ITEM
1. BUSINESS
Nightfood
Holdings, Inc. (“we”, “us” “the Company” or “Nightfood”) is a Nevada corporation
organized on October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation (“Nightfood”)
from its sole shareholder, Sean Folkson. All of our operations are conducted by the Subsidiary. We are in the business of manufacturing,
marketing and distributing snacks specially formulated and promoted for evening consumption. A large number of Americans consume
nighttime snacks that are high in sugar, fat, sodium, and calories; such snacks can impair sleep and also impair health in general.
Management believes that our products are unique in the food industry and that there is a substantial market for our products,
through online commerce as well as traditional retail distribution. Our corporate address is 520 White Plains Road – Suite
500, Tarrytown, New York 10591 and our telephone number is 888-888-6444. We maintain a web site at www.Nightfood.com. Any information
that may appear on our web site should not be deemed to be a part of this report.
On
January 3, 2018, the Registrant formed a new wholly-owned subsidiary to capitalize on opportunities in the marijuana and cbd edibles
space. MJ Munchies, Inc. (“Munchies”) was formed as a Nevada corporation with a capital structure of 10,000 shares
of common stock. Since formation, Munchies has built an intellectual property portfolio that includes a registered trademark for
Half-Baked in the State of California relating to marijuana edibles, a pending federal trademark application with the USPTO for
Half-Baked relating to packaged snacks, the federal trademark for The Half Baked Cookie Co., HalfBaked.com, and several other
related domain names. In addition, Munchies is currently preparing a patent application with the USPTO for a proprietary ingredient
to be used in Half-Baked snacks that Management believes will give it a unique and defensible competitive advantage against other
recreational edible brands.
Industry
Overview
We
are an early-stage company that is seeking to establish a market within the snack industry by offering a line of snack foods that
are specifically formulated for evening consumption. It is estimated that American consumers spend over $50 Billion annually on
snacks consumed at night, and this figure continues to grow. Moreover, industry data indicates that the most popular nighttime
snack choices include products and categories that are traditionally considered high in calories, and “unhealthy”
options, such as cookies, salty snacks (chips, pretzels, and popcorn), ice cream, and candy.
Our
Products, Present and Proposed
Nightfood
Holdings runs two distinct operating companies, each serving a different market segment with different products.
MJ
Munchies, Inc.
MJ
Munchies, Inc. is a Nevada corporation formed in January of 2018 to exploit legally compliant opportunities in the CBD and marijuana
edibles and related spaces. The Company intends to market some of these new products under the brand name “Half-Baked”.
This subsidiary was created during the three months ended March 31, 2018 and its operations have a nominal impact on the financial
statements contained herein.
Since
inception, MJ Munchies has applied for U.S. Trademark protection for its brand of Half-Baked snacks, currently under development.
MJ Munchies also acquired HalfBaked.com. In April, 2018, MJ Munchies entered into an initial brand licensing agreement for the
Half-Baked mark with a licensed manufacturer of THC-infused edibles in the State of California under which, the licensee manufactured
and distributed a small pilot run of Half-Baked branded THC-infused cookies in California. Management views this as the first
major step towards creating a nationally licensed brand of edibles in the marijuana space.
Munchies
is currently preparing a patent application with the USPTO for a proprietary ingredient to be used in Half-Baked snacks that Management
believes will give it a unique and defensible competitive advantage against other recreational edible brands. The Company believes
tremendous opportunities currently exist to launch successful and legally compliant products in this space, and that such opportunities
will continue to grow over time. No assurance can be given that the patent will be granted, that it will afford meaningful protection
to us if granted, or that we will begin actual production of products using the Half-Baked trademark. Even if production begins,
we can neither assure market acceptance of our products nor that THC infused edibles will not face ongoing legal challenges.
Nightfood,
Inc.
Nightfood,
Inc. is a snack company focused on manufacturing and distribution of nutritional/snack foods that are appropriate for evening
snacking. Nightfood’s first product is the Nightfood nutrition bar, currently available in two flavors (Cookies n’
Dreams, and Midnight Chocolate Crunch). Nightfood ice cream is currently in development and expected to be ready for retail sale
and distribution in late 2018.
Management
believes consumer demand exists for better nighttime snacking options, and that a new consumer category consisting of nighttime
specific snacks will emerge in the coming years. This belief is supported by research from major consumer goods research firms
such as IRI Worldwide, and Mintel, who identified nighttime specific foods and beverages as one of the “most compelling
and category changing trends” for 2017 and beyond.
It
is estimated that over $50 billion is spent annually in the United States on snacks that are consumed between dinner and bed.
Company management believes that a significant percentage of that consumer spend will move from conventional snacks to nighttime
specific snacks in coming years.
A
Nightfood Scientific Advisory Board was recently established. The first member of this advisory board was Dr. Michael Grandner,
Director of the Sleep and Health Research Program at the University of Arizona. Dr. Grandner has been conducting research on the
link between nutrition and sleep for over ten years, and he believes improved nighttime nutritional choices can improve sleep,
resulting in many short and long-term health benefits. In March of 2018, the Company added Dr. Michael Breus to their Scientific
Advisory Board. Breus, known to millions as The Sleep Doctor™, is believed to be the Nation’s most trusted authority
on sleep. He regularly appears in the national media to educate and inform consumers so they can sleep better and lead happier,
healthier, more productive lives. In July, 2018, we completed our Scientific Advisory Board with the addition of Lauren Broch,
Ph.D, M.S. Dr. Broch is a sleep therapist and former Director of Eductation & Training at the Sleep-Wake Disorders Center
at Weill Cornell Medical College. Uniquely, Dr. Broch also has a master’s degree in human nutrition. This unique combination
allowed her to play an important role in the reformulation of our nutrition bars, and the development of Nightfood ice cream.
These experts work with Company management to ensure Nightfood products deliver on their nighttime-appropriate, and sleep-friendly
promises.
Production
We
have utilized contract manufacturers for producing our products, packaging for our products, and 3rd party logistics for warehousing
and order fulfillment. For warehousing and logistics, we are currently using Landis Logistics, and manufacturing for our nutrition
bars has recently been moved from Noble Foods, located in Canada to Creative Energy Foods located in the United States. This move
allows us to now produce bars that are certified gluten free.
Marketing
and Distribution
Nightfood
nutrition bars are currently available at Nightfood.com and Amazon. To date, sales have been promising signaling to management
a clear demand from consumers for better nighttime snack options. Research does not show that nutrition bars are one of the top
nighttime snack formats. Management believes that by entering the ice cream category, with a line of nighttime ice cream through
traditional channels such as supermarkets, drug stores, and convenience stores, revenues and brand awareness can grow substantially.
Competition
The
nutritional/snack food business is highly competitive and includes such participants as large companies like Mondelez, Nestle
S.A. and Quaker Oats and more specialized companies such as Cliff Bar, Quest Nutrition and many smaller companies. Many of these
competitors have well established names and products. Management is not aware of any competitor offering snacks targeting the
nighttime snack occasion, or formulated to satisfy unhealthy nighttime cravings in a sleep-friendly way. We will initially compete
based upon the unique nature of our product. However, other companies, including those with greater name recognition than us and
greater resources may seek to introduce products that directly compete with our products. Management believes that if a competitor
sought to develop a competing product, it could do so and begin to establish retail distribution in 12-24 months.
Intellectual
Property Rights
We
own the registered trademark “Nightfood®” for the nutrition bar/snack/meal replacement category, and have applied
for registration for the same mark for ice cream. While this process will take several months, management believes the mark will
be granted in due time with no concerns or issues. We believe these marks will prove important to our business. Additionally we
own the domain Nightfood.com as well as many other relevant domains such as late-night-snack.com, nighttimesnack.com, and nighttimesnacking.com,
as well as Nightfood.us, Nightfood.net, TryNightfood.com, GetNightfood.com, NiteFood.com, TryNightfood.com, BuyNightfood.com,
NightSnacking.com, and Night-Food.com. We also own the toll-free number 888-888-NIGHT. We rely on proprietary information as to
our formulas and have non-disclosure agreements with our suppliers.
Personnel
Nightfood
currently has no employees except Sean Folkson, our President and CEO. Through vendor and consultant relationships, there are
dozens of people that contribute to our operations and efforts on a regular basis. Should we be successful in executing our business
plan, we anticipate hiring additional employees in the future to assist with various company functions. However, we also expect
to continue to rely on consultants and outsourced services to accomplish work that might otherwise be done by employees in a more
traditional company.
Customers
In
FY 2018, no one customer, more than 10% of our revenue.
DEVELOPMENT
PLANS
Nightfood
is working with its new manufacturer in California to launch gluten-free versions of Nightfood nutrition bars during 2018.
The new manufacturer will allow the Company to not only produce certified Gluten-Free products, but also introduce additional
flavors with lower production minimums and lower per-unit cost of goods. The ability to offer additional flavors, and
gluten-free products should enhance revenue and repeat purchase behavior. After the anticipated successful mass retail
rollout of Nightfood ice cream, the Company intends to begin revisiting a retail rollout for Nightfood bars.
ITEM
1A. RISK FACTORS
You
should carefully consider the following factors in evaluating our business, operations and financial condition. The occurrence
of any the following risks could have a material adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Business
We
have had limited operations and require substantial additional funds to execute our business plan.
We have had limited operations
and have not yet established significant traction in the marketplace. We generated revenue of $196,742 in the year ended June
30, 2018, and $21,644 in the year ended June 30, 2017. Unless we are able to continue to leverage our status as a public company
into effective fundraising to fund our capital requirements, we will not be able to execute on our business plan and purchasers
of our stock will be likely to lose their investment
.
Our
independent auditors have expressed doubt about our ability to continue as a going concern.
We received a report on our financial
statements for the years ended June 30, 2018 and June 30, 2017 from our independent registered public accounting firm that includes
an explanatory paragraph and a footnote stating that there is substantial doubt about our ability to continue as a going concern
due to its losses and negative net worth. Inclusion of a “going concern qualification” in the report of our independent
accountants may have a negative impact on our ability to obtain financing and may adversely impact our stock price in any market
that may develop.
We
remain uncertain of our proposed products’ market acceptance.
Although management firmly believes that snacks designed
for evening consumption is a viable niche market with a potential for attractive returns for investors, this belief is largely
based on preliminary sales and marketing data through platforms such as Amazon and Facebook. We have not conducted any formal
marketing studies. Our limited resources preclude us from doing so. If management is wrong in its belief and there is an insufficient
market for our products, it is likely we will fail and investors will lose their investment.
Our
ability to hire additional personnel is important to the continued growth of our business.
Our continued success depends upon
our ability to attract and retain a group of motivated marketing and business support professionals. Our growth may be limited
if we cannot recruit and retain a sufficient number of people. We cannot guarantee that we will be able to hire and retain a sufficient
number of qualified personnel.
We
may face substantial competition.
Competition in all aspects of the functional food industry is intense. We will compete against
both large conglomerates with substantial resources and smaller companies, including new companies that might be formed with resources
similar to our own. Competitors may seek to duplicate the perceived benefits of our products in ways that do not infringe on any
proprietary rights that we can protect. As a result we could find that our entire marketing plan and business model is undercut
or made irrelevant by actions of other companies under which we have no control. We cannot promise that we can accomplish our
marketing goals and as a result may experience negative impact upon our operating results.
Our success depends to a large extent upon
the continued service of key managerial employees and our ability to attract and retain qualified personnel.
Specifically,
we are highly dependent on the ability and experience of our key employee, Sean Folkson, our president and CEO. We have a consulting
agreement with Mr. Folkson. The loss of Mr. Folkson would present a significant setback for us and could impede the implementation
of our business plan. There is no assurance that we will be successful in acquiring and retaining qualified personnel to execute
our current plan of operations.
The
ability of our officer to control our business will limit minority shareholders’ ability to influence corporate affairs
.
As of the date of this report, our president, Sean Folkson, owned 16,433,568 shares (directly and through trusts, including 2.6
million shares owned by a trust controlled by Mr. Folkson’s wife. Mr. Folkson disclaims beneficial ownership of these shares).
In addition to his ownership of the common stock, Mr. Folkson owns 1,000 shares of our Series A Preferred Stock (“A
Stock”) which votes with the common stock and has an aggregate of 100,000,000 votes. Accordingly, Mr. Folkson controls over
90% of the voting power in the Company. Because of his stock ownership, Mr. Folkson will be in a position to continue to elect
our board of directors, decide all matters requiring stockholder approval and determine our policies. The interests of our president
may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales
to other companies, selection of officers and directors and other business decisions. The minority shareholders would have no
way of overriding decisions made by our president. This level of control may also have an adverse impact on the market value of
our shares because he may institute or undertake transactions, policies or programs that result in losses, may not take any steps
to increase our visibility in the financial community and/ or may sell sufficient numbers of shares to significantly decrease
our price per share.
If we do not receive additional financing
we will not be able to execute our planned expansion
.
Over the next 6-12 months, we believe we will require
approximately $1,000,000 - $2,000,000 in debt or equity financing to affect a planned expansion of our operations and roll out
of our existing and any future products. Management believes that it will be able to raise the required funds, however this may
not prove to be the case. As of the June 30, 2018, we had $1,576,024 in outstanding convertible promissory notes. We also
have an Equity Credit Line in the amount of $5,000,000, which we could access under certain circumstances. However the utilization
of such forms of capital raising can be extremely dilutive to our present shareholders.
See ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION – Liquidity
.
We
may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness
of our internal control over financial reporting as of the end of our fiscal year. We have not yet completed our assessment of
the effectiveness of our internal control over financial reporting. We would incur additional expenses and diversion of management’s
time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the
management certification and auditor attestation requirements.
We do not have a sufficient number of employees
and consultants to segregate responsibilities and are presently unable to afford increasing our staff or engaging outside consultants
or professionals to overcome our lack of employees, and this may impair our ability to effectively comply with Section 404 of
the Sarbanes-Oxley Act.
We currently do not have
any employees and rely on our CEO, Sean Folkson to perform all executive functions. Accordingly, we cannot segregate duties to
provide sufficient review of our financial activity. During the course of our testing of our financial procedures, we may identify
other deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance
with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as
such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce
reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports
or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial
information, and the trading price of our common stock could drop significantly. Our officers’ lack of experience in accounting
and financial matters may make our efforts to comply more difficult and cause us to hire consultants to assist him cutting into
our resources.
Implications
of Being an Emerging Growth Company.
As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify
as an “emerging growth company” as defined in the JOBS Act. For as long as a company is deemed to be an emerging growth
company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable
to other public companies. These provisions include:
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requirement to have only two years of audited financial statements and only two years of related Management’s Discussion
and Analysis included in an initial public offering registration statement;
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an
exemption to provide less than five years of selected financial data in an initial public offering registration statement;
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an
exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal controls
over financial reporting;
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an
exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
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exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional
information about the audit and the financial statements of the issuer; and
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reduced
disclosure about the emerging growth company’s executive compensation arrangements.
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An
emerging growth company is also exempt from Section 404(b) of Sarbanes Oxley which requires that the registered accounting firm
shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures
for financial reporting. Similarly, as a Smaller Reporting Company we are exempt from Section 404(b) of the Sarbanes-Oxley Act
and our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal
control over financial reporting until such time as we cease being a Smaller Reporting Company.
As
an emerging growth company, we are exempt from Section 14A (a) and (b) of the Securities Exchange Act of 1934 which require the
shareholder approval of executive compensation and golden parachutes.
Section
107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not
be comparable to those of companies that comply with such new or revised accounting standards.
We
would cease to be an emerging growth company upon the earliest of:
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In
our fiscal year ended June 30, 2020,
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the
first fiscal year after our annual gross revenues are $1 billion or more,
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the
date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities,
or
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as
of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as
of the end of the second quarter of that fiscal year.
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Risks
Related to Our Common Stock
Commencing
August 21, 2015 we began trading under the Symbol NGTF on the OTC Markets. There had been very little trading activity of our
stock for some time. In April of 2017, the Company listing moved to the OTCQB, and in August of 2017 an investor awareness campaign
was initiated to communicate news of recent company developments and milestones to a broader range of stock market investors.
On October 23, 2017, we were advised that our stock had been moved from the OTCQB to the OTCPink marketplace. The Company does
not believe the change in OTC Market tiers has had any material positive or negative impact on Company operations or the stock
price. If, the Company determines that there is incremental value in being listed on the OTCQB again in the future, it is possible
that an application will be filed, the application fee would be paid, and another tier change could occur. Trading volume has
increased significantly in the last eighteen months, but there can be no assurances that it will be maintained. Our stock is likely
to continue to be subject to significant price fluctuations.
In
addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market
makers for the common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock.
Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it
trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these Risk Factors, investor perception, and general economic and
market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common
stock. Because of the anticipated low price of the securities, many brokerage firms may not be willing to effect transactions
in these securities. Any purchasers of our securities should be aware that any market that develops in our stock will likely be
subject to the penny stock restrictions.”
Our board of directors is authorized to
issue shares of preferred stock, which may have rights and preferences detrimental to the rights of the holders of our common
shares.
We are authorized to issue up to 1,000,000
shares of preferred stock, $0.001 par value. On July 11, 2018, we filed a Certificated of Designation for a class of preferred
stock designated Class A Super Voting Preferred Stock (“A Stock”). There are 10,000 shares of A Stock designated.
Each share of such stock shall vote with the common stock and have 100,000 votes. A Stock has no conversion, dividend or liquidation
rights. Accordingly, the holders of A Stock will, by reason of their voting power be able to control the affairs of the Registrant.
The foregoing is only a summary of the certificate of designation for the A Stock, which has been filed as an exhibit to our Current
Report on Form 8-K filed July 17, 2018. We have issued 1,000 shares of A Stock to Sean Folkson, giving him 100,000,000 votes in
all matters requiring a vote of holders of our Common Stock and effective voting control over our affairs. As of the date of this
report, we have not issued any other shares of preferred stock and have no plans to do so. Our preferred stock may bear such rights
and preferences, including dividend and liquidation preferences, as the Board of Directors may fix and determine from time to
time. Any such preferences may operate to the detriment of the rights of the holders of the common stock being offered hereby.
Our
articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability that
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.
This indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.
We have been advised that, in the opinion
of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against these types of
liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities
being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit
to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were
to occur is likely to be very costly and may result in us receiving negative publicity, either of these factors would likely materially
reduce the market and price for our shares, if such a market ever develops.
Any
market that develops in shares of our common stock will be subject to the penny stock restrictions that are likely to create a
lack of liquidity and make trading difficult or impossible.
Until our shares of common stock qualify for inclusion in the
NASDAQ system, if ever, the trading of our securities, if any, will be in the over-the-counter market which is commonly referred
to as the OTCBB as maintained by OTCMarkets.com. As a result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the price of our securities.
SEC
Rule 15g-9 (as most recently amended and effective on September 12, 2005) establishes the definition of a “penny stock,”
for 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 a limited number of exceptions. It is likely that our shares will be considered to be
penny stocks for the immediately foreseeable future. This classification severely and adversely affects the market liquidity for
our common stock. For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer
approve a person’s account for transactions in penny stocks and the broker or dealer receive 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 obtain financial information
and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks
are suitable for that person and that 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 prepared by the SEC relating
to the penny stock market, which, in highlight form, sets forth:
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the
basis on which the broker or dealer made the suitability determination, and
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that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and 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.
Because
of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or
may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders
or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in
the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if
and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding
decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules for the foreseeable
future and our shareholders will, in all likelihood, find it difficult to sell their securities. Recently, several brokerage firms
and clearing firms have adopted special “house rules” which make it more difficult for their customers to hold or
trade low priced stock and these rules may make it difficult for our shareholders to sell their stock.
We
do not intend to pay dividends on our common stock.
We have not paid any dividends on our common stock to date and there are
no plans for paying dividends on the common stock in the foreseeable future. We intend to retain earnings, if any, to provide
funds for the implementation of our business plan. We do not intend to declare or pay any dividends in the foreseeable future.
Therefore, there can be no assurance that holders of our common stock will receive any additional cash, stock or other dividends
on their shares of our common stock until we have funds which the Board of Directors determines can be allocated to dividends.
If
a market develops for our shares, sales of our shares relying upon rule 144 may depress prices in that market by a material amount
.
24,486,887 of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144
under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required
under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for a prescribed
period may, under certain conditions, sell their shares as a result of revisions to Rule 144 which became effective on or about
February 15, 2008, there is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder
who has not been an officer, director or control person for at least 90 consecutive days) after the restricted securities have
been held by the owner for a period of six months. A sale under Rule 144 or under any other exemption from the Act, if available,
or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of
the common stock in any market that may develop.
Any
trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws to the extent they
prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell
shares in those states. Although trading activity in our stock has increased recently, generally t
here is a limited public
market for our common stock, and there can be no assurance that an active and regular public market will develop in the foreseeable
future. Transfer of our common stock may also be restricted under the securities or securities regulations 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 our securities 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 the secondary trading of our common stock. Accordingly, investors should consider the secondary market for our securities
to be a limited one.
Recent issuances of convertible
promissory notes may have a negative impact on the trading prices of our common stock.
Commencing
in March 2017, we have entered into $2,712,698 principal amount of promissory notes with various lenders since our inception
of which $1,576,024 was outstanding as of June 30, 2018. These notes are convertible six to twelve months after issuance into free trading
shares of our common stock, with certain limitations, at conversion prices below the then market price of our common stock.
Although these notes have been converted on a continual basis for several months without adverse effect, it is possible that
future conversions of these notes can have a negative effect on the market for our common stock and may cause dilution to our
common stockholders.