ITEM 1. BUSINESS
Corporate Background
DD’s Deluxe Rod Holder, Inc. (“Deluxe” or the “Company”) is a Nevada corporation formed on September 26, 2014. The Company intends to build its business by developing, marketing and selling a fishing rod holder for use primarily by ice-fisherman. On January 30, 2015, the Company filed a provisional patent application with the United States Patent and Trademark Office (“USPTO”). The Company’s original provisional patent application was scheduled to expire on January 30, 2016. On January 28, 2016 the Company filed a new provisional patent application with the USPTO. On February 24, 2016, the Company converted the provisional patent application by filing a non-provisional patent application with the USPTO. The Company anticipates the entire process to acquire a non-provisional utility patent will take between 24-36 months from the date the non-provisional patent was filed with the USPTO.
Current Operations
We are a developmental stage company. We have conducted limited operations and have had no operating revenues. We have never declared bankruptcy, been in receivership, or involved in any legal action or proceedings. Since incorporating, we have not made any significant purchases or sales of assets, nor have we been involved in any mergers, acquisitions or consolidations.
Deluxe is building a business as a developer and seller of a fishing rod holder for use primarily for ice fishing. Although the fishing rod holder can be used any time of the year and on almost any solid, relatively flat surface (such as a dock during non-winter months), our primary target market is ice anglers. What we refer to as a fishing rod holder includes a platform base connected to a tube that holds the rod, a split key ring affixed to an eye bolt, a bent metal mechanism which we have described as the “fishing-rod-eyelet-catch,” an optional alarm bell, and a coarsely-threaded screw which enables the end-user to stabilize the unit and/or affix the base of the unit to ice, wood, foam, metal, and a range of other hard surfaces. When a fish is hooked, the fishing-rod-eyelet-catch releases from the flexed rod allowing the stored elastic energy in the flexed rod to expend, visually alerting the fisherman. The rod-holder will include a small metal bell and fisherman will have the option to attach it to the rod which will further alert the angler when a fish is hooked and the rod is released from the eyelet-catch. The eyelet-catch is a bendable metal rod which allows the fisherman to adjust the sensitivity of the catch system: a decrease in the angle of the eyelet-catch makes the system more sensitive, and an increase in the angle of the eyelet-catch makes it less sensitive. A more sensitive eyelet-catch will make it easier for small fish to disengage the eyelet-catch; and a less sensitive eyelet-catch will make it more difficult to disengage the fishing rod enabling only larger fish to do so.
Believing the design of our product is eligible for a utility patent, we have filed a non-provisional patent application with the USPTO. The Company self-filed the non-provisional patent application via the USPTO’s online electronic filing system. The filing date, February 24, 2016, establishes the “date” of invention and, if a utility patent is ultimately issued, precludes any opposing claims to the invention subsequent to that date. The USPTO will respond to the Company by either notifying the Company that its application is incomplete, or the application will be assigned internally within the USPTO to undergo the examination process. If the application is incomplete the USPTO will provide the Company with a list of deficiencies and the Company will be given an opportunity to correct those deficiencies. Once the application is complete and assigned to an examiner, the examiner will make an initial determination as to whether our proposed product is eligible for the issuance of a utility patent. If the examiner initially determines that our proposed product is not eligible to receive a utility patent, the examiner will issue a determination to that effect and explain to the Company the bases for the examiner’s determination. The Company will then have an opportunity to amend its application and/or respond to the examiner’s bases for its determination. If the examiner determines that our proposed product is eligible for patent protection then the examiner will issue a notice of allowance which will contain further instructions to complete the process to issue the utility patent covering our proposed product. If we are successful in obtaining a utility patent for our proposed product, that patent will grant us certain rights regarding the proposed product, including, but not necessarily limited to the rights to, for a period of at least twenty (20) years: exclude others from making, using, selling, offering for sale, importing, or otherwise utilizing, our proposed product without our specific consent. To date the Company has not received any communication from the USPTO regarding its non-provisional patent application. Because the Company has received no communication from the USPTO regarding its non-provisional patent application, the Company estimates it will take at least 24-36 months, from the date of filing, to obtain a non-provisional utility patent for our proposed product.
During the next twelve (12) months the Company will work toward identifying and engaging a manufacturer to produce our product and also identifying one or more sporting goods and/or angling equipment wholesaler and/or retailers with which to place our product for sale to the general public. We will not make any agreements with wholesalers, retailers, or manufacturers until we have achieved success in obtaining a non-provisional utility patent for our proposed product. We will likely not place any orders with a manufacturer unless and until we have received advance orders of our product from wholesalers and/or retailers. We currently do not have any
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agreements with a manufacturer or with any wholesalers or product retailers. Because of the Company’s change in estimated time to receive a utility patent for its proposed product, we now foresee delivering product to retailers and/or wholesalers within the next thirty-six (36) to forty-eight (48) months.
Upon, and only if, the Company obtains a non-provisional “utility” patent for its proposed product, and after we have sourced a manufacturer to make our proposed product, we will begin marketing our proposed product to wholesalers, retailers and the general public. Our marketing plan will include online search optimization, utilization of a Company website, production and dissemination of hard copy and electronic promotional materials and direct marketing efforts to retailers and wholesalers and trade show attendees.
We likely will not place any orders to manufacture our proposed product until we receive advanced sales orders from wholesalers and/or retailers. At this time, it is impossible to effectively market our product and to know how long it will take us to acquire enough advanced orders to engage in manufacturing our proposed product. However, our current plan envisions delivering product to wholesalers and/or retailers within thirty-six (36) to forty-eight (48) months of the date the application was filed to receive a non-provisional patent.
Our business plan calls for us to approach manufacturers, wholesalers and retailers with existing reputations for quality, customer service, ease of shopping experience and economic value. Because we are a development stage company, it will be important for us to work with others who have positive reputations in order to give consumers confidence in our product and business. We have identified companies which we believe have positive reputations, but currently do not have working relationships with any manufacturers, wholesalers or retailers. Because of the Company’s change in estimated time to receive a utility patent for its proposed product, we now intend to have working relationships with one or more parties to manufacture, wholesale, and/or retail our proposed product within 36months of the filing of the non-provisional patent application.
We also intend to market our proposed product via our website and through other forms of direct marketing and distribution such as trade shows, infomercials and social media. Additionally we intend our future website to contain an online shopping cart component to allow the purchase of our proposed product directly from us through our website. By self-filing our non-provisional patent application, we have conserved monetary resources that can be re-directed towards other endeavors, including building out our website. When fully built out, it is intended that our website will contain general information about the Company, its product(s) and operations, the ability to view and purchase our product(s) and information relevant to corporate governance and investor relations. The Company intends to have its website fully built out and operational by the time it begins placing manufacturing orders for its proposed product.
Competition
We are currently unaware of anyone manufacturing, marketing, supplying or selling any product similar to our deluxe fishing rod holder. Our limited research on the internet did not result in the identification of any companies currently manufacturing and/or supplying a fishing-rod holder similar to the one we have designed and intend to market and sell.
There are several companies that make and sell fishing rod holders, including fishing rod holders designed specifically for ice fishing; however, Deluxe has not yet identified a fishing rod holder currently being manufactured and/or sold by anyone else that will help set the hook into the fish’s mouth and trigger an alarm bell notifying the angler that a fish has been hooked. Our limited research has led us to believe that there are no products currently being offered similar to our proposed product. Although we have not identified a product similar to our design, our research has been limited and there could be a similar product, of which we are currently unaware, being marketed and/or sold.
We have not obtained any empirical evidence detailing the competitive market in the U.S. and Canada for a rod-holder such as the one we have designed, and we cannot determine competitive factors with any degree of certainty. We plan on working with a supplier who already manufactures fishing products. We do not at this time have any agreements or contracts with a supplier or company that provides such products.
While we do not have empirical evidence to support our contentions, our limited research has led us to believe that competitive conditions are favorable. According to statistics by Statista.com, there appears to be correlations between Wildlife-related recreational expenditures in the U.S. in 2001, 2006, and 2011, by category. In 2001, $48.97 billion was spent on Wildlife watching, $45.43 billion was spent on Fishing, and $26.28 billion was spent on Hunting. In 2006, $51.13 billion was spent on Wildlife watching, $47.05 billion was spent on Fishing, and $25.64 billion was spent on Hunting. In 2011, $54.96 billion was spent on Wildlife watching, $41.77 billion was spent on Fishing, and $33.26 billion was spent on Hunting. In all three categories from 2001 to 2006 there was a 2.5% increase in total sales. In the same categories from 2006 to 2011 there was a 5% increase in total sales. Although fishing sales dropped in 2011 to $41.77 billion from $47.05 billion in 2006, total sales of hunting increased to $33.26 billion from where it had dropped to in 2006. It is estimated that 90.1 million Americans or 38% of the population participated in wildlife-related recreation in 2011, which constituted an increase of 2.6 million participants since 2006. Although we do not have empirical data to support it: Deluxe considers there to be similarities and possible correlations between hunting and fishing. Those involved in wildlife-related recreation spent $130 billion on
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gear, trips, licenses, tags, and land leasing. More than 33 million people fished in 2011. They spent $41.8 billion on trips, equipment, licenses and other items, an average of $1,262.00 per angler. Statistics gathered by the American Fishing Association estimates that the ice fishing market exceeded $260 Million in 2012, an increase of nearly 10% over 2011. Our data is not suggesting that the increase in total sales from 2011 to 2012 are new anglers; however, it may suggest a relationship with dollars spent in other wildlife-related recreational categories.
There are no immediate or imminent threats to the supply or prices of related materials due to shortages or other factors that we are aware of at this time. To our knowledge, at this time there are no government regulations, in the United States or Canada, that would prohibit or negatively affect Deluxe from importing or exporting our product(s) into or out of those countries. To our knowledge, at this time there are no import/export regulations or controls imposed by any of the potential countries, from which our product(s) could originate, that would prevent us from obtaining our product(s) or shipping our products to the U.S. or Canada.
The Company provides no assurance it will be able to compete in any of its business areas effectively with current or future competitors or that the competitive pressures faced by the Company will not have a material adverse effect on the business, financial condition and operating results.
The Company currently has no employees and has no plans to hire any employees during the next twelve (12) months of operation. Deluxe intends to use contracted services to conduct all aspects of its business.
Office and Other Facilities
DD’s Deluxe Rod Holder, Inc. currently maintains its headquarters at 505 W. Riverside Avenue, Suite 563, Spokane, WA 99201. The telephone number is (306) 716-5372. Deluxe does not currently own title to any real property.
Employees
The Company has no employees other than its executive officer as of the date of this Annual Report on Form 10-K. Deluxe conducts business largely through independent contractor agreements with consultants.
Research and Development
As we build out our organization, we intend to incorporate a business development component that will be responsible for researching opportunities for growth; such as marketing our product abroad and expanding our shipping and distribution to Europe, and other parts of the world. Our intended market for the first 12 months of production and sales will be the U.S. and Canada.
Reports to Security Holders
The Company does not issue annual or quarterly reports to security holders other than the annual Form 10-K and quarterly Forms 10-Q as electronically filed with the SEC. Electronically filed reports may be accessed at
www.sec.gov
. Interested parties also may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. Information may be obtained on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
ITEM 1A. RISK FACTORS
The following factors, among others, could cause the actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere from time to time.
Failure to successfully address the risks and uncertainties described below would have a material adverse effect on the Company’s business, financial condition and/or results of operations, and the trading price of the Company’s common stock may decline and investors may lose all or part of their investment. Deluxe cannot assure readers that the Company will successfully address these risks or other unknown risks that may affect its business.
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Risks Related to the Company
The Company has a limited operating history on which to base an evaluation of the business and prospects
The Company has not derived any revenue from operations. The Company’s operating history has been limited to startup activities, designing its proposed product, filing its S-1 registration statement (declared effective on October 19, 2015), limited market research and the filing of provisional and non-provisional patent applications covering our proposed product. Such history does not provide a meaningful basis for an evaluation of its prospects for success in obtaining a utility patent for its proposed product and/or successfully manufacturing, marketing and selling its proposed product. Other than the limited research the Company has conducted on its intended market and existing competitive products, the Company has no means of evaluating the likelihood of success in marketing and delivering its proposed product to the market. The Company anticipates that it will continue to incur operating costs without realizing any operating revenues during the period it awaits the USPTO determination and sourcing potential manufacturers, wholesalers and retailers for its proposed product.
During the fiscal year ended December 31, 2017, the Company had losses of $53,079 in connection with its operations. The Company therefore expects to continue to incur significant losses into the foreseeable future. The Company recognizes that if it is unable to generate significant revenues from operations, the Company will not be able to earn profits or continue operations. At this early stage of operations, the Company expects to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the development stage of their business. The Company cannot ensure it will be successful in addressing these risks and uncertainties and the failure to do so could have a materially adverse effect on its financial condition. There is no history upon which to base any assumption as to the likelihood that the Company will prove successful and the Company can provide investors no assurance that we will generate any operating revenue or ever achieve profitable operations.
The Accompanying Financial Statements Have Been Prepared Assuming The Company Will Continue As A Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of its assets and the liquidation of its liabilities in the normal course of business; however, the Company has generated no revenues, has accumulated a loss since formation and currently lacks the capital to effectively pursue its business plan. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.
We will delay adoption of new or revised accounting standards
Deluxe is an emerging growth company. As an emerging growth company, Deluxe is allowed elect to afford itself of the extended transition period for complying with new or revised accounting standards. Deluxe has elected to take advantage of this transition period and as a result, we will delay adoption of new or revised accounting standards that have different dates of application for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We May Continue To Lose Money, And If We Do Not Achieve Profitability, We May Not Be Able To Continue Our Business
Since our formation, we have generated no revenues from operations, and have incurred expenses and losses. In addition, we expect to continue to incur operating losses for the foreseeable future. As a result, we will need to generate sufficient revenues to achieve profitability, which may not occur. Even if we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis in the future. We expect to have quarter-to-quarter fluctuations in revenues, expenses, losses and cash flow, some of which could be significant. Results of operations will depend upon numerous factors. Some of these factors, such as market acceptance of our product and competition, are beyond our control.
The Company Is Subject To The Risks Inherent In The Creation Of A New Business
The Company is subject to substantially all of the risks inherent in the creation of a new business. The implementation of our business strategy is still in the development stage and we are subject to all of the risks inherent in the establishment of a new business venture. Accordingly, our intended business and operations may not prove to be successful in the near future, if at all. Any future success that we might enjoy will depend upon numerous factors, many of which may be beyond our control, or which cannot be predicted at this time, and which could have a materially adverse effect upon our financial condition, business prospects, and operations and the value of an investment in the Company
.
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We May Be Subject To Government Laws And Regulations Particular To Our Operations With Which We May Be Unable To Comply
We may not be able to comply with all current and future government regulations which are applicable to our business. Our business operations are subject to all government regulations normally incident to conducting business (e.g., occupational safety and health acts, workmen's compensation statutes, unemployment insurance legislation, income tax, and social security laws and regulations, environmental conservation laws and regulations, consumer safety laws and regulations, etc.) as well as to governmental laws and regulations applicable to small public companies and their capital formation efforts. There may be additional laws and regulations applicable to our business (patent, environmental, import-export, consumer safety protection, etc.), with which we will be required to comply (See Risk Factors:
Climate and Conservation Regulation May Reduce The Number Of Potential Customers)
. Although we will make every effort to comply with applicable laws and regulations, we can provide no assurance of our ability to do so, nor can we accurately predict the effect of those regulations on our proposed business activities. Our failure to comply with material regulatory requirements would likely have an adverse effect on our ability to conduct our business and could result in our cessation of active business operations.
Because Our Sole Officer And Director Is A Canadian Resident, And Our Primary Offices Are Located In Canada, Difficulty May Arise In Attempting To Effect Service Of Process In Canada.
Because our sole director and officer is a Canadian resident, and our main offices are located in Canada, difficulty may arise in attempting to effect service of process on either the Company or our sole officer and director or in enforcing a judgment against Deluxe’s assets located outside of the United States. These difficulties may include: difficulty, by Company shareholders, in enforcing any judgments obtained, in United States’ courts, based upon the civil liability provisions of the U.S. federal securities laws; difficulty, by Company shareholders, in enforcing U.S. federal securities laws based judgments, against our sole officer and director in foreign courts; and difficulty, by Company shareholders, in bringing an original action in foreign courts for the purposes of enforcing, against our sole officer and director, U. S. federal securities laws based judgments.
Sale And Export And Import Of Products To/From A Foreign Country Has Operational Risks That May Not Be Adequately Covered By Insurance
We can give no assurance that we will be adequately insured against all risks or that any policies we own at the time a loss occurs will adequately cover any losses. Furthermore, in the future we may not be able to obtain adequate insurance coverage at reasonable rates. We may also be subject to claims by customers involving disputes or situations that are beyond our control including but not necessarily limited to, manufacturing defects, delivery delays or failures, or unauthorized disclosures of our customers’ personal information by third parties. There is also, because one aspect of our planned business model involves retailing via the internet, the possibility of fraudulent claims or other illicit activities involving our transactions. Any of these potentialities may give rise to a loss to our Company for which we are not insured, or not adequately insured.
Any Failure To Maintain Adequate Insurance Coverage Could Subject Us To Material Losses Of Income
We do not currently carry any liability, business interruption or other insurance, and therefore, we have no protection against any general, commercial and/or liability claims or any other losses that may negatively impact our ability to generate revenues in the future. Any claims against us or uninsured losses by us will likely have a material adverse effect on our financial condition. There can be no assurance that we will be able to obtain insurance on reasonable terms, or at all, at any time in the future.
Our Ability To Generate Revenues Depends Primarily On Our Ability To Execute Our Business Plan
We have not generated any operating revenues to date. Our ability to generate operating revenues in the future will primarily depend upon our ability to effectively execute our business plan, which in turn depends upon our ability to identify, retain and maintain relationships with one or more of the following: a patent application preparation and filing firm; manufacturers; suppliers; shippers; financial institutions; wholesalers; retailers and other necessary third party product or service providers. We may not be able to identify and maintain the necessary relationships within our industry. Our ability to execute our business plan also depends on other factors, including the ability to:
negotiate and maintain contracts and agreements with acceptable terms;
maintain relationships with professional service providers;
control manufacturing and shipping costs;
manage cash-flow;
hire and train qualified personnel;
maintain marketing and website hosting/development costs at affordable rates; and
maintain an affordable labor force
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The Company’s Ability To Expand Its Operations Will Depend Upon The Company’s Ability To Obtain Additional Capital As Well As To Generate Operating Income
Developing our business will require additional capital in the future. To meet our capital needs, we expect to rely on our cash flow from operations and, potentially, third-party financing. However, we may not be able to generate operating revenues in the foreseeable future and third-party financing may not be available on terms favorable to us, or at all. Our ability to obtain additional third party funding will be subject to various factors, including market conditions, our operating performance, lender sentiment and our ability to incur additional debt or conduct additional offerings of our equity or debt securities. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth.
Our Sole Officer And Sole Director Currently Beneficially Owns 25% Of The Issued And Outstanding Stock
Presently, the Company’s sole officer and director beneficially owns 1,000,000 shares of the Company’s common stock which amounts to twenty-five percent (25%) of the outstanding common stock of the Company. Because of such ownership, other shareholders of the Company will have limited control over matters requiring approval by Deluxe’s shareholders, including the election of directors. Even though our sole officer and director owns less than a majority of our issued and outstanding shares of common stock, he stills remain the single largest beneficial owner of our issued and outstanding shares of common stock and therefore has a disproportionate amount of influence over the Company’s activities and matters requiring a shareholder vote. Accordingly, while our current sole director and officer cannot control, as a shareholder, who is elected to the board of directors, since this individual is not simply a passive investor but is also active member of Company management, his interests as a director and officer and shareholder may, at times, be adverse to those of merely passive investors. Where those conflicts exist, shareholders will be dependent upon our sole director and officer exercising his fiduciary duties as a director and an officer. In addition, certain provisions of Nevada law could have the effect of making it more difficult or more expensive for a third party to acquire, or from discouraging a third party from attempting to acquire, control of the Company. For example, Nevada law provides that approval of a majority of the stockholders is required to remove a director, which may make it more difficult for a third party to gain control of the Company. This concentration of ownership limits the power to exercise control by the other shareholders.
The Report Of Our Independent Auditors Indicates Uncertainty Concerning Our Ability to Continue As A Going Concern And That May Impair Our Ability To Raise Capital To Fund Our Business Plan
Our independent auditors have raised substantial doubt about our ability to continue as a going concern. We cannot assure you that this will not impair our ability to raise capital on acceptable terms, if at all. Additionally, we cannot assure you that we will ever achieve significant revenues and remain a going concern. For the year ended December 31, 2017, and, 2016, the Company had not generated any revenues and had incurred net losses of $53,079 and $49,527, respectively. The Company will likely need $25,000 to continue its operations for the next 12 months.
The Potential Market Is Limited By The Nature Of The Product
Deluxe is building a business as a developer, marketer and seller of a fishing rod holder for use primarily during ice-fishing. Because ice-fishing is a winter sport, which in the northern hemisphere corresponds primarily to December, January and February, the potential market is geographically and seasonally limited in nature. In additional to our market being limited geographically and seasonally, the potential market could also be limited during any particular ice-fishing season due to unfavorable ice-fishing conditions (whether due to climate conditions and/or supply of fish). Additionally, we have only one proposed product at this time. If our product does not meet with market approval and/or we do not develop other products, our target market may become more confined as time progresses. The limited potential market for our product may have a materially negative effect on our ability to generate sufficient revenues to fully implement our business plan and grow our business.
Lack Of Data Related to Specific Target Market
Because we have not been able to find a product similar to ours we are unable to provide statistics that demonstrate any commercial success of a product similar to ours. According to statistics gathered by the American Fishing Association it is estimated that the ice fishing market exceeded $260 Million in 2012 an increase of nearly 10% over 2011. This figure includes sales from rods, reels, combos, tip-up rods, line, specialized lures, augers, shelters, sleds, and an array of other gear designed specifically for ice-fishing. Additionally; the states of Minnesota and Wisconsin are believed to contain the highest number of ice anglers, in the U.S., with an estimated 700,000, and 600,000 annual participants respectively. We have not been able to find specific data associated with a product similar to ours. The limited general data regarding our intended market and the lack of any data regarding products similar to ours may negatively affect the Company’s ability to formulate a reliable marketing plan, make forecasts and prepare budgets which in turn may negatively affect the Company’s future ability to be successful. With a lack of data and lack of expertise in the ice anglers market, the Company’s ability to find success remains questionable.
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The Company Is Limited By Having Only One Product Which Is Not Yet Patented, And Has Not Yet Been Produced
At this time Deluxe plans to offer only one product; our rod holder designed primarily (but not exclusively) for ice fishing. Offering only one product limits our potential sources of revenue which could have a materially negative effect on our ability to generate sufficient cash flow to profitably (or at all) operate the Company. Furthermore, we do not yet possess a utility patent protecting our rights in our proposed product. If we are unable to obtain a utility patent it will limit our ability to protect our product from potentially being copied by third-parties which in turn could negatively affect our ability to manufacture, market and sell our product. Finally, we have not yet, to date, produced any units of our proposed product to sell and as such we currently have no ability to generate operating revenues from the sale of our proposed product. There are no guarantees we will be awarded a utility patent protecting our design or that we will successfully engage a manufacturer to produce any units of our proposed product or that we will be successful in generating any revenues from the sale of our proposed product. Each of these factors individually, and all of them collectively, could be catastrophic to our business and could force us to cease business activities altogether and result in a total loss of investors’ investment in the Company.
Competitors With More Resources May Force Us Out Of Business
Competition in the industry will likely be based primarily on developing a good reputation by producing a quality product to sell at a reasonable price and providing excellent customer service. There are approximately thirty (30) already existing companies that manufacture/supply rods, reels, tip-ups, and angling accessories to retailers. Among them are: Browning, Abu Garcia, Berkley, Daiwa, Eagle Claw, Fishpond, G. Loomis, Gamakatsu, Livingston Lures, Orvis, Penn, Quantum, Rapala, Redington, RIO, Sage, Shakespeare, Shimano, Simms, St. Croix, Storm, Strike King, TFO, VMC Hooks, Zebco, and Zoom, and others. A competitor may develop a similar or improved product that does not infringe on our design but serves the same purpose as our product. The risk of having a competitor is compounded by the number of large and small retailers that now manufacture and sell product under their retail company name. Companies such as: Cabela’s, Bass Pro Shops, Offshore Angler, White River Fly Shop, Big 5 Sporting Goods, Sportsman’s Warehouse, DICKS Sporting Goods, and many others, produce products of their own and sell directly to customers. Aggressive pricing, better customer service better quality products introduced by already existing product suppliers and/or the entrance of new competitors into our markets could reduce our revenue and profit margins. If the market does not view our product as well made, suitable for its intended use, or a good economic value, or if we experience difficulty in providing a positive buying experience for our customers, then we may have difficulty in generating sufficient operating revenues. If we are unable to generate sufficient operating revenues we may cease to actively operate our business.
The Costs To Meet Our Reporting And Other Requirements As A Public Company Subject To The Securities And Exchange Act Of 1934 Will Be Substantial
We are subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and we will incur ongoing expenses associated with professional fees for accounting, legal and other related expenses for periodic and annual reports, proxy statements and other reporting and disclosure requirements under the Exchange Act. We estimate that these accounting, legal and other professional costs could be $15,000 or more per year for the next few years, and will be higher if our business volume and activity increases, but lower during the first years of being public because our overall business volume will be lower.
We May Have Difficulty Attracting And Retaining Management And Outside Independent Members To Our Board Of Directors
Directors and officers of publicly reporting companies are increasingly concerned with the extent of their personal exposure to lawsuits and shareholder claims, as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in laws imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and officers are also becoming increasingly concerned with the availability of directors` and officers` liability insurance to pay on a timely basis the costs incurred in defending such claims. We currently do not carry directors` and officers` liability insurance. If we are unable to provide sufficient directors` and officers` liability insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified officers and directors to manage the business and affairs of the Company.
We may lose potential independent board members and management candidates to other companies that have better directors` and officers` liability insurance to insure them from liability, or to companies that have greater revenues or have received greater funding to date, which can offer more lucrative compensation packages. The fees of directors are also rising in response to their increased duties, obligations and liabilities, as well as increased exposure to such risks. As a company with a limited operating history and limited resources, we will have a more difficult time attracting and retaining management and outside independent directors than a more established company due to these enhanced duties, obligations and liabilities.
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Reliance Upon One Individual As President, Treasurer, Secretary And Sole Director Of The Company
Currently one individual serves as the President, Treasurer, Secretary and sole Director of the Company. In the event this individual becomes unavailable or unable to continue on in this multiple position role, the Company could suffer substantial or irreparable damage and be forced to cease operations.
Our Proposed Product May Not Be Eligible For A Non-Provisional Utility Patent
Although we have filed a non-provisional patent application for our prototype, we may not be successful in obtaining a non-provisional utility patent for our proposed product because another party may obtain a patent for a similar product first, or the United States Patent and Trademark Office may rule that our product is not eligible to receive a patent because it does not meet established requirements for a patent. Either of these scenarios may have a materially negative effect on our ability to develop and protect a market for our product which would have a materially adverse effect on our ability to generate operating revenues which could result in the Company ceasing active operations.
No Market May Materialize For Our Proposed Product
Even if we obtain a non-provisional patent for our prototype, retain a manufacturer, adequately develop a marketing campaign and even if we have adequate capital to manufacture and market our product, no market may exist or materialize for our product or if a market is developed it may not be sustained. If we cannot effectively develop or take advantage of any market for our product we will likely not be able to generate sufficient operating capital to continue actively conducting business operations.
The Climate And Ecosystems Related To Fishing May Not Continue To Produce Favorable Conditions
Any changes in the climate and/or other external effects on the ecosystems directly or indirectly related to waterways, bodies of water and fishing may have a negative effect on fish habitats, numbers of available fish, and overall fishing conditions. If climate change results in a material change in wintertime temperatures, such a change could have a materially negative effect on wintertime fishing conditions and fish habitat. Similarly, if climate change results in material changes in non-wintertime temperatures, such changes could have a materially negative effect on fishing conditions during non-winter seasons which could negatively affect the potential for sales of our product to non-ice-anglers. Also, overfishing or an increase in the numbers of predators would also have an adverse effect on the fishing conditions available to potential anglers. Such negative conditions would likely have a materially negative effect on the market for our product if such a market ever materializes, which in turn would likely have a materially negative impact on our ability to earn operating revenues and our future business prospects.
Climate And Conservation Regulation May Reduce The Number Of Potential Customers
Typically fish numbers are monitored, and fish populations are controlled by the species, size, gender, and the number of fish anglers can keep; however, if a body of water becomes over-fished, local fishing and gaming authorities will usually intervene by enforcing a catch-and-release program or otherwise restricting the ability of anglers to catch fish. Catch-and-release programs typically equate to little if any fishing in a specified area. Low fish populations and/or overfishing can result in unfavorable fishing conditions.
Similarly, local, state and or federal government may impose laws and regulations related to climate change that could severely restrict recreational fishing activities in our intended geographical markets. Such additional regulation and/or unfavorable fishing conditions would have a negative impact on the Company’s ability to compete in the marketplace by reducing demand for our product and could result in the Company ceasing active operations and a total loss of investors’ investment in the Company.
Failure to obtain additional financing
Unless and until the Company is able to generate revenues from operations, the Company’s main potential continuing source of funds will be debt securities and/or additional equity financings which may not be sufficient to sustain operations. There is no guarantee that the Company, if needed, will be able to raise additional funds through debt and/or equity financing or that any such financing will be able to be obtained on terms beneficial to the Company. If Deluxe is unsuccessful in raising necessary additional funds, the Company will not be able to develop its properties and may be unable to continue as a going concern.
Shareholders’ interests in the Company may be diluted and shareholders may suffer dilution in their net book value per share if the Company issues additional employee/director/consultant options or if the Company sells additional shares to finance its operation.
The Company has not generated any operational revenues. In order to further expand the Company’s business and meet its objectives, additional capital funding may need to be obtained through the sale and issuance of debt securities and/or additional equity securities. The Company may also, in the future, grant to some or all of its directors, officers, insiders and key employee/consultants options, or
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other rights to acquire common or preferred shares in the Company as non-cash incentives. The issuance of any additional equity securities could cause then-existing stockholders to experience dilution of their ownership interests.
Should the Company issue additional shares in order to finance its business activities, shareholders’ interests in the Company may be diluted and shareholders may suffer dilution in their net book value per share depending on the price at which such securities are sold.
Conflicts of interest
Certain of the Company’s officers and directors may be or become associated with other businesses and such associations may give rise to conflicts of interests from time to time. The Company’s directors are required by law to act honestly and in good faith with a view to the Company’s best interests and to disclose any interest, which they may have in any of the Company’s projects or opportunities. In general, if a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter or, if he does vote, his vote will not be counted.
Internal control, fraud detection and financial reporting
Should the Company fail to maintain an effective system of internal controls, it may not be able to detect fraud or report financial results accurately, which could harm the business and could subject the Company to regulatory scrutiny.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), the Company is required to perform an evaluation of its internal controls over financial reporting. Continuing compliance with the requirements of Section 404 is expected to be expensive and time-consuming. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations.
Risks Associated with the Company’s Common Stock
You May Not Be Able To Sell Your Shares In DD’s Deluxe Rod Holder, Inc. Because There Is No Public Market For The Company’s Stock
There is currently no established public trading market for our securities and an active trading market in our securities may not develop or, if it is developed, may not be sustained. If for any reason a public trading market does not otherwise develop or such a trading market cannot be sustained, or we later become ineligible to continue having our stock quoted on a quotation system, purchasers of the Shares may have difficulty selling their common stock should they desire to do so.
Even If A Public Market Develops For Our Common Stock The Market Price Could Fluctuate Significantly
If a trading market for our common stock ever develops, which the Company cannot guarantee, the trading price of our common stock could be subject to wide fluctuations in response to various events or factors, many of which are or will be beyond the Company’s control. In addition, the market for our stock, if one develops, may experience extreme price and volume fluctuations, which, may have no direct relationship to the operating performance, may negatively affect the market price of the Company’s stock. Furthermore, because of a limited number of outstanding shares and/or because of a limited number of shareholders, shares of our common stock may be thinly traded and any trades involving shares of our common stock may have the effect of creating a large swing in the market price of our common stock.
If We Fail To Remain Current On Our Reporting Requirements It Will Limit The Ability Of Stockholders To Sell Their Securities In The Public Market
Companies trading on inter-dealer quotation systems must be reporting issuers under Section 12 or 15(d) of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on such systems. If we fail to remain current on our reporting requirements, our stock may no longer be eligible to be quoted on quotation systems such as OTCBB, OTCMarkets or Nasdaq OMX. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to transact in our securities and the ability of stockholders to sell their securities in the secondary market.
Our Common Stock Is Considered A “Penny Stock” And Be Subject To The “Penny Stock” Rules Of The Securities Exchange Commission
The shares of Deluxe common stock constitute “penny stocks” under the Exchange Act. The shares will remain classified as a penny stock for the foreseeable future. The classification as a penny stock makes it more difficult for a broker/dealer to sell the stock into a
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secondary market, which makes it more difficult for a purchaser to liquidate his or her investment. Any broker/dealer engaged by the purchaser for the purpose of selling his or her shares will be subject to rules 15g-1 through 15g-10 of the Exchange Act. Rather than having to comply with these rules, some broker-dealers will refuse to attempt to sell a penny stock.
The "penny stock" rules adopted by the SEC under the Exchange Act subjects the sale of the shares of the Company’s common stock to certain regulations which impose sales practice requirements on broker/dealers. For example, brokers/dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities.
Legal remedies, which may be available to an investor in "penny stocks,” are as follows:
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if "penny stock" is sold to an investor in violation of his or her rights listed above, or other federal or states securities laws, the investor may be able to cancel his or her purchase and get his or her money back.
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if the stocks are sold in a fraudulent manner, the investor may be able to sue the persons and firms that caused the fraud for damages.
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if the investor has signed an arbitration agreement, however, he or she may have to pursue his or her claim through arbitration.
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If the person purchasing the securities is someone other than an accredited investor or an established customer of the broker/dealer, the broker/dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker/dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the SEC's rules may limit the number of potential purchasers of the shares of Deluxe common stock.
Shares Eligible For Future Sale By Our Current Stockholders May Adversely Affect Our Stock Price
Our common stock has not been approved for quotation on any inter-dealer quotation system or trading on any exchange or other trading platform and there is no public market for the shares of our common stock; therefore there has been no trading volume in our common stock.
There is currently no established public trading market for our securities, and an active trading market in our securities may not develop, or, if one develops it may not be sustained. If for any reason a public trading market does not otherwise develop, for our common stock, or cannot be sustained, purchasers of the shares may have difficulty selling their shares should they desire to do so.
Any sales of substantial amounts of common stock under SEC Rule 144, or otherwise, could adversely affect the then prevailing market price, if any, of our common stock and could impair our ability to raise capital at that time through any private offering or publicly registered sale of our securities. As long as these conditions continue, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices, if any, prevailing immediately before such shares are offered.
We Are Unlikely To Pay Dividends
To date, we have not paid, nor do we intend to pay, in the foreseeable future, dividends on our common stock, even if we become profitable. Earnings, if any, are expected to be used to advance our activities and for general corporate purposes, rather than to make distributions to stockholders. Investors will likely need to rely on an increase in the price of Company stock to profit from his or her investment. There are no guarantees that any market for our common stock will ever develop or that the price of our stock will ever increase. Investors must be prepared to be unable to liquidate their investment and/or lose their entire investment.
Since we are not in a financial position to pay dividends on our common stock, and future dividends are not presently being contemplated, investors are advised that return on investment in our common stock is restricted to an appreciation in the share price. The potential or likelihood of an increase in share price is questionable at best.