ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following
discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial
statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative
of the results to be expected for any future periods.
This discussion
contains forward-looking statements, based on current expectations. All statements regarding future events, our future financial
performance and operating results, our business strategy and our financing plans are forward-looking statements and involve risks
and uncertainties. In many cases, you can identify forward-looking statements by terminology, such as “may,” “will,”
“should,” “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue,” or the negative of such terms
and other comparable terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors
could cause our actual results and the timing of events to differ materially from those projected in any forward-looking statements.
In evaluating these statements, you should specifically consider various factors, including, but not limited to, those set forth
in our Annual Report on Form 10-K for the year ended June 30, 2015 and in this report.
General
Our Company
Since September
2013 until recently, we were primarily engaged in the business of making commercial secured real estate loans. Our business model
until the ABH acquisition was solely focused upon making commercial secured real estate loans under advantageous and risk adverse
terms. We no longer are involved in the commercial secured real estate loans as we will devote our total efforts in the development
and operations of World of Beer franchises.
On April 21,
2015, we commenced operations in a new line of business, the ownership of World of Beer taverns that serve craft and imported
beer along with food and other spirits. ABH currently owns in a joint venture, an interest in one World of Beer tavern located
in West Hartford, Connecticut and just started construction of a second World of Beer Tavern in Milford, Connecticut as well as
the construction of a third World of Beer Tavern in Cambridge, Massachusetts. Both new stores are expected to be opening sometime
in spring of 2016. ABH also has a two year option to own 51% of the World of Beer franchise in Stamford, Connecticut which has
not been exercised. World of Beer began as a neighborhood tavern and has grown to close to 80 locations in 20 states.
In December
2014, ABH entered into a joint venture with New England World of Beer and together opened a 4,000+ sq. foot tavern in West Hartford,
Connecticut that sells a selection of over 500 craft and imported beers along with tavern food, other spirits and cocktails. New
England World of Beer holds franchise rights for all of Connecticut and the greater Boston, Massachusetts area. Similar taverns
are currently open in 20 states, namely AL, AZ, CO, CT, FL, GA, IL, LA, MD, MI, NC, NJ, NY, OH, SC, TN, TX, VA, WA and WI.
History and
Other Information
We were incorporated
on June 5, 2008, under the laws of the State of Nevada under the name of Sharp Performance Inc. From inception until September
2013, our business focus was on the provision of consulting services to the American automobile industry. On October 24, 2013,
we changed our name to Harrison, Vickers and Waterman Inc. in conjunction with the change in our business focus. As we have now
changed our business only to the development and operations of World of Beer franchises, we recently filed a Definitive Statement
to change our name to Attitude Beer, Inc. which we expect to file the Certificate of Amendment to our Certificate of Incorporation
to effectuate the name change in the early part of 2016.
Our mailing
address is 11231 U.S. Highway 1, #201, North Palm Beach, FL 33408. Our telephone number is (561) 227-2727. Our fiscal year end
is June 30
th.
Plan of Operations
We are continuing
to seek other sources of financing to develop our business plan, implement our sales and marketing plan to meet other operational
expense requirements and to find and develop new World of Beer locations not only in our protected territories but as well as
in other locations throughout the United States. Historically, we have had to rely on convertible debt financings to cover operating
costs. Based on the available cash, we have no assurance that we will be able to obtain additional funding to sustain our operations.
If we do not obtain additional funding, we may need to cease operations until we do so and, in that event, may consider a sale
of our interest in the World of Beer locations if we do not continue to obtain the proper financing for our needs. However, certain
of our convertible debt obligations for $3,007,275 are secured by our assets. Failure to fulfill our obligations under these notes
and related agreements could lead to the loss of these assets, which would be detrimental to our operations.
We will consider
equity and/or convertible debt financings, either or both of a private sale or a registered public offering of our common stock;
however, at this time and with the current economy, it seems unlikely that we can obtain an underwriter.
This discussion
and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles that are generally accepted in the United States of America.
Results
of Operations for the Six Months Ended December 31, 2015 As Compared to December 31, 2014
Commensurate
with the change in business model described under “General” above, the Company generated $1,632,244 in gross revenues
for the six months ended December 31, 2015. These are revenues associated with the operations of the West Hartford World of Beer
location. There are no comparable figures for the six months ended December 31, 2014 as the West Hartford World of Beer location
was not open at that time.
Administrative
Salaries, taxes and employee benefits were zero for the six months ended December 31, 2015 as compared to $75,000 for the prior
year. There are no corporate employees in 2015 as Attitude Drinks Incorporated’s employees provide all needed management
services for the Company.
General and
administrative expenses increased $22,825 over the prior year mainly due to the creation of a new website and increased filing
fees in 2015.
Professional
fees increased $8,685 for the six months period ended December 31, 2015 versus December 31, 2014, primarily due to increased accounting
and legal fees incurred in 2015.
There were
no comparable expenses in the prior year for World of Beer related expenses including depreciation and amortization as the West
Hartford World of Beer location was not opened in 2014.
Results
of Operations for the Three Months Ended December 31, 2015 As Compared to December 31, 2014
Commensurate
with the change in business model described under “General” above, the Company generated $793,561 in gross revenues
for the three months ended December 31, 2015. These are revenues associated with the operations of the West Hartford World of
Beer location. There are no comparable figures for the three months ended December 31, 2014 as the West Hartford World of Beer
location was not open at that time.
Administrative
Salaries, taxes and employee benefits were zero for the three months ended December 31, 2015 as compared to $37,500 for the prior
year. There are no corporate employees in 2015 as Attitude Drinks Incorporated’s employees provide all needed management
services for the Company.
General and
administrative expenses increased $13,159 mainly due to more costs to build the website and increased filing fees in 2015.
Professional
fees decreased $5,215 for the three months period ended December 31, 2015 versus December 31, 2014, primarily due to the decreased
need for legal services in 2015.
Liquidity
and Capital Resources
Our ability
to continue as a going concern will be dependent upon us receiving additional third party financings to build our new World of
Beer franchises and to fund our business at least throughout the next twelve months in our new fiscal year. Ultimately,
our ability to continue is dependent upon the achievement of profitable operations. There is no assurance that further funding
will be available at acceptable terms, if at all, or that we will be able to achieve profitability. These conditions
raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do
not reflect any adjustments that may result from the outcome of this uncertainty.
External
Debt Financing:
On July 29,
2015, we issued a convertible note payable to Alpha Capital Anstalt in which we received $80,000.
On October
14, 2015, we issued a convertible note payable to Alpha Capital Anstalt in which we received $78,000.
On October
20, 2015, we issued a convertible note payable to Tarpon Bay Partners LLC in which we received $35,000.
On November
19, 2015, we issued two convertible notes payable, one to Alpha Capital Anstalt for $325,000 and one to Tarpon Bay Partners LLC
for $110,000.
On December
7, 2015, we issued two convertible notes payable, one to Alpha Capital Anstalt for $75,000 and one to Tarpon Bay Partners LLC
for $25,000. These funds have not been received yet and will be reported as subscription receivable.
Proceeds of
the above financing were used for payments on the new Milford, Connecticut World of Beer location for $328,000 and $225,000 for
payments on the new Cambridge, Massachusetts World of Beer location. The rest was used for working capital purposes.
The foregoing
securities were issued in reliance upon an exemption from registration under Section 4(a)(2) and/or Regulation D of the Securities
Act of 1933, as amended. All of the investors were accredited investors and/or had preexisting relationships with the Company,
there was no general solicitation or advertising in connection with the offer or sale of securities, and the securities were issued
with a restricted legend.
Dividend
Distributions
:
We have received
a total of $106,600 in dividend distributions from the operations of the West Hartford, Connecticut World of Beer location. These
funds were used for working capital purposes
Our cash balance
at December 31, 2015 was $66,414, a decrease of $159, 674 from June 30, 2015, mainly due to slower seasonal activities.
We have limited
capital resources, as, among other things, we have a limited operating history. We have generated reasonable revenues to date,
but we may not be able to generate sufficient revenues to become profitable in the future.
The report
of our independent registered public accounting firm on our financial statements for the fiscal year ended June 30, 2015 contains
an explanatory paragraph regarding our ability to continue as a going concern based on our history of net losses since our inception.
We do not believe
that we have sufficient funds on hand to fully implement our business operations or to meet our cash obligations for the next
12-months period. As a result, we may need to seek additional funding in the near future. We currently do not have a specific
plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of convertible debt
financing. At this time, we cannot provide investors with any assurance that we will be able to generate sufficient funding from
the sale of our common stock or through issuance of debt to meet our obligations over the next 12 months. We do have Additional
Investment Rights from two accredited investors for a total of $5,000,000 in which a total of $728,000 has been exercised to be
used for the development of new World of Beer franchise locations, but there is no assurance that these investors will continue
to provide financings for these ventures. We will seek new investors especially in new territories’ developments present
themselves.
We do not anticipate
the need to hire corporate employees over the next 12 months as Attitude Drinks Incorporated’s employees are providing their
services for the operations and management of the Company. We may set up a service provider contract with Attitude Drinks Incorporated
to receive charges for these services as a way to reduce the receivable balance due from Attitude Drinks Incorporated.
Off-Balance
Sheet Arrangements
We have no
off-balance sheet arrangements.
Our business
is subject to numerous risk factors, including the following:
Risks
Related to Our Business
If we
are unable to identify and obtain suitable new franchise sites and successfully open new franchises, our revenue growth rate and
profits may be reduced.
We require
that all proposed franchise sites meet our site selection criteria. We may make errors in selecting these criteria or applying
these criteria to a particular site, or there may be an insignificant number of new sites meeting these criteria that would enable
us to achieve our planned expansion in future periods. We face significant competition from other restaurant companies and retailers
for sites that meet our criteria, and the supply of sites may be limited in some markets. Further, we may be precluded from acquiring
an otherwise suitable site due to an exclusivity restriction held by another tenant. As a result of these factors, our costs to
obtain and lease sites may increase, or we may not be able to obtain certain sites due to unacceptable costs. Our inability to
obtain suitable sites at reasonable costs may reduce our growth.
To successfully
expand our business, we must open new World of Beer restaurants on schedule and in a profitable manner. In the past, World of
Beer franchisees have experienced delays in restaurant openings, and we may experience similar delays in the future. Delays in
opening new sites could hurt our ability to meet our growth objectives, which may affect our results of operations and thus our
stock price. We cannot guarantee that we or any future franchisees will be able to achieve our expansion goals. Further, any sites
that we open may not achieve operating results similar or better than our existing restaurant. If we are unable to generate positive
cash flow from a new site, we may be required to recognize an impairment loss with respect to the assets for that restaurant.
Our ability to expand successfully will depend on a number of factors, many of which are beyond our control. These factors include:
|
|
·
|
Negotiating acceptable lease
or purchase terms for new sites;
|
|
|
·
|
Cost effective and timely
planning, design and build-out of sites;
|
|
|
·
|
Creating Guest awareness of
our restaurants and taverns in new markets;
|
|
|
·
|
Competition in new and existing
markets;
|
|
|
·
|
General economic conditions.
|
Our restaurants and taverns
may not achieve market acceptance in the new regions we enter.
Our expansion
plans depend on opening restaurants and taverns in markets starting with New England where we have little or no operating experience.
We may not be successful in operating our locations in new markets on a profitable basis. The success of these new locations will
be affected by the different competitive conditions, consumer tastes and discretionary spending patterns of the new markets as
well as our ability to generate market awareness of our brands. Sales at our locations opening in new markets may take longer
to reach profitable levels, if at all.
New restaurants added to our
existing markets may take sales from existing restaurants.
We intend to open new restaurants
and taverns in our existing market, which may reduce sales performance and guest visits for our existing location. In addition,
new locations added in existing markets may not achieve sales and operating performance at the same level as established restaurants
in the market.
A security
failure in our information technology systems could expose us to potential liability and loss of revenues.
We accept credit
and debit card payments at our restaurant. A number of retailers have recently experienced actual or potential security breaches
in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known
retailers. The intentional, inadvertent or negligent release or disclosure of data by our company or our service providers could
result in theft, loss, fraudulent or unlawful use of customer data which could harm our reputation and result in remedial
and other costs, fines or lawsuits.
Shortages
or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues.
Possible shortages
or interruptions in the supply of food items and other supplies to our location(s) caused by inclement weather, terrorist attacks,
natural disasters such as floods, drought and hurricanes, pandemics, the inability of our vendors to obtain credit in a tightened
credit market, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond our control
could adversely affect the availability, quality and cost of items we buy and the operations of our restaurants. Our inability
to effectively manage supply chain risk could increase our costs and limit the availability of products critical to our restaurant
operations.
Our business
is difficult to evaluate because we are currently focused on a new line of business and have very limited operating history and
information.
Our company
was incorporated on June 5, 2008, which makes an evaluation of us extremely difficult. In addition, we have recently shifted our
focus from the commercial real estate lending to restaurant and tavern sales. There is a risk that we will be unable to successfully
operate this new line of business or be able to successfully integrate it with our current management and structure. Our estimates
of capital and personnel required for our new line of business are based on the experience of management and businesses that are
familiar to them. We are subject to the risks such as our ability to implement our business plan, market acceptance of our proposed
business and services, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources,
competition from better funded and experienced companies, and uncertainty of our ability to generate revenues. There is no assurance
that our activities will be successful or will result in any revenues or profit, and the likelihood of our success must be considered
in light of the stage of our development. In addition, no assurance can be given that we will be able to consummate our business
strategy and plans, as described herein, or that financial, technological, market, or other limitations may force us to modify,
alter, significantly delay, or significantly impede the implementation of such plans. We have insufficient results for investors
to use to identify historical trends or even to make quarter to quarter comparisons of our operating results. You should consider
our prospects in light of the risk, expenses and difficulties we will encounter as an early stage company. Our revenue and income
potential is unproven, and our business model is continually evolving. We are subject to the risks inherent to the operation of
a new business enterprise and cannot assure you that we will be able to successfully address these risks.
We may
not be profitable.
We expect to
incur operating losses for the foreseeable future. For the six months ended December 31, 2015, we had a loss from operations of
$(60,496 which includes $80,204 in depreciation and amortization expense for a net profit of operations of $19,708) as compared
to a loss from operations of $(136,395) for the six months ended December 31, 2014. Our ability to become profitable depends on
our ability to have successful operations and generate and sustain revenues, while maintaining reasonable expense levels, all
of which are uncertain in light of our limited operating history in our current line of business and our beginning of our new
food and beverage line of business.
Our auditors
have substantial doubt about our ability to continue as a going concern.
Our auditors’
report reflects the fact that the ability of our Company to continue as a going concern and expresses substantial doubt about
our ability to continue as a going concern. This substantial doubt is due to our lack of committed funding and lack of revenue.
Our consolidated financial statements reported a net loss of ($1,693,480) for the six months ended December 31, 2015 which includes
a change in the fair market value of our derivative liabilities as well as derivative expense. If we are unable to continue as
a going concern, you will lose your investment. You should not invest in us unless you can afford to lose your entire investment.
See the notes to our Financial Statements.
There
are general risks associated with the restaurant industry.
Restaurants
are a very cyclical business. Specific factors that impact our economic recessions can negatively influence discretionary
consumer spending in restaurants and bars and result in lower customer counts as consumers become more price conscientious, tending
to conserve their cash amid unemployment and other economic uncertainty. The effects of higher gasoline prices can also negatively
affect discretionary consumer spending in restaurants and bars. Increasing costs for energy can affect profit margins in many
other ways. Petroleum based material is often used to package certain products for distribution. In addition, suppliers may add
fuel surcharges to their invoices. The cost to transport products from the distributors to restaurant operations will rise with
each increase in fuel prices. Higher costs for electricity and natural gas result in higher costs to a) heat and cool restaurant
facilities, b) refrigerate and cook food and c) manufacture and store food at the Company’s locations.
Inflationary
pressure, particularly on food costs, labor costs (especially associated with increases in the minimum wage) and health care benefits,
can negatively affect the operation of the business. Shortages of qualified labor are sometimes experienced in certain local economies.
In addition, the loss of any key executives could pose a significant adverse effect on the Company.
If consumer confidence in
our business deteriorates, our business, financial condition and results of operations could be adversely affected.
Our business
is built on consumers’ confidence in our brand. As a consumer business, the strength of our brand and reputation are
of paramount importance to us. A number of factors could adversely affect consumer confidence in our brand, many of which are
beyond our control and could have an adverse impact on our results of operations. These factors include:
|
|
·
|
any regulatory action or investigation against us;
|
|
|
·
|
any negative publicity about a restaurant in the World Of Beer franchise; and
|
|
|
·
|
any negative publicity about our restaurants.
|
In addition,
we are largely dependent on the other World of Beer franchisees to maintain the reputation of our brand. Despite the measures
that we put in place to ensure their compliance with our performance standards, our lack of control over their operations may
result in the low quality of service being attributed to our brand, negatively affecting our overall reputation. Any event that
hurts our brand and reputation among consumers as a reliable services provider could have a material adverse effect on our business,
financial condition and results of operations.
We face substantial competition
in our target markets
The restaurant
industry is highly competitive, and many of our competitors are substantially larger and possess greater financial resources than
we do. Our restaurant(s) have numerous competitors, including national chains, regional and local chains, as well as independent
operators. None of these competitors, in the opinion of our management, is dominant in the family-style sector of the restaurant
industry. In addition, competition continues to increase from non-traditional competitors such as supermarkets that not only offer
home meal replacement but also have in-store dining space trends that continue to grow in popularity.
The principal
methods of competition in the restaurant industry are brand name recognition and advertising; menu selection and prices; food
quality and customer perceptions of value, speed and quality of service; cleanliness and fresh, attractive facilities in convenient
locations. In addition to competition for customers, sharp competition exists for qualified restaurant managers, hourly restaurant
workers and quality sites on which to build new locations.
The restaurant
and bar industry is very competitive, and we face competition from large national chains as well as individually owned restaurants.
Large chains such as Buffalo Wild Wings have a similar open style that appeals to our sports fan and family demographic. There
are additional restaurants that feature custom beers. Many of these competitors have substantially more resources than we
which allows them to have economies of scale allowing them price points which compare favorably to ours. They also have
the ability to market their restaurants given their sheer size which we do not possess. All of these factors may make it
difficult for us to succeed.
Unfavorable publicity could
harm our business.
Multi-unit
restaurant businesses such as ours can be adversely affected by publicity resulting from complaints or litigation or general publicity
regarding poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of consumption of various
food products or high-calorie foods (including obesity), or other concerns. Negative publicity from traditional media or on-line
social network postings may also result from actual or alleged incidents or events taking place in our restaurants. Regardless
of whether the allegations or complaints are valid, unfavorable publicity relating to a number of our restaurants, or only to
a single restaurant, could adversely affect public perception of the entire brand. Adverse publicity and its effect on overall
consumer perceptions of food safety, or our failure to respond effectively to adverse publicity, could have a material adverse
effect on our business.
Changes in employment laws
or regulation could harm our performanc
e.
Various federal
and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements,
overtime pay, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, unemployment tax rates,
workers’ compensation rates, citizenship requirements, union membership and sales taxes. A number of factors could adversely
affect our operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of
absence and mandated health benefits, mandated training for employees, increased tax reporting and tax payment requirements for
employees who receive tips, a reduction in the number of states that allow tips to be credited toward minimum wage requirements,
changing regulations from the National Labor Relations Board and increased employee litigation including claims relating to the
Fair Labor Standards Act.
The Americans
with Disabilities Act is a federal law that prohibits discrimination on the basis of disability in public accommodations and employment.
Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants
to provide service to, or make reasonable accommodations for disabled persons.
Failure of our internal controls
over financial reporting could harm our business and financial results.
Our management
is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes
in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement
of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting
could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial
reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence
and decline in the market price of our stock.
Economic
conditions could have a material adverse impact on our landlords or other tenants in retail centers in which we or our franchisees
are located, which in turn could negatively affect our financial results.
Our landlords
may be unable to obtain financing or remain in good standing under their existing financing arrangements, resulting in failures
to pay required construction contributions or satisfy other lease covenants to us. In addition other tenants at retail centers
in which we or our franchisees are located or have executed leases may fail to open or may cease operations. If our landlords
fail to satisfy required co-tenancies, such failures may result in us or our franchisees terminating leases or delaying openings
in these locations. Also, decreases in total tenant occupancy in retail centers in which we are located may affect guest traffic
at our restaurants. All of these factors could have a material adverse impact on our operations.
We may
experience higher-than-anticipated costs associated with the opening of new locations or with the closing, relocating and remodeling
of existing restaurants, which may adversely affect our results of operations.
Our revenues
and expenses can be impacted significantly by the location, number and timing of the opening of new restaurants and the closing,
relocating, and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant
and incur other expenses when we close, relocate or remodel existing restaurants. These expenses are generally higher when we
open restaurants in new markets, but the costs of opening, closing, relocating or remodeling any of our restaurants may be higher
than anticipated. An increase in such expenses could have an adverse effect on our results of operations.
Our success
depends substantially on the value of our brands and our reputation for offering guests an unparalleled Guest experience.
We believe
we have built a strong reputation for the quality and breadth of our menu items as part of the total experience that guests enjoy
in our restaurants. We believe we must protect and grow the value of our brands to continue to be successful in the future. Any
incident that erodes consumer trust in or affinity for our brands could significantly reduce their value. If consumers perceive
or experience a reduction in food quality, service, or ambiance, or in any way believe we failed to deliver a consistently positive
experience, our brand value could suffer.
Our inability
to successfully and sufficiently raise menu prices could result in a decline in profitabili
ty.
We utilize
menu price increases to help offset cost increases, including increased cost for commodities, minimum wages, employee benefits,
insurance arrangements, construction, utilities and other key operating costs. If our selection and amount of menu price
increases are not accepted by consumers and reduce guest traffic, or are insufficient to counter increased costs, our financial
results could be harmed.
Our quarterly
operating results may fluctuate due to the timing of special events and other factors, including the recognition of impairment
losses.
Our quarterly
operating results depend, in part, on special events, such as the Super Bowl® and other sporting events viewed by our guests
in our World of Beer franchised locations such as the NFL, MLB, NBA, NHL and NCAA. Interruptions in the viewing of these professional
and collegiate sporting league events due to strikes, lockouts or labor disputes may impact our results. Additionally, our results
are subject to fluctuations based on the dates of sporting events and their availability for viewing through broadcast, satellite
and cable networks. Historically, sales in most of our restaurants have been higher during fall and winter months based on the
relative popularity and extent of national, regional and local sporting and other events. Further, our quarterly operating results
may fluctuate significantly because of other factors, including:
|
|
·
|
Fluctuations in food costs, particularly chicken wings;
|
|
|
·
|
T
he timing of new restaurant openings which may impact margins due to the related
preopening costs and initially higher restaurant level operating expense ratios;
|
|
|
·
|
Potential distraction or unusual expenses associated with our expansion into other geographical territories;
|
|
|
·
|
Our ability to operate effectively in new markets in which we have limited operating experience;
|
|
|
·
|
Labor availability and costs for hourly and management personnel;
|
|
|
·
|
Changes in competitive factors;
|
|
|
·
|
Disruption in supplies;
|
|
|
·
|
General economic conditions, consumer confidence and fluctuations in discretionary spending;
|
|
|
·
|
Claims experience for self-insurance programs;
|
|
|
·
|
Increases or decreases in labor or other variable expenses;
|
|
|
·
|
The impact of inclement weather, natural disasters and other calamities;
|
|
|
·
|
Fluctuations in interest rates;
|
|
|
·
|
The timing and amount of asset impairment loss and restaurant closing charges; and
|
|
|
·
|
Tax expenses and other non-operating costs.
|
As a result
of the factors discussed above, our quarterly and annual operating results may fluctuate significantly. Accordingly, results for
any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. These fluctuations
may cause future operating results to fall below the expectations of securities analysts and shareholders. In that event, the
price of our common stock would likely decrease.
We may
not be able to attract and retain qualified team members and key executives to operate and manage our business.
Our success
and the success of our individual restaurant(s) and business depends on our ability to attract, motivate, develop and retain a
sufficient number of qualified key executives and restaurant employees, including restaurant managers and hourly team members.
The inability to recruit, develop and retain these individuals may delay the planned openings of new restaurant and tavern locations
or result in high employee turnover in existing locations, thus increasing the cost to efficiently operate our restaurants.
This could inhibit our expansion plans and business performance and, to the extent that a labor shortage may force us to pay higher
wages, harm our profitability. The loss of any of our key executive officers could jeopardize our ability to meet our financial
targets.
The sale
of alcoholic beverages at our locations subjects us to additional regulations and potential liabilit
y.
Because our
locations sell alcoholic beverages, we are required to comply with the alcohol licensing requirements of the federal government,
states and municipalities where our restaurants are located. Alcoholic beverage control regulations require applications to state
authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages on
the premises and to provide service for extended hours and on Sundays. Typically, the licenses are renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations
of the restaurants and bars, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local
regulations, our licenses may be revoked, and we may be forced to terminate the sale of alcoholic beverages at one or more of
our locations. Further, growing movements to change laws relating to alcohol may result in a decline in alcohol consumption at
our facilities or increase the number of dram shop claims made against us, either of which may negatively impact operations or
result in the loss of liquor licenses.
In certain
states we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram
shop litigation against restaurant companies has resulted in significant judgments, including punitive damages.
Changes
in consumer preferences or discretionary consumer spending could harm our performance
.
The success
of our World of Beer franchises depends, in part, upon the continued popularity of the overall World of Beer system locations
throughout the United States as well as our unique food and beverage items and appeal of sports bars and casual dining restaurants.
We also depend on trends toward consumers eating away from home. Shifts in these consumer preferences could negatively affect
our future profitability. Such shifts could be based on health concerns related to the cholesterol, carbohydrate, fat, calorie
or salt content of certain food items, including items featured on our menu. Negative publicity over the health aspects of such
food items may adversely affect consumer demand for our menu items and could result in a decrease in guest traffic to our restaurants,
which could materially harm our business. In addition, we will be required to disclose calorie counts for all food items on our
menus, due to federal regulations, and this may have an effect on consumers’ eating habits. Other federal regulations could
follow this pattern. In addition, our success depends to a significant extent on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and consumer confidence. A decline in consumer spending or
in economic conditions could reduce guest traffic or impose practical limits on pricing, either of which could harm our business,
financial condition, operating results or cash flow.
A regional
or global health pandemic could severely affect our business.
A health pandemic
is a disease outbreak that spreads rapidly and widely by infection and affects many individuals in an area or population at the
same time. If a regional or global health pandemic was to occur, depending upon its duration and severity, our business could
be severely affected. We have positioned our brand as a place where people can gather together.
Customers might
avoid public gathering places in the event of a health pandemic, and local, regional or national governments might limit or ban
public gatherings to halt or delay the spread of disease. A regional or global health pandemic might also adversely impact our
business by disrupting or delaying production and delivery of materials and products in its supply chain and by causing staffing
shortages in our restaurants. The impact of a health pandemic might be disproportionately greater than on other companies that
depend less on the gathering of people together for the sale or use of their products and services.
We may
be subject to increased labor and insurance costs
.
Our restaurant
operations are subject to federal and state laws governing such matters as minimum wages, working conditions, overtime, and tip
credits. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees,
but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages, increased employee turnover,
and health care mandates could also increase our labor costs. This, in turn, could lead us to increase prices which could impact
our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases
in prices, our profitability may decline. In addition, the current premiums that we pay for our insurance (including workers'
compensation, general liability, property, health, and directors' and officers' liability) may increase at any time, thereby further
increasing our costs. The dollar amount of claims that we actually experience under our workers' compensation and general liability
insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our costs.
Also, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums
and the magnitude of uninsured losses.
Our current
insurance may not provide adequate levels of coverage against claims.
We currently
maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot
be insured against or that we believe are not economically reasonable to insure, such as losses due to natural disasters. Such
damages could have a material adverse effect on our business and results of operations.
We are
dependent on information technology and any material failure of that technology could impair our ability to efficiently operate
our business.
We rely on
information systems across our operations, including, for example, point-of-sale processing in our locations, management of our
supply chain, collection of cash and credit and debit card payments, payment of obligations and various other processes and procedures.
Our ability to efficiently manage our business depends significantly on the reliability and capacity of these systems. The failure
of these systems to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, or a breach
in security of these systems could cause delays in customer service, reduce efficiency in our operations, require significant
investment to remediate the issue or cause negative publicity that could damage our brand. Significant capital investments might
be required to remediate any problems.
If we
are unable to maintain our rights to use key technologies of third parties, our business may be harmed.
We rely on
certain technology licensed from third parties and may be required to license additional technology in the future for use in managing
our internet sites and providing related services to users and customers. These third-party technology licenses may not continue
to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these technology
licenses could significantly harm our business, financial condition and operating results.
Our future
growth may require us to raise additional capital in the future, but that capital may not be available when it is needed or may
be available only at an excessive cost.
In order to
build out our business plan and to be ultimately successful, we will need ample capital to purchase/rent new properties, build
new locations, hire personnel and market our locations. We may not generate sufficient cash from our existing operations in order
to do so. Therefore, we may at some point choose to raise additional capital to support our continued growth. Our ability to raise
additional capital will depend, in part, on conditions in the capital markets at that time which are outside of our control. Accordingly,
we may be unable to raise additional capital, if and when needed, on terms acceptable to us, or at all. If we cannot raise additional
capital when needed, its ability to further expand operations through internal growth and acquisitions could be materially impacted.
In the event of a material decrease in our stock price, future issuances of equity securities could result in dilution of existing
shareholder interests.
If we
are unable to obtain additional funding, our business operations will be harmed. Even if we do obtain additional financing, our
then existing shareholders may suffer substantial dilution.
It is possible
that additional capital will be required to effectively support the operations and to otherwise implement our overall business
strategy. The inability to raise the required capital will restrict our ability to grow and may reduce our ability to continue
to conduct business operations. Our ability to obtain capital will also depend on market conditions, the national economy and
other factors beyond our control. If we are unable to obtain necessary financing, we will likely be required to curtail our business
plans, which could cause the company to become dormant. Any additional equity financing may involve substantial dilution to our
then existing shareholders.
The occurrence
of any failure, breach or interruption in service involving our systems or those of our service providers could damage our reputation,
cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny or expose us to civil
litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations
and the market price of our stock.
Communications
and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships,
our general ledger, our deposits and our loans. Our operations rely on the secure processing, storage and transmission of confidential
and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as
circumstances warrant, the security of our computer systems, software and networks may be vulnerable to breaches, unauthorized
access, misuse, computer viruses or other malicious code and cyber attacks that could have a security impact. In addition, breaches
of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential
or other information or the confidential or other information of our customers, clients or counterparties. If one or more of such
events was to occur, the confidential and other information processed and stored in and transmitted through our computer systems
and networks could potentially be jeopardized or could otherwise cause interruptions or malfunctions in our operations or the
operations of our customers, clients or counterparties. This could cause us significant reputational damage or result in our experiencing
significant losses.
Furthermore,
we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate
vulnerabilities or other exposures arising from operational and security risks. We also may be subject to litigation and financial
losses that are either not insured against or not fully covered through any insurance we maintain. In addition, we routinely transmit
and receive personal, confidential and proprietary information by e-mail and other electronic means. We have discussed and worked
with our customers, clients and counterparties to develop secure transmission capabilities, but we do not have, and may be unable
to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties
have appropriate controls in place to protect the confidentiality of such information.
While we have
established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance
that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects
of our data processing to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty
in communication with them, our ability to adequately process and account for customer transactions could be affected, and our
business operations could be adversely impacted. Threats to information security also exist in the processing of customer information
through various other vendors and their personnel.
Our management
team is not required to devote their full time to our business.
Our Chief Executive
Officer, Roy Warren, and our Chief Financial Officer, Tommy Kee, hold the same roles at Attitude Drinks, Incorporated, and another
publicly traded company that is the majority owner of Harrison, Vickers and Waterman, Inc. As a result of this other obligation,
there is a substantial risk that both Mr. Warren and Mr. Kee may not devote as much time as is necessary to our operations,
which may harm our business and operating results.
Our Former
CEO and Director believes he is owed $175,000
We had accrued
$175,000 to our former CEO and Sole Director, James Giordano. Upon Mr. Giordano’s exit from our firm, we arranged
for the purchase of his common shares held as complete compensation for his tenure here. All other liabilities to Mr. Giordano
for services rendered were eliminated. Mr. Giordano disputes this assertion. If we are required to remit to Mr. Giordano
$175,000, it will take away funds from operating and expanding the business, which may greatly harm our cash position and growth
potential.
On September
4, 2015, the Company was notified that Mr. Giordano filed a summons in Connecticut Superior Court alleging lost wages.
Shareholders
may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares
of our common stock.
We have no
committed source of financing. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy
obligations. In many instances, we believe that the non-cash consideration will consist of shares of our stock. As of the date
of this Report, we have 7,500,000,000 authorized shares of common stock of which 133,002,187 are currently outstanding. We also
have 1,000,000 shares of preferred stock authorized of which 100,000 shares have been designated as Series A Convertible Preferred
Stock and 100,000 shares are outstanding and maybe converted into 100,000,000 shares of common stock. We also have designated
and issued 51 shares of Series B Convertible Preferred Stock that may be converted into 51,000 shares of common stock. Our Board
of directors has authority, without action or vote of the shareholders, to issue all or part of the remaining authorized but unissued
common shares. The preferred shares are subject to certain rights of the holders of the Series A and B Convertible Preferred Stock
and may also be issued without the vote of the common stockholders. In addition, if a trading market develops for our common stock,
we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result
in dilution of the ownership interests of existing shareholders and may further dilute common stock book value. Such dilution
may be substantial. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company
because the shares may be issued to parties or entities committed to supporting existing management.
We are
and will continue to be completely dependent on the services of our Chief Executive Officer, Roy Warren, the loss of whose services
may cause our business operations to cease, and we will need to engage and retain qualified employees and consultants to further
implement our strategy.
As of the date
of this Report, our operations and business strategy are completely dependent upon the knowledge and business contacts of Roy
Warren, our President and CEO. He is under no contractual obligation to remain employed by us. If he should choose to leave us
for any reason before we have hired additional personnel, our operations may fail. Even if we are able to find additional personnel,
it is uncertain whether we could find someone who could develop our business along the lines described herein. We will fail without
Mr. Warren or an appropriate replacement(s). We may, in the future, acquire key-man life insurance on the life of Mr. Warren naming
us as the beneficiary when and if we obtain the resources to do so, assuming Mr. Warren remains insurable. We have not yet procured
such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important
that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors. Furthermore,
much of our marketing efforts rely principally on the personality and achievements of Roy Warren. If he was to incur any negative
publicity, our operating results may be harmed.
We are
dependent upon affiliated parties for the provisions of a substantial portion of our administrative services as we do not have
the internal capabilities to provide such services.
We utilize
the services of three employees of Attitude Drinks to perform administrative services for us. These individuals are not
obligated to devote any set amount of time to our business and may not be available when needed. There can be no assurance
that we can successfully develop the necessary expertise and infrastructure on our own without the assistance of these affiliated
entities.
Our articles
of incorporation provide for indemnification of officers and directors at our expense and limit their liability, which may result
in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of
officers and/or directors.
Our articles
of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees and agents, under
certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of
our directors, officers, employees, or agents upon such person's promise to repay us if it is ultimately determined that any such
person shall not have been entitled to indemnification. There is no assurance that we would be able to collect on such promises.
Therefore, if it is ultimately determined that any such person shall not have been entitled to indemnification; this indemnification
policy could result in substantial expenditures by us which we will be unable to recoup.
The costs
to meet our reporting and other requirements as a public company subject to the Securities Exchange Act of 1934, as amended, may
be substantial and may result in us having insufficient funds to expand our business or even to meet routine business obligations.
As a public
entity subject to the reporting requirements of the Exchange Act, we will incur ongoing expenses associated with professional
fees for accounting, legal and a host of other expenses for annual reports and proxy statements. We estimate that these costs
will range up to $100,000 per year for the next few years and will be higher if our business volume and activity increases, but
lower during the first year of being public because our overall business volume will be lower. Until we become profitable, we
will be required to sell additional equity or seek loans to pay such expenses.
Risks
Related to Our Common Stock
Any additional
funding we arrange through the sale of our common stock will result in dilution to existing security holders.
Our most likely
source of working capital and additional funds for the foreseeable future will be through the profits from World of Beer restaurants
and taverns, and the sale of additional shares of our common stock. Such issuances will cause security holders’ interests
in our common stock to be diluted which will negatively affect the value of your shares.
Any active
trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws, which prohibit trading
absent compliance with individual state laws. These restrictions may make it difficult or impossible for our security holders
to sell shares of our common stock in those states.
There is a
limited public market for our common stock, and there can be no assurance that an active public market will develop in the foreseeable
future. Transfer of our common stock may also be restricted under the securities regulations and laws promulgated by various states
and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws,
our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered
for resale under the Blue Sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading
market that might develop in the future should be aware that there may be significant state Blue Sky law restrictions upon the
ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit or limit
the secondary trading of our common stock.
We currently
do not intend to, and may not be able to, qualify our securities for resale by our selling security holders in approximately 17
states that do not offer manual exemptions and require shares to be qualified before they can be resold by our security holders.
Accordingly, investors should consider the secondary market for our securities to be a limited one.
Because
we do not have an audit or compensation committee, shareholders will have to rely on our President, who is not independent, to
perform these functions.
We do not have
an audit or compensation committee comprised of independent directors. Indeed, we do not have any audit or compensation committee.
These functions are performed by our Chief Executive Officer and Chief Financial Officer. An independent audit committee plays
a crucial role in the corporate governance process, assessing our processes relating to our risks and control environment, overseeing
financial reporting and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent
the Board from being independent from our management in their judgments and decisions and their ability to pursue the responsibilities
of an audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications.
If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised.
Our lack of an independent compensation committee presents the risk that our executive officers on the Board may have influence
over his personal compensation and benefits levels that may not be commensurate with our financial performance.
There
is volatility in our stock price.
The market
for our stock has, from time to time, experienced extreme price and volume fluctuations. Factors such as announcements of variations
in our quarterly financial results and fluctuations in same-store sales could cause the market price of our stock to fluctuate
significantly. In addition, the stock market in general, and the market prices for restaurant companies in particular, have experienced
volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations
may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive
performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted equity
compensation.
The market
price of our stock can be influenced by stockholders' expectations about the ability of our business to grow and to achieve certain
profitability targets. If our financial performance in a particular quarter does not meet the expectations of our stockholders,
it may adversely affect their views concerning our growth potential and future financial performance. In addition, if the securities
analysts who regularly follow our stock lower their ratings of our stock, the market price of our stock is likely to drop significantly.
Our common
shares are subject to the "Penny Stock" Rules of the SEC and the trading market in our securities is limited, which
makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities
and Exchange Commission has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes
relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
|
|
·
|
that a broker or dealer approve
a person's account for transactions in penny stocks; and
|
|
|
·
|
the
broker or dealer receives from the investor a written agreement to the transaction, setting
forth the identity and quantity of the penny stock to be purchased.
|
|
|
·
|
In order to approve a person's
account for transactions in penny stocks, the broker or dealer must:
|
|
|
O
|
obtain financial information
and investment experience objectives of the person; and
|
|
|
O
|
make
a reasonable determination that the transactions in penny stocks are suitable for that
person and the person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks.
|
The broker
or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating
to the penny stock market, which, in highlight form:
|
|
·
|
sets forth the basis on which
the broker or dealer made the suitability determination; and
|
|
|
·
|
that the broker or dealer
received a signed, written agreement from the investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our shares of common stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
If an
active market develops for our shares, sales of our shares relying upon Rule 144 may depress prices in that market by a material
amount.
The majority
of the outstanding shares of our common stock held by present stockholders are ”restricted securities” within the
meaning of Rule 144 under the Securities Act of 1933, as amended. The SEC has recently adopted amendments to Rule 144, which became
effective on February 15, 2008 and apply to securities acquired both before and after that date. Under these amendments, a person
who has beneficially owned restricted shares of our common stock or warrants for at least six months would be entitled to sell
their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time
during the three months preceding, a sale and (ii) we have been current with the Exchange Act periodic reporting requirements
for at least twelve months before the sale.
Persons who
have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at
the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only a number of securities that does not exceed 1% of the total
number of shares of our common stock then outstanding, which would equal 1,330,022 shares of our common stock immediately after
this offering, for a company trading on the pink sheets or Over-the-Counter Bulletin Board such as us.
The market
for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
We believe
that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
|
|
·
|
Control of the market for
the security by one or a few broker-dealers that are often related to the promoter or issuer;
|
|
|
·
|
Manipulation of prices through
prearranged matching of purchases and sales and false and misleading press releases;
|
|
|
·
|
“Boiler room”
practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
|
|
|
·
|
Excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and
|
|
|
·
|
The
wholesale dumping of the same securities by promoters and broker-dealers after prices
have been manipulated to a desired level, along with the inevitable collapse of those
prices with consequent investor losses.
|
We do
not expect to pay dividends to holders of our common stock in the foreseeable future. As a result, holders of our common stock
must rely on stock appreciation for any return on their investment.
There are no
restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada General Corporation
Law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend, we would
not be able to pay our debts as they become due in the usual course of business, or if our total assets would be less than the
sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution. We have not declared any dividends since our inception, and we do not plan
to declare any dividends on our common stock in the foreseeable future. Accordingly, holders of our common stock will have to
rely on capital appreciation, if any, to earn a return on their investment in our common stock.
We may
issue shares of preferred stock in the future that may adversely impact the right of holders of our common stock.
As of the date
of this Report, our Articles of Incorporation authorizes us to issue up to 1,000,000 shares of preferred stock, of which 100,000
have been designated as Series A Convertible Preferred Stock and 51 have been designated as Series B Convertible Preferred Stock.
Accordingly, our Board of directors will have the authority to fix and determine the relative rights and preferences of preferred
shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our Board of Directors
could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation,
the right to receive dividends before dividends are declared to holders of our common stock and the right to the redemption of
such preferred shares, together with a premium, prior to the redemption of the common stock. To the extent that we do issue such
additional shares of preferred stock, the rights of holders of common stock could be impaired thereby, including, without limitation,
dilution of their ownership interests in us. In addition, shares of preferred stock could be issued with terms calculated to delay
or prevent a change in control or make removal of management more difficult, which may not be in the interest of holders of common
stock. To date, our investors in the Series A Preferred Convertible Preferred Stock have waived their dividends which we were
obligated to pay to them. There is no guarantee going forward that they will waive these dividends in the future. If so, the number
of shares issued may be materially dilute your investment.
