ITEM
1. BUSINESS
NightFood
Holdings, Inc. (“we”, “us” “the Company” or “NightFood”) is a Nevada corporation
organized on October 16, 2013 to acquire all of the issued and outstanding shares of NightFood, Inc., a New York corporation (the
“Subsidiary”) from its sole shareholder, Sean Folkson. All of our operations are conducted by the Subsidiary. We are
in the business of manufacturing, marketing and distributing snacks specially formulated and promoted for evening consumption.
A large number of Americans consume nighttime snacks that are high in sugar, fat, sodium, and calories; such snacks can impair
sleep and also impair health in general. Management believes that our products are unique in the food industry and that there
is a substantial market for our products, through online commerce as well as traditional retail distribution. Our corporate address
is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 888-888-6444. We maintain a
web site at www.nightfood.com. Any information that may appear on our web site should not be deemed to be a part of this report.
Industry
Overview
We
are an early-stage company that is seeking to establish a market within the snack industry by offering a line of snack foods that
are specifically formulated for evening consumption. Based on available figures for 2013 published by SymphonyIRI Group, American
consumers spend over $50 Billion annually on snacks consumed at night, and this figure continues to grow. A majority of adults
are trying to eat foods and snacks that they understand will prevent or manage health problems and 37% of consumers are willing
to pay more for foods with perceived health benefits. Moreover, industry data indicates that the most popular nighttime snack
choices include products and categories that are traditionally considered high in calories, and “unhealthy” options,
such as cookies, salty snacks (chips, pretzels, and popcorn), ice cream, and candy.
Our
Products, Present and Proposed
Our
initial product is the NightFood nutrition bar. NightFood nutrition bars are made from commercially available ingredients and
a proprietary combination of other components in a proprietary process. During the course of fiscal 2016, the Company modified
its packaging, positioning, and branding, including switching from a 6 count retail pack to a 12 count pack for the bars. The
packages are typically merchandised both open and closed, so the consumer can purchase an individual bar, or an entire box of
bars.. NightFood® is the first product positioned as a healthier and better alternative to other convenient nighttime snack
options. Compared to the existing popular options, each 140 calorie NightFood® bar is specially formulated to satisfy late-night
cravings, tackle nighttime hunger, on fewer calories, and with a healthier, more sleep-friendly nutritional profile. We believe
that NightFood® bars are an optimal nighttime snack in terms of composition and calories. In addition, the bars contain a
clinically proven bioactive ingredient called Chocamine®. Chocamine is a patented natural cocoa extract that is believed to
promote satiety and craving satisfaction, while also providing the health and relaxation benefits of chocolate without the caffeine,
fat, calories, and sugars.
In
April of 2016, the Company reached an agreement with RFI Ingredients, LLC, the exclusive manufacturer of Chocamine, which granted
the Company, subject to possible future minimum volume requirements, exclusive use of Chocamine in any snack food products formulated
and marketed for nighttime consumption.
Depending
upon the success of the NightFood® bar and our available resources, we intend to consider expanding our product line to include
formulations with and without sleep aiding bioactive ingredients, nighttime snack products specifically for children, and snacks
in different food formats such as cookies, chips, ice cream, etc. In furtherance of our planned expansion of our product offerings,
we have entered into an agreement to acquire a company which is licensed to produce FiberOne™ ice cream. See Business-Planned
Acquisition However, that agreement has not been completed and its future is uncertain as various deadlines have passed.
Production
We
have utilized contract manufacturers for producing our products, packaging for our products, and 3rd party logistics for warehousing
and order fulfillment. For our warehousing and logistics, we are currently using Landis Logistics. For our next production run
of nutrition bars, we are currently evaluating various potential manufacturers. We believe that the nature of the market for such
services ensures there will be several alternative suppliers available on acceptable terms.
Marketing and Distribution
During
FY2017, the Company received purchase orders from its largest retail chain to date, in Meijer supermarkets. NightFood bars are
available in both flavors in substantially all Meijer supermarket locations.
Management
believes that securing a chain like Meijer can be a tremendous milestone. However, the Company believes the opportunity for most
rapid and efficient scaling of revenue is through direct-to-consumer online channels, and that is where we are directing our focus
at this time. To that end, the Company has implemented a strategy that it believes will allow for much more significant revenues
starting in FY2018.
NightFood 12-packs were made available
on Amazon for the first time on June 9, 2017. To date, sales have been promising, and customer reviews have averaged well over
4 stars out of 5. The Company issued a news release on August 23, 2017 that in July 2017, gross direct-to-consumer sales were higher
than any other month in Company history, exceeding $10,000. In addition, it was announced that as of August 23, 2017, August revenues
to date had already surpassed those of July, 2017.
The
Company expects to launch its primary direct-to-consumer sales initiative through a relationship with marketing partner Common
Thread Collective (CTC) during late September or early October, 2017.
If
successful, the relationship with CTC will allow the Company to get a substantially greater return on each direct-to-consumer
advertising dollar, resulting in accelerated revenue growth. . We can give no assurances as to the revenues to be derived from
these efforts. Furthermore, any new initiative includes many risks including unanticipated delays.
Competition
The
nutritional/snack food business is highly competitive and includes such participants as large companies like Mondelez, Nestle
S.A. and Quaker Oats and more specialized companies such as Cliff Bar, Quest Nutrition and many smaller companies. Many of these
competitors have well established names and products. Management is not aware of any competitor offering snacks targeting the
nighttime snack occasion, or formulated to satisfy unhealthy nighttime cravings in a sleep-friendly way. We will initially compete
based upon the unique nature of our product. However, other companies, including those with greater name recognition than us and
greater resources may seek to introduce products that directly compete with our products. Management believes that if a competitor
sought to develop a competing product, it could do so and begin to establish retail distribution in 12-24 months.
Intellectual
Property Rights
We
own the registered trademark “NightFood®” and believe that it will prove important to our business. Additionally
we own the domain NightFood.com as well as many other relevant domains such as late-night-snack.com, nighttimesnack.com, and nighttimesnacking.com,
as well as NightFood.us, NightFood.net, TryNightFood.com, GetNightFood.com, NiteFood.com, TryNightFood.com, BuyNightFood.com,
and Night-Food.com. We also own the toll-free number 888-888-NIGHT. We rely on proprietary information as to our formulas and
have non-disclosure agreements with our suppliers. In June 2017, after receiving unsolicited inquiries from international
distributors in multiple foreign countries, the Company retained the intellectual property law firm Pinnacle IP to assist and
consult on matters of international trademark protection for the NightFood brand.
Personnel
We
currently have no employees except Sean Folkson, our President and CEO, and Peter Leighton, our VP of Marketing who is currently
serving the company on a part-time basis. Should we be successful in executing our business plan, we anticipate hiring additional
employees in the future to assist with various company functions. We rely on consultants and outsourced services to accomplish
work that might otherwise be done by employees in a large established company.
Customers
In
FY 2017, one customer, KeHE Distributing, made up 87% of our revenue.
Possible
Planned Acquisition
On
November 25, 2016 we executed and delivered a Plan of Reorganization Including Option to Acquire (the “Plan”) by and
among the Registrant, Hook Group, LLC (“Hook”) and Suffield Foods. LLC (“Suffield”). The Plan contemplates
our acquiring an equity interest in and potentially merging Hook and its subsidiary Suffield with and into a wholly owned subsidiary
of the Registrant. Pursuant to the Plan, we have agreed to use its best efforts to invest up to $9,000,000 in Hook in exchange
for preferred equity in Hook. The Plan contemplated an investment in Hook by the Registrant in tranches over approximately 18
months. The Plan provided that any time after we had invested $7,500,000 in Hook, we may request a merger of Hook with and into
our wholly owned subsidiary, Fiber One™ Ice Cream, Inc., in exchange for the Hook members receiving a 50% shareholder interest
in us. Such merger would be subject to shareholder approval by us. Hook is a licensee of General Mills Marketing, Inc. and holds
the right to manufacture and distribute ice cream under the Fiber One™ brand name. We are seeking to raise funds through
the sale of equity to meet our obligations under the Plan, but has obtained limited commitments for funding. If funding is not
realized, the Plan may not go into effect. The forgoing is a summary of the Plan and is qualified in its entirety by the Plan,
which is an exhibit hereto. We anticipate, based on discussions with Hook management, that the Plan will be amended to change
the amount and timing of capital investments due thereunder to require a smaller investment by us prior to the merger. However,
there is no written agreement for such amendment and we cannot give assurance that the acquisition with Hook will occur. At this
time there is no enforceable agreement for completion of this transaction and we are pursuing other avenues for future revenues.
Therefore the consummation of this acquisition is presently not likely.
ITEM
1A. RISK FACTORS
You
should carefully consider the following factors in evaluating our business, operations and financial condition. The occurrence
of any the following risks could have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Business
We
have had limited operations and require substantial additional funds to execute our business plan.
We have had limited operations
and have not yet established significant traction in the marketplace. We generated revenue of $21,644 in the year ended June 30,
2017, and $24,918 in the year ended June 30, 2016. Because our capital resources have been limited, we have been unable to provide
sufficient advertising and marketing support for the product at retail, resulting in limited revenues. Unless we are able to continue
to leverage our status as a public company into effective fundraising to fund our capital requirements, we will not be able to
execute on our business plan and purchasers of our stock will be likely to lose their investment
.
During
FY2017, the majority of our revenue was derived from one distributor.
We believe we have established that there is consumer
interest for a better nighttime snack option. We have not yet definitively identified a way to market and sell our snack products
either at retail or direct to consumer in a manner that is predictably profitable, nor have we yet identified the proper elements
of support at retail that will drive consistent consumer purchase behavior.
Our
independent auditors have expressed doubt about our ability to continue as a going concern.
We received a report on our financial
statements for the years ended June 30, 2017 and June 30, 2016 from our independent registered public accounting firm that includes
an explanatory paragraph and a footnote stating that there is substantial doubt about our ability to continue as a going concern
due to its losses and negative net worth. Inclusion of a “going concern qualification” in the report of our independent
accountants may have a negative impact on our ability to obtain financing and may adversely impact our stock price in any market
that may develop.
We
remain uncertain of our proposed products’ market acceptance.
Although management firmly believes that snacks designed
for evening consumption is a viable niche market with a potential for attractive returns for investors, this belief is largely
based on preliminary sales and marketing data through platforms such as Amazon and Facebook. We have not conducted any formal
marketing studies. Our limited resources preclude us from doing so. If management is wrong in its belief and there is an insufficient
market for our products, it is likely we will fail and investors will lose their investment.
Our
ability to hire additional personnel is important to the continued growth of our business.
Our continued success depends upon
our ability to attract and retain a group of motivated marketing and business support professionals. Our growth may be limited
if we cannot recruit and retain a sufficient number of people. We cannot guarantee that we will be able to hire and retain a sufficient
number of qualified personnel.
We
may face substantial competition.
Competition in all aspects of the functional food industry is intense. We will compete against
both large conglomerates with substantial resources and smaller companies, including new companies that might be formed with resources
similar to our own. Competitors may seek to duplicate the perceived benefits of our products in ways that do not infringe on any
proprietary rights that we can protect. As a result we could find that our entire marketing plan and business model is undercut
or made irrelevant by actions of other companies under which we have no control. We cannot promise that we can accomplish our
marketing goals and as a result may experience negative impact upon our operating results.
Our
success depends to a large extent upon the continued service of key managerial employees and our ability to attract and retain
qualified personnel.
Specifically, we are highly dependent on the ability and experience of our key employee, Sean Folkson,
our president and CEO We have a consulting agreement with Mr. Folkson. The loss of Mr. Folkson would present a significant setback
for us and could impede the implementation of our business plan. There is no assurance that we will be successful in acquiring
and retaining qualified personnel to execute our current plan of operations.
Our proposed acquisition of Hook Group,
LLC (“Hook”) is not certain and even if it occurs, profit therefrom is also uncertain
.
In
November 2016 we entered into an agreement providing for us to acquire Hook, the licensee of General Mills for FiberOne™
ice cream. The agreement calls for us to make substantial investments in Hook and is dependent on our being able to maintain and
renew Hook’s license with General Mills as well as the market acceptance of Hook’s proposed products. If we cannot
raise funding satisfactory to Hook to complete the acquisition, if Hook were to lose the license with General Mills, or if we
are unable to successfully market Fiber One™ ice cream products, we will not realize any return in our investment in Hook
and our results will be adversely affected. At this time there is no enforceable agreement for completion of this transaction
and we are pursuing other avenues for future revenues. Therefor the consummation of this acquisition is presently not likely.
The ability of our officers to control
our business will limit minority shareholders’ ability to influence corporate affairs
.
As of the date of this report, our president, Sean Folkson, owned 16,433,568 shares (directly and through trusts, includes 2.6
million shares owned by a trust controlled by Mr. Folkson’s wife. Mr. Folkson disclaims beneficial ownership of these shares).
Also, as of the date of this report our Vice President Peter Leighton owned 4,000,000 shares. These two shareholders represent
an aggregate of approximately 69.5 % of our 29,384,432 issued and outstanding shares. Because of their stock ownership,
our officers will be in a position to continue to elect our board of directors, decide all matters requiring stockholder approval
and determine our policies. The interests of our president may differ from the interests of other shareholders with respect to
the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other
business decisions. The minority shareholders would have no way of overriding decisions made by our president. This level of control
may also have an adverse impact on the market value of our shares because he may institute or undertake transactions, policies
or programs that result in losses, may not take any steps to increase our visibility in the financial community and/ or may sell
sufficient numbers of shares to significantly decrease our price per share.
If we do not receive additional financing
we will not be able to execute our planned expansion
. Over the next 6-12 months, we believe we will require approximately
$1,000,000 - $2,000,000 in debt or equity financing to affect a planned expansion of our operations and roll out of our existing
and any future products. Management believes that it will be able to raise the required funds, however this may not prove to be
the case. As of the date of this filing, we have $650,250 in outstanding convertible promissory notes. We also have an Equity Credit
Line in the amount of $5,000,000. However the utilization of such forms of capital raising can be extremely dilutive to our present
shareholders.
See ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION –
Liquidity
.
We
may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness
of our internal control over financial reporting as of the end of our fiscal year. We have not yet completed our assessment of
the effectiveness of our internal control over financial reporting. We would incur additional expenses and diversion of management’s
time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the
management certification and auditor attestation requirements.
We
do not have a sufficient number of employees and consultants to segregate responsibilities and are presently unable to
afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees, and this may
impair our ability to effectively comply with Section 404 of the Sarbanes-Oxley Act.
We currently do not have any
employees and rely on our CEO, Sean Folkson and our Vice President/CMO Peter Leighton to perform all executive functions.
Peter Leighton will be assisting us on a part time basis. Accordingly, we cannot segregate duties to provide sufficient
review of our financial activity. During the course of our testing our financial procedures, we may identify other
deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404
of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to help prevent financial fraud. 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 could drop significantly. Our
officers’ lack of experience in accounting and financial matters may make our efforts to comply more difficult and
cause us to hire consultants to assist him cutting into our resources.
Implications
of Being an Emerging Growth Company.
As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify
as an “emerging growth company” as defined in the JOBS Act. For as long as a company is deemed to be an emerging growth
company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable
to other public companies. These provisions include:
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a requirement to have only two years of audited
financial statements and only two years of related Management’s Discussion and Analysis included in an initial public
offering registration statement;
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an exemption to provide less than five years
of selected financial data in an initial public offering registration statement;
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an exemption from the auditor attestation requirement
in the assessment of the emerging growth company’s internal controls over financial reporting;
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an exemption from the adoption of new or revised
financial accounting standards until they would apply to private companies;
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an exemption from compliance with any new requirements
adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s
report in which the auditor would be required to provide additional information about the audit and the financial statements
of the issuer; and
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reduced disclosure about the emerging growth
company’s executive compensation arrangements.
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An
emerging growth company is also exempt from Section 404(b) of Sarbanes Oxley which requires that the registered accounting firm
shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures
for financial reporting. Similarly, as a Smaller Reporting Company we are exempt from Section 404(b) of the Sarbanes-Oxley Act
and our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal
control over financial reporting until such time as we cease being a Smaller Reporting Company.
As
an emerging growth company, we are exempt from Section 14A (a) and (b) of the Securities Exchange Act of 1934 which require the
shareholder approval of executive compensation and golden parachutes.
Section
107 of the JOBS Act 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 have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not
be comparable to those of companies that comply with such new or revised accounting standards.
We
would cease to be an emerging growth company upon the earliest of:
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In our fiscal year ended June 30, 2020,
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the first fiscal year after our annual gross
revenues are $1 billion or more,
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the date on which we have, during the previous
three-year period, issued more than $1 billion in non-convertible debt securities, or
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as of the end of any fiscal year in which the
market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that
fiscal year.
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Risks
Related to Our Common Stock
Commencing
August 21, 2015 we began trading under the Symbol NGTF on the OTC Markets. There had been very little trading activity of our
stock for some time. In April of 2017, the Company secured a listing on the OTCQB, and in August of 2017 an investor awareness
campaign was initiated to communicate news of recent company developments and milestones to a broader range of stock market investors.
Trading volume has increased, but there can be no assurances that significant public trading will ever develop or, if it develops,
that it will be maintained. Our stock is likely to continue to be subject to significant price fluctuations.
In addition,
our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers
for the common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until
our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades
is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these Risk Factors, investor perception, and general economic and
market conditions
. No assurances can be given that an
orderly or liquid market will ever develop for the shares of our common stock. Because of the anticipated low price of the securities,
many brokerage firms may not be willing to effect transactions in these securities. Any purchasers of our securities should be
aware that any market that develops in our stock will likely be subject to the penny stock restricti
ons.”
Our
board of directors is authorized to issue shares of preferred stock, which may have rights and preferences detrimental to the
rights of the holders of our common shares.
We are authorized to issue up to 1,000,000 shares of preferred stock, $0.001 par
value. As of the date of this report, we have not issued any shares of preferred stock and have no plans to do so. Our preferred
stock may bear such rights and preferences, including dividend and liquidation preferences, as the Board of Directors may fix
and determine from time to time. Any such preferences may operate to the detriment of the rights of the holders of the common
stock being offered hereby.
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 and applicable Nevada law provide for the indemnification
of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses
incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf.
This indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.
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
against these types of liabilities, 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 the securities being registered, 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 are likely to materially reduce the market and price for our shares, if such a market ever develops.
Any
market that develops in shares of our common stock will be subject to the penny stock restrictions that are likely to create a
lack of liquidity and make trading difficult or impossible.
Until our shares of common stock qualify for inclusion in the
NASDAQ system, if ever, the trading of our securities, if any, will be in the over-the-counter market which is commonly referred
to as the OTCBB as maintained by OTCMarkets.com. As a result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the price of our securities.
SEC
Rule 15g-9 (as most recently amended and effective on September 12, 2005) establishes the definition of a “penny stock,”
for purposes relevant to us, as any equity security that has a market 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. It is likely that our shares will be considered to be
penny stocks for the immediately foreseeable future. This classification severely and adversely affects the 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 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:
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the basis on which the broker or dealer made
the suitability determination, and
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that the broker or dealer received a signed,
written agreement from the investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions
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 shareholders
or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in
the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if
and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding
decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules for the foreseeable
future and our shareholders will, in all likelihood, find it difficult to sell their securities. Recently, several brokerage firms
and clearing firms have adopted special “house rules” which make it more difficult for their customers to hold or
trade low priced stock and these rules may make it difficult for our shareholders to sell their stock.
We
do not intend to pay dividends on our common stock.
We have not paid any dividends on our common stock to date and there are
no plans for paying dividends on the common stock in the foreseeable future. We intend to retain earnings, if any, to provide
funds for the implementation of our business plan. We do not intend to declare or pay any dividends in the foreseeable future.
Therefore, there can be no assurance that holders of our common stock will receive any additional cash, stock or other dividends
on their shares of our common stock until we have funds which the Board of Directors determines can be allocated to dividends.
If
a market develops for our shares, sales of our shares relying upon rule 144 may depress prices in that market by a material amount
.
25,053,432 of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144
under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required
under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for a prescribed
period may, under certain conditions, sell their shares as a result of revisions to Rule 144 which became effective on or about
February 15, 2008, there is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder
who has not been an officer, director or control person for at least 90 consecutive days) after the restricted securities have
been held by the owner for a period of six months. A sale under Rule 144 or under any other exemption from the Act, if available,
or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of
the common stock in any market that may develop.
Any
trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws to the extent they
prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell
shares in those states. Although trading activity in our stock has increased recently, generally t
here is a limited public
market for our common stock, and there can be no assurance that an active and regular public market will develop in the foreseeable
future. Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by
various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual
state laws, our common stock may not be traded in such jurisdictions. Because our securities have not been registered for resale
under the “Blue Sky” laws of any state, the holders of such shares and persons who desire to purchase them in any
trading market that might develop in the future, should be aware that there may be significant state “Blue Sky” law
restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions
prohibit the secondary trading of our common stock. Accordingly, investors should consider the secondary market for our securities
to be a limited one.
Recent
issuances of convertible promissory notes may have a negative impact on the trading prices of our common stock.
Commencing
in March 2017, we have entered into $530,000 principal amount of promissory notes with various lenders. These notes are convertible
six months after issuance into free trading shares of our common stock, with certain limitations, at conversion prices below the
then market price of our common stock. While we intend to repay these notes before they are converted by using other funds we
may obtain, including funds received under the EPA, no assurance can be given that we will be successful in these efforts. Any
conversions of these notes are likely to have a negative effect on the market for our common stock and may cause dilution to our
common stockholders.