Item 1.
Business
Overview
Star Buffet, Inc., a Delaware corporation (the “Company,” “we” or “us”), is a multi-concept restaurant holding company. The Company was incorporated on July 28, 1997. As of January 28, 2019, the Company operated 26 full-service restaurants. Additionally, during the 52-week period ended January 28, 2019 (“Fiscal 2019”), the Company also had five closed restaurants, three closed for remodeling and repositioning, one leased to a third-party operator and one used as a warehouse. One of five closed restaurants held for remodeling and repositioning was sold on December 31, 2018. The Company’s restaurants operate under trade names which, with one exception, are owned by the Company. Certain of the restaurant brands owned and operated by the Company include 4B’s Restaurants®, BuddyFreddys®, Barnhill’s Salads Buffet Desserts®, Casa Bonita®, Pecos Diamond Steakhouse and Frosty Freez. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Texas, Utah and Wyoming. The Company has an executive office in Scottsdale, Arizona and management information systems in Salt Lake City, Utah.
The Company plans to continue to operate as a multi-concept restaurant holdings company, adding restaurants to its portfolio as proceeds become available to do so. Management believes the Company will generate sufficient cash flows from operations to support its operations and, together with the proceeds from the sale or refinancing of certain of its properties, to pay its scheduled debt repayments and grow its business.
Recent Developments
None.
Business
Strategy
The Company’s business strategy is to operate a broadly diversified portfolio of well-established, family-oriented restaurant brands throughout the southeastern and western United States. The Company believes that a broadly diversified business base combined with owned brands, low facility costs and modest corporate overhead can result in consistently positive cash flows
.
Growth Strategy
The Company’s strategy is to grow primarily through the acquisition of existing restaurants that operate in the family dining, steakhouse or buffet market segments. Depending on the circumstances, these restaurants may be converted to the Company’s existing brands or may remain branded as currently positioned in the market. The Company plans to supplement its acquisitions by purchasing or leasing restaurant real estate that can be converted to the Company’s existing brands. Additionally, the Company may make minority investments in, or enter into strategic alliances with other restaurant chains.
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Acquisitions.
The Company believes that a number of acquisition opportunities exist in the family dining, steakhouses and buffet market segments. The Company believes that many restaurants in these segments are privately owned and may be available for acquisition, particularly when an owner decides to retire. Other restaurants may become available for purchase when corporate owners decide to convert from a company store to a franchisor business model or when a company is faced with a financial reorganization.
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Restaurant Conversions.
In recent years, a number of chains in the family dining and budget steakhouse segments of the restaurant industry have experienced operational difficulties and declining performance. The Company believes that these difficulties are the result of increasing competition from national casual dining and steakhouse chains which offer superior product quality and service at competitive prices. Many of these restaurants and steakhouses occupy desirable locations that the Company believes can be acquired and converted to one of its concepts at lower investment costs or leased at lower investment rates when compared to the cost of new construction.
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Minority Investments and Strategic Alliances.
The Company intends to seek minority investments in, or strategic alliances with other restaurant chains. The Company believes that these investments can provide an attractive opportunity for the Company and may facilitate in the acquisition of restaurants at a later date.
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Licenses, Trademarks and Service Marks
The Company owns one or more trademarks and service marks for the following brands; BuddyFreddys ®, Casa Bonita®, Holiday House®, Pecos Diamond Steakhouse®, Bar-H Steakhouse®, 4B’S Restaurants® Barnhill’s Buffet® and Whistle Junction®. The Company also has a perpetual, royalty-free, fully transferable license for the use of the intangible property of JJ North’s Country Buffet. The Company has a license agreement for the use of the JB’s trademark which is owned by a third party.
Restaurant Concepts
As of January 28, 2019, the Company operated eleven 4B’s restaurants, five JB’s restaurants, two Pecos Diamond Steakhouses, one Rancher’s Grill Steakhouse, one Frosty Freez restaurant operated under the 4B’s brand, one Antler’s restaurant operated under the 4B’s brand, one Barnhill’s Buffet restaurant, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant and one Bar-H Steakhouse. In addition, the Company operated one seasonal 4Bs’ restaurant scheduled to reopen in May 2019. During Fiscal 2019, the Company also had five closed restaurants; three closed for remodeling and repositioning; one leased to a third-party operator; and one used as a warehouse. One of five closed restaurants held for remodeling and repositioning was sold on December 31, 2018.
The Company, through its wholly-owned Southern Barns, Inc. (“Southern Barns”) subsidiary operated as of January 28, 2019 one Barnhill’s Buffet restaurant located in Arkansas. The restaurant is approximately 10,000 square feet and seat approximately 375 customers.
The Company, through its wholly-owned 4B’s Holdings, Inc. (“4B’s”) subsidiary operated as of January 28, 2019 eleven 4B’S restaurants, one Frosty Freez restaurant and one Antler’s restaurant all of which are located in Montana except for one located in Wyoming. In addition, the Company operated one seasonal 4Bs’ restaurant scheduled to reopen in May 2019. The 4B’s branded restaurants are approximately 3,500 to 5,500 square feet in size and seat approximately 110 to 175 customers.
The Company, through its wholly-owned JB’s Star Holdings, Inc. (“JB’s Star”) subsidiary, operated as of January 28, 2019 five JB’s restaurants with one each located in Arizona, Montana, Utah and two located in Idaho. The JB’s restaurants are approximately 4,000 to 5,500 square feet in size and seat approximately 110 to 175 customers.
The Company, through its wholly-owned StarTexas Restaurants, Inc. (“StarTexas”) subsidiary, operated as of January 28, 2019 one Pecos Diamond Steakhouse in Dumas, Texas and one Pecos Diamond Steakhouse in Artesia, New Mexico, one Rancher’s Grill Steakhouse in Deming, New Mexico and a Bar-H Steakhouse in Dalhart, Texas. The Pecos Diamond Steakhouses, Rancher’s Grill Steakhouse and Bar-H Steakhouse are each approximately 5,000 square feet with seating capacity for 150 customers.
The Company, through its wholly-owned Summit Family Restaurants Inc. (“Summit”) subsidiary, operated as of January 28, 2019 one Casa Bonita restaurant located in Colorado. The Casa Bonita facility is approximately 52,000 square feet with seating capacity for approximately 1,400 customers.
The Company, through its wholly-owned Florida Buffet Holdings, Inc. (“Florida Buffet”) subsidiary, operated as of January 28, 2019 one restaurant in located Florida under the brand name BuddyFreddys. The BuddyFreddys is approximately 9,000 square feet and seats approximately 300 customers.
Competition
The Company competes on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. The Company’s competitors include a large and diverse group of restaurant chains and individually owned restaurants. The number of restaurants with operations similar to those of the Company has grown considerably in recent years. As the Company and its principal competitors expand operations in various geographic areas, competition can be expected to increase.
Government Regulation
The restaurant industry is subject to extensive federal, state and local laws and regulations. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to building, zoning, land use, environmental, traffic and other regulations and requirements. We are subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are subject to certain federal and state laws governing minimum wages, unionization, healthcare and other labor issues. These include the Fair Labor Standards Act of 1938 and requirements concerning overtime, paid or family leave, tip credits, working conditions and safety standards. They also include the Immigration Reform and Control Act of 1986, which requires among other things the preparation of Form I-9 to verify that employees are authorized to accept employment in the United States. Future changes to U.S. immigration laws may result in increased costs of compliance in the solicitation, hiring, and ongoing employment of employees, and correspondingly increase our operating costs.
We also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings. Failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs.
We are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. There also has been increasing focus by United States governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters, such as the emission of greenhouse gases, where “cap and trade” initiatives could effectively impose a tax on carbon emissions. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.
We are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information. Compliance with these laws and regulations can be costly. Failure or perceived failure to comply with those laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition.
Seasonality
The Company's business is moderately seasonal in nature. For the majority of the Company’s restaurants, the highest volume periods are in the Company’s first and second fiscal quarters.
Segment and Related Reporting
All of the brands operated by the Company are in the U.S. within the full-service dining industry. They provide similar products to similar customers and therefore, are considered to be one segment for reporting purposes. The brands possess similar economic characteristics which are expected to achieve similar long-term financial performance. Sales to external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales.
Employees
As of April 19, 2019, the Company employed approximately 815 persons, of whom approximately 810 were restaurant employees. Restaurant employees include salaried management and both full-time and part-time workers paid on an hourly basis. No Company employees are covered by collective bargaining agreements. The Company believes that its relations with its employees are generally good.
Corporate History
Star Buffet, Inc. was incorporated in Delaware on July 28, 1997 to operate as a multi-concept restaurant holding company.
Item 1A.
Risk Factors
You should carefully consider the following risk factors before you decide to invest in our Company and our business because these risk factors may have a significant impact on our business, operating results, financial condition, and cash flows. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Company Risk Factors
Our growth depends upon our ability to acquire and successfully integrate additional restaurants.
We intend to continue to pursue a strategy of moderate growth, primarily through acquisitions. The success of this strategy will depend in part on our ability to acquire additional restaurants or to convert acquired sites into restaurants. The success of our growth strategy is dependent upon numerous factors, including the availability of suitable acquisition opportunities, the availability of appropriate financing, and general economic conditions. We must compete with other restaurant operators for acquisitions and with other restaurant operators, retail companies and developers for desirable sites. Many of these entities have substantially greater financial and other resources than we do. Many of our acquired restaurants may be located in geographic markets in which we have limited or no operating experience. There is a risk that acquired restaurants or converted restaurants may not be operated profitably or successfully integrated into our operations.
We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.
Our revenues and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant and other expenses when we close, relocate or remodel existing restaurants. The expenses of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations.
We will be unable to implement our growth strategy if we cannot
raise or
generate
sufficient capital and may be required to pay a high price for capital.
We require capital in order to operate our business and additional capital to implement the Company’s strategy to grow primarily through the acquisition of existing restaurants that currently operate in the family dining, steakhouse or buffet market segments. We have negative working capital as of January 28, 2019. We have recently been borrowing required growth capital from our principle shareholders. We have no commitment from them to provide additional capital or assurance that they will voluntarily continue to provide capital as needed. We may need to seek outside capital through the issuance of common stock, preferred stock or debt. We may be unable to raise additional capital as needed, and we will likely be required to pay a high price for capital. Factors affecting the availability and price of capital include the following:
● the availability and cost of capital generally;
● our financial results, including our liquidity situation;
● the market price of our common stock;
● the experience and reputation of our management team;
● market interest, or lack of interest, in our industry and business plan;
● the trading volume of, and volatility in, the market for our common stock;
● our ongoing success, or failure, in executing our business plan and growth strategy;
● the amount of our capital needs; and
● the amount of debt we have outstanding.
Failure to protect our service marks or other intellectual property could harm our business.
We regard our BuddyFreddys, Casa Bonita, Holiday House, Pecos Diamond Steakhouse, Bar-H Steakhouse, 4B’s Restaurants Barnhill’s Buffet and Whistle Junction service marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts. We rely on a combination of protections provided by contracts, trademarks, service marks and common law rights, such as trade secret and unfair competition laws, to protect our restaurants from infringement. Although our policy is to aggressively oppose any such infringement, unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and adversely affect our business. There can be no assurance that the steps we have taken or will take will be adequate to preserve our key intellectual property. Defending or enforcing our service marks and other intellectual property could result in the expenditures of significant resources and failure.
Operating results can be adversely impacted by the failure to renew facility leases
or escalating rents
.
The majority of our facilities are leased. Certain of these leases contain limited renewal options and other leases contain escalating or fair market increases for rents upon renewal. There can be no assurance that these facility leases can be renewed at lease rates that permit the restaurant to be operated profitably. Our leases expire on dates ranging from 2019 to 2042. If we close a restaurant, we may remain committed to performing our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. Additionally, the potential losses associated with our inability to cancel leases may result in our keeping open restaurant locations that are performing significantly below targeted levels. As a result, ongoing lease obligations at closed or underperforming restaurant locations could impair our results of operations.
Increases in wages and benefits may harm our
results of operations.
Our results of operations are sensitive to increases in food, labor and other operating costs that cannot always be passed on to our guests in the form of higher prices. Minimum wage increases took effect in states where our restaurants are located in January 2016, January 2017, January 2018 and January 2019. These increases and potential future changes in federal and state minimum wage laws and other laws relating to employee benefits, including the Affordable Care Act, could cause us to incur additional wage and benefits costs and may indirectly increase other costs as higher wage costs for service and commodity suppliers are passed on to us. In connection with higher energy prices, commodity suppliers have passed on higher wholesale prices and higher transportation costs. In anticipation of these past and future increases, we periodically increase menu prices with the desire of maintaining margins. However, market conditions may limit our ability to raise menu prices and, even if we raise prices, the increase may adversely affect the volume of our sales, reducing future revenues and profitability.
Our quarterly results are likely to fluctuate.
We have in the past experienced, and expect to continue to experience, fluctuations in restaurant revenues and results of operations from quarter to quarter. In particular, our quarterly results can vary as a result of acquisitions and costs incurred to integrate newly acquired entities. Conversely, our restaurant revenues and results of operations can vary due to restaurant closures and associated costs connected with these closures. A number of our restaurants are located in areas which are susceptible to severe winter weather conditions or tropical storm patterns which may have a negative impact on customer traffic and restaurant revenues. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. Seasonal and quarterly fluctuations can have an adverse effect on our business, results of operation and financial condition.
We are
dependent on key personnel.
We believe that our success depends in part on the services of our key executives, including Mr. Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President. We do not presently maintain key man life insurance and the loss of the services of Mr. Wheaton could have a material adverse effect upon our business, results of operation and financial condition.
We have significant indebtedness, and our various creditors have broad remedies in the event of default
.
As of January 28, 2019, we had $4,730,000 in total indebtedness, the majority of which is indebtedness to our Chief Executive Officer, Mr. Wheaton. If we experience flat or negative operating results, we may be unable to service our debt. If we default on our indebtedness, our creditors have broad remedies, including foreclosure on any pledged assets.
Industry Risk Factors
The restaurant industry is highly competitive.
We compete on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. As we and our principal competitors expand operations in various geographic areas, competition can be expected to intensify. Such intensified competition could increase our operating costs or adversely affect its revenues or operating margins. A number of our competitors have been in existence longer than we have and have substantially greater financial, marketing and other resources and wider geographical diversity. In addition, the restaurant industry has few non-economic barriers to entry and is affected by changes in consumer tastes, national, regional and local economic conditions and market trends. Our significant investment in, and long term commitment to, each of our restaurant sites limits our ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect our operations.
The restaurant industry is complex and volatile.
Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants, and our operating results, may be harmed by multiple diverse factors, including the following:
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traffic patterns, demographic considerations and the type, number and location of competing restaurants;
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publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants;
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terrorist attacks directed toward the food supply chain or public concerns about the safety of the food supply chain;
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as a result of our dependence on frequent deliveries of fresh produce and other food, interruptions in supply, including those caused by adverse weather or other conditions;
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increases in food, labor and other operating costs that we are unable to pass along to our customers;
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regional weather conditions;
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the availability of experienced management and hourly employees; and
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general adverse economic developments such as a recession or stagnant (or declining) wages or relative wages among our target customers.
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Any, or a combination of several of these events may harm our business, results of operation and financial condition.
Changes in general economic and political conditions affect consumer spending and may harm our revenues and operating results.
We are dependent upon our target customers having money for discretionary spending. Adverse changes in economic conditions in our country generally, and in the markets in which our restaurants are located in particular, may harm our customers’ discretionary spending levels. A decrease in discretionary spending due to a recession or decreases in consumer confidence in the economy could affect the frequency with which our customers choose to dine at our restaurants. This would likely decrease our revenues and operating results and may lead to significant losses and/or an inability to service our debt.
The restaurant industry is subject to substantial government regulation.
The restaurant industry is subject to extensive federal, state, and local laws and regulations. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to building, zoning, land use, environmental, traffic and other regulations and requirements. We are subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are subject to federal and state laws governing minimum wages, unionization, healthcare and other labor issues. These include the Fair Labor Standards Act of 1938 and requirements concerning overtime, paid or family leave, tip credits, working conditions and safety standards. They also include the Immigration Reform and Control Act of 1986, which requires among other things the preparation of Form I-9 to verify that employees are authorized to accept employment in the United States. Future changes to U.S. immigration laws may result in increased costs of compliance in the solicitation, hiring, and ongoing employment of employees, and correspondingly increase our operating costs.
We also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings, and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs.
We are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. There also has been increasing focus by United States governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters, such as the emission of greenhouse gases, where “cap and trade” initiatives could effectively impose a tax on carbon emissions. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.
We are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information. Compliance with these laws and regulations can be costly, and any failure or perceived failure to comply with those laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or an insufficient or ineffective response to significant regulatory or public policy issues, could increase our cost structure, operational efficiencies and talent availability, and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.
There has been a marked increase in the use of social media platforms and similar devices which allow individual access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or business. The harm may be immediate without affording us an opportunity for redress or correction. The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information's accuracy.
Many of our competitors are expanding their use of social media and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete. As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance. In addition, a variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, or out-of-date information. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
Securities Risk Factors
Provisions in our certificate and bylaws could have the effect of preventing a change of control
.
Certain provisions of our Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock. Our Certificate of Incorporation allows the Company to issue up to 1,500,000 shares of currently undesignated preferred stock, to determine the powers, preferences, rights, qualifications and limitations or restrictions granted to or imposed on any un-issued series of that preferred stock, and to fix the number of shares constituting any such series and the designation of such series, without any vote or future action by the stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of the common stock. The Certificate of Incorporation also prohibits the ability of stockholders to call special meetings. Our Bylaws require advance notice to nominate a director or take certain other actions. Such provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. In addition, we have not elected to be excluded from the provisions of Section 203 of the Delaware General Corporation Law, which imposes certain limitations on transactions between a corporation and "interested" stockholders, as defined in such provisions.
The market price of our shares of common stock is volatile and may increase or decrease dramatically at any time.
The market price of our shares of common stock is volatile. Our stock price may change as the result of announcements of new products or innovations by us or our competitors, uncertainty regarding the viability of our business or our industry, significant litigation, our liquidity situation, revenues or losses, or other factors or events that would be expected to affect our business, financial condition, results of operations and future prospects.
The market price for our shares of common stock may be affected by various factors not directly related to our business or future prospects, including the following:
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intentional manipulation of our stock price by existing or future shareholders or a reaction by investors to trends in our stock rather than the fundamentals of our business;
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a single acquisition or disposition, or several related acquisitions or dispositions, of a large number of our shares, including by short sellers covering their position;
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the interest, or lack of interests, of the market in our business sector, without regard to our financial condition, results of operations or business prospects;
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positive or negative statements or projections about our company or our industry, by analysts, stock gurus and other persons;
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the adoption of governmental regulations or government grant programs and similar developments in the United States or abroad that may enhance or detract from our ability to offer our products and services or affect our cost structure; and
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economic and other external market factors, such as a general decline in market prices due to poor economic conditions, investor distrust or a financial crisis.
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Sale of a substantial number of shares of our common stock could cause the market price to decline.
Sale of a substantial number of shares of our common stock in the public market could substantially reduce the prevailing market price of our common stock. As of April 19, 2019, 3,213,075 shares of common stock were outstanding. We cannot predict the effect, if any, that sales of shares of our common stock or the availability of such shares for sale will have on prevailing market prices. However, substantial amounts of our common stock could be sold in the public market, which may adversely affect prevailing market prices for the common stock.
There is a public market for our stock, but it is thin and subject to manipulation.
The volume of trading in our common stock is limited and can be dominated by a few individuals. The limited volume can make the price of our common stock subject to manipulation by one or more stockholders and will significantly limit the number of shares that one can purchase or sell in a short period of time. An investor may find it difficult to dispose of shares of our common stock or obtain a fair price for our common stock in the market.
The market price of our common stock may be harmed by our need to raise capital.
We need to raise additional capital to grow our business and expect to raise such capital through the issuance of common stock, preferred stock or debt. Because securities in private placements and other transactions by a company are often sold at a discount to market prices, this need to raise additional capital may harm the market price of our common stock. In addition, the re-sale of securities issued in such capital-raising transactions, whether under Rule 144 or a re-sale registration statement, may harm the market price of our common stock
.
A single stockholder, who is also Chairman and CEO, effectively controls our company.
Mr. Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President, currently beneficially owns approximately 46.7% of our total equity securities and possesses approximately 46.7% of the total voting power. Thus, Mr. Wheaton has the ability to control or significantly influence all matters requiring the approval of our stockholders, including the election of our directors. The control that Mr. Wheaton has over all matters affecting the Company may limit the willingness of certain investors to invest in our common stock and the market price of our common stock.
We have not paid
a
cash dividend since 2008
.
Although we have retained earnings for use in our business in our recent past, we reserve the right to resume dividend payments in the future.
We are subject to various regulatory regimes, and may be adversely affected by inquiries, investigations and allegations that we have not complied with governing rules and laws.
In light of our status as a public company and our lines of business, we are subject to a variety of laws and regulatory regimes in addition to those applicable to all businesses generally. For example, we are subject to the reporting requirements applicable to United States reporting issuers, such as the Sarbanes-Oxley Act of 2002, the rules of the applicable stock markets and certain other securities laws. We are also subject to state and federal environmental, health, safety and similar laws. Such laws and rules change frequently and are often complex. In connection with such laws, we are subject to periodic audits, inquiries and investigations. Any such audits, inquiries and investigations may divert considerable financial and human resources and adversely affect the execution of our business plan.
Through such audits, inquiries and investigations, we or a regulator may determine that we are out of compliance with one or more governing rules or laws. Remedying such non-compliance would divert additional financial and human resources. In addition, in the future, we may be subject to a formal charge or determination that we have materially violated a governing law, rule or regulation. We may also be subject to lawsuits as a result of alleged violation of the securities laws or governing corporate laws. Any charge or allegation, and particularly any determination, that we had materially violated a governing law would harm our ability to enter into business relationships, recruit qualified officers and employees and raise capital.