Management's Discussion and Analysis of Financial Condition and Results of
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes appearing in this report. Some of the information
contained in this discussion and analysis or set forth elsewhere in this report,
including information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that involve risks
and uncertainties. You should review the "Risk Factors" in this registration
statement for a discussion of important factors that could cause actual results
to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
Since inception, we have incurred net operating losses. Losses have principally
occurred as a result of the substantial resources required for research and
development and marketing of our products, which included the general and
administrative expenses, associated with its organization and product
development. We expect operating losses to continue, mainly due to the
anticipated expenses associated with the marketing of all our products and
development of our recently acquired business, Basalt America.
Results of Operations
Revenues for the year ended December 31, 2016, totaled $394,219 and were derived
from sales of electric bicycles made by multiple manufacturers, service, and
lifestyle apparel. Revenues through Paymeon Brands began during the second
quarter of 2016 and were principally from sales of lifestyle apparel. Revenues
for the year ended December 31, 2015 were $175,156 and were primarily derived
from the sale of electric bicycles made by Prodeco Technologies. The $219,063
increase represents an increase of 125% over the same periods in 2015 and
reflects the growth of our light electric vehicle operations and the launch of
our lifestyle brand apparel sales. We expect our revenues from light electric
vehicles, and related products, such as apparel, to decrease, however, as we
reduce our focus on light electric vehicle operations and apparel to focus on
building our Basalt America business, which we expect will become the primary
focus of our business during 2017.
Operating expenses for year ended December 31, 2016, totaled $2,485,240,
reflecting an increase of $1,990,815 or 403% from $494,425 for the year ended
December 31, 2015.
The increases in operating expenses for the year ended December 31, 2016 over
the year ended December 31, 2015 were primarily due to the increased general and
administrative (G&A) expenses of $816,125, increased consulting expenses of
$1,035,864 primarily due to the issuance of common stock for services, increased
travel and entertainment expenses, increased professional fees of $46,691, and
increased payroll and payroll taxes of $119,759 due to additional staff
associated with the launch of our retail location dedicated to the sale of light
electric vehicles and related products and services.
Liquidity and Capital Resources
At December 31, 2016, we had $10,341 of cash and a working capital deficit of
$2,320,139. We require additional working capital. See "Plan of Operations"
Since inception, the Company has incurred net operating losses and used cash in
operations. As of December 31, 2016, the Company had an accumulated deficit of
$11,764,087. The Company has also dedicated substantial resources required to
research and development and marketing of the Company's products which included
the general and administrative expenses associated with its organization and
product development. We expect operating losses to continue, due to the
anticipated costs to develop our Basalt America business. These conditions raise
substantial doubt about the Company's ability to continue as a going concern. We
require financing for our plan of operations.
We have historically satisfied our working capital requirements through the sale
of restricted common stock and the issuance of promissory notes. From January
2012 through May 2012 the Company issued a series of secured promissory notes in
the aggregate principal amount of $155,000 (the "January Secured Notes"). The
January Secured Notes were secured by all of the assets of the Company. On
December 27, 2012, the Company entered into an agreement to issue a secured
convertible promissory note in the principal amount of $165,500 to Celentano
Consulting Company, LLC, an affiliate of the Company. The secured convertible
note bears interest at an annual rate of 7% and is payable on or before 12
months from the date of issuance. The secured convertible note is secured by all
of the assets of the Company and includes customary provisions concerning events
of default. In addition, the secured convertible note may be converted at any
time, at the option of the holder, into shares of the Company's common stock at
a conversion price of $0.345 per share, subject to adjustment and conversion
limitations. The Company received $165,500 in gross proceeds from the issuance
of the secured convertible note and used substantially all of the proceeds from
the secured convertible note to satisfy the January Secured Notes, along with
outstanding and accrued interest on the January Secured Notes of approximately
$9,018. The secured convertible note was outstanding on December 31, 2016, and
Celentano Consulting Company, LLC has agreed in writing to extend the maturity
date to December 23, 2017.
During the year ended December 31, 2015, the Company issued a series of
unsecured convertible promissory notes in the principal amount of $359,500 to
related parties. The notes bear interest at an annual rate of 7% and are payable
on or before 12 months from the date of issuance, subject to extension. In
addition, the notes may be converted at any time, at the option of the holder,
into shares of the Company's common stock at conversion prices ranging from
$0.12 to $0.30 per share, subject to adjustment and subject to certain
limitations on conversion.
On January 5, 2015 the Company sold a total of 50,000 shares to an individual
for proceeds of $17,500 ($0.35 per share).
On January 20, 2015, the Company advanced $75,000 to ProdecoTech in
consideration of an unsecured promissory note in the principal amount of $75,000
from ProdecoTech, an affiliated entity. The note payable to the Company bears
interest at an annual rate of 7% and is payable January 20, 2018. The note
holder shall pay interest in the amount of $1,312.50 per quarter due on the
15th each month following the end of the quarter until the maturity date. On
February 6, 2015 the Company advanced an additional $9,760.90 to Prodeco under
the same terms due on February 8, 2018. The note holder shall pay interest in
the amount of $170.81 per quarter due on the 15th each month following the end
of the quarter until the maturity date. For the three and nine months ended
September 30, 2015, no interest was paid on the note. As of September 30, 2015,
a related party (an affiliate of the Company and ProdecoTech), elected to accept
the note receivable of $84,760 and accrued interest of $2,967 as payment against
the convertible notes payable related party.
On October 22, 2015 (the "Closing Date") the Company's wholly owned subsidiary,
HLM PayMeOn, Inc., entered into a sublease agreement with PDQ Auctions, LLC to
lease retail premises located 2599 North Federal Highway, Fort Lauderdale,
Florida. The Company used the premises to establish and operate a retail
electric self-balancing scooter (hoverboard), bicycle and related product store
under the Company's "irideelectric" brand. The sublease is for an initial term
of approximately 5 years at an initial monthly sum of $5,617.50 and an
additional 5 year term at a monthly sum of $5,899. As consideration for
leasehold improvements, the Company issued PDQ an unsecured promissory note in
the principal amount of $300,000. The Note bears interest at an annual rate of
7% and is payable on or before October 22, 2017, unless the Note is converted or
prepaid prior to the Maturity Date. Subject to certain limitations below, the
Note may be converted at any time, at the option of the holder, into shares of
the Company's common stock at a conversion price of $0.35 per share, subject to
adjustment. In the event the Company issues any new or additional promissory
notes that pay an interest rate that exceeds 7% per annum, then the holder shall
be entitled to request an increase in the Interest rate payable on the Note to
an amount equal to the rate being paid on the new or additional notes. The
conversion of the Note may be limited if, upon conversion, the holder thereof
would beneficially own more than 4.9% of the Company's common stock. The Note
may be prepaid at the option of the Company commencing 190 days after the
During the year ended December 31, 2016, the Company issued a series of
unsecured convertible promissory notes in the aggregate principal amount of
$63,975 to a related party. The notes bear interest at 7% and are payable on or
before 12 months from the date of issuance. In addition, the notes may be
converted at any time, at the option of the holder, into shares of the Company's
common stock at a conversion price of $0.20 per share, subject to adjustment and
limitations on conversion.
During the year ended December 31, 2016, the Company sold an aggregate of
1,500,000 shares of restricted common stock to accredited investors for gross
proceeds of $293,000.
On July 13, 2016, HLM Paymeon, Inc., the Company's wholly owned subsidiary,
entered into a merchant agreement with Summit Capital Partners ("SCP"), whereby
it sold $40,500 of accounts receivable (the "Receipts Purchased Amount") for a
total purchase price of $30,000. HLM Paymeon shall repay $337 daily until the
Receipts Purchased Amount is repaid. To secure HLM Paymeon's payment and
performance obligations to SCP, HLM Paymeon has granted to SCP a security
interest in all HLM Paymeon's accounts, chattel paper, documents, equipment,
general intangibles, instruments and inventory. In addition, the Company's
directors have individually guaranteed repayment of the Receipts Purchased
On August 17, 2016, PayMeOn Brands, Inc., a wholly-owned subsidiary of the
Company, entered into a purchase order purchase and sale agreement with a
related party, whereby PayMeOn Brands sold $5,000 of current purchase orders in
exchange for $4,000. As a further inducement for Purchaser to enter into the
agreement as collateral security for any and all obligations owing by PayMeOn
Brands to Purchaser, PayMeOn Brands has granted to purchaser, as collateral
security, a first lien security interest in all of PayMeOn Brands' accounts
created as a result of Purchase Orders financed or purchased by purchaser and
all inventory. As of December 31, 2016, the outstanding balance is $5,000.
On September 2, 2016, Paymeon Brands, Inc., a wholly-owned subsidiary of the
Company, entered into a purchase order purchase and sale agreement with a third
party, whereby Paymeon Brands sold $50,000 of current purchase orders in
exchange for $40,000. During the year ended December 31, 2016 the Company repaid
a total of $33,500. On December 15, 2016 the holder converted the remaining
balance of $16,500 into 883,936 shares of common stock at $0.0187 per share. The
fair value price per share at August 17, 2016 was $0.55 per share. Therefore the
Company recorded a $469,995 loss on conversion of debt.
On September 9, 2016, Paymeon Brands, Inc., a wholly-owned subsidiary of the
Company, entered into a purchase order purchase and sale agreement with a third
party purchaser, whereby Paymeon Brands sold $20,000 of current purchase orders
in exchange for $15,000. As a further inducement for purchaser to enter into the
agreement as collateral security for any and all obligations owing by PayMeOn
Brands to purchaser, PayMeOn Brands has granted to purchaser, as collateral
security, a first lien security interest in all of PayMeOn Brands' accounts
created as a result of purchase orders financed or purchased by purchaser and
all inventory. The Company recorded a $5,000 deferred finance charge on the date
of issuance. As of December 31, 2016 the Company amortized $5,000 of the
deferred finance charge and repaid $5,000. On December 15, 2016 the holder
converted the remaining balance of $20,000 into 1,142,849 shares of common stock
as $0.0175 per share. The fair value price per share at August 17, 2016 was
$0.55 per share. Therefore the Company recorded a $608,567 loss on conversion of
On September 23, 2016, the Company entered into a short-term demand loan with a
third party. The loan amount was $5,000 and requires repayment of $6,333in 30
days. The Company repaid $5,000 as of December 31, 2016.
Current working capital is not sufficient to maintain our current operations and
there is no assurance that future sales and marketing efforts will be successful
enough to achieve the level of revenue sufficient to provide cash to sustain
operations. To the extent such revenues and corresponding cash flows do not
materialize, we will attempt to fund working capital requirements through third
party financing, including a private placement of our securities. In the absence
of revenues, we currently believe we require a minimum of $3,000,000 to maintain
our current operations through the next 12 months. We cannot provide any
assurances that required capital will be obtained or that the terms of such
required capital may be acceptable to us. If we are unable to obtain adequate
financing, we may reduce our operating activities until sufficient funding is
secured or revenues are generated to support operating activities.
Critical Accounting Policies and Estimates
The Company recognizes revenue on arrangements in accordance with FASB ASC No.
605, "Revenue Recognition". In all cases, revenue is recognized only when the
price is fixed and determinable, persuasive evidence of an arrangement exists,
the service is performed and collectability of the resulting receivable is
The Company recognizes revenue from bike sales when delivered to our customers
and collectability is reasonably assured.
The Company recognizes compensation costs to employees under FASB Accounting
Standards Codification No. 718, Compensation - Stock Compensation. Under FASB
Accounting Standards Codification No. 718, companies are required to measure the
compensation costs of share-based compensation arrangements based on the
grant-date fair value and recognize the costs in the financial statements over
the period during which employees are required to provide services. Share based
compensation arrangements include stock options, restricted share plans,
performance based awards, share appreciation rights and employee share purchase
plans. As such, compensation cost is measured on the date of grant at their fair
value. Such compensation amounts, if any, are amortized over the respective
vesting periods of the option grant.
Equity instruments issued to other than employees are recorded on the basis of
the fair value of the instruments, as required by FASB Accounting Standards
Codification No. 505, Equity Based Payments to Non-Employees. In general, the
measurement date is when either a (a) performance commitment, as defined, is
reached or (b) the earlier of (i) the non-employee performance is complete or
(ii) the instruments are vested. The measured value related to the instruments
is recognized over a period based on the facts and circumstances of each
particular grant as defined in the FASB Accounting Standards Codification.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current
lease accounting to require lessees to recognize (i) a lease liability, which is
a lessee's obligation to make lease payments arising from a lease, measured on a
discounted basis, and (ii) a right-of-use asset, which is an asset that
represents the lessee's right to use, or control the use of, a specified asset
for the lease term. ASU 2016-02 does not significantly change lease accounting
requirements applicable to lessors; however, certain changes were made to align,
where necessary, lessor accounting with the lessee accounting model. This
standard will be effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. We are currently reviewing
the provisions of this ASU to determine if there will be any impact on our
results of operations, cash flows or financial condition.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation:
Improvements to Employee Share-Based Payment Accounting, which relates to the
accounting for employee share-based payments. This standard addresses several
aspects of the accounting for share-based payment award transactions, including:
(a) income tax consequences; (b) classification of awards as either equity or
liabilities; and (c) classification on the statement of cash flows. This
standard will be effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. We are currently reviewing
the provisions of this ASU to determine if there will be any impact on our
results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU 2016-10 Revenue from Contract with Customers
(Topic 606): identifying Performance Obligations and Licensing. The amendments
in this Update do not change the core principle of the guidance in Topic 606.
Rather, the amendments in this Update clarify the following two aspects of Topic
606: identifying performance obligations and the licensing implementation
guidance, while retaining the related principles for those areas. Topic 606
includes implementation guidance on (a) contracts with customers to transfer
goods and services in exchange for consideration and (b) determining whether an
entity's promise to grant a license provides a customer with either a right to
use the entity's intellectual property (which is satisfied at a point in time)
or a right to access the entity's intellectual property (which is satisfied over
time). The amendments in this Update are intended render more detailed
implementation guidance with the expectation to reduce the degree of judgement
necessary to comply with Topic 606. We are currently reviewing the provisions of
this ASU to determine if there will be any impact on our results of operations,
cash flows or financial condition.
All other newly issued accounting pronouncements but not yet effective have been
deemed either immaterial or not applicable.
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors before deciding whether to invest
in the Company. Additional risks and uncertainties not presently known to us, or
that we currently deem immaterial, may also impair our business operations or
our financial condition. If any of the events discussed in the risk factors
below occur, our business, consolidated financial condition, results of
operations or prospects could be materially and adversely affected. In such
case, the value and marketability of the common stock could decline.
Risks Related to Our Business and Industry
Our independent auditors have raised substantial doubt about our ability to
continue as a going concern.
As an early stage company, we have not yet generated significant revenues. We
have incurred operating losses since its inception and will continue to incur
net losses until we can produce sufficient revenues to cover our costs. Our
independent auditors have included in their audit report an explanatory
paragraph that states that our net loss and working capital deficiency raises
substantial doubt about our ability to continue as a going concern.
We have a limited operating history, have incurred net losses in the past and
expect to incur net losses in the future.
We have a limited operating history and have not recorded a profit since
inception. As a result of this, and the uncertainty of the market in which we
operate, we cannot reliably forecast our future results of operations. We expect
to increase our operating expenses in the future as a result of developing,
refining and implementing a sales strategy. There is no guarantee we will be
profitable in the future. In addition, we expect our operating expenses to
increase in the future as we expand our operations. If our operating expenses
exceed our expectations, our financial performance could be adversely affected.
If our revenue does not grow to offset these increased expenses, we may not be
profitable in any future period.
We have a short operating history and a new business model in an emerging and
rapidly evolving market. This makes it difficult to evaluate our future
prospects and increases the risk of your investment.
We have very little operating history for you to evaluate in assessing our
future prospects. You must consider our business and prospects in light of the
risks and difficulties we will encounter as an early-stage company in a new and
rapidly evolving market. We may not be able to successfully address these risks
and difficulties, which could materially harm our business and operating
results. In addition, we do not know if our current business model will operate
effectively during the current economic downturn. Furthermore, we are unable to
predict the likely duration and severity of the adverse economic conditions in
the U.S. and other countries, but the longer the duration the greater risks we
face in operating our business. There can be no assurance, therefore, that
current economic conditions or worsening economic conditions, or a prolonged or
recurring recession, will not have a significant adverse impact on our operating
and financial results.
Mobile and e-Commerce Technology Risks
The markets that we are targeting for revenue opportunities are new and rapidly
developing and may change before we can access them.
The markets for traditional Internet and mobile Web products and services that
we are targeting for revenue opportunities are changing rapidly and are being
pursued by many other companies, and the barriers to entry are relatively low.
We cannot provide assurance that we will be able to realize these revenue
opportunities before they change or before other companies dominate the market.
Furthermore, we have based certain of our revenue opportunities on statistics
provided by third party industry sources. Such statistics are based on ever
changing customer preferences due to our rapidly changing industry. These
statistics, including some of the statistics referenced in this memorandum, have
not been independently verified by our company. With the introduction of new
technologies and the influx of new entrants to the market, we expect competition
to persist and intensify in the future, which could harm our ability to increase
sales, limit client attrition and maintain our prices.
We face significant competition from large and small companies offering products
and services related to mobile marketing technologies and services, targeted
advertising delivery and the delivery of Web-based video.
Our current and potential competitors may have significantly more financial,
technical, marketing and other resources than we do and may be able to devote
greater resources to the development, promotion, sale and support of their
products. Our current and potential competitors may have more extensive client
bases and broader client relationships than our company. In addition, these
companies may have longer operating histories and greater name recognition.
These competitors may be better able to respond quickly to new technologies and
to undertake more extensive marketing campaigns. If we are unable to compete
with such companies, we may never generate demand for our products.
If we fail to promote and maintain our brand in a cost-effective manner, we may
lose (or fail to gain) market share and our revenue may decrease.
We believe that developing and maintaining awareness of the PayMeOn brands in a
cost-effective manner is critical to its goal of achieving widespread acceptance
of our existing and future technologies and services and attracting new clients.
Furthermore, we believe that the importance of brand recognition will increase
as competition in our industry increases. Successful promotion of the brand will
depend largely on the effectiveness of our marketing efforts and the
effectiveness and affordability of our products and services for our target
client demographic. Historically, efforts to build brand recognition have
involved significant expense, and it is likely that our future marketing efforts
will require us to incur significant expenses. Such brand promotion activities
may not yield increased revenue and, even if they do, any revenue increases may
not offset the expenses we incur to promote our brand. If we fail to
successfully promote and maintain the brand, or if we incur substantial expenses
in an unsuccessful attempt to promote and maintain the brand, we may lose
existing clients to our competitors or be unable to attract new clients, which
would cause revenue to decrease.
If we do not innovate and provide products and services that are useful to
users, revenues and operating results could suffer.
Our success depends on providing products and services that client's use to
promote their brands and products via mobile Web or other Web-based advertising.
Competitors are constantly developing innovations in customized communications,
including technologies and services related to mobile marketing and targeted ad
delivery. As a result, we must continue to invest significant resources in
research and development in order to enhance existing products and services and
introduce new high-quality products and services that people will use. If we are
unable to predict user preferences or industry changes, if we are unable to
manage our projects or product enhancements, or if we are unable to modify our
products and services on a timely basis, we may lose users, clients and
advertisers. Our operating results would also suffer if innovations are not
responsive to the needs of users, clients and advertisers, are not appropriately
timed with market opportunity or are not effectively brought to market.
The success of our business depends on the continued growth and acceptance of
mobile marketing/advertising as a communications tool, and the related expansion
and reliability of the Internet infrastructure. If consumers do not continue to
use the mobile Web or alternative communications tools gain popularity, demand
for our marketing and advertising technologies and services may decline.
The future success of our business depends on the continued and widespread
adoption of mobile marketing as a significant means of advertising and marketing
communication. Security problems such as "viruses," "worms" and other malicious
programs or reliability issues arising from outages and damage to the Internet
infrastructure could create the perception that mobile or Web-based
marketing/advertising is not a safe and reliable means of communication, which
would discourage businesses and consumers from using such methods. Any decrease
in the use of mobile devices or Web-based video resources would reduce demand
for our marketing technologies and services and harm our business.
Problems with third party hosting companies or our inability to receive third
party approvals for our products could harm us.
We rely on third-party hosting companies. Any disruption in the network access
or co-location services provided by these third-party providers or any failure
of these third-party providers to handle current or higher volumes of use could
significantly harm our business. In addition, we depend on third parties to
approve our products. If such approvals are unable to be obtained or are not
obtained in a timely fashion, our ability to access additional users and
customers from those products would be significantly diminished.
Our business depends on the growth and maintenance of the Internet
Our success will depend on the continued growth and maintenance of the internet
infrastructure. This includes maintenance of a reliable network backbone with
the necessary speed, data capacity and security for providing reliable internet
services. Internet infrastructure may be unable to support the demands placed on
it if the number of internet users continues to increase or if existing or
future internet users access the internet more often or increase their bandwidth
requirements. In addition, viruses, worms and similar programs may harm the
performance of the internet. The internet has experienced a variety of outages
and other delays as a result of damage to portions of its infrastructure, and it
could face outages and delays in the future. These outages and delays could
reduce the level of Internet usage as well as our ability to provide our
In addition, some states and foreign jurisdictions also include gift cards under
their unclaimed and abandoned property laws which require companies to remit to
the government the value of the unredeemed balance on the gift cards after a
specified period of time (generally between one and five years) and impose
certain reporting and recordkeeping obligations. We do not remit any amounts
relating to unredeemed PayMeOn offers based upon our assessment of applicable
laws. The analysis of the potential application of the unclaimed and abandoned
property laws to PayMeOn offers is complex, involving an analysis of
constitutional and statutory provisions and factual issues, including our
relationship with customers and merchants and our role as it relates to the
issuance and delivery of our offers.
Regulations concerning data protection are evolving and the manner in which we
handle personal data may be inconsistent with the interpretation of current
Many states have passed laws requiring notification to subscribers when there is
a security breach of personal data. There are also a number of legislative
proposals pending before the U.S. Congress, various state legislative bodies and
foreign governments concerning data protection. In addition, data protection
laws in Europe and other jurisdictions outside the United States may be more
restrictive, and the interpretation and application of these laws are still
uncertain and in flux. It is possible that these laws may be interpreted and
applied in a manner that is inconsistent with our data practices. If so, in
addition to the possibility of fines, this could result in an order requiring
that we change our data practices, which could have an adverse effect on our
business. Furthermore, the Digital Millennium Copyright Act has provisions that
limit, but do not necessarily eliminate, our liability for linking to
third-party websites that include materials that infringe copyrights or other
rights, so long as we comply with the statutory requirements of this act.
Complying with these various laws could cause us to incur substantial costs or
require us to change our business practices in a manner adverse to our business.
Our operating results may fluctuate.
Our operating results may fluctuate as a result of a number of factors, many of
which are outside of our control. The following factors may affect our operating
Our ability to compete effectively.
Our ability to continue to attract clients.
Our ability to attract revenue from advertisers and sponsors.
The amount and timing of operating costs and capital expenditures related to the
maintenance and expansion of our business, operations and infrastructure.
General economic conditions and those economic conditions specific to the
internet and internet advertising.
Our ability to keep our websites operational at a reasonable cost and without
The success of our product expansion.
Our ability to attract, motivate and retain top-quality employees.
Fiber Reinforced Polymer Industry Risks
We compete with large, established companies
Our Basalt America products for reinforcement of concrete compete as
replacements for traditional steel industry products. The steel industry is very
mature and companies are often entrenched with our potential customers. There is
no guarantee that we will be able to convince customers that our products are
superior to steel products.
Our products often require certain approvals and certifications to satisfy
regulatory requirements for use as concrete reinforcements and for other uses.
There is no guarantee that we will be able to maintain or secure such approvals
and certifications in the future.
Limited Availability of Raw Materials
We source various raw materials for manufacture of our products from various
different suppliers located in the United States and abroad. There is no
guarantee that our suppliers will be able to provide us with sufficient supply
of raw materials for us to maintain production levels necessary to satisfy
Changes in the global economic environment may lead to declines in the
production levels of our customers
We sell primarily to the construction industry. The construction industry is
cyclical and can exhibit a great deal of sensitivity to general economic
conditions. Low demand from the construction industry could adversely impact our
financial position, results of operations and cash flows.
We may be adversely impacted by volatility in prices for raw materials
Depending on our customer demand, we may be faced with having to purchase raw
materials at prices that are above the then current market price or in greater
volumes than required. Additionally, other factors may force the price of
composite materials down, which could affect our profit margins.
General Business Risks
We need additional capital to fund our operations, which, if obtained, could
result in substantial dilution or significant debt service obligations. We may
not be able to obtain additional capital on commercially reasonable terms, which
could adversely affect our liquidity and financial position.
We will require additional capital to fund the anticipated expansion of our
business and to pursue targeted revenue opportunities. We cannot assure you that
we will be able to raise additional capital. If we are able to raise additional
capital, we do not know what the terms of any such capital raising would be. In
addition, any future sale of our equity securities would dilute the ownership
and control of your shares and could be at prices substantially below prices at
which our shares currently trade. Our inability to raise capital could require
us to significantly curtail or terminate our operations. We may seek to increase
our cash reserves through the sale of additional equity or debt securities. The
sale of convertible debt securities or additional equity securities could result
in additional and potentially substantial dilution to our shareholders. The
incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our
operations and liquidity. In addition, our ability to obtain additional capital
on acceptable terms is subject to a variety of uncertainties. We cannot assure
you that financing will be available in amounts or on terms acceptable to us, if
at all. Any failure to raise additional funds on favorable terms could have a
material adverse effect on our liquidity and financial condition.
We cannot assure you that we will be able to develop the infrastructure
necessary to achieve the potential sales growth.
Achieving revenue growth will require that we develop additional infrastructure
in sales, technical and client support functions. We cannot assure you that we
can develop this infrastructure or will have the capital to do so. We will
continue to design plans to establish growth, adding sales and sales support
resources as capital permits, but at this time these plans are untested. If we
are unable to use any of our current marketing initiatives or the cost of such
initiatives were to significantly increase or such initiatives or its efforts to
satisfy existing clients are not successful, we may not be able to attract new
clients or retain existing clients on a cost-effective basis and, as a result,
our revenue and results of operations would be affected adversely.
If we fail to manage our anticipated growth, our business and operating results
could be harmed.
If we do not effectively manage our anticipated growth, the quality of our
products and services could suffer, which could negatively affect our brand and
operating results. To effectively manage our potential growth, we will need to
improve our operational, financial and management controls and our reporting
systems and procedures. These systems enhancements and improvements may require
significant capital expenditures and allocation of valuable management
resources. If the improvements are not implemented successfully, our ability to
manage our growth will be impaired and we may have to make significant
additional expenditures to address these issues, which could harm our financial
Our relationships with our channel partners may be terminated or may not
continue to be beneficial in generating new clients, which could adversely
affect our ability to increase our client base.
We maintain a network of active channel partners which refer clients to us
within different business verticals. If we are unable to maintain contractual
relationships with existing channel partners or establish new contractual
relationships with potential channel partners, we may experience delays and
increased costs in adding clients, which could have a material adverse effect on
us. The number of clients we are able to add through these marketing
relationships is dependent on the marketing efforts of our partners over which
we exercise very little control.
Competition for employees in our industry is intense, and we may not be able to
attract and retain the highly skilled employees whom we need to support our
Competition for highly skilled technical and marketing personnel is intense and
we continue to face difficulty identifying and hiring qualified personnel in
certain areas of our business. We may not be able to hire and retain such
personnel at compensation levels consistent with existing compensation
structure. Many of the companies with which we compete for experienced employees
have greater resources than we have and may be able to offer more attractive
terms of employment. In particular, candidates making employment decisions,
particularly in high-technology industries, often consider the value of any
equity they may receive in connection with their employment. As a result, any
significant volatility in the price of our stock may adversely affect our
ability to attract or retain highly skilled technical and marketing personnel.
In addition, we invest significant time and expense in training employees, which
increases their value to competitors who may seek to recruit them. If we fail to
retain our employees, we could incur significant expenses in hiring and training
their replacements and the quality of our services and our ability to serve our
clients could diminish, resulting in a material adverse effect on our business.
We may be unable to protect our intellectual property rights and any inability
to protect them could reduce the value of our products, services and brand.
Excluding our U.S. trademark protection for "social income", we have not filed
with any regulatory authority for patent or trademark protection. We intend to
protect our unpatented trade secrets and know-how through confidentiality or
license agreements with third parties, employees and consultants, and by
controlling access to and distribution of our proprietary information. However,
this method may not afford complete protection particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States and unauthorized parties may copy or otherwise obtain and use our
products, processes or technology and there can be no assurance that others will
not independently develop similar know-how and trade secrets. If third parties
take actions that affect our rights or the value of our intellectual property,
similar proprietary rights or reputation or we are unable to protect our
intellectual property from infringement or misappropriation, other companies may
be able to use our proprietary know-how to offer competitive products at lower
prices and we may not be able to effectively compete against these companies.
We may in the future be subject to intellectual property rights claims, which
are costly to defend, could require us to pay damages and could limit our
ability to use certain technologies in the future.
Companies in the internet, technology and media industries own large numbers of
patents, copyrights, trademarks and trade secrets and frequently enter into
litigation based on allegations of infringement or other violations of
intellectual property rights. As we face increasing competition, the possibility
of intellectual property rights claims against us grows. Our technologies may
not be able to withstand any third-party claims or rights against their use. Any
intellectual property claims, with or without merit, could be time-consuming,
expensive to litigate or settle and could divert management resources and
With respect to any intellectual property rights claim, we may have to pay
damages or stop using technology found to be in violation of a third party's
rights. We may have to seek a license for the technology, which may not be
available on reasonable terms and may significantly increase our operating
expenses. We have not fully reviewed and assessed the potential intellectual
claims centered on our latest asset purchases, mergers, or acquisitions to
evaluate any technology licenses required. The technology also may not be
available for license to us at all. As a result, we may also be required to
develop alternative non-infringing technology, which could require significant
effort and expense. If we cannot license or develop technology for the
infringing aspects of our business, we may be forced to limit our product and
service offerings and may be unable to compete effectively. Any of these results
could harm our brand and operating results.
Our ability to offer our products and services may be affected by a variety of
U.S. and foreign laws.
The laws relating to the liability of providers of online and mobile marketing
services for activities of their users are in their infancy and currently
unsettled both within the U.S. and abroad. Future regulations could affect our
ability to provide current or future programming.
We will depend on the services of Edward Cespedes and the loss of Mr. Cespedes
or failure of Mr. Cespedes to dedicate all of his time to our business could
materially harm our company.
We rely on Edward Cespedes, as our sole operating officer and director. While
Mr. Cespedes currently dedicates substantially all of his time to our company,
he is not required to dedicate all of his time and resources to our company and
we have not been able to pay him his contractual salary. The loss of the
services of Mr. Cespedes or Mr. Cespedes' inability to dedicate 100% of his time
and resources to our company could materially harm our business. In addition, we
do not presently maintain a key-man life insurance policy on Mr. Cespedes. Our
future depends, in part, on our ability to attract and retain key personnel. Our
future also depends on the continued contributions of other key technical and
marketing personnel. The loss of key personnel and the process to replace any of
our key personnel would involve significant time and expense, may take longer
than anticipated and may significantly delay or prevent the achievement of our
We currently have no independent directors, which poses a risk for us from a
corporate governance perspective.
Our directors and executive officer are required to make interested party
decisions, such as the approval of related party transactions, his level of his
compensation, and oversight of our accounting function. Our directors and
executive officer also exercise substantial control over all matters requiring
stockholder approval, including the nomination of directors and the approval of
significant corporate transactions. Due to our lack of independent directors, we
have not implemented various corporate governance measures, the absence of which
may cause stockholders to have more limited protections against transactions
implemented by our board of directors, conflicts of interest and similar
matters. Stockholders should bear in mind our current lack of corporate
governance measures in formulating their investment decisions.
Failure to retain and attract qualified personnel could harm our business.
Aside from Mr. Cespedes, our success depends on our ability to attract, train
and retain qualified personnel. Competition for qualified personnel is intense
and we may not be able to hire sufficient personnel to support the anticipated
growth of our business. If we fail to attract and retain qualified personnel,
our business will suffer. Additionally, companies whose Employees accept
positions with competitors often claim that such competitors have engaged in
unfair hiring practices. We may receive such claims in the future as we seek to
hire qualified Employees. We could incur substantial costs in defending against
any such claims.
Risks Related to Our Common Stock
Because the market for our common stock is limited, persons who purchase our
common stock may not be able to resell their shares at or above the purchase
price paid for them.
Our common stock trades on the OTC Markets which is not a liquid market. There
is currently only a limited public market for our common stock. We cannot assure
you that an active public market for our common stock will develop or be
sustained in the future. If an active market for our common stock does not
develop or is not sustained, the price may continue to decline.
Because we are subject to the "penny stock" rules, brokers cannot generally
solicit the purchase of our common stock which adversely affects its liquidity
and market price.
The SEC has adopted regulations which generally define "penny stock" to be an
equity security that has a market price of less than $5.00 per share, subject to
specific exemptions. The market price of our common stock on the Bulletin Board
has been substantially less than $5.00 per share and therefore we are currently
considered a "penny stock" according to SEC rules. This designation requires any
broker-dealer selling these securities to disclose certain information
concerning the transaction, obtain a written agreement from the purchaser and
determine that the purchaser is reasonably suitable to purchase the securities.
Due to factors beyond our control, our stock price may be volatile.
Any of the following factors could affect the market price of our common stock:
Our failure to increase revenue in each succeeding quarter;
Our failure to achieve and maintain profitability;
Our failure to meet our revenue and earnings guidance;
The loss of distribution relationships
The sale of a large amount of common stock by our shareholders;
Our announcement of a pending or completed acquisition or our failure to
complete a proposed acquisition;
Adverse court ruling or regulatory action;
Our failure to meet financial analysts' performance expectations;
Changes in earnings estimates and recommendations by financial analysts;
Changes in market valuations of similar companies;
Short selling activities;
Our announcement of a change in the direction of our business;
Our inability to manage our international operations;
Actual or anticipated variations in our quarterly or in our forecasted results
of operations; or
Announcements by us, or our competitors, of significant contracts, acquisitions,
commercial relationships, joint ventures or capital commitments.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert our management's time and attention, which would otherwise be used to
benefit our business.
Because we may not be able to attract the attention of major brokerage firms, it
could have a material impact upon the price of our common stock.
It is not likely that securities analysts of major brokerage firms will provide
research coverage for our common stock since the firm itself cannot recommend
the purchase of our common stock under the penny stock rules referenced in an
earlier risk factor. The absence of such coverage limits the likelihood that an
active market will develop for our common stock. It may also make it more
difficult for us to attract new investors at times when we acquire additional
The conversion of outstanding secured and unsecured convertible promissory notes
will result in dilution to existing stockholders and could negatively affect the
market price of our common stock.
At December 31, 2016, we have outstanding 7% secured and unsecured promissory
notes convertible at the option of the holders in the aggregate principal amount
of $670,548 convertible at prices ranging from $.10 to $.35 per share; the
conversion of certain notes limited if, upon conversion, the holder thereof
would beneficially own more than 4.9% of the Company's outstanding common stock.
If all the outstanding notes are converted, our issued and outstanding shares
would increase significantly. In the event that a market for our common stock
develops, to the extent that holders of our notes convert such securities, our
existing shareholders will experience dilution to their ownership interest in
our company. In addition, to the extent that holders of convertible securities
convert such securities and then sell the underlying shares of common stock in
the open market, our common stock price may decrease due to the additional
shares in the market. The secured notes are secured by all of the Company's
Our principal shareholders and their affiliates beneficially own and control
approximately 68% of our outstanding common stock and as majority shareholders
are able to control voting issues and actions that may not be beneficial or
desired by minority shareholders.
As of December 31, 2016, our principal shareholders beneficially own
approximately 68% of the issued and outstanding common stock and as such could
elect all directors, and dissolve, merge or sell our assets or otherwise direct
our affairs. Our principal shareholders also own secured and unsecured
promissory notes that are convertible at their option into a material number of
shares of our common stock. This concentration of ownership may have the effect
of delaying, deferring or preventing a change in control; impede a merger,
consolidation, takeover or other business combination involving the Company,
which, in turn, could depress the market price of our common stock.
The issuance of preferred stock could change control of the company.
Our articles of incorporation authorize the Board of Directors, without approval
of the shareholders, to cause shares of preferred stock to be issued in one or
more series, with the numbers of shares of each series to be determined by the
Board of Directors. Our articles of incorporation further authorize the Board of
Directors to fix and determine the powers, designations, preferences and
relative, participating, optional or other rights (including, without
limitation, voting powers, preferential rights to receive dividends or assets
upon liquidation, rights of conversion or exchange into common stock or
preferred stock of any series, redemption provisions and sinking fund
provisions) between series and between the preferred stock or any series thereof
and the common stock, and the qualifications, limitations or restrictions of
such rights. In the event of issuance, preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change of control of our company. Although we have no present plans to issue
additional series or shares of preferred stock, we can give no assurance that we
will not do so in the future.
© Edgar Online, source Glimpses