COFE Coffee Inc (PK)

Item 1A. Risk Factors.

You should carefully consider the risks described below. If any of the risks and uncertainties described in the cautionary factors described below actually occurs, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. Moreover, we operate in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all these factors on our business, financial condition or results of operations.

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline, and investors could lose all or part of their investment.

Risks Related to Our Business

We have limited operating history and our foreseeable future is uncertain.

The Coffeesmiths Collective, Inc. had limited operations until the reverse merger on September 1, 2016, when the Company acquired Department of Coffee and Social Affairs Ltd. (“DEPT-UK”), which was initially formed in 2009. DEPT-UK opened its first store in December 2010. On December 31, 2018, the Company discontinued the prior operations of the Company. For our year ended December 31, 2018, we experienced net losses attributable to common shareholders of $2,678,222. We used cash in operating activities of $3,411,266 in 2018. As of December 31, 2018, we had an accumulated deficit of $5,964,764. In addition, we could incur additional losses in the foreseeable future as we expand operations, and there can be no assurance that we will achieve profitability and/or maintain profitability, if achieved. Our future viability, profitability and growth depend upon our ability to successfully operate, expand our operations and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue to incur operating losses in the future.

We currently do not have substantial cash resources to execute our expansion plans. If we cannot raise additional funds or generate more revenues, we will not be able to execute our expansion plans which would provide additional revenue, profits, and working capital and will probably not be able to continue as a going concern.

As of December 31, 2018, our available cash balance was $2,540,291. We will need to raise additional funds to execute our business plan. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

We may be required to pursue sources of additional capital through various means, including joint-venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing shareholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.

Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

We may not be able to secure additional financing to meet our future capital needs .

We anticipate needing significant capital to execute our expansion plans. We may use capital more rapidly than anticipated and incur higher operating expenses than expected and will be depend on external financing to satisfy our operating and capital needs. Any sustained weakness in the general economic conditions and/or financial markets in the United Kingdom and/or the United States, as well as globally, could adversely affect our ability to raise capital on favorable terms or at all. We may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing shareholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing shareholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.

Our business and operating results could be harmed if we fail to manage our growth or change.

Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial resources. To manage possible growth and change, we must locate and retain skilled sales people, marketers, management, and other personnel, and solicit and obtain adequate funds in a timely manner. If we fail to effectively manage our human or financial resources during the growth of our business, our business may fail which would cause you to lose your investment.

Our profitability depends, in part, on our success and brand recognition, and we could lose our competitive advantage if we are not able to protect our trademarks against infringement, and any related litigation could be time-consuming and costly.

We believe our brand will gain substantial recognition by consumers in the United States, to complement our operations in the United Kingdom. We have registered the “Department of Coffee and Social Affairs” trademark with the applicable regulatory agencies in the United Kingdom and the United States. Use of our trademarks or similar trademarks by competitors in geographic areas in which we have not yet operated could adversely affect our ability to use or gain protection for our brand in those markets, which could weaken our brand and harm our business and competitive position. In addition, any litigation relating to protecting our intellectual property against infringement could be time-consuming and costly.

Attraction and retention of qualified personnel is necessary to implement and conduct our sales and marketing efforts.

Our future success will depend largely upon the continued services of our Board members, executive officers, and other key personnel. Our success will also depend on our ability to continue to attract and retain qualified personnel with industry experience. Key personnel represent a significant asset for us, and the competition for qualified personnel is intense. We do not have key-person life insurance coverage on any of our personnel. The loss of one or more of our key people or our inability to attract, retain and motivate other qualified personnel could negatively impact our ability to develop or to sustain our operations.

We are exposed to risks associated with the ongoing financial crisis and weakening global economy, which increase the uncertainty of consumers purchasing products .

The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy are contributing to a decrease in consumer confidence. If these economic conditions are prolonged or deteriorate further, the market for our products will decrease accordingly.

RISKS ASSOCIATED WITH OUR INDUSTRY

Economic conditions in the United Kingdom and/or the United States could adversely affect our business and financial results.

We are a coffee shop company in the United Kingdom and in the United States, and we are dependent upon consumer discretionary spending. Changes in economic conditions may affect our operations. Adverse economic conditions for our customers, which could have less money for discretionary purchases, could discontinue or decrease their purchases of our products. The resultant effect could decrease customer traffic and/or the average value per transaction. This effect will negatively impact our performance on a financial basis as reduced revenues without a parallel decrease in expenses, would potentially adversely affect profits. Reduction in sales would adversely affect our margins, comparable store sales, and ultimately, our earnings per share. There are additional risks that if negative economic conditions continue over an extended period of time or deteriorate more, consumers may make extended changes to their discretionary purchasing habits, which would include reduced discretionary purchases.

Incidents involving food or beverage-borne illnesses, contamination, mislabeling or tampering, whether or not substantive, as well as negative opinions, either publicly or medically, about the effects of consuming our products, could adversely affect our business.

Adverse instances or reports, whether true or not, of unclean water supply or food-safety issues, such as food or beverage-borne illnesses, tampering, contamination or mislabeling, either during growing, manufacturing, packaging, storing or preparation, have in the past severely injured the reputations of companies in the food and beverage processing, grocery and quick-service restaurant sectors and could affect us as well. Any report linking us to the use of unclean water, food or beverage-borne illnesses, tampering, contamination, mislabeling or other food or beverage-safety issues could damage our brand value and adversely affect sales of our food and beverage products and possibly lead to product liability claims, litigation (including class actions) or damages. Clean water is critical to the preparation of coffee and our ability to ensure a clean water supply to our stores can be limited, particularly in certain locations. If customers become ill from food or beverage-borne illnesses, tampering, contamination, mislabeling or other food or beverage-safety issues, we could be forced to temporarily close some stores and/or supply chain facilities, as well as recall products. In addition, instances of food or beverage-safety issues, even those involving solely the restaurants or stores of competitors or of suppliers or distributors (regardless of whether we use or have used those suppliers or distributors), could, by resulting in negative publicity about us or the foodservice industry in general, adversely affect our sales on a regional or national basis. A decrease in customer traffic as a result of food-safety concerns or negative publicity, or as a result of a temporary closure of any of our stores, product recalls or food or beverage-safety claims or litigation, could materially harm our business and results of operations.

Some of our products contain caffeine, dairy products, sugar and other compounds and allergens, the health effects of which are the subject of public and regulatory scrutiny, including the suggestion that excessive consumption of caffeine, dairy products, sugar and other compounds can lead to a variety of adverse health effects. Particularly in the U.S., there is increasing consumer awareness of health risks, including obesity, due in part to increased publicity and attention from health organizations, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food and beverage products. While we have a variety of beverage and food items, including items that are coffee-free and have reduced calories, an unfavorable report on the health effects of caffeine or other compounds present in our products, whether accurate or not, or negative publicity or litigation arising from certain health risks could significantly reduce the demand for our beverages and food products and could significantly adversely affect our business and results of operations.

The value of our brands is crucial to our success. Failure to preserve their value could have a negative impact on our financial results.

We have built brand recognition in the United Kingdom and the United States and have an excellent reputation. As we expand to the value of our brands should continue to increase as we strive to consistently provide the consumer a positive experience. Our business plan, which provides for continued expansion in the United Kingdom and in the United States, relies on the value of that brands and our relationships with business partners, third-party manufacturers, and others. Our logos will continue to be used, both by our internal operations as well as potential licensees and foodservice operations, as our logoed beverages and other complementary products are provided to our customers. We provide support to these third-parties, monitor their activities, but the quality of the product and service they provide to the consumer may be diminished by any number of factors beyond our control, including various pressures they may encounter. Our core belief is that consumers expect the same quality of products and service from any branded outlet for our products. Our products that we provide to our consumer are sourced from a wide variety of business partners in our supply chain operations, and in certain situations, the products are produced or sourced locally by our business partners. As these business partners utilize our logos as part of their service to the consumer, we do not monitor the quality of products not under our brands, which are served to consumers.

Adverse consumer incidents, whether isolated or recurring, whether caused by us or our business partners, that potentially tarnish our consumer’s trust, including, but not limited to, perceived breaches of privacy, contaminated products, product recalls or other potential incidents as included in this risk factors section, especially if the incident causes significant publicity, including the immediate distribution through social or digital media, or result in litigation, and our failure to respond accordingly to these incidents, could materially adversely impact our brand value and have a negative impact on our financial results. The demand by consumers for our products could decrease materially if we or other third-parties, including business partners, fail to maintain the quality of our products, are interpreted to act in an unethical or socially irresponsible manner, including with respect to the sourcing, content or sale of our products or the use of consumer data, fail to comply with laws and regulations or fail to deliver positive consumer experiences on continuously in all of our markets, including the ability to procure and retain employees that create a positive experience with our brands. Also, inadequate use of our brands and other intellectual properties, as well as the protection of these properties, including the unauthorized use of our brands or other intellectual properties, can adversely affect our customer’s perception of us which would adversely impact our financial results.

The unauthorized access, theft or destruction of financial, customer or employee personal information, or of our intellectual property, or of other confidential information, as all are stored in our information systems, or by third-parties as contracted by us, could adversely affect our brand, reputation, and more, which could lead to potential liability and decreased revenues.

Our information technology systems, such as those we use for our point-of-sale, web and mobile platforms, including online and mobile payment systems and rewards programs, and for administrative functions, including human resources, payroll, accounting and internal and external communications, as well as the information technology systems of our third-party business partners and service providers, can contain personal, financial or other information that is entrusted to us by our customers and employees. Our information technology systems also contain our proprietary and other confidential information related to our business, such as business plans, product development initiatives and designs. Other retail companies, including our competitors, we could in the future have to deal with potential attempts to compromise our information technology systems. To the extent we or a third-party were to experience a material breach of our or such third-party’s information technology systems that result in the unauthorized access, theft, use or destruction of customers’ or employees’ data or that of the Company stored in such systems, including through cyber-attacks or other external or internal methods, it could result in a material loss of revenues from the potential adverse impact to our reputation and brand, our ability to retain or attract new customers and the potential disruption to our business and plans. Such security breaches also could result in a violation of applicable U.S., U.K. and international privacy and other laws, and subject us to private consumer or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. Our reputation and brand and our ability to attract new customers could also be adversely impacted if we fail, or are perceived to have failed, to properly respond to these incidents. Such failure to properly respond could also result in similar exposure to liability. Significant capital investments and other expenditures could be required to remedy the problem and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring services for those whose data has been breached. These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred and may not meaningfully limit the success of future attempts to breach our information technology systems.

Media or other reports of existing or perceived security vulnerabilities in our systems or those of our third-party business partners or service providers, even if no breach has been attempted or has occurred, can also adversely impact our brand and reputation and significantly impact our business. Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time. We will make significant investments in technology, third-party services and personnel to develop and implement systems and processes that are designed to anticipate cyber-attacks and to prevent or minimize breaches of our information technology systems or data loss, but these security measures cannot provide assurance that we will be successful in preventing such breaches or data loss.

Our business and financial results could be adversely impacted if we are not successful in implementing certain strategic initiatives or adequately managing our growth.

There is no assurance that we will be able to implement certain strategic initiatives in accordance with our business plan, which may result in a negative impact on our business and financial results. These strategic initiatives are designed to create growth, improve our results of operations and drive long-term shareholder value, and include:

In addition to other factors listed in this risk factors section, factors that may negatively affect the successful implementation of these initiatives, which could adversely impact our business and financial results, include the following:

Additionally, our business is also in part dependent on the level of support our retail business partners provide our products, and in some markets, there are only a few retailers. If our strategic retail business partners do not provide sufficient levels of support for our products, which is at their discretion, it could limit our ability to grow our business.

Effectively managing growth can be challenging, especially as we expand into the United States and the United Kingdom, where we must manage the need for flexibility and a degree of autonomy for local management against the need for consistency with our goals, philosophy and standards. Growth can make it increasingly difficult to ensure a consistent supply of high-quality raw materials, to locate and hire sufficient numbers of key employees, to maintain an effective system of internal controls for a globally dispersed enterprise and to train employees worldwide to deliver a consistently high-quality product and customer experience. Furthermore, if we are not successful in implementing these strategic initiatives, we may be required to evaluate whether certain assets, including goodwill and other intangibles, have become impaired. In the event we record an impairment charge, it could have a material impact on our financial results.

We will face intense competition in our markets, which could cause reduced profitability.

The specialty coffee market is intensely competitive, including with respect to product quality, innovation, service, convenience, and price, and we face significant and increasing competition in all these areas in our current market, as well as our expansion. Accordingly, we do not have leadership positions in all markets. In our expansion in the United States and the United Kingdom, we are cognizant of our competitors, both regional and global, including the large presence of Starbucks®, which could lead to decreases in customer traffic to our stores and/or average value per transaction adversely affecting our sales and results of operations. Therefore, continued competition from well-established competitors in our markets could hinder growth and adversely affect our sales and results of operations in those markets. Increased competition in the United States and the United Kingdom packaged coffee, single-serve and ready-to-drink coffee beverage markets, including from new and large entrants to this market, could adversely affect the profitability of our stores. Additionally, declines in customer demand for specialty coffee products for any reason, including due to customer preference for other products, could have a negative effect on our business.

Increases in the cost of high-quality coffee beans or other commodities or decreases in the availability of high-quality coffee beans or other commodities could have a negative effect on our business and financial results.

We purchase, roast and sell high-quality whole bean coffee beans and related coffee products. The price of coffee is subject to significant volatility and has and may again increase significantly due to one or more of the factors described below. The high-quality coffee of the quality we seek tends to trade on a negotiated basis at a premium price. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the coffee commodity price does increase the price of high-quality coffee and also impact our ability to enter into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore price, at which the base coffee commodity price component will be fixed has not yet been established. These are known as price-to-be-fixed contracts. The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions, as well as the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality coffee beans could have an adverse impact on our profitability.

We also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated retail stores. Additionally, and although less significant to our operations than coffee or dairy, other commodities, including but not limited to tea and those related to food and beverage inputs, such as cocoa, produce, baking ingredients, meats, eggs and energy, as well as the processing of these inputs, are important to our operations. Increases in the cost of dairy products and other commodities, or lack of availability, whether due to supply shortages, delays or interruptions in processing, or otherwise, could have an adverse impact on our profitability.

Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control.

Our operating results have been in the past and will continue to be subject to a number of factors, many of which are largely outside our control. Any one or more of the factors listed below or described elsewhere in this risk factors section could adversely impact our business, financial condition and/or results of operations:

Interruptions in our supply chain could adversely affect our ability to produce or deliver our products and could adversely impact our business and financial profits.

Any material interruption in our supply chain, such as material interruption of roasted coffee supply due to the casualty loss of any of our roasting plants, interruptions in service by our third-party logistic service providers or common carriers that ship goods within our distribution channels, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, or natural disasters that cause a material disruption in our supply chain could negatively impact our business and our profitability.

Our food, beverage and other products are sourced from a wide variety of business partners in our supply chain operations. We rely on these suppliers and vendors to provide high quality products and to comply with applicable laws. Our ability to find qualified suppliers and vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially countries or regions with diminished infrastructure, developing or failing economies or experiencing political instability or social unrest. For certain products, we may rely on one or very few suppliers or vendors. A supplier’s or vendor’s failure to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws is beyond our control. These issues, especially for those products for which we rely on one or few suppliers or vendors, could negatively impact our business and profitability.

Existing regulations, and changes to such regulations, may present technical, regulatory and economic barriers to the use of our products, which may significantly reduce demand for our products.

Our products are subject to various regulatory and economic barriers which could have an adverse effect on the Company.

Our company is projected to experience rapid growth in operations, which will place significant demands on its management, operational and financial infrastructure .

If the Company does not effectively manage its growth, the quality of its products could suffer, which could negatively affect the Company’s brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company’s ability to manage its growth and financial position.

The Company treats its proprietary information as confidential and relies on internal nondisclosure safeguards and on laws protecting trade secrets, all to protect its proprietary information .

There can be no assurance that these measures will adequately protect the confidentiality of the Company’s proprietary information or that others will not independently develop products or technology that are equivalent or superior to those of the Company. The Company’s patents, trademarks, trade secrets, copyrights and/or other intellectual property rights are important assets to the Company. Various events outside of the Company’s control pose a threat to its intellectual property rights as well as to the Company’s products and services. Although the Company seeks to obtain patent protection for its systems, it is possible that the Company may not be able to protect some of these innovations. There is always the possibility, despite the Company’s efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.

RISKS RELATED TO OUR ORGANIZATION AND THE MARKET FOR OUR STOCK

We are subject to federal securities laws, and compliance with them can be expensive and may divert resources from other projects, thus impairing our ability to grow.

We are a voluntary reporting company and attempt to comply with some of the requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports and other information with the SEC (including reporting of the Merger) and furnishing audited reports to shareholders will cause our expenses to be higher than they would be if we remained privately held.

We are not required to file reports pursuant to the Securities Exchange Act of 1934, as amended, shareholder access to information regarding our business and operations will likely be limited, and we cannot be certain if the reduced disclosure requirements applicable to voluntary filers will make our common stock less attractive to investors.

We are a voluntary reporting company and are not required to file reports pursuant to the Exchange Act. While we voluntarily file quarterly and annual reports that would be required by the Exchange Act if we were a mandatory reporting company, we are not required to do so, and we do not file all of the other reports required to be filed by mandatory reporting companies, including current reports on Form 8-K and proxy statements, and our and our directors, officers and principal beneficial owners are not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act. This means access to information regarding our business and operations will likely be limited.

We cannot predict if investors will find our common stock less attractive as a result. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting and reporting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if we are unable to comply with the internal controls requirements, it may adversely affect any market for, and the liquidity of, our common stock.

Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms.

There may be risks associated with us becoming public through a merger. Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our post-Merger company.

Our stock price may be volatile.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.

We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

We cannot ensure that a liquid trading market for our common stock will be sustained.

Our stock is currently quoted on the OTC Link operated by OTC Markets Group, Inc., but our stock is traded sporadically. We cannot predict how liquid the market for our common stock might become. We may apply for listing of our common stock on either the NYSE American, The NASDAQ Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. However, we may never apply for such a listing, and we currently do not satisfy the initial listing standards for any of these exchanges and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we choose to uplist but fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains quoted on the OTC markets or is suspended from quotation on the over-the-counter quotation boards, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.

Furthermore, for companies whose securities are quoted on the over-the-counter quotation boards, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (iii) to obtain needed capital.

The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings .

The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include: our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors; changes in financial estimates by us or by any securities analysts who might cover our stock; speculation about our business in the press or the investment community; significant developments relating to our relationships with our customers or suppliers; stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; customer demand for our products; investor perceptions of our industry in general and our Company in particular; the operating and stock performance of comparable companies; general economic conditions and trends; announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; changes in accounting standards, policies, guidance, interpretation or principles; loss of external funding sources; sales of our common stock, including sales by our directors, officers or significant shareholders; and additions or departures of key personnel. Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management’s attention and resources.

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us. We do not intend to pay dividends on shares of our common stock for the foreseeable future.

Our common stock is currently considered a “penny stock,” which may make it more difficult for our investors to sell their shares.

Our common stock is currently considered a “penny stock” and may continue in the future to be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our shareholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

Stefan Allesch-Taylor, our chairman of our board of directors, beneficially owns a substantial portion of our outstanding common stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our shareholders.

Stefan Allesch-Taylor, as of December 31, 2018, beneficially owns 68.9% of our outstanding shares of common stock. As such, he has a substantial impact on matters requiring the vote of the shareholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our shareholders and us. This control could adversely affect the voting and other rights of our other shareholders and could depress the market price of our common stock.