Loss of Investment Risk
Investing in startups and other private companies is highly speculative and could result in the complete loss of the investment. In addition, you will not be able to resell securities acquired through Crowdfunding for a period of one year, subject to certain limited exceptions, including sales back to the issuer, to accredited investors, to family members under certain circumstances (i.e. death or divorce). However, even after the restricted period, there is no guarantee that there will be a market for the securities.
General Investment Risk Factors
Investing in startups and other private companies is highly speculative (risky) so it is important that you understand the various risks involved before making your investment decision. We’ve put together some common general investment risks for you to consider before investing. The following is not intended to be a comprehensive list nor a substitute for discussing the risks of specific investment opportunities with your professional advisors, including your legal, tax and financial advisors. Each company and business has unique inherent risks in their operations so you must also carefully read the Form C filed with SEC.
We also encourage you to read the SEC’s Investor Bulletin which provides important information to investors interested in investing in crowdfunding offerings SEC Investor Bulletin: Crowdfunding
The offering materials may include forward looking statements but there can be no assurance that the results and events contemplated by forward-looking statements will, in fact, transpire. Forward-looking statements can be identified by use of terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond the Company’s control. Actual results could differ significantly from these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in offering materials will in fact transpire. You are cautioned to not place undue reliance on these forward-looking statements.
The Company is a start-up company with a recently-developed product and/or service with little operating history. It may never successfully develop its product, services or business and, as a result, you may lose your entire investment amount. As a start-up company, the Company may fail to successfully market and promote its business, develop its product/services or manage growth. Successfully marketing and promoting products and/or services such as the Company’s is a complex and uncertain process, dependent on the efforts of management, outside consultants and general economic conditions, among other things. Accordingly, you should consider the Company’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that a new company with no operating history will face. In particular, potential investors should consider that there is a significant risk that we will not be able to: (i) implement or execute the Company’s current business plan, or that the Company’s business plan is sound; (ii) maintain the Company’s anticipated management and advisory team; (iii) raise sufficient funds in the capital markets to effectuate the Company’s business plan; (iv) control the costs of growing the business; and/or (v) attract, enter into or maintain contracts with, and retain customers. If the Company cannot execute any one of the foregoing, the Company’s business may fail, in which case you would lose the entire amount of your investment in the Company.
The Company may have limited operating history upon which you can base your investment decision. Startup companies are new ventures and therefore do not have a history of performance, financials and experience managing growth for you to base your investment decisions. The Company’s ability to generate additional (or any) revenue would depend upon whether it can further develop and commercialize its current products or services and make the transition from a start-up to an operating company.
The Company is controlled by a limited number of investors (typically founders) who also serve as managers. These shareholders control the operations of the Company and will have the ability to control all matters submitted to the stockholders for approval, including: (i) election of the Company’s board of directors; (ii) removal of directors; (iii) amendment to the Company’s certificate of incorporation or bylaws; and (iv) adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination. This means that you will have limited rights to influence major decisions affecting the Company.
There is currently no public trading market for the securities, and it is not anticipated that any such public market will develop in the foreseeable future. In particular, none of the securities offered will be registered under any federal or state securities law, and the securities are being offered and sold in offering posted on the portal are done so in reliance upon exemptions from the registration requirements of those laws. Securities offered pursuant to Regulation Crowdfunding are restricted from resale (transfer) for a period of one year (subject to very limited exceptions). However, even when the restrictive period ends, there is no guarantee that a market will exist for you to sell the securities. Accordingly, prospective investors who require liquidity (ability to sell their investment for cash) in their investments should not invest in the securities. An investment in the securities should only be made by those who can afford to hold the securities for an indefinite period of time and can also afford the complete loss of their entire investment without a change in your lifestyle.
Depending on the use of proceeds, the Company’s management may have discretion as to the money raised in the Crowdfunding offering. The net proceeds, if any, from the offering will be used as described in this offering documents (See Form C filed with the SEC and available on the Portal). The Company may reserve the right to use the funds obtained from the offering for other purposes not presently contemplated which the Company deems to be in the Company’s best interests and the Company’s stockholders in order to address changed circumstances and opportunities. As a result of the foregoing, the Company’s success may be affected by the judgment of the Company’s management with respect to the application and allocation of the net proceeds of the offering. Investors will be entrusting their funds to the Company’s management, upon whose judgment and discretion the Investors must depend, with only limited information concerning management’s specific intentions.
The price of the securities and other terms of the offering have been arbitrarily determined. Unless a valuation opinion or other professional advice has been sought in connection with the offering, you will pay a price that was not established in a competitive market or by professional evaluation. Rather, you will pay a price that was arbitrarily determined by the Company. The offering price for the securities may bear no relationship to the Company’s assets, book value, historical results of operations or any other established criterion of value, and may not be indicative of the fair value of the securities. The trading price, if any, of the securities that may prevail in any market that may develop in the future, for which there can be no assurance, may be higher or lower than the price you pay.
The Company’s obligations pursuant to future debt obligations could impair its liquidity and financial condition. The Company may commence additional financings and may incur substantial debt in the future to fund all or part of its capital requirements. Any future debt obligations could (i) make it more difficult for the Company to satisfy its other obligations; (ii) require the Company to dedicate a substantial portion of any cash flow it may generate to payments on its debt obligations, which would reduce the availability of its cash flow to fund working capital, capital expenditures and other corporate requirements; (iii) impede the Company from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes; (iv) make the Company more vulnerable in the event of a downturn in its business prospects and limit the Company’s flexibility to plan for, or react to, changes in the Company’s industry; (v) expose the company to greater risk of bankruptcy if it unable to make payments due under such loans, and (vi) require the Company to grant security interests on its assets, including its patents, if any. If the Company were to fail in the future to make any required payment pursuant to agreements governing indebtedness it undertakes or fail to comply with the financial and operating covenants contained in those agreements, it would be in default as regards to that indebtedness. The Company’s lenders would have the ability to require that it immediately pay all outstanding indebtedness, and it might not have sufficient assets to satisfy their demands. In this event, the Company’s assets could be foreclosed upon and/or the Company could be forced to seek protection under bankruptcy laws, which could harm its future operations and overall financial condition.
The Company will require additional financing. Because the Company may not be able to generate sufficient cash from the Company’s operations, the Company will be required to rely on external financing to develop any future projects. Any projections of future cash needs and cash flows are subject to substantial uncertainty. The Company’s capital requirements depend upon several factors, including the rate of market acceptance, ability to expand the Company’s customer base and increase revenues, level of expenditures for marketing and sales, purchases of equipment and other factors. If capital requirements vary materially from those currently planned, the Company may require additional financing sooner than anticipated. The Company may seek to raise capital at a lower valuation (down round) that the valuation in the current offering. The Company can make no assurance that financing will be available in amounts or on acceptable terms, if at all.
The Company may be subject to risks related to litigation and regulatory actions. The Company may from time-to-time be subject to a variety of legal and regulatory actions relating to the Company’s current and past business operations, including, but not limited to disputes regarding (i) its products and services, (ii) employee actions, (iii) sales practices, disclosure, licensing, regulatory compliance and compensation arrangements; (iv) taxing authorities regarding tax liabilities; and (v) governmental or administrative investigations and proceedings in the context of the Company’s regulated sectors of activity. The Company cannot predict the outcome of these investigations, proceedings and reviews, and cannot guarantee that such investigations, proceedings or reviews or related litigation or changes in operating policies and practices would not materially adversely affect the Company’s results of operations and financial condition. Responding to investigations and defending legal actions can be very costly and will disrupt business operations.
Issuance of additional shares or securities convertible into shares may cause dilution. To the extent the Company’s board of directors authorizes the issuance of additional shares of common stock or securities such as warrants or options convertible into common stock, the current holders of the Company’s common stock, warrants and options will experience dilution. In addition, in the event that any future financing should be in the form of, be convertible into or exchangeable for, equity securities, the percentage ownership of the Company’s existing stockholders (including investors in this crowdfunded offering) will be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of the Company’s common stock sold in this crowdfunded offering. Any issuance of additional shares of common stock may cause the Company’s current shareholders to suffer significant dilution which may adversely affect the price of the common stock.
Following completion of an offering conducted through EquityBender, there may or may not be any ongoing relationship between the issuer and the portal. In addition, under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer. In some circumstances issuers are permitted by rule to cease filing annual reports, other issuers may completely fail in their obligation to do so.
The Company is not subject to Sarbanes-Oxley regulations and may lack the financial controls and procedures of public companies. The Company may not have the internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes Oxley Act of 2002. As a privately-held company, the Company is currently not subject to the Sarbanes Oxley Act of 2002, and its financial and disclosure controls and procedures reflect its status as a development stage, non-public company. The Company does not have the internal infrastructure necessary to complete an attestation about its financial and disclosure controls and procedures that are required of companies subject to Section 404 of the Sarbanes-Oxley Act of 2002.
There can be no guarantee that there are no significant deficiencies or material weaknesses in the quality of the Company’s financial and disclosure controls and procedures. If it were necessary to implement such financial and disclosure controls and procedures, the cost to the Company of such compliance could be substantial and could have a material adverse effect on the Company’s results of operations. There can be no assurance of a resale registration or any other liquidity event. An investment in the securities may offer the opportunity for gains, but such investment involves a very high degree of business and financial risk that can result in substantial losses. No assurance can be given that a resale registration or other liquidity event will be consummated or that, if consummated, it would result in increased value of the shares of the securities.
The Company’s securities will not be transferable for a period of one year, other than in limited circumstances. The Company’s securities are subject to restrictions on transfer. You will not be able to transfer the Company’s securities for a period of one year from the date of purchase, subject to limited exceptions including transfers to the Company, to an accredited investor, to a member of your family or in connection with death or divorce or other similar circumstances, in the discretion of the Commission or in an offering registered with the SEC. Thus, you should be prepared to hold any securities you purchase in this offering subject to these restrictions.
The Company’s securities are being offered pursuant to certain exemptions from registration for crowdfunding transactions and if any of the requirements for the exemption are violated, the Company and the investors may become subject to liability under the Securities Act of 1933, as amended, and other federal and state securities laws. The Company’s securities are being offered pursuant to an exemption from registration which is available for crowdfunded offerings. Specifically, issuers may only sell up to $1.07 million worth of securities within a twelve-month period. Investors in a crowdfunding offering may invest no more than the permitted amount within a twelve-month period. In order to avail itself of the exemption from registration, the Company must also sell the Company’s securities through a qualified broker or funding portal. If any of the conditions for the exemption are violated, investors and the Company may have exposure to liability under federal and state securities laws.
Negative events in the crowdfunding industry may subject the Company to reputational harm, or increased regulatory oversight, increasing the risk of financial liability and additional compliance requirements resulting from adverse regulatory actions. Any highly publicized events or regulatory inquiries concerning potential fraudulent offerings or other schemes designed to harm investors through crowdfunding can be expected to result in negative publicity for crowdfunded companies, increased scrutiny and oversight of companies that avail themselves of the crowdfunding exemption, as well as potential new rules and regulations. This may make it more difficult to succeed with the Company’s business plan or attract new investors and may result in an increase in operational and compliance costs or otherwise limit the Company’s ability to engage in certain activities. The Company may also be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. governmental regulatory authorities, FINRA or other self-regulatory organizations that supervise the financial markets in general. This could impact the Company’s ability to conduct its business with third parties, obtain future financing and could decrease the pool of potential investors seeking to participate in any future crowdfunding offerings.
There is uncertainty about the Jumpstart Our Business Startups Act and its interpretation and implementations remains to be tested. The Company is relying on a newly created financing program (crowdfunding). The application of the crowdfunding exemptions and its implementation and interpretation remains to be fully tested. As a result, potential investors will not have the benefit of relying on precedent in making their investment decision and will face some uncertainty about the validity of their investment. In the event the Commission determines that we incorrectly interpreted the crowdfunding exemption in this crowdfunded offering, we may be required to offer rescission rights for these securities and this crowdfunded offering and the Company’s financial condition may be in jeopardy.
To learn more about the risks of investing, please visit our Resource Page and Education Section.