Risks Specific to Rock.com
The SEC requires the company to identify risks that are specific to its business and its financial condition. The company is still subject to all the same risks that all companies in its business, and all companies in the economy, are exposed to. These include risks relating to economic downturns, political and economic events and technological developments (such as hacking and the ability to prevent hacking). Additionally, early-stage companies are inherently more risky than more developed companies. You should consider general risks as well as specific risks when deciding whether to invest.
These are some of the risks that relate to our company:
Certain investors in this Offering will receive Voting Class CF Common Stock and smaller investors will receive no voting rights. The company has determined it will issue major investors, investors investing more than $20,000 in this Offering, Voting Class CF Common Stock. Other investors will receive Non-Voting Class CF Common Stock. All voting rights and preferences are set forth in the Subscription Agreement and the Amended and Restated Certificate of Incorporation of the company. Even those investors receiving voting rights will have a limited ability to determine the policies of the company, as voting power is concentrated in the hands of our CEO.
We have realized operating losses to date and expect to incur such losses in the future. We have operated at a loss for the years ending December 31, 2016 and 2015, and these losses are likely to continue. The Rock.com Group’s net loss for 2015 was $153,164 and its net loss for 2016 was $131,316. We may seek other sources of capital if it finds it necessary to continue operations.
Our CPA has issued a going concern opinion. The Rock.com Group’s CPA has issued a “going concern” opinion on the company’s consolidated financial statements, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statement is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations and/or to obtain additional capital financing. No assurance can be given that the company will be successful in these efforts. The CPA has stated that these factors, among others, raise substantial doubt about the ability of the company to continue as a going concern for a reasonable period of time.
We have a small management team. We depend on the skills and experience of Steven J. Newman, who works for the company full-time. Although we have recently included Irene Latoa as our Chief Financial Officer, she dedicates only half her time to our company. Our ability to raise sufficient capital may have an impact on our ability to attract and hire the right management talent.
We will need more people to join our company. We will need additional employees, and people with the skills necessary to ensure we fulfill our growth plans. The people we bring on should come with specialized skills that will bring value to the company. There are no guarantees that we will be able to find the right people for the job.
We have borrowed significant amounts from related parties. We have borrowed from related parties that currently amount to $484,703 as of December 31, 2016. One of the loans has Rock.com domain name as collateral. We are not prohibited from borrowing further, however, if those sums are not paid, our cash flow and financial positions could be harmed.
We have a number of competitors. There are already companies actively providing services to consumers in our target markets, including other merchandise sites, brick and mortar stores, along with concert venues. Online, the top sites currently sell $2.6 billion of licensed merchandise across all fan merchandise categories. These companies include, but are not limited to, Rockabilia, Allposters, and Fanatics. There is a proven market for our merchandise and companies more established providing them. While these companies may not provide the same or even similar products, they may be able to provide services that achieve similar benefits to consumers at a lower price.
The company may need more money. We might not sell enough securities in this Offering to meet our operating needs and fulfill our plans, in which case we might cease operating and you will get nothing. Even if we raise everything we are looking for, we might need to raise more funds in the future, and if we can’t get them, we might fail. Even if we do make a successful offering in the future, the terms of that offering might result in your investment in the company being worthless, because later investors might get better terms.
Future fundraising may affect the rights of investors. In order to expand, the company is likely to raise funds again in the future, either by offerings of securities or through borrowing from banks or other sources. The terms of future capital-raising, such as loan agreements, may include covenants that give creditors greater rights over the financial resources of the company.
We rely on third party licensed distributors to manufacture our product for production and monetization. We rely on third party licensed distributors including Bravado, FEA Merchandise and Trevco, for production and monetization of our products. If either of these licensed distributors face manufacturing constraints (including more demand of our products from our competitors), that could impact our ability to provide our products to consumers
We are currently involved in litigation. In September 2016, two plaintiffs filed suit in U.S. District Court Southern District, New York against a music band and various defendants including The Rock.com Group, Inc. The complaint alleges that various images that the music band made available for use in merchandise actually infringe upon the rights of the copyright holder. Although the band has communicated that they will fight and defend claims against The Rock.com Group, they have no obligation to do so. Similarly, In November 2016, another Plaintiff filed suit in United States District Court for the Southern District of California against a musical artist and various defendants including The Rock.com Group. The complaint alleges that various images that the musical artist made available for use in merchandise actually infringes upon the rights of the copyright holder. Similarly, the musical artist has communicated that they will fight and defend The Rock.com Group; however, they are not obligated to do so. Therefore, we may be subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, and although, the total revenue associated with these items when available for sale were less than $5,000, these legal proceedings could have a negative impact on our financial condition and results of operations.
The potential markets for our products are characterized by rapidly changing technology, evolving industry standards, frequent enhancements to existing treatments and products, the introduction of new services and products, and changing customer demands. The company’s success could depend on our ability to respond to changing product standards and technologies on a timely and cost-effective basis. In addition, any failure by the company to anticipate or respond adequately to changes in technology and customer preferences could have a material adverse effect on our financial condition, operating results and cash flow.
You can’t easily resell the securities. There are restrictions on how you can resell your securities for the next year. More importantly, there is no market for these securities, and there might never be one. It’s unlikely that the company will ever go public or get acquired by a bigger company. That means the money you paid for these securities could be tied up for a long time.