Risks Specific to Monkey Rum
Our success depends upon the efforts and abilities of our senior management team, other key employees, and a high-quality employee base, as well as our ability to attract, motivate, reward, and retain them. We do not maintain and do not intend to obtain key man insurance on the life of any executive or employee. Difﬁculties in hiring or retaining key executive or employee talent, or the unexpected loss of experienced employees could have an adverse impact on our business performance. In addition, we could experience business disruption and/or increased costs related to organizational changes, reductions in workforce, or other cost-cutting measures. Our failure to attract or retain key executive or employee talent could adversely affect our business.
2. There could be a material change in the involvement or status of any of the officers or directors, including Zane Lamprey, David Goodacre or Ian Crystal, and the departure of any of the foregoing could impact operations and have a material impact on the ability of the company to operate or grow at the necessary rate to sustain operations. In that regard, David Goodacre may scale down his role in near future, while the company stabilizes its losses, and potentially beyond.
3. We have never been proﬁtable, and believe we will continue to incur net losses for the foreseeable future. In the two previous fiscal years, our company has a net loss of more than $1,800,000. We may require additional capital, which we may not be able to obtain on acceptable terms, or at all. Our inability to raise such capital, as needed, on beneﬁcial terms or at all could restrict our future growth, severely limit our operations or cause us to curtail or terminate our operations.
There may be an increase in cost of rum that the company sources, or unavailability of our current source, which could impact the cost of goods and cause a material impact on net income.
We depend on a limited number of suppliers. These suppliers consist of third-party distillers, bottlers and producers in the U.S., the Caribbean and other parts of the world. Failure to obtain satisfactory performance from our suppliers or loss of our existing suppliers could cause us to lose sales, lose relationships, lose the ability to fulfill orders, incur additional costs and lose credibility in the marketplace.
6. We could face product liability or other liabilities or claims that increase our costs of operations and harm our reputation. Although we maintain liability insurance and will attempt to limit contractually our liability for damages arising from our products, these measures may not be sufﬁcient for us to successfully avoid or limit liability.
7. We depend on our independent wholesale distributors to distribute our products. The failure or inability of even a few of our distributors to adequately distribute our products within their territories could harm our sales and result in a decline in our results of operations.
8. We are required by law to use state licensed distributors or, in 17 states known as “control states,” state-owned agencies performing this function, to sell our products to retail outlets, including liquor stores, bars, restaurants and national chains in the U.S. We have established relationships for our brands with wholesale distributors; however, failure to maintain those relationships could signiﬁcantly and adversely affect our business, sales and growth. Over the past decade there has been increasing consolidation, both intrastate and interstate, among distributors. As a result, many states now have only two or three signiﬁcant distributors. Also, there are several distributors that now control distribution for several states. As a result, if we fail to maintain good relations with a distributor, our products could in some instances be frozen out of one or more markets entirely. The ultimate success of our products also depends in large part on our distributors’ ability and desire to distribute our products to our desired U.S. target markets, as we rely signiﬁcantly on them for product placement and retail store penetration. We have no formal distribution agreements or minimum sales requirements with any of our distributors and they are under no obligation to place our products or market our brands. Moreover, all of them also distribute competitive brands and product lines. We cannot assure you that our U.S. alcohol distributors will continue to purchase our products, commit sufﬁcient time and resources to promote and market our brands and product lines or that they can or will sell them to our desired or targeted markets. If they do not, our sales will be harmed, resulting in a decline in our results of operations. An inability to secure new distributor partnerships and open new markets could materially impact the ability of the company ever reach profitability.
9. Our glass re-use and conversion program may be unsustainable and/or otherwise challenged in the future, which may slow the growth of the brand in existing and new markets
10. We have limited capital compared to other companies in our industry. This may limit our operations and growth, including our ability to continue to develop existing brands, service our debt obligations, maintain adequate inventory levels, fund potential acquisitions of new brands, penetrate new markets, attract new customers and enter into new distribution relationships. If we have not generated sufﬁcient cash from operations to ﬁnance additional capital needs, we will need to raise additional funds through private or public equity and/or debt ﬁnancing. We cannot assure you that, if and when needed, additional ﬁnancing will be available to us on acceptable terms or at all. If additional capital is needed and either unavailable or cost prohibitive, our operations and growth may be limited as we may need to change our business strategy to slow the rate of, or eliminate, our expansion or reduce or curtail our operations. Also, any additional ﬁnancing we undertake could impose covenants upon us that restrict our operating ﬂexibility, and, if we issue equity securities to raise capital our existing shareholders may experience dilution and the new securities may have rights, preferences and privileges senior to those of our common stock.
11. If our brands do not achieve more widespread consumer acceptance, our growth may be limited.
12. The success of our brands depends upon the positive image that consumers have of them. Counterfeit or confusingly similar products could harm the image and integrity of, or decrease customer support for, our brands and decrease our sales. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could affect the demand for our products. Contaminants in raw materials purchased from third parties and used in the production of our products or defects in the distillation, fermentation or bottling processes could lead to low beverage quality as well as illness among, or injury to, consumers of our products and could result in reduced sales of the affected brand or all of our brands. We may also be required to recall products in the event of contamination or damage. Also, to the extent that third parties sell products that are either counterfeit versions of our brands or brands that look like our brands, consumers of our brands could confuse our products with products that they consider inferior. This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales and operations.
13. Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or prospects could negatively affect our corporate reputation, stock price, ability to attract high quality talent, and/or the performance of our business, regardless of its accuracy or inaccuracy. Adverse publicity or negative commentary on social media outlets could cause consumers to avoid our brands and/or choose brands offered by our competitors, which could negatively affect our ﬁnancial results.
14. We must maintain a relatively large inventory of our products to support customer delivery requirements, and if this inventory is lost due to theft, ﬁre or other damage or becomes obsolete, our results of operations would be negatively impacted. Any such loss, whether insured against or not, could cause us to fail to meet our orders and harm our sales and operating results. Also, our inventory may become obsolete as we introduce new products, cease to produce old products or modify the design of our products’ packaging, which would increase our operating losses and negatively impact our results of operations.
15. Our failure to protect our intellectual property rights could compromise our competitive position and decrease the value of our brand portfolio.
16. Our business and prospects depend in part on our ability to develop favorable consumer recognition of our brands and trademarks. Although actively apply for intellectual property registrations of our brands and trademarks, they could be imitated in ways that we cannot prevent. Also, we rely on trade secrets and proprietary know-how, concepts and formulas. We cannot be certain that the steps taken to protect these intellectual property rights will be sufﬁcient to protect these rights. Our business could be adversely affected by the material infringement of such intellectual property rights. We are also subject to risks and costs associated with the enforcement of our intellectual property rights. Moreover, we may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this information. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future and result in a judgment or monetary damages being levied against us. We do not maintain non-competition agreements with all of our key personnel or with some of our key suppliers. If competitors independently develop or otherwise obtain access to our or trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be reduced, negatively impacting our ﬁnancial results and ability to develop our business.
17. An impairment in the carrying value of goodwill or other acquired intangible assets could negatively affect our operating results and shareholders’ equity.
18. A failure of one or more of our key information technology systems, networks, processes, associated sites or service providers, including as a result of evolving cyber security and other technological risks, could have a material adverse impact on our business.
19. We rely on information technology (IT) systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist us in the management of our business. The various uses of these IT systems, networks, and services include, but are not limited to: hosting our internal network and communication systems; ordering and managing materials from suppliers; supply/demand planning; production; shipping product to customers; hosting our branded websites and marketing products to consumers; collecting and storing customer, consumer, employee, investor, and other data; processing transactions; summarizing and reporting results of operations; hosting, processing, and sharing conﬁdential and proprietary research, business plans, and ﬁnancial information; complying with regulatory, legal or tax requirements; providing data security; and handling other processes necessary to manage our business.
20. Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of our IT systems, networks, and services, as well as the conﬁdentiality, availability, and integrity of our data. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and reputational, competitive and/or business harm, which may adversely affect our business operations and/or ﬁnancial condition. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer ﬁnancial and reputational damage because of lost or misappropriated conﬁdential information belonging to us or to our partners, our employees, customers, suppliers or consumers. In any of these events, we could also be required to spend signiﬁcant ﬁnancial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems. The trend toward public notiﬁcations of such incidents could exacerbate the harm to our business operations or ﬁnancial condition.
21. Demand for our products may be adversely affected by many factors, including changes in consumer preferences and trends.
22. Consumer preferences may shift due to a variety of factors including changes in demographic and social trends, public health initiatives, product innovations, changes in vacation or leisure activity patterns and a downturn in economic conditions, which may reduce consumers’ willingness to purchase distilled spirits or cause a shift in consumer preferences toward beer, wine or non-alcoholic beverages. Our success depends in part on fulﬁlling available opportunities to meet consumer needs and anticipating changes in consumer preferences with successful new products and product innovations. The competitive position of our brands could also be affected adversely by any failure to achieve consistent, reliable quality in the product or in service levels to customers.
23. Changes in consumer preferences regarding alcohol products may have an adverse effect on our sales and ﬁnancial condition. Given the importance of our rum to our overall Company success, a signiﬁcant or sustained decline in volume or selling price of these products would likely have a negative effect on our growth and our valuation. Additionally, should we not be successful in our efforts to maintain and increase the relevance of the brands in the minds of today’s and tomorrow’s consumer, our business and operating results could suffer.
24. Our business performance is substantially dependent upon the growth of the rum industry. Our business is dependent on rum. We face substantial competition in our industry. Large rum players' volume in core brands continue to decline. This in turn places overall pressure on the segment through a combination of pricing and promotional activities, potentially increasing the cost to compete and cost to market.
25. We compete on the basis of product taste and quality, brand image, price, service and ability to innovate in response to consumer preferences. The global spirits industry is highly competitive and is dominated by several large, well-funded international companies. It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and proﬁtability.
26. Adverse public opinion about alcohol could reduce demand for our products.
27. Anti-alcohol groups have, in the past, advocated successfully for more stringent labeling requirements, higher taxes and other regulations designed to discourage alcohol consumption. More restrictive regulations, negative publicity regarding alcohol consumption and/or changes in consumer perceptions of the relative healthfulness or safety of beverage alcohol could decrease sales and consumption of alcohol and thus the demand for our products. This could, in turn, signiﬁcantly decrease both our revenues and our revenue growth, causing a decline in our results of operations.
28. Class action or other litigation relating to alcohol abuse or the misuse of alcohol could adversely affect our business.
29. Companies in the beverage alcohol industry are, from time to time, exposed to class action or other litigation relating to alcohol advertising, product liability, alcohol abuse problems or health consequences from the misuse of alcohol. It is also possible that governments could assert that the use of alcohol has signiﬁcantly increased government funded health care costs. Litigation or assertions of this type have adversely affected companies in the tobacco industry, and it is possible that we, as well as our suppliers, could be named in litigation of this type.
30. Also, lawsuits have been brought in a number of states alleging that beverage alcohol manufacturers and marketers have improperly targeted underage consumers in their advertising. Plaintiffs in these cases allege that the defendants’ advertisements, marketing and promotions violate the consumer protection or deceptive trade practices statutes in each of these states and seek repayment of the family funds expended by the underage consumers. While we have not been named in these lawsuits, we could be named in similar lawsuits in the future. Any class action or other litigation asserted against us could be expensive and time-consuming to defend against, depleting our cash and diverting our personnel resources and, if the plaintiffs in such actions were to prevail, our business could be harmed signiﬁcantly.
31. Regulatory decisions and legal, regulatory and tax changes could limit our business activities, increase our operating costs and reduce our margins.
32. Our business is subject to extensive regulation in all of the countries in which we operate. This may include regulations regarding production, distribution, marketing, advertising and labeling of beverage alcohol products. We are required to comply with these regulations and to maintain various permits and licenses. We are also required to conduct business only with holders of licenses to import, warehouse, transport, distribute and sell beverage alcohol products. We cannot assure you that these and other governmental regulations applicable to our industry will not change or become more stringent. Moreover, because these laws and regulations are subject to interpretation, we may not be able to predict when and to what extent liability may arise. Additionally, due to increasing public concern over alcohol-related societal problems, including driving while intoxicated, underage drinking, alcoholism and health consequences from the abuse of alcohol, various levels of government may seek to impose additional restrictions or limits on advertising or other marketing activities promoting beverage alcohol products. Failure to comply with any of the current or future regulations and requirements relating to our industry and products could result in monetary penalties, suspension or even revocation of our licenses and permits. Costs of compliance with changes in regulations could be signiﬁcant and could harm our business, as we could ﬁnd it necessary to raise our prices in order to maintain proﬁt margins, which could lower the demand for our products and reduce our sales and proﬁt potential.
33. Also, the distribution of beverage alcohol products is subject to extensive taxation both in the U.S. and internationally (and, in the U.S., at both the federal and state government levels), and beverage alcohol products themselves are the subject of national import and excise duties in most countries around the world. An increase in taxation or in import or excise duties could also signiﬁcantly harm our sales revenue and margins, both through the reduction of overall consumption and by encouraging consumers to switch to lower-taxed categories of beverage alcohol.
Risks relating to the economy
Worldwide and domestic economic trends and ﬁnancial market conditions could adversely impact our ﬁnancial performance.
35. The worldwide and domestic economies have experienced adverse conditions and may be subject to further deterioration for the foreseeable future. We are subject to risks associated with these adverse conditions, including economic slowdown and the disruption, volatility and tightening of credit and capital markets.
36. This global economic situation could adversely impact our major suppliers, distributors and retailers. The inability of suppliers, distributors or retailers to conduct business or to access liquidity could impact our ability to distribute our products.
37. There can be no assurance that market conditions will improve in the near future. A prolonged downturn, further worsening or broadening of the adverse conditions in the worldwide and domestic economies could affect consumer spending patterns and purchases of our products, and create or exacerbate credit issues, cash ﬂow issues and other ﬁnancial hardships for us and for our suppliers, distributors, retailers and consumers. Depending upon their severity and duration, these conditions could have a material adverse impact on our business, liquidity, ﬁnancial condition and results of operations.
Risks Relating to the Investment Vehicle
The convertible notes have restrictions on transfer.
39. Other than purchasers of $25,000 or more of the convertible notes, the purchasers of the convertible notes will have no voting rights and, accordingly, no means of control over company affairs.
40. The Company could sell new equity interests in the future that would dilute your interest. In addition, convertible notes may not be transferred for at least a year following issuances, with certain exceptions.