Extreme weather can affect the gardening cycles of end users. While overall demand will undoubtedly right itself, it may result in a longer cash flow cycle and carrying more inventory for a longer duration.
More competition entering the marketplace as a result of Malibu Compost pioneering a new "premium" category in the soil products industry. While most competition still comes from wastestream-driven companies, young upstarts are starting to create consumer-driven soil products.
In addition to distribution deals with two of the largest national distributors in the garden industry, Malibu Compost relies on other smaller regional distributors to help reach as many retail outlets as possible. As the packaged soil amendments industry continues to explode due to new markets, potential consolidation of regional distributors and/or acquisition by national distributors could result in demands for exclusive distribution rights or other factors affecting our diversity of retailers.
As a matter of principle, Malibu Compost does NOT deal with big-box stores. Excessive shuttering of independent garden centers and nurseries due to big-box store competition would adversely affect our current sales and distribution strategy.
Failure to raise enough capital to fund expansion in developing geographic markets will result in slower growth, loss of 1st-mover advantage, and over-reliance on sales for expansion capital.
Malibu Compost relies on Certified Organic dairy farmers for our raw materials. Significant loss of dairy suppliers due to market price fluctuations, closure, or other factors could affect Malibu geographically or nationally.
A sudden increase in petroleum pricing will affect significant cost drivers, including the cost of shipping finished product, receiving raw materials, and the plastic packaging we use.
Over-regulation of the composting industry. States which make no distinction between 'waste management' and intentional composting may pose significant barriers to entry due to site design costs and considerations.
Not enough capital to cover cash-flow cycle from acquisition of raw materials through receipt of payment. This affects how much product can be produced, which in turn affects how much product is available for sale and cause product shortages.
Potential watering down of the "Biodynamic" and "Organic" trademark standards in the consumer marketplace.
Cost of goods and inputs from third parties for materials, packaging and more due to lack of available capital to ensure stability and pricing agreements.
Current reliance on third parties for inbound/outbound trucking, packaging and distribution.
The Company’s authorized but unissued stock includes 8,000,000 shares of Class A Common Stock and 1,000,000 shares of Preferred Stock. In this offering, the Company will sell up to 142,666 shares of Series A Preferred Stock. The remaining Preferred Stock (that is, the portion of the 1,000,000 authorized shares that are not sold in this offering) and any of the 8,000,000 Class Common shares could be offered in one or more subsequent offerings. As a result of any subsequent offerings, investors in this offering could have their economic rights substantially diluted. And while holders of Series A Preferred Stock could convert their shares to Class A Common Stock beginning in 2019 and thereby acquire voting rights, those voting rights would likewise be diluted by the issuance of any additional voting stock. Therefore, the potential ability of investors in this offering to influence Company decisions in the future may be substantially reduced by the issuance of additional voting stock.
The Company's articles of incorporation include restrictions on transfer of the Series A Preferred Stock intended to ensure compliance with securities laws. A transfer of any class of the Company's stock will not be permitted if the transfer (1) is not in compliance with securities laws; (2) would require the Company to register its securities under state or federal securities laws; or (3) would cause the Company to become subject to the types of reporting obligations that apply to publicly-traded companies in accordance with section 12(g) of the Securities Act 1933. While the Company does not believe that the Series A Preferred Stock offered in this offering or the Class A Common Stock that may be issued to investors in this offering as a result of the exercise of investors' conversion rights will count toward the number of shareholders that could trigger section 12(g) reporting obligations, the SEC could take the position that stock issued as a result of a conversion does count toward the section 12(g) triggers; and as a result, the restrictions on transfer in the Company's articles of incorporation could prevent certain transfers by investors in this offering, which would make it more difficult or impossible for investors to sell their shares.
Investors' ability to convert their shares to Common Stock is subject to the availability of authorized but unissued Class A Common Stock. Investors in the Series A Preferred Stock offered in this offering have a right to convert their shares on a one-to-one basis to Class A Common Stock at any time beginning on January 1, 2019, but subject to there being authorized but unissued shares of Class A Common Stock available. There are currently 8,000,000 authorized but unissued shares of Class A Common Stock. If the maximum amount is raised in this offering, 142,666 shares of Series A Preferred Stock will be issued. If all of those shares are converted, an equal number, or 142,666 shares of Class A Common Stock would be issued as a result of those conversions. The Company believes the 8,000,000 authorized shares of Class A Common Stock (together with future series of Preferred Stock that may be created) will be more than enough to meet the Company's capital needs for the foreseeable future and intends to reserve a sufficient number of shares of Class A Common Stock to cover conversions of any outstanding Series A Preferred Stock. However, it is possible that the Company will, prior to these conversions, issue enough Class A Common Stock such that there would no longer be enough shares of authorized but unissued Class A Common Stock to cover all conversions of Series A Preferred Stock. In that situation, it would be impossible for investors to convert their Series A Preferred Stock into Class A Common Stock. As a result, those investors would be unable to benefit from any increase in the Company's value; the value of their shares would decline; and it may be more difficult or impossible to sell their shares.
The Company has the right to redeem the Series A Preferred Stock beginning in 2022. Any shares of Series A Preferred Stock that have not been converted to Class A Common Stock may, beginning on July 8, 2022, be redeemed by the Company, in its discretion, at their original issue price of $7.50 per share. While the intent is for investors to have the ability to convert their Series A Preferred Stock to Class A Common Stock prior to such redemption, the effect of such a redemption is that investors will receive only the original purchase price (together with any accrued but unpaid dividends) and will no longer have any opportunity to share in any increase in the Company's value.