Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
This
Annual Report contains certain statements relating to future events or the future financial performance of our Company. You are cautioned
that such statements are only predictions and involve risks and uncertainties, and that actual events or results may differ materially.
In evaluating such statements, you should specifically consider the various factors identified in this annual report, including the matters
set forth below, which could cause actual results to differ materially from those indicated by such forward-looking statements.
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors before deciding
to invest in our Company. If any of the following risks actually occur, our business, financial condition, results of operations and
prospects for growth would likely suffer.
Risks
Relating to Our Company and Business
Future
acquisitions may have an adverse effect on our ability to manage our business.
Selective
acquisitions currently form part of our strategy to further expand our business. If we are presented with appropriate opportunities,
we may acquire additional businesses, services or products that are complementary to our core business. Future acquisitions and the subsequent
integration of new companies into ours would require significant attention from management. Future acquisitions would also expose us
to potential risks, including risks associated with the assimilation of new operations, services and personnel, unforeseen or hidden
liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to
offset the costs and expenses of acquisitions and potential loss of, or harm to, relationships with employees as a result of integration
of new businesses. The diversion of our management’s attention and any difficulties encountered in any integration process could
have a material adverse effect on our ability to manage our business.
The
value of crab meat is subject to fluctuation which may result in volatility of our results of operations and the value of an investment
in the Company.
Our
business is dependent upon the sale of a commodity which value is subject to fluctuation. Our net sales and operating results vary significantly
due to the volatility of the value of the crab meat that we sell which may result in the volatility of the market price of our common
stock.
A
material decline in the population and biomass of crab meat that we sell in the fisheries from which we obtain our crab meat would materially
and adversely affect our business.
The
population and biomass of crab meat are subject to natural fluctuations which are beyond our control and which may be exacerbated by
disease, reproductive problems or other biological issues and may be affected by changes in weather and the global environment. The overall
health of a crab or other fish is difficult to measure, and fisheries management is still a relatively inexact science. Since we are
unable to predict the timing and extent of fluctuations in the population and biomass of our products, we are unable to engage in any
measures that might alleviate the adverse effects of these fluctuations. Any such fluctuation which results in a material decline in
the population and biomass in the fisheries from which we obtain our crab meat would materially and adversely affect our business. Our
operations are also subject to the risk of variations in supply.
We
are subject to the risk of product contamination and product liability claims.
The
sales of our products may involve the risk of injury to consumers. Such injuries may result from tampering by unauthorized personnel,
product contamination or spoilage, including the presence of foreign objects, substances, chemicals, or residues introduced during the
packing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our
facilities comply in all material respects with all applicable laws and regulations, including internal product safety policies, we cannot
be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims
or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion
that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our brand
image.
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A
significant portion of our revenues are derived from a single product, crab meat, and therefore we are highly susceptible to changes
in market demand, which may be affected by factors over which we have limited or no control.
A
significant portion of our revenues are derived from a single product, crab meat. We therefore are highly susceptible to changes in market
demand, which may be impacted by factors over which we have limited or no control. Factors that could lead to a decline in market demand
for crab meat include economic conditions and evolving consumer preferences. A substantial downturn in market demand for crab meat may
have a material adverse effect on our business and on our results of operations.
Risks
Related to Our Industry and TOBC’s RAS Operations
Regulation
of the fishing industry may have an adverse impact on our business.
The
international community has been aware of and concerned with the worldwide problem of depletion of natural fish stocks. In the past,
these concerns have resulted in the imposition of quotas that subject individual countries to strict limitations on the amount of seafood
that is allowed to be caught or harvested. Environmental groups have been lobbying for additional limitations. If international organizations
or national governments were to impose additional limitations on crab meat or the seafood products we sell, this could have a negative
impact on our results of operations.
Segments
of the seafood industry in which we operate are competitive, and our inability to compete successfully could adversely affect our business,
results of operations and financial condition.
We
compete with major integrated seafood companies such as Tri Union Frozen Products, Inc. (Chicken of the Sea Frozen Foods), Phillips Foods,
Inc., Harbor Seafood, Inc., and Twin Tails Seafood Corp. in our traditional sustainable seafood business and our primary competitors
in our RAS business are Aquabounty, Atlantic Sapphire, Aquacon, Nordic Aquafarms, Whole Oceans, West Coast Salmon and Pure Salmon. Some
of our competitors have the benefit of marketing their products under brand names that have better market recognition than ours or have
stronger marketing and distribution channels than we do. Increased competition as to any of our products could result in price reduction,
reduced margins and loss of market share, which could negatively affect our profitability. An increase in imported products in the United
States at low prices could also negatively affect our profitability.
Our
insurance coverage may be inadequate to cover losses we may incur or to fully replace a significant loss of assets.
Our
involvement in the fishing industry may result in liability for pollution, property damage, personal injury or other hazards. Although
we believe we have obtained insurance in accordance with industry standards to address such risks, such insurance has limitations on
liability and/or deductible amounts that may not be sufficient to cover the full extent of such liabilities or losses. In addition, such
risks may not, in all circumstances, be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against
specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities
would reduce the funds available to us. If we suffer a significant event or occurrence that is not fully insured, or if the insurer of
such event is not solvent, we could be required to divert funds from capital investment or other uses towards covering any liability
or loss for such events.
Our
operations, revenue and profitability could be adversely affected by changes in laws and regulations in the countries where we do business.
The
governments of countries into which we sell our products, from time to time, consider regulatory proposals relating to raw materials,
food safety and markets, and environmental regulations, which, if adopted, could lead to disruptions in distribution of our products
and increase our operational costs, which, in turn, could affect our profitability. To the extent that we increase our product prices
as a result of such changes, our sales volume and revenues may be adversely affected.
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Furthermore,
these governments may change import regulations or impose additional taxes or duties on certain imports from time to time. These regulations
and fees or new regulatory developments may have a material adverse impact on our operations, revenue and profitability. If one or more
of the countries into which we sell our products bars the import or sale of crab meat or related products, our available market would
shrink significantly, adversely impacting our results of operations and growth potential.
A
decline in discretionary consumer spending may adversely affect our industry, our operations and ultimately our profitability.
Luxury
products, such as premium grade crab meat, are discretionary purchases for consumers. Any reduction in consumer discretionary spending
or disposable income may affect the crab meat industry significantly. Many economic factors outside of our control could affect consumer
discretionary spending, including the financial markets, consumer credit availability, prevailing interest rates, energy costs, employment
levels, salary levels, and tax rates. Any reduction in discretionary consumer spending could materially adversely affect our business
and financial condition.
Our
business is affected by the quality and quantity of the salmon that is harvested by TOBC.
We
sell our products in a highly competitive market. The ability of TOBC to successfully sell its salmon and the price therefor, is highly
dependent on the quality of the salmon. A number of factors can negatively affect the quality of the salmon sold, including the quality
of the broodstock, water conditions in the farm, the food and additives consumed by the fish, population levels in the tanks, and the
amount of time that it takes to bring a fish to harvest, including transportation and processing. Optimal growing conditions cannot always
be assured. Although fish grown in RAS production systems are not subject to the disease and parasite issues that can affect salmon grown
in ocean pens, there is the potential for organisms that are ubiquitous to freshwater environments to become pathogenic if the fish are
subjected to stressful conditions or there is an issue with biomass management.
High
standards for the quality of the product are maintained and if we determine that a harvest has not met such standards, we may be required
to reduce inventory and write down the value of the harvest to reflect net realizable value. Sub-optimal conditions could lead to smaller
harvests and or lower quality fish. Conversely, if we experience better than expected growth rates, we may not be able to process and
bring our fish to market in a timely manner, which may result in overcrowding that can cause negative health impacts and/or require culling
our fish population.
Furthermore,
if our salmon is perceived by the market to be of lower quality than other available sources of salmon or other fish, we may experience
reduced demand for our product and may not be able to sell our products at the prices that we expect or at all.
As
we continue to expand our operations and build new farms, we potentially may face additional challenges with maintaining the quality
of our products. We cannot guarantee that we will not face quality issues in the future, any of which could cause damage to our reputation,
and a loss of consumer confidence in our products, which could have a material adverse effect on our business results and the value of
our brands.
A
shutdown, damage to any of our farms, or lack of availability of power, fuel, oxygen, eggs, water, or other key components needed for
our operations, could result in our prematurely harvesting fish, a loss of a material percentage of our fish in production, a delay in
our commercialization plans, and a material adverse effect on our operations, business results, reputation, and the value of our brands.
An
interruption in the power, fuel, oxygen supply, water quality systems, or other critical infrastructure of an aquaculture facility for
more than a short period of time could lead to the loss of a large number of fish. A shutdown of or damage to our farm due to natural
disaster, shortages of key components to our operations due to a pandemic, reduction in water supply, contamination of our aquifers,
interruption in services, or human interference could require us to prematurely harvest some or all of the fish or could result in a
loss of our fish in production.
We
also are dependent on egg availability. If we had a disruption in our ability to purchase eggs, we would not be able to continue to stock
our farm. We cannot guarantee that any disruptions might not occur in the future, any of which could cause loss of salmon to sell, damage
to our reputation, loss of consumer confidence in our products and company, and lost revenues, all of which could have a material adverse
effect on our business results.
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The
successful development of our TOBC business depends on TOBC’s ability to efficiently and cost-effectively produce and sell salmon
at large commercial scale.
Our
business plans depend on our ability to increase our production capacity through the development of larger farms. We have limited experience
constructing, ramping up, and managing such large, commercial-scale facilities, and we may not have anticipated all of the factors or
costs that could affect our production, harvest, sale, and delivery of salmon at such a scale. Our salmon may not perform as expected
when raised at very large commercial scale, we may encounter operational challenges, control deficiencies may surface, our vendors may
experience capacity constraints, or our production cost and timeline projections may prove to be inaccurate. Any of these could decrease
process efficiency, create delays, and increase our costs. We are also subject to volatility in market demand and prices, such as the
disruption of the salmon market including reduction in market prices for salmon.
In
addition, competitive pressures, customer volatility and the possible inability to secure established and ongoing customer partnerships
and contracts, may result in a lack of buyers for our fish. Customers of our fish may not wish to follow our terms and conditions of
sale, potentially resulting in a violation of labeling or disclosure laws, improper food handling, nonpayment for product, and similar
issues. The competitive landscape for salmon may create challenges in securing competitive pricing for our salmon to reach our competitive
goals. In addition, it is possible that we may not be able to service our customers to meet their expectations regarding fish quality,
ongoing harvest supply availability, order processing fill rate, on time or correct deliveries, potential issues with third party processors,
and other factors, which could impact our relationships with customers, our reputation, and our business results.
Risks
Related to Our Reliance on Third Parties
We
are dependent on third parties for our operations and our business may be affected by supply chain interruptions and delays.
Our
business is dependent upon our relationships with vendors in Southeast Asia and Latin America for co-packing, processing and shipping
product to us. If for any reason these companies became unable or unwilling to continue to provide services to us, this would likely
lead to a temporary interruption in our ability to import our products until we found another entity that could provide these services.
Moreover, if supply chain delays occur, our product will arrive late which will adversely impact our revenue. Failure to find a suitable
replacement, even on a temporary basis, would have an adverse effect on our results of operations.
We
do not have long-term agreements with many of our customers and suppliers.
Many
of our customers and suppliers operate through purchase orders. Though we have long-term business relationships with many of our customers
and suppliers and alternative sources of supply for key items, we do not have long-term agreements with such customers and suppliers
and cannot be sure that any of these customers or suppliers will continue to do business with us on the same basis or on terms that are
favorable to us. The termination or modification of any of these relationships may adversely affect our business, financial performance
and results of operations.
Risks
Related to Our Financial Condition and Capital Requirements
Our
independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern
in its report on our audited financial statements.
The
report from our independent registered public accounting firm for the year ended December 31, 2023 includes an explanatory paragraph
stating that the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability
to increase revenues, execute on its business plan to acquire complimentary companies, raise capital and continue to sustain adequate
working capital to finance its operations. If we are unable to do so, our financial condition and results of operations will be materially
and adversely affected and we may be unable to continue as a going concern.
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We
may need to raise additional capital to fund our existing commercial operations and develop and commercialize new products and expand
our operations.
If
our available cash balances, net proceeds from an offering and anticipated cash flow from operations are insufficient to satisfy our
liquidity requirements including because of lower demand for our products or due to other risks described herein, we may seek to sell
common stock or preferred stock or convertible debt securities, enter into an additional credit facility or another form of third-party
funding or seek other debt financing.
We
may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing
opportunities or for other reasons, including to:
●
increase
our sales and marketing efforts and address competitive developments;
●
provide
for supply and inventory costs;
●
fund
development and marketing efforts of any future products or additional features to then-current products;
●
acquire,
license or invest in new technologies;
●
acquire
or invest in complementary businesses or assets; and
●
finance
capital expenditures and general and administrative expenses
Our
present and future funding requirements will depend on many factors, including:
●
our
ability to achieve revenue growth and improve gross margins;
●
the
cost of expanding our operations and offerings, including our sales and marketing efforts;
●
the
effect of competing market developments; and
●
costs
related to international expansion.
The
various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our
stockholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders
of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges
senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could
impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required
to relinquish significant rights or grant licenses on terms that are not favorable to us.
We
incur significant costs as a result of operating as a public company and our management devotes substantial time to public company compliance.
As
a public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations
applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) as well as rules implemented by the SEC,
and the OTC Markets. Stockholder activism, the current political environment and the current high level of government intervention and
regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and
impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel devote
a substantial amount of time to monitoring of and compliance with, public company reporting obligations. These rules and regulations
cause us to incur significant legal and financial compliance costs and make some activities more time consuming and costly.
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To
comply with the requirements of being a public company, we may need to undertake various actions, including implementing internal controls
and procedures. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over
financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure
that information disclosed to the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules
and forms. Any failure to develop or maintain effective controls could harm our operating results, cause us to fail to meet our reporting
obligations or result in a restatement of prior period financial statements. In the event that we are not able to demonstrate compliance
with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate or that we are unable to produce
timely or accurate financial statements, investors may lose confidence in our operating results and the price of our common stock could
decline. In addition, if we are unable to continue to meet these requirements, our common stock may not be able to continue to meet the
eligibility requirements for the NASDAQ Stock Market.
Our
independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over
financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following
the date we are no longer an “emerging growth company” as defined in the JOBS Act depending on whether we choose to rely
on certain exemptions set forth in the JOBS Act. If we are unable to assert that our internal control over financial reporting is effective,
or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control
over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could harm
our business.
Risks
Related to Administrative, Organizational and Commercial Operations and Growth
We
may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
We
anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational
infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and
general and financial administration. Our ability to manage our growth properly will require us to continue to improve our operational,
financial and management controls, as well as our reporting systems and procedures. If we are unable to manage our growth effectively,
we may be unable to execute our business plan, which could have a material adverse effect on our business and our results of operations.
If
we are unable to support demand for our current and our future products, including ensuring that we have adequate resources to meet increased
demand and mitigate any supply chain delays our business could be harmed.
As
our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for processing, customer
service, billing and general process improvements and expand our internal quality assurance program, and mitigate any supply chain delays
we could have with our vendors, among other things. We may also need to purchase additional equipment and increase our manufacturing,
maintenance, software and computing capacity to meet increased demand. We cannot assure you that any of these increases in scale, expansion
of personnel, purchase of equipment or process enhancements will be successfully implemented.
The
loss of our Executive Chairman and Chief Executive Officer or our inability to attract and retain highly skilled officers and key personnel
could negatively impact our business.
Our
success depends on the skills, experience and performance of John Keeler, our Executive Chairman and Chief Executive Officer. The individual
and collective efforts of such individual will be important as we continue to develop and expand our commercial activities. The loss
or incapacity of Mr. Keeler could negatively impact our operations if we experience difficulties in hiring qualified successors. Qualified
employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements.
Expansion of our business could require us to employ additional personnel. There can be no assurance that we will be able to attract
and retain sufficient numbers of skilled employees in the future. The loss of personnel or our inability to hire or retain sufficient
personnel at competitive rates could impair the growth of our business.
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If
we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.
The
marketing and sale of our products could lead to the filing of product liability claims alleging that our product made users ill. A product
liability claim could result in substantial damages and be costly and time-consuming for us to defend.
We
maintain product liability insurance, but this insurance may not fully protect us from the financial impact of defending against product
liability claims. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent
us from securing insurance coverage in the future. Additionally, any product liability lawsuit could lead to regulatory investigations,
product recalls or withdrawals, damage our reputation or cause current vendors, suppliers and customers to terminate existing agreements
and potential customers and partners to seek other suppliers, any of which could negatively impact our results of operations.
We
face risks associated with our international business.
Our
international business operations are subject to a variety of risks, including:
●
difficulties
with managing foreign and geographically dispersed operations;
●
having
to comply with various U.S. and international laws, including export control laws and the FCPA, and anti-money laundering laws;
●
changes
in uncertainties relating to foreign rules and regulations;
●
tariffs,
export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to import
product;
●
limitations
on our ability to enter into cost-effective arrangements with distributors, or at all;
●
fluctuations
in foreign currency exchange rates;
●
imposition
of limitations on production, sale or export in foreign countries;
●
imposition
of limitations on or increase of withholding and other taxes on remittances and other payments by foreign processors or joint ventures;
●
imposition
of differing labor laws and standards;
●
economic,
political or social instability in foreign countries and regions;
●
an
inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government
action;
●
availability
of government subsidies or other incentives that benefit competitors in their local markets that are not available to us; and
●
difficulties
in recruiting and retaining personnel, and managing international operations.
If
we expand into other target markets, we cannot assure you that our expansion plans will be realized, or if realized, be successful. We
expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including
the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources
on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.
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Our
results may be impacted by changes in foreign currency exchange rates.
Currently,
the majority of our international sales contracts are denominated in U.S. dollars. We pay certain of our suppliers in a foreign currency.
As a result, an increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price
or risk making our product less competitive in international markets or our costs could increase. Also, if our international sales increase,
we may enter into a greater number of transactions denominated in non-U.S. dollars, which could expose us to foreign currency risks,
including changes in currency exchange rates.
A
larger portion of our revenues may be denominated in other foreign currencies if we expand our international operations. Conducting business
in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our
operating results. Fluctuations in the value of the U.S. dollar relative to other currencies impact our revenues, cost of revenues and
operating margins and result in foreign currency translation gains and losses.
We
could be negatively impacted by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure
ethical business practices.
We
operate in a number of countries throughout the world, including in countries that do not have as strong a commitment to anti-corruption
and ethical behavior that is required by U.S. laws or by corporate policies. We are subject to the risk that we, our U.S. employees or
our employees located in other jurisdictions or any third parties that we engage to do work on our behalf in foreign countries may take
action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business. Any violation of anti-corruption
laws or regulations could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain
jurisdictions and might harm our business, financial condition or results of operations. Further, detecting, investigating and resolving
actual or alleged violations is expensive and can consume significant time and attention of our senior management.
We
depend on our information technology systems, and any failure of these systems could harm our business.
We
depend on information technology and telecommunications systems for significant elements of our operations. We have developed propriety
software for the management and operation of our business. We have installed and expect to expand a number of enterprise software systems
that affect a broad range of business processes and functional areas, including for example, systems handling human resources, financial
controls and reporting, contract management, regulatory compliance and other infrastructure operations.
Information
technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network
failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are
potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary
measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems,
failures or significant downtime of our information technology or telecommunications systems or those used by our third-party service
providers could prevent us from providing support services and product to our customers and managing the administrative aspects of our
business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations
depend could harm our business.
The
operation of our planned digital banking platform may subject us to costs and risks associated with various laws and regulations, including
those relating to data privacy, security and protection. Developments in these and other laws and regulations could harm our business,
financial condition or results of operations.
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Our
operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our
control.
We
conduct a significant portion of our activities, including administration and data processing, at facilities located in Southern Florida
that have experienced major hurricanes and floods which could affect our facilities, significantly disrupt our operations, and delay
or prevent product shipment during the time required to repair, rebuild or replace damaged processing facilities. Our suppliers in Southeast
Asia and Latin America are also vulnerable to natural disasters which could disrupt their operations and their ability to supply product
to us. If any of our customers’ facilities are negatively impacted by a disaster, product shipments could be delayed. Additionally,
customers may delay purchases of products until operations return to normal. Even if we and/or our suppliers are able to quickly respond
to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our business. In addition, our
facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs
for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our
business.
Risks
Related to Intellectual Property
Our
intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability
or scope of them could undermine our competitive position and reduce the value of our products, services and brand, and litigation to
protect our intellectual property rights may be costly.
We
attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As
a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various
events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example,
effective intellectual property protection may not be available in countries in which our products are sold. Also, although we have registered
our trademark in various jurisdictions, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant
impairment of our intellectual property rights could harm our business or our ability to compete. Litigation might be necessary to protect
our intellectual property rights and any such litigation may be costly and may divert our management’s attention from our core
business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects
and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against litigation costs, and we would
be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial
condition, and results of operations. Any unauthorized use of our intellectual property could harm our operating results.
We
may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our
business and subject us to significant liability to third parties.
Our
success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual
property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual
property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings
may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies
licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which
may damage our ability to rely on such technologies. In addition, we cannot fully avoid the risks of intellectual property rights infringement
created by suppliers of components used in our products or by companies we work with in cooperative research and development activities.
Our current or potential competitors may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our
products. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings
can be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management.
These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential
customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business,
financial condition and results of operations.
Our
commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights
in the United States and elsewhere. If we do not adequately protect our intellectual property, competitors may be able to use our processes
and erode or negate any competitive advantage we may have, which could harm our business.
We
cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents
will include, claims with a scope sufficient to protect our products, any additional features we develop or any new products. Patents,
if issued, may be challenged, deemed unenforceable, invalidated or circumvented.
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Furthermore,
though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and
it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors
may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies,
designs or methods. We may not be able to prevent the unauthorized disclosure or use of our knowledge or trade secrets by consultants,
suppliers, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights
to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in
these countries. If any of these developments were to occur, they each could have a negative impact on our sales.
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
We
rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees,
consultants and third parties, to protect our confidential and proprietary information. In addition to contractual measures, we try to
protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may
not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate
protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our
trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to
protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive
and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner
that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be
disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could
be harmed.
We
may not be able to enforce our intellectual property rights throughout the world.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. Many foreign
countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries
limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive
and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and
we will not have the benefit of patent protection in such countries.
Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts from other aspects of
our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition,
changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate
protection for our technology and the enforcement of intellectual property.
Third
parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade
secrets.
Although
we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us,
we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or
disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties.
Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees.
24
Risks
Related to Regulatory Matters
Our
products and operations are subject to government regulation and oversight both in the United States and abroad, and our failure to comply
with applicable requirements could harm our business.
The
FDA and other government agencies, among other things, with respect to our products and operations regulate the design, development and
manufacturing; testing, labeling, content and language of instructions for use and storage; product safety; marketing, sales and distribution;
recordkeeping procedures; advertising and promotion; recalls and corrective actions; and product import and export.
The
regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in
restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.
The
failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such
as waning letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction
o products into the market; and total or partial suspension of production.
We
may also be required to take corrective actions, such as installing additional equipment or taking other actions, each of which could
require us to make substantial capital expenditures. We could also be required to indemnify our employees in connection with any expenses
or liabilities that they may incur individually in connection with regulatory action against them. As a result, our future business prospects
could deteriorate due to regulatory constraints, and our profitability could be impaired by our obligation to provide such indemnification
to our employees. Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation,
business, financial condition and results of operations.
Product
liability claims could divert management’s attention from our business, be expensive to defend and result in sizeable damage awards
against us that may not be covered by insurance.
Risks
Relating to Our Common Stock
The
price of our common stock may be volatile and may be influenced by numerous factors, some of which are beyond our control.
Factors
that could cause volatility in the market price of our common stock include:
●
actual
or anticipated fluctuations in our financial condition and operating results;
●
actual
or anticipated changes in our growth rate relative to our competitors;
●
commercial
success and market acceptance of our products;
●
success
of our competitors in commercializing products;
●
strategic
transactions undertaken by us;
●
additions
or departures of key personnel;
●
product
liability claims;
●
disputes
concerning our intellectual property or other proprietary rights;
25
●
U.S.
or foreign regulatory actions affecting us or our industry;
●
sales
of our common stock by our officers, directors or significant stockholders;
●
future
sales or issuances of equity or debt securities by us;
●
business
disruptions caused by natural disasters; and
●
issuance
of new or changed securities analysts’ reports or recommendations regarding us.
The
broad market fluctuations in the stock markets may negatively impact the price or liquidity of our common stock. In the past, when the
price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer.
If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention
of our management would be diverted from the operation of our business.
You
may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock or preferred
stock or other securities that are convertible into or exercisable for our common stock or preferred stock.
If
our existing stockholders exercise warrants or sell, or indicate an intention to sell, substantial amounts of our common stock in the
public market, the price of our common stock could decline. The perception in the market that these sales may occur could also cause
the price of our common stock to decline.
In
the future, we may issue authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of
the then current stockholders. We are authorized to issue an aggregate of 100,000,000 shares of common stock and 5,000,000 shares of
“blank check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible
into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities
for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may
create downward pressure on the trading price of the common stock. We may need to raise additional capital in the near future to meet
our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible
securities in the future in conjunction with the capital raising efforts, including at a price (or exercise prices) below the price you
paid for your stock.
26
Management
may have broad discretion as to the use of the proceeds from offerings of its securities and may not use the proceeds effectively .
Because
the Company may not designate the amount of net proceeds from offerings to be used for any particular purpose, management may have broad
discretion as to the application of the net proceeds and could use them for purposes other than those contemplated at the time of such
offering. Management may use net proceeds for corporate purposes that may not improve the Company’s financial condition or market
value.
If
we fail to comply with the NASDAQ Capital Market listing requirements, we will be subject to potential delisting from the NASDAQ Capital
Market.
Our
common stock is currently traded on the NASDAQ Capital Market under the symbol “BSFC.” However, if we fail to comply with NASDAQ’s
rules for continued listing, including, minimum market capitalization, bid price and other requirements, NASDAQ may take steps
to delist our shares. Failure to maintain our listing, or de-listing from NASDAQ, would make it more difficult for shareholders to sell
our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the
price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any
financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities
exchange. Additionally, loan or other agreements, may contain covenants to maintain the listing of our common stock on NASDAQ. Accordingly,
failure to maintain such listing may constitute a default under such agreements.
We
are not in compliance with the NASDAQ Capital Market $1.00 minimum bid price requirement and the $2,500,000 stockholder’s
equity minimum requirement which could result in delisting and adversely affect the market price and liquidity of our common
stock.
On
September 26, 202 3 , we received a letter from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“NASDAQ”)
notifying the Company that, based upon the closing bid price of the Company’s common stock for the
last 30 consecutive business days, the Company was not in compliance with the requirement to maintain a minimum bid price of
$1.00 per share for continued listing on The NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(a)(2) (the “Minimum
Bid Requirement”).
We
were provided a compliance period of 180 calendar days, or until March 25, 2024, to regain compliance with NASDAQ Listing Rule 5550(a)(2).
If at any time before March 25, 2024, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of ten
consecutive business days, NASDAQ will provide written notification that the Company has achieved compliance with the Minimum Bid Requirement
and the matter would be resolved. On March 26, 2024, we received a letter from NASDAQ stating the Company had not regained compliance
with the Minimum Bid Requirement and is not eligible for a second 180-day period because it is not in compliance with NASDAQ’s $5,000,000 minimum stockholders’ equity initial listing
requirement.
The Company intends to present a written compliance plan to the NASDAQ
hearings panel by April 2, 2024 (which will stay further action by NASDAQ until the Panel’s final determination) for its consideration
of continued listing of the Company’s common stock on the NASDAQ Capital Market.
The
Company was notified on November 27, 2023 by NASDAQ that it no longer complied with the minimum $2,500,000 stockholders’ equity
required for continued listing on NASDAQ. The Company is subject to a Mandatory Panel Monitor for a period of one year, or until October
16, 2024. On December 4, 2023, the Company was granted a hearing with NASDAQ’s hearings panel, which was scheduled for March 5,
2024. On March 22, 2024, the NASDAQ hearings panel notified the Company that it had granted the request of the Company to continue its
listing on NASDAQ until May 15, 2024, subject to on or before April 1, 2024, the Company filing its Form 10-K for the year ended December
31, 2023, and filing its Form 10-Q for the quarter ended March 31, 2024 by May 15, 2024.
27
If
our common stock were to be delisted from The NASDAQ Capital Market , trading of our
common stock most likely will be conducted in the over-the-counter market on an electronic bulletin board established for unlisted
securities such as the OTC Markets or in the “pink sheets.” Such a downgrading in our listing market may limit our
ability to make a market in our common stock and may impact purchases or sales of our securities.
Our
common stock may be deemed a “penny stock” which may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act 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: (a) that a broker or dealer approve a person’s
account for transactions in penny stocks; and (b) 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: (a) obtain financial information
and investment experience objectives of the person and (b) 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 SEC relating to
the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination;
and (b) confirms 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. If our common stock
is or becomes subject to the “penny stock” rules, it may be more difficult for investors to dispose of our common stock and
cause a decline in the market value of our common 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 commissions
payable to both the broker or 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.
The
sales practice requirements of the Financial Industry Regulatory Authority’s (“FINRA”) may limit a stockholder’s
ability to buy and sell our common stock.
FINRA
has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high
probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are
applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers
buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect
on the market for and price of our common stock.
Our
operating results for a particular period may fluctuate significantly or may fall below the expectations of investors or securities analysts,
each of which may cause the price of our common stock to fluctuate or decline.
We
expect our operating results to be subject to fluctuations. Our operating results will be affected by numerous factors, including variations
in the level of expenses related to future development plans; fluctuations in value of the underlying commodity; inability to procure
sufficient quantities to meet demand due to the scarcity of the product available from its suppliers; level of underlying demand for
our products and any other products we sell; any intellectual property infringement lawsuit or opposition, interference or cancellation
proceeding in which we may become involved and regulatory developments affecting us or our competitors.
28
If
our operating results for a particular period fall below the expectations of investors or securities analysts, the price of our common
stock could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our common
stock to fluctuate substantially. We believe that comparisons of our financial results from various reporting periods are not necessarily
meaningful and should not be relied upon as an indication of our future performance.
Because
we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not
be able to attract the attention of research analysts at major brokerage firms.
Because
we did not become a reporting company by conducting an underwritten initial public offering of our common stock, and because we will
not be listed on a national securities exchange, securities analysts of brokerage firms may not provide coverage of our Company. In addition,
investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting
company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited
coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research
coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common
stock.
Because
the Merger was a reverse merger, certain SEC rules may be more restrictive.
Additional
risks may exist as a result of our becoming a public reporting company through a “reverse merger”. Certain SEC rules are
more restrictive when applied to reverse merger companies, such as the ability of stockholders to re-sell their shares of Common Stock
pursuant to Rule 144.
Historically,
the SEC has taken the position that Rule 144 under the Securities Act is not available for the resale of securities initially issued
by companies that are, or previously were, blank check companies, to their promoters or affiliates despite technical compliance with
the requirements of Rule 144. The SEC has codified and expanded this position in its amendments effective on February 15, 2008, which
applies to securities acquired both before and after that date by prohibiting the use of Rule 144 for resale of securities issued by
shell companies (other than business transaction related shell companies) or issuers that have been at any time previously a shell company.
The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
●
the
issuer of the securities that was formerly a shell company has ceased to be a shell company;
●
the
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
●
the
issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports;
and
●
at
least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status
as an entity that is not a shell company.
In
addition, for proposed sales under Rule 144, there must be adequate current information about the issuing company publicly available
before the sale can be made. For reporting companies, this generally means that the companies have complied with the periodic reporting
requirements of the Exchange Act. As such, due to the fact that we were a shell company until the effective time of the reverse merger,
holders of “restricted securities” within the meaning of Rule 144 will be subject to the above conditions.
Issuance
of stock to fund our operations may dilute your investment and reduce your equity interest.
We
may need to raise capital in the future to fund the development of our seafood business. Any equity financing may have significant dilutive
effect to stockholders and a material decrease in our stockholders’ equity interest in us. Equity financing, if obtained, could
result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities
without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available
to us.
29
Provisions
of our charter documents or Delaware law could delay or prevent an acquisition of the Company, even if such an acquisition would be beneficial
to our stockholders, which could make it more difficult for you to change management.
Provisions
in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control
that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.
In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by
making it more difficult to replace or remove our board of directors.
In
addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder,
generally a person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock,
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of the
company. Furthermore, our certificate of incorporation will specify that the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for most legal actions involving actions brought against us by stockholders. We believe this provision benefits us
by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate
disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens
of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors and officers. The
enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal
proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum
provisions contained in our certificate of incorporation to be inapplicable or unenforceable in such action.
We
do not anticipate paying any cash dividends on our common stock in the foreseeable future therefore capital appreciation, if any, of
our common stock will be your sole source of gain for the foreseeable future.
We
have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth
of our business. In addition, our current loan and security agreement with Lighthouse contains, and our future loan arrangements, if
any, may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result,
capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
We
could face significant penalties for our failure to comply with the terms of our outstanding convertible notes.
Our
convertible notes contain positive and negative covenants and customary events of default including requiring us in many cases to timely
file SEC reports. In the event we fail to timely file our SEC reports in the future, or any other events of defaults occur under the
notes, we could face significant penalties and/or liquidated damages and/or the conversion price of such notes could be adjusted downward
significantly, all of which could have a material adverse effect on our results of operations and financial condition, or cause any investment
in the Company to decline in value or become worthless.
Certain
of our outstanding convertible promissory notes include favored nations rights which if triggered could result in, among other
things, favorable treatment to such noteholders and dilution to existing shareholders.
Certain
of our outstanding convertible promissory notes include provisions which provide that, so long as such notes are outstanding, the Company
shall not enter into any public or private offering of its securities (including securities convertible into shares of our common stock)
with any individual or entity that has the effect of establishing rights or otherwise benefiting such other investor in a manner more
favorable in any material respect to such other investor than the rights and benefits established in favor of the holder of our convertible
notes unless, in any such case, the holder has been provided with such rights and benefits pursuant to a definitive written agreement
or agreements between the Company and the holder. Such favored nations provisions could be triggered in the future and could materially
change the terms of the notes. In the event any favored nations provisions of the notes are triggered, it may cause the terms of such
notes to be materially amended in favor of the holders thereof, cause significant dilution to existing shareholders, and otherwise have
a material adverse effect on the Company.
30