Despite our operating history, we have limited financial operating success.
Despite our operating history and previous fundraising, we have had limited financial operating success. We made our first sales of product during 2016. After achieving gross sales of approximately $80,000 in 2016, we have never achieved gross sales greater than $80,000 in any year. We are subject to all the usual risks and uncertainties of an early-stage company with limited and insufficient capital and other resources, limited revenue to support our operations, including our product development and marketing, and lack of an established customer base. The failure to address those challenges may have a material adverse effect on our business, financial condition, and results of operations. Because our operating history has not generated meaningful revenue or profit since our inception, we have a limited meaningful prior operating history that may be used to forecast our future revenue and operating results. Given the limited meaningful operating history, and the inability of our company to provide forecasts, there is no assurance that we will ever be able to achieve the objectives set forth herein. Any forecasts and pro forma future financial performance projects provided by us are based on a limited meaningful operating history and reflect assumptions made by our company.
Following the successful completion of this offering, we will require additional capital.
We do not have sufficient capital to execute on our business plan. Following the completion of this offering, we will require additional capital in order to successfully market products, services, and related intellectual property. Such additional capital may not be available on terms acceptable to us, or at all. If we are not sufficiently capitalized, we may not be able to execute our business plan or satisfy our obligations. Additional issuances of equity securities in offerings subsequent to this offering will result in dilution to all of our stockholders.
We will have significant discretion over the application of net proceeds of this offering.
We will have significant flexibility in applying the net proceeds of this offering. The actual uses, amounts, and timing of expenditures of the proceeds of this offering may vary significantly as a result of a number of factors. These factors include the amount of proceeds actually received in the offering, the time and amount of revenue generated by our operations, and market response to our product and service offerings. Our business could be materially and adversely affected if we do not apply the proceeds of this offering in an effective manner.
We anticipate raising additional capital in the future and issuing additional equity securities will dilute the investment made by purchasers in this offering.
We anticipate conducting one or more separate equity offerings in the future pursuant to which we will issue debt securities or shares of its common stock, preferred stock, or other equity securities. Additional sales of our securities in the future will dilute the relative equity ownership of our existing investors and our new investors could obtain terms more favorable than previous investors.
Moreover, the issuance of future series or classes of shares of our preferred stock could adversely affect holders of the shares. Our Board of Directors is authorized to designate one or more series of our preferred stock and to fix the rights, preferences, privileges, and restrictions thereof, without any action by the stockholders. The designation and issuance of such shares of our preferred stock in the future may adversely affect the rights of investors in this offering, if the rights, preferences, and privileges of such future series or classes of our preferred stock: (i) have superior dividend rights; (ii) dilute the voting power of our current stockholders; (iii) impair the liquidation rights of our outstanding shares; or (iv) delay or prevent a change in control of our company from occurring, among other possibilities. We cannot be certain that future series or classes of shares of our preferred stock will not adversely affect the holders of our equity securities on a going forward basis.
We may fail to adequately manage our growth.
In the event that significant, rapid growth of our revenue occurs, such growth may place a significant strain upon our management systems and resources. Our ability to compete effectively and to manage future growth, if any, will require us to develop and continue to improve our financial and management controls, reporting systems, and procedures on a timely basis and expand, train, and manage our personnel. There can be no assurance that we will be able to do so successfully. Our failure to do so could have a material adverse effect upon our business, operating results, and financial condition.
Certain factors could adversely affect operating results.
Our operating results are affected by a wide variety of factors that could adversely impact our net sales and operating results. These factors, many of which are beyond our control, include our ability to identify trends in certain regulated industries and to understand, create, and introduce products on a timely basis that take advantage of those trends, market acceptance of our products, competition, and competitive pressures on prices.
We have a limited number of customers and manufacturing partners.
As of the date of this disclosure document, we have relatively few customers and manufacturing partners. An adverse change in, or termination of, our relationship with, or an adverse change in the financial viability of, one or more of our customers or partners, whether major or minor, could have a material adverse effect on our business, financial condition, and operating results.
An investment in our shares of Seed Preferred is high risk investment, and is subject to the significant risks inherent in a new business enterprise.
An investment in Seed Preferred involves a high degree of risk. Prospective investors should consider the significant risks inherent in a new business enterprise such as our potential inability to successfully perform the following:
- attract, retain, and expand our base of customers;
- develop and build our brand;
- remain informed of and maintain compliance with federal, state, and local laws and regulations;
- overcome resistance to change by customers and consumers generally;
- compete against various large competitors, all of which have substantially greater financial and other resources than we do;
- successfully manage the manufacture of our products; and
- adapt to rapid consumer changes and trends.
Our planned capital requirements and expense levels are difficult to forecast accurately as a result of our early stage of development and uncertainties in the business plan. We may be unable to reduce our spending in a timely manner to offset any unexpected shortfalls in funding or revenue. Although the information contained in this disclosure document is believed by us to be reasonable, it must be recognized that any projects and forecasts regarding our future performance and the performance of the products and services we intend to develop are subject to a high level of risk and uncertainty. Prospective investors should consult with their own legal, tax, financial, and technical advisors with respect to these and other risks.
We determined the price per share of the Seed Preferred, and such price may not bear any relation to the actual price per share of securities issued or our company’s valuation.
The price per share of the shares of Seed Preferred offered in this offering was not established by a competitive market, but was determined by our Board of Directors and is based on a number of factors, including assumptions and projections for the industry. Such price may not bear any relation to the actual valuation of our company, or to the assets, book value, revenue, earnings, or other established criteria of value of our company, or any forecast or anticipation of gross proceeds to be received by us in a funding event.
There will be no market for resale or transfer of the Seed Preferred or any securities of our company. Securities issued in crowdfunding offerings such as this offering have restrictions on resale that may cause you to hold the securities longer than you anticipated.
The shares of Seed Preferred are securities for which there currently is no market. There can be no assurance as to the development or liquidity of any market for any securities of our company. The shares of Seed Preferred are being offered without registration under the Securities Act and applicable state securities laws.
Under the crowdfunding rules, the shares of Seed Preferred purchased in this offering may not be transferred or resold during the one-year period beginning when the shares are issued, unless such shares are transferred
- to our company,
- to an accredited investor,
- as part of a registered offering, or
- to a member of the family of the investor or the equivalent, to a trust controlled by the investor, to a trust created for the benefit of a member of the family of the investor or the equivalent, or in connection with the death or divorce of the investor or other similar circumstance.
In addition, the transfer of the shares of Seed Preferred will be further subject to certain limitations set forth in our amended and restated stockholders’ agreement.
The transfer or resale of the shares of Seed Preferred may result in adverse tax consequences for investors. Consequently, investors may not be able to liquidate their respective investments in the event of emergency, or for any other reason, and the shares of Seed Preferred may not be readily accepted as collateral for a loan. The purchase of shares of Seed Preferred, therefore, should be considered only as a long-term investment.
We depend on key personnel.
Our success depends to a significant degree upon the technical and management skill of our officers and key employees, particularly Jeffrey Isquith, the Company’s founder and Chief Executive Officer, and Alan Bignall, the Company’s Chief Financial Officer. The loss of the services of any officer or key employee would likely have a material adverse effect on our company. Our success also will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. Competition for such executives and other qualified personnel is intense as a result of the limited number of persons with knowledge and experience in our business. There can be no assurance that we will be successful in attracting or maintaining such executives and personnel.
We depend on key suppliers and licensees.
We rely on suppliers to formulate, manufacture, and customize our technologies and products. The suppliers utilize distribution partners to ship product to customers. Products are not manufactured in advance of orders. Any delay in suppliers or distribution channels can affect product efficiency, timeliness, sales, and customer relationships. In addition, we often license the right to third parties to sell our products. The licensees are able to sell direct to customers and may possibly misrepresent the brand or our company.
We face risks associated with competition.
We expect that the market for our products will be highly competitive, and all of our competitors have greater financial and other resources than we do. Existing or new competitors will likely develop products and services that are superior to or more commercially acceptable than those offered by our company. We also may not be able to effectively compete with competitors with stronger financial resources. Our competitors include security systems, which include access control, video surveillance, perimeter intrusion detection, physical security information management, screening and scanning, as well as safety and security devices.
Our founder controls our company’s capital stock, and investors will be subject to his decisions and ability to control our company.
Jeffrey Isquith serves as our Chief Executive Officer and sole member of the Company’s Board of Directors. Further, Mr. Isquith has effective control over matters submitted to stockholders for a vote. All other investors hold shares of Seed Preferred. The holders of Common Stock and Seed Preferred, together as a single class, have the authority to designate the sole member to the Board of Directors. The Board of Directors has the authority to take valid action on behalf of our company. The sole member of the Board of Directors will continue to be able to control the business and affairs of our company following this offering. As a result, following the successful completion of this offering, investors in this offering will be unable to control or have significant influence over the affairs of our company.
Investors in this offering will appoint our Chief Executive Officer with a proxy to vote and act on behalf of the investors in this offering.
The subscription agreement that will be signed by each investor in connection with the purchase of Seed Preferred will contain the grant of a proxy to Jeffrey Isquith, our Chief Executive Officer, to vote on behalf of investors in this offering, execute documents, instruments, conveyances, and agreements on behalf of investors, and give and receive notices and communications. The effect of this proxy will be that investors in this offering will not have the right to vote on any matter submitted to stockholders for approval, but rather will be subject to the voting decisions of Mr. Isquith. The grant of the proxy is a condition of the investment, and as such will be an irrevocable grant of voting rights from the investors to Mr. Isquith. As a result, Mr. Isquith will have the right to control the business and affairs of our company following this offering.
Investors will be subject to federal and state income tax risks related to this offering.
Investors will be subject to a variety of risks associated with federal and state income tax as a result of owning shares of Seed Preferred. This disclosure document is not intended to and does not provide potential investors with advice related to how the purchase, ownership, and disposition of shares of Seed Preferred will be treated for federal or state income tax purposes. We urge potential investors to consult with their respective tax advisors for a detailed explanation of how an investment in Seed Preferred may impact their respective individual tax-related issues.
We do not intend to pay dividends to stockholders for the foreseeable future.
We anticipate using the majority of the funds raised in this offering to fund our operations and to execute on our business plan. We do not intend to pay dividends to our stockholders for the foreseeable future, if at all. Rather, we expect to reinvest any available cash flow into our operations and growth. We cannot provide any assurance that we will be able to pay dividends at any time in the future. Dividend payments, if any, will at all times be subject to the approval of our Board of Directors.
Any financial statements and financial projections provided by our company were prepared internally and are unaudited.
Any financial statements and financial projections were prepared by our company and have not been audited, reviewed, or compiled by independent accountants. Such financial statements have not been prepared in accordance with generally accepted accounting principles (GAAP) and do not include all of the information, footnote disclosures, or other adjustments otherwise required by GAAP. No auditor has opined that these unaudited financial statements and financial projections present fairly, in all material respects, the financial position and the results of operations of our company for each of the periods reported. Accordingly, prospective investors in this offering should make an investment decision only after such prospective investors and his, her, or its legal, accounting, and tax advisors have conducted an independent review of this investment opportunity and its suitability for the prospective investor.
Alan Bignall is a part-time officer. As such, it is likely that the company will not make the same progress as it would if that were not the case.