be material.
10. The interests of shareholders may be hurt because we can issue shares of our common stock to individuals or
entities that support existing management with such issuances serving to enhance existing management’s ability to
maintain control of our Company.
Messrs. McBride and Holley will own a significant majority of outstanding shares after the completion of the offering. In addition, our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued common shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests of existing management which may not be the same as the interests of other shareholders. Although transactions, other than those described in this prospectus, are not currently being contemplated or discussed, our ability to issue shares without shareholder approval serves to enhance existing management’s ability to maintain control of our Company or participate in other transactions, including entering into possible business combinations, without the support of other shareholders.
11. Our two principal officers control all corporate activities and can approve all transactions, including mergers,
without the approval of other shareholders.
Messrs. McBride and Holley have a sufficient number of shares to control all corporate activities and can approve transactions, including possible mergers, issuance of shares and r compensation levels, without the approval of other shareholders. Their decisions may not be in the best interests of other shareholders.
12. Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their
liability that may result in a major cost to us and hurt the interests of our shareholders because corporate resources
may be expended for the benefit of officers and/or directors.
Our Articles of Incorporation at Article XI provide for indemnification as follows: "No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer: (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law; or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of an Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation of the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification."
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
13. Currently, there is no established public market for our securities, and there can be no assurances that any
established public market will ever develop or that our common stock will be quoted for trading and, even if quoted,
it is likely to be subject to significant price fluctuations.
We have been granted a trading symbol (DRHC). However, there is and there has never been an established trading market for our common stock..
Because of the anticipated low price of the securities being registered, many brokerage firms may not be willing to effect transactions in these securities. Purchasers of our securities should be aware that any market that develops in our stock will be subject to the penny stock restrictions.
14. Any market that develops in shares of our common stock will be subject to the penny stock regulations and
restrictions pertaining to low priced stocks that will create a lack of liquidity and make trading difficult or
impossible.
Our shares will be considered a “penny stock.” Rule 3a51-1 of the Exchange Act 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 will severely and adversely affects any market liquidity for our common stock.
15. The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors
in our stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
- Control of the market for the security by one or a few broker-dealers that are often related to the promoter or
issuer;
- Manipulation of prices through prearranged matching of purchases and sales and false and misleading press
releases;
- "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales
persons;
- Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
- Wholesale dumping of the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor
losses.
16. Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that
may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and
perpetuate their control over us.
Our articles of incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
17. We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
18. Because we are not subject to compliance with rules requiring the adoption of certain corporate governance
measures, our stockholders have limited protection against interested director transactions, conflicts of interest and
similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors are independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
19. You may have limited access to information regarding our business because our obligations to file periodic
reports with the SEC could be automatically suspended under certain circumstances.
After the one-year period following the date on which our registration statement became effective (August 18, 2011), the public reporting obligations may (in our discretion) be automatically suspended under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8A (which we have no current plans to file). If this occurs after the year in which our registration statement becomes effective, we will no longer be obligated to file periodic reports with the SEC and your access to our business information would then be even more restricted. After this registration statement on Form S-1 becomes effective, we will be required to deliver periodic reports to security holders. However, we will not be required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. This means that your access to information regarding our business will be limited.
For all of the foregoing reasons and others set forth herein, an investment in our securities involves a high degree of risk.