Item 1A. Risk Factors
Item
1A. Risk Factors.
Our business involves significant risks,
some of which are described below. You should carefully consider the risks and uncertainties described below, together with all
of the other information in this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional
risk and uncertainties of which we are unaware or that we deem immaterial may also become important factors that adversely affect
our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business,
financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives.
In that event, the market price of our Common Stock could decline and you could lose part or all of your investment.
Risks
Related to Our Business
We have a history of losses, have
not been profitable historically and may not achieve or maintain profitability in the future.
We
have a history of losses. Our ability to forecast our future operating results is subject to a number of uncertainties, including
our ability to plan for and model future growth. We have encountered and will continue to encounter risks and uncertainties frequently
experienced by growing companies in rapidly evolving industries. If our assumptions regarding these uncertainties, which we use
to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully,
our operating and financial results could differ materially from expectations, our business could suffer and the trading price
of our stock may decline.
We have incurred net losses of $13.1 million
and $14.3 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had accumulated deficit
of $28.9 million.
We are not certain whether or when we will
obtain a high enough volume of sales of our products and services to sustain or increase our growth or achieve or maintain profitability
in the future. We expect our costs to increase in future periods, which could negatively affect our future operating results if
our revenue does not increase. In particular, we may, among other things, expend substantial financial and other resources on:
●
content production
related to BCTV, including investments in expanding our content and production teams;
●
sales and marketing, including a significant
expansion of our sales organization;
●
continued expansion of our business into adjacent geographic markets;
●
re-establishing our business operations after the Change of Control; and
●
general administration expenses, including legal
and accounting expenses related to being a public company.
These
investments may not result in increased revenue or growth in our business. If we are unable to increase our revenue at a rate
sufficient to offset the expected increase in our costs, our business, financial position and results of operations will be harmed,
and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating
expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue
growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not be able to achieve
or maintain profitability in the future.
4
We have incurred debt in connection
with our acquisitions of television station assets, some of which is currently in default, and this has and may continue to materially
and adversely affected our financial condition and could restrict our operating flexibility.
In
connection with our planned launch of BCTV, we issued promissory and convertible notes that include negative covenants that restrict
our ability to, among other things: incur additional indebtedness; create liens or other encumbrances on assets; make loans, guarantees,
investments and acquisitions; sell or otherwise dispose of assets; make negative pledges; enter into affiliate transactions; and
make cash distributions to our stockholders.
In
January 2023, outstanding principal amounts under the Notes of not less than $16.5 million were accelerated by Arena in its capacity
as Agent due to the occurrence of certain events of default under the Notes, which ultimately resulted in the Change of Control.
On November 10, 2023, Philip Falcone, individually
and on behalf of Madison and other named defendants, filed a Confession of Judgment affirming that a promissory note (the “Z4
Note”) had been issued by the Company, dated December 28, 2021, by Z4 Mgmt. LLC (“Z4”), which was guaranteed
by each of FFO1 and FFO2. The Z4 Note was initially payable on February 15, 2022, and had an original principal balance of $500,000
with an interest rate of 12% per annum. The Z4 Note’s expiration date was extended to July 5, 2022, then further extended
to March 31, 2023, and as of October 1, 2023, the revised principal balance, along with interest accrued, totaled $581,304. On
such date, Z4 filed an Affidavit of Default affirming that the Z4 Note was in default and requesting a judgment in the amount of
$581,304 against the Company, FFO1, FFO2, and Mr. Falcone personally, in favor of Z4. On December 5, 2023, a judgement in favor
Z4 in the sum of $581,304 was rendered against us, Mr. Falcone, FFO1 and FFO2.
In
addition to the defaults described above, as of the date of this Annual Report, and since the last day of the year ended December
31, 2022, we are in default under a certain loans payable for failure to pay principal and accrued interest on such loans, with
an aggregate of approximately $3.5 million and $3.0 million of principal, accrued interest and late fees, as of such date and
as of December 31, 2022, respectively. We have not yet made principal and interest payments on such notes when due and as a result,
under terms of the notes, the interest rate is as much as 22% per annum. As a result of the Change of Control, we intend to strategize
with the holders of such notes to extend, modify or otherwise revisit the terms of such indebtedness in order to resolve such
outstanding defaults.
Such convertible notes
and related obligations, including interest payments, covenants and restrictions, had and could have in the future important consequences,
including the following:
●
reserving cash in order to satisfy the obligations relating to such notes could adversely affect the amount or timing of investments to grow our business, impairing our ability to invest in and successfully grow our business;
●
limit our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, debt obligations and other general corporate requirements;
●
result in foreclosure of certain pledged assets pursuant to such notes;
●
increase our vulnerability to general economic downturns, competition and industry conditions and we may be unable to take advantage of opportunities that our leverage prevents us from exploiting, placing us at a disadvantage to our competitors that are less leveraged; and
●
impose restrictions on the manner in which we conduct our business, including restrictions on our ability to pay dividends, incur additional debt and sell assets.
The obligations under
such promissory and convertible notes could have a material adverse effect on our business, financial condition, operating results
or cash flows. In addition, our failure to comply with the covenants under such convertible notes could result in an event of default
and acceleration of the outstanding balance, which could significantly harm our business and cause our stock price to decline.
Our products may never achieve market
acceptance.
Our ability to generate revenues from sales
of our products and services and to achieve profitability will depend upon our ability to successfully commercialize such products
and services. Because we have not yet begun to offer any of our products or services for sale, we have no basis to predict whether
any of our products or services will achieve market acceptance. A number of factors may limit the market acceptance of any of our
products or services, including:
●
the competitive features of our products and services, including price, as compared to other similar products and services;
●
the extent and success of our marketing efforts and those of our collaborators;
●
unfavorable publicity concerning our products or similar products; and
●
the timing of regulatory approvals of our products or services and market entry compared to competitive products.
If we are unable
to attract viewers or acquire customers, our future revenues and operating results will be harmed. Likewise, potential customer
turnover in the future, or costs we incur to retain our existing customers, could materially and adversely affect our financial
performance.
Our success depends
on our ability to acquire new customers in new and existing vertical markets, and in new and existing geographic markets. If we
are unable to attract a sufficient number of new customers, we may be unable to generate revenue growth at desired rates. The markets
in which we now and may in the future operate are competitive and many of our competitors have substantial financial, personnel
and other resources that they utilize to develop solutions and attract viewers and customers. As a result, it may be difficult
for us to add new viewers and customers to our base. Competition in the marketplace may also lead us to attract fewer new viewers
and customers or result in us providing discounts and other commercial incentives. Additional factors that impact our ability to
acquire new viewers or customers include keeping pace with technological developments, including with respect to production and
programming capabilities, network and information systems and the utility of our OTA Platform, as well as general economic conditions.
These factors may have a meaningful negative impact on future revenues and operating results.
5
If we are unable
to sell services to our customers and grow our customer retention rates, our future revenue and operating results may be harmed.
Our future success depends,
in part, on our ability to deploy our services to viewers and other customers. This may require increasingly sophisticated and
costly sales efforts and may not result in any sales. In addition, the rate at which our customers purchase our services may depends
on a number of factors, including the perceived need for additional TV entertainment, information and other content as well as
general economic conditions. If our efforts to sell our services to such viewers and customers are not successful, our business
may suffer.
Our business model
is predicated, in part, on building a customer base that will generate a recurring stream of revenue. If such revenue stream does
not develop as expected, or if our business model changes as the broadcasting industry evolves, our operating results may be adversely
affected.
Our business model
is dependent, in part, on our ability to maintain and increase distribution to generate recurring revenues. Our customers may
not utilize our television broadcast assets at the same rate at which we intend them to do currently. If our customers are to
reduce their utilization, our recurring revenue stream relative to our total revenues would be reduced and our operating results
would be adversely affected.
Fluctuating
economic conditions make it difficult to predict revenue for a particular period, and a shortfall in revenue may harm our operating
results.
Our
revenue depends significantly on general economic conditions. Economic weakness and customer financial difficulties may result
in decreased revenue and earnings. Such factors could make it difficult to accurately forecast our sales and operating results
and could negatively affect our ability to provide accurate forecasts of our costs and expenses. General economic weakness may
also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, restructuring initiatives
and associated expenses and impairment of investments.
Uncertainty
about future economic conditions also makes it difficult to forecast operating results and to make decisions about future investments.
Future or continued economic weakness for us or our customers, failure of our customers and markets to recover from such weakness
and customer financial difficulties could have a material adverse effect on demand, and consequently on our business, financial
condition and results of operations.
Our brand, reputation
and ability to attract, retain, and serve our customers will be dependent in part upon the reliable performance of our products
and infrastructure.
Our brand, reputation
and ability to attract, retain, and serve our customers will be dependent in part upon the reliable performance of, and the ability
of our customers to access and use our television broadcast assets. We may in the future experience disruptions, outages and other
performance problems due to a variety of factors, including infrastructure changes, equipment failure, human or software errors,
capacity constraints, and fraud or cybersecurity attacks. In some instances, we may not be able to identify the cause or causes
of these performance problems within an acceptable period of time.
Interruptions
in our systems or the third-party systems on which we rely, whether due to system failures, computer viruses, physical or electronic
break-ins, or other factors, could affect the security or availability of our television broadcast assets, network infrastructure,
cloud infrastructure and website.
Problems
with the reliability or security of our systems could harm our reputation. Damage to our reputation and the cost of remedying
these problems could negatively affect our business, financial condition and operating results.
Any disruptions or other
performance problems with our television broadcast assets could harm our reputation and business and may damage our customers’
businesses. Interruptions in our service delivery might reduce our revenue, cause us to issue credits to customers, subject us
to potential liability and cause customers not to renew any subscriptions that we may offer.
6
If we are not
able to position our brand or reputation as an industry leader, our business and operating results may be adversely affected.
We believe that if we
position ourselves as the leader in next-generation television, it will help build relationships with our end-user customers and
our ability to attract customers and reseller partners. The successful promotion of our brand will depend on multiple factors,
including our marketing efforts, our ability to continue to deliver a superior customer experience and develop high-quality features
and our ability to successfully differentiate our broadcast services from those of our competitors. Our brand promotion activities
may not be successful or yield increased revenue. The promotion of our brand requires us to make substantial expenditures, and
we anticipate that the expenditures will increase as our market becomes more competitive, and as we expand into new geographies
and vertical markets. To the extent that these activities yield increased revenue; this revenue may not offset the increased expenses
we incur. If we do not successfully position our brand and reputation as an industry leader, our business and operating results
may be adversely affected.
We are dependent
on the continued services and performance of Thomas Amon and other key employees we intend to hire in the future, as well as on
our ability to successfully hire, train, manage and retain qualified personnel.
Our future performance
depends on the continued services and contributions of Thomas Amon, our President, Chief Executive Officer and Chief Financial
Officer, to execute on our business plan and to identify and pursue new opportunities and product innovations. We do not maintain
key man insurance for Mr. Amon. From time to time, there may be changes in our senior management team resulting from the termination
or departure of executive officers and key employees. We currently intend for our senior management and key employees to be generally
employed on an at-will basis, which means that they could terminate their employment with us at any time. The loss of the services
of Mr. Amon, or any other future key employees, for any reason could significantly delay or prevent our development or the achievement
of our strategic objectives and harm our business, financial condition and results of operations.
Our ability to successfully
pursue our growth strategy will also depend on our ability to attract, motivate and retain personnel. We expect to face escalating
compensation demands from new and prospective employees, as well as intense competition for these employees from numerous technology,
software and other companies, especially in certain geographic areas in which we intend to operate, and we cannot ensure that we
will be able to attract, motivate and/or retain additional qualified employees in the future. If we are unable to attract new employees
or retain Mr. Amon, we may not be able to adequately develop, market and maintain new products or services at the same levels as
our competitors and may, therefore, lose customers and market share. Our failure to attract and retain personnel could have an
adverse effect on our ability to execute our business objectives and, as a result, our ability to compete could decrease, our operating
results could suffer and our revenue could decrease. Even if we are able to identify and recruit a sufficient number of new hires,
these new hires will require significant training before they achieve full productivity and they may not become productive as quickly
as we would like, or at all.
If we cannot maintain
our Company’s culture as it grows, we could lose the innovation, teamwork, passion and focus on execution that we believe
contributes to a successful business and as a result, our business may be harmed.
We believe that a critical
component to a successful business is mission-driven company culture based on a shared commitment to make television accessible
to younger consumers, which we believe fosters innovation, teamwork, passion for customers, a focus on execution, and facilitates
critical knowledge transfer, knowledge sharing and professional growth. Any failure to preserve such culture could negatively affect
our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow and develop
the Company’s infrastructure, we may find it increasingly difficult to maintain these important aspects. If we fail to do
so, our business may be adversely impacted.
7
If
we are unable to compete effectively with new entrants and other potential competitors, our sales and profitability could be adversely
affected.
The sales prices for
our products and services may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in
our mix of products and services, anticipation of the introduction of new products or promotional programs. Competition continues
to increase in the market segments in which we may participate, and we expect competition to further increase in the future, thereby
leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price
of products that compete with theirs or may bundle them with other products and services. Additionally, currency fluctuations in
certain countries and regions may negatively impact prices that partners and customers are willing to pay in those countries and
regions. We cannot be certain that we will be successful in developing and introducing products with enhanced functionality on
a timely basis, or that our product offerings, if introduced, will enable us to maintain our prices and gross profits at levels
that will allow us to maintain positive gross margins and achieve profitability.
We
may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail
to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations or otherwise
harm our operating results.
We may in the future
acquire or invest in, businesses, television broadcast assets or other assets or technologies that we believe could complement
or expand our business, enhance our capabilities or otherwise offer growth opportunities. We may not be able to fully realize the
anticipated benefits of any future acquisitions or anticipated benefits may not transpire. The pursuit of potential acquisitions
may divert the attention of management and cause us to incur various expenses related to identifying, investigating and pursuing
suitable acquisitions, whether or not they are consummated.
There
are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate
or integrate the acquired personnel, operations, products, services and technologies successfully or effectively manage the combined
business following the acquisition and our management may be distracted from operating our business. We also may not achieve the
anticipated benefits from the acquired business due to a number of factors, including, without limitation:
●
unanticipated costs or liabilities associated
with the acquisition;
●
incurrence of acquisition-related costs, which
would be recognized as a current period expense;
●
inability to generate sufficient revenue to
offset acquisition or investment costs;
●
inability to maintain relationships with customers
and partners of the acquired business;
●
difficulty of incorporating acquired technology and rights into our operations and of maintaining quality
and security standards consistent with our intended brands;
●
delays in customer purchases due to uncertainty
related to any acquisition;
●
the potential loss of key employees;
●
use of resources
that are needed in other parts of our business and diversion of management and employee resources;
●
inability to recognize acquired deferred revenue
in accordance with our revenue recognition policies; and
●
use of substantial portions of our available
cash and equity or the incurrence of debt to consummate the acquisition.
8
Acquisitions
also increase the risk of unforeseen legal liability, including for potential shareholder suits or potential violations of applicable
law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses that are not
discovered by due diligence during the acquisition process or new regulatory restrictions at the federal, state, or local levels.
Generally, if an acquired business fails to meet our expectations, our operating results, business and financial condition may
suffer. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely
affect our business, results of operations and financial condition.
In addition, a significant
portion of the purchase price of companies we may acquire may be allocated to goodwill and other intangible assets, which must
be assessed for impairment at least annually. If our acquisitions do not ultimately yield expected returns, we may be required
to take charges to our operating results based on our impairment assessment process, which could harm our results of operations.
Because our services
may collect and store viewer and related information, domestic and international privacy and cyber security concerns, and other
laws and regulations, could result in additional costs and liabilities to us or inhibit sales of our products or services.
We may be affected by
cyber-attacks and other means of gaining unauthorized access to our products, services, systems, and data. For instance, cyber
criminals or insiders may target us or third parties with which we have business relationships to obtain data, or in a manner that
disrupts our operations or compromises our products or the systems into which our products are integrated. The evolution of technology
systems introduces ever more complex security risks that are difficult to predict and defend against. An increasing number of companies,
including those with significant online operations, have recently disclosed breaches of their security, some of which involved
sophisticated tactics and techniques allegedly attributable to criminal enterprises or nation-state actors. While we take measures
to protect the security of personal information, it is possible that our security controls over personal information and other
practices we follow may not prevent the unauthorized access to, or the unintended release of, personal information. In addition,
we do not know whether our current practices will be deemed sufficient under applicable laws or whether new regulatory requirements
might make our current practices insufficient. If there is a breach of our computer systems and we know or suspect that certain
personal information has been accessed, or used inappropriately, we may need to inform the affected individual and may be subject
to significant fines and penalties. In the event of a breach, we could face government scrutiny or consumer class actions.
Cybersecurity incidents
directed at us or third-parties with whom we have relationships can range from uncoordinated individual attempts to gain unauthorized
access to information technology systems to sophisticated and targeted measures known as advanced persistent threats. Cybersecurity
incidents are also constantly evolving, increasing the difficulty of detecting and successfully defending against them. In the
ordinary course of our business, we and such third-parties expect to collect and store personal information, as well as our proprietary
business information and intellectual property and that of our customers and employees. Additionally, we expect to rely on third
parties and their security procedures for the secure storage, processing, maintenance, and transmission of information that is
critical to our operations. Despite measures designed to prevent, detect, address, and mitigate cybersecurity incidents, such incidents
may occur to us or our third-party providers and, depending on their nature and scope, could potentially result in the misappropriation,
destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third
parties, including personal information of our customers and employees) and the disruption of business operations. We expect to
experience attempted routine cyber-attacks of our information technology networks, such as through phishing scams and ransomware.
Although we do not except any of these actual or attempted cyber-attacks to have a material adverse impact on our operations or
financial condition, we cannot guarantee that any such incidents will not have such an impact in the future. For example, we may
be at higher risk for interruptions, outages and breaches of: operational systems, including business, financial, accounting, product
development, data processing or production processes owned by us or such third-parties; facility security systems, owned by us
or such third-parties; in-product technology owned by us or such third-parties; any integrated software in our solutions; or customer
or other data that we process or such third-parties process on our behalf. Such cyber incidents could materially disrupt operational
systems; result in loss of intellectual property, trade secrets or other proprietary or competitively sensitive information; compromise
certain information of customers, employees, suppliers, or others; jeopardize the security of any of our facilities or equipment;
or affect the performance of in-product technology and any integrated software in our solutions.
9
A
cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties
(including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption
and other security defenses, including hacking, fraud, trickery or other forms of deception. The techniques used by cyber attackers
change frequently and may be difficult to detect for long periods of time. Although we maintain information technology measures
designed to protect us against intellectual property theft, data breaches and other cyber incidents, such measures will require
updates and improvements, and we cannot guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents.
Any actual or alleged
security breaches or alleged violations of federal or state laws or regulations relating to privacy and data security could result
in mandated user notifications, litigation, government investigations, significant fines, and expenditures; divert management’s
attention from operations; deterring people from using our products or services; damage our brand and reputation; and materially
adversely affect our business, results of operations, and financial condition. Defending against claims or litigation based on
any security breach or incident, regardless of their merit, will be costly and may cause reputation harm. In addition, we may incur
significant costs for remediation that may include liability for stolen assets or information, repair of system damage, and compensation
to customers, employees, and business partners. The successful assertion of one or more large claims against us that exceed available
insurance coverage, denial of coverage as to any specific claim, or any change or cessation in our insurance policies and coverages,
including premium increases or the imposition of large deductible requirements, could have a material adverse effect on our business,
results of operations, and financial condition.
We may be subject
to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security,
and our actual or perceived failure to comply with such obligations could harm our business.
We may be subject to
a number of domestic and international laws and regulations that apply to cloud services and the internet generally. These laws,
rules and regulations address a range of issues, including data privacy and cyber security, breach notification and restrictions
or technological requirements regarding the collection, processing, use, storage, protection, disclosure, retention or transfer
of data. The regulatory framework for online services, data privacy and cyber security issues worldwide can vary substantially
from jurisdiction to jurisdiction, is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal,
state, local and foreign government bodies and agencies have adopted or are considering adopting laws, rules and regulations regarding
the collection, processing, use, storage and disclosure of information, web browsing and geolocation data collection, data analytics,
facial recognition, cyber security and breach response and notification procedures. Furthermore, existing laws and regulations
are constantly evolving, and new laws and regulations that apply to our business are being introduced at every level of government
in the United States, as well as internationally. As we seek to develop our business, we are, and may increasingly become subject
to various laws, regulations, and standards, and may be subject to contractual obligations relating to data privacy and security
in the jurisdictions in which we operate. Any significant change to applicable laws, regulations or industry practices regarding
the use or disclosure of personal information, or regarding the manner in which the express or implied consent of customers for
the use and disclosure of personal information is obtained, could require us to modify our products and features, possibly in a
material manner and subject to increased compliance costs, which may limit our ability to develop new products and features that
make use of the personal information that our customers may voluntarily share. Any failure, or perceived failure, by us to comply
with any federal or state privacy or security laws, regulations, industry self-regulatory principles, or codes of conduct, regulatory
guidance, orders to which we may be subject, or other legal obligations relating to data privacy or security could adversely affect
our reputation, brand and business, and may result in claims, liabilities, proceedings or actions against us by governmental entities,
customers or others. Any such claims, proceedings or actions could hurt our reputation, brand and business, force us to incur significant
expenses in defense of such proceedings or actions, distract our management, increase our costs of doing business, result in a
loss of customers and result in the imposition of monetary penalties.
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In the United States,
there are numerous federal and state data privacy and security laws, rules, and regulations governing the collection, use, disclosure,
retention, security, transfer, storage, and other processing of personal data, including federal and state data privacy laws, data
breach notification laws, and consumer protection laws. For example, the Federal Trade Commission (“FTC”) and many
state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection,
use, dissemination, and security of data. Such standards require us to publish statements that describe how we handle personal
data and choices individuals may have about the way we handle their personal data. If such information that we publish is considered
untrue or inaccurate, we may be subject to government claims of unfair or deceptive trade practices, which could lead to significant
liabilities and consequences. Moreover, according to the FTC, violating consumers’ privacy rights or failing to take appropriate
steps to keep consumers’ personal data secure may constitute unfair acts or practices in or affecting commerce in violation
of Section 5(a) of the Federal Trade Commission Act. State consumer protection laws provide similar causes of action for unfair
or deceptive practices.
In
March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The
VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition,
in July 2021, Colorado enacted the Colorado Privacy Act (“COCPA”), becoming the third comprehensive consumer privacy
law to be passed in the United States (after the CCPA and VCDPA). The COCPA closely resembles the VCDPA, and both will be enforced
by the respective states’ Attorney General and district attorneys, although the two differ in many ways. We must comply
with each if our operations fall within the scope of these newly enacted comprehensive mandates, which may increase our compliance
costs and potential liability. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward
more stringent privacy legislation in the United States. This legislation may add additional complexity, variation in requirements,
restrictions and potential legal risk, require additional investment in resources to compliance programs, could impact strategies
and availability of previously useful data, and could result in increased compliance costs and/or changes in business practices
and policies.
In
addition, some laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain
personal information or other unauthorized or inadvertent access to or disclosure of such information. We may need to notify governmental
authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses
to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not
consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually
required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual
or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential
liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
We
strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data
protection to the extent possible. Because the interpretation and application of privacy and data protection laws are still uncertain,
it is possible that these laws may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another
or with our existing practices or the features of our products and may conflict with other rules or regulations, making enforcement,
and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Any failure or perceived failure by us to
comply with our privacy policies, privacy-related obligations to customers or other third parties, or our privacy-related legal
obligations, or any compromise of security that results in the unauthorized access to or unintended release of personally identifiable
information or other customer data, may result in governmental enforcement actions, litigation, or public statements against us
by consumer advocacy groups or others. Any of these events could cause us to incur significant costs in investigating and defending
such claims and, if found liable, pay significant damages. Further, these proceedings and any subsequent adverse outcomes may
cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
We may also be subject
to claims of liability or responsibility for the actions of third parties with whom we interact or upon whom it relies in relation
to various products or services, including but not limited to vendors and business partners. If so, in addition to the possibility
of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify
our products, which could have an adverse effect on our business. Any inability to adequately address privacy and/or data concerns,
even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional
cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.
11
The costs of compliance
with, and other burdens imposed by, the laws, rules, regulations and policies that are applicable to the businesses of our customers
may limit the use and adoption of, and reduce the overall demand for, our products or services. Even the perception of privacy
concerns, whether or not valid, may harm our reputation, inhibit adoption of our products or services by current and future customers,
or adversely impact our ability to attract and retain workforce talent. Our failure to comply with applicable laws and regulations,
or to protect such data, could result in enforcement action against us, including fines, imprisonment of our employees or directors
and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill
(both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our operations,
financial performance and business.
Periods of rapid growth and expansion
could place a significant strain on our resources, including our future employees, which could negatively impact our operating
results.
We may experience periods of rapid growth
and expansion, which may place a significant strain and demands on our management, our operational and financial resources, customer
operations, research and development, sales and marketing, administrative, and other resources. To manage our possible future growth
effectively, we will be required to continue to improve our management, operational and financial systems. Future growth would
also require us to successfully hire, train, motivate and manage employees. In addition, our continued growth and the evolution
of our business plan will require significant additional management, technical and administrative resources. If we are unable to
manage our growth successfully, we may not be able to effectively manage the growth and evolution of our current business and our
operating results could suffer.
Our future performance may depend
on the success of products and services we have not yet developed or acquired.
Our success depends on the development,
implementation and acceptance of our products and services. Commitments to develop new products and services must be made well
in advance of any resulting sales, and technologies and standards may change during development, potentially rendering our products
and services outdated or uncompetitive before their introduction. Our ability to develop products and services to meet evolving
industry requirements and at prices acceptable to our customers will be significant factors in determining our competitiveness.
We may expend considerable funds and other resources on the development of our products and services without any guarantee that
these products will be successful. If we are not successful in bringing one or more products or types of services to market, whether
because we fail to address marketplace demand, fail to develop viable technologies or otherwise, our revenues may decline and our
results of operations could be seriously harmed.
Our
operating results may be harmed if we are required to collect taxes on our billings in jurisdictions where it has not historically
done so.
Taxing
jurisdictions, including state, local and federal taxing authorities, have differing rules and regulations governing taxes, and
these rules and regulations are subject to varying interpretations that may change over time. In particular, significant judgment
is required in evaluating our tax positions and our provision for taxes. While we believe that we are in material compliance with
our obligations under applicable taxing regimes, one or more states, localities or the federal government may seek to impose tax
collection obligations on us. It is possible that we could face tax audits and that such audits could result in tax-related liabilities
for which we have not accrued. A successful assertion that we should be collecting taxes in jurisdictions where it has not historically
done so and do not accrue for taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing
from us or otherwise harm our business and operating results.
In
addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and
other laws, regulations, principles and interpretations, including those relating to income tax nexus, jurisdictional mix of profits
at varying statutory tax rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred
tax assets and liabilities. Although we believe our tax estimates are reasonable, the final determination of any tax audits or
litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse
effect on our operating results or cash flows in the period or periods for which a determination is made.
We expect to require
additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We intend to continue
to make investments to support our business growth and expect to require additional funds to respond to business challenges, including
the potential need to develop new business segments, services, features or enhance our products, improve our operating infrastructure
or acquire complementary businesses and technologies. Accordingly, we expect to need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing
stockholders could suffer significant dilution, and any new equity securities that we issue could have rights, preferences and
privileges superior to those of holders of our Common Stock. Any debt financing that we may secure in the future could involve
restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it
more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may
not be able to obtain additional financing on terms favorable to it, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to it when we require it, our ability to continue to support our business growth and to respond
to business challenges could be significantly impaired, and our business may be adversely affected.
Without obtaining adequate capital
funding or improving our financial performance, we may not be able to continue as a going concern.
Our recurring losses from operations and
negative cash flows raise substantial doubt about our ability to continue as a going concern without additional capital-raising
activities. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. Failure
to secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or
to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business,
operating results, financial condition, and ability to achieve our intended business objectives.
The requirements of being a public
company may strain our resources and divert management’s attention.
As a public company, we are subject to
the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank
Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. The Exchange Act requires,
among other things, that we file annual and current reports with the SEC with respect to our business and operating results. Compliance
with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming,
or costly, and increases demand on our systems and resources.
As a result of disclosure of information
in this Annual Report and in filings required of a public company, our business and financial condition is more visible, which
we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are
successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved
in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and
harm our business and operating results.
As a smaller reporting company, we
are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations
and financial prospects.
As a “smaller reporting company,”
we (i) are able to provide simplified executive compensation disclosures in our filings, (ii) are exempt from the provisions of
Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report
on the effectiveness of internal control over financial reporting and (iii) have certain other decreased disclosure obligations
in our filings with the SEC, including being required to provide only two years of audited financial statements in annual reports.
Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects.
We will remain a smaller reporting company
until the beginning of a fiscal year in which we had a public float of $250 million held by non-affiliates as of the last business
day of the second quarter of the prior fiscal year, assuming our Common Stock is registered under Section 12 of the Exchange Act
on the applicable evaluation date. Even if we remain a smaller reporting company, if our public float exceeds $250 million and
our annual revenues are greater than $100 million, we will become subject to the provisions of Section 404(b) of the Sarbanes-Oxley
Act.
As a result of
being a public company, we are responsible for establishing and maintaining adequate internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting, and if we are unable to remediate the
material weaknesses, or if we fail to develop and maintain effective disclosure controls and procedures and internal control over
financial reporting, our ability to produce timely and accurate consolidated financial statements or comply with applicable laws
and regulations could be impaired, which may adversely affect our business and the price of our Common Stock.
As a public company,
we are required to furnish a report by our management on the effectiveness of our internal control over financial reporting for
each Annual Report on Form 10-K that we file with the SEC. This assessment will need to include disclosure of any material weaknesses
identified by our management in internal control over financial reporting. Effective internal control over financial reporting
is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed
to prevent fraud. Any failure to implement new or improved controls, or difficulties encountered in their implementation, could
cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting could also cause investors
to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Common
Stock.
12
We
have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We
did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically,
we lacked a sufficient complement of personnel with an appropriate level of internal controls and accounting knowledge, training
and experience commensurate with our financial reporting requirements. Additionally, the limited personnel resulted in our inability
to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated
by, among other things, insufficient segregation of duties in our finance and accounting functions. This material weakness contributed
to the following additional material weaknesses:
(1) lack of a functioning audit
committee and no outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring
of required internal controls and procedures;
(2) inadequate segregation
of duties consistent with control objectives;
(3) insufficient written policies
and procedures for accounting and financial reporting with respect to the requirements and application of U.S. generally accepted
accounting principles (“GAAP”) and SEC disclosure requirements; and
(4)
ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were
identified and communicated to management in connection with the preparation and audit of our financial statements as of December
31, 2022 and the preparation of our 2023 quarterly financial statements.
While
we are undertaking efforts to remediate these material weaknesses, the material weaknesses will not be considered remediated until
our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have
concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot
predict the success of such efforts or the outcome of our assessment of the remediation efforts. We can give no assurance that
our efforts will remediate these material weaknesses in our internal control over financial reporting, or that additional material
weaknesses will not be identified in the future.
The effectiveness of
our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments
used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud.
If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately,
and to prepare the consolidated financial statements within the time periods specified by the rules and regulations of the SEC,
could be adversely affected which, in turn, may adversely affect our reputation and business and the trading price of our Common
Stock. Our failure to design and maintain effective internal control over financial reporting could also result in errors in our
consolidated financial statements that could result in a restatement of such financial statements, and could cause us to fail to
meet such time periods, any of which could diminish investor confidence in us and cause a decline in the price of our Common Stock.
In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss
of investor confidence, our Common Stock no longer being quoted on the over-the-counter market, harm to our reputation and financial
condition, or diversion of financial and management resources from the operation of our business.
13
Our
reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
GAAP is subject to interpretation
by the Financial Accounting Standards Board (“FASB”), the SEC, and various bodies formed to promulgate and interpret
appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported
results of operations and could affect the reporting of transactions already completed before the announcement of such change.
We may be vulnerable to continued
global economic uncertainty causing volatility in financial markets.
Our business may be sensitive to changes
in general economic conditions and the financial markets inside the United States and internationally, which have experienced extreme
disruption in recent times, including, among other things, extreme volatility in security prices, severely diminished liquidity
and credit availability, and declining valuations of investments. We believe these disruptions are likely to have an ongoing adverse
effect on the world economy. A continued economic downturn and financial market disruptions could have a material adverse effect
on our business, financial condition and results of operations. Any uncertainties relating to COVID-19 or other adverse public
health developments, inflation, the foreign and domestic government sanctions imposed on Russia as a result of its invasion of
Ukraine, or global supply chain disruptions may cause consumers, businesses, and governments to defer purchases in response to
tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products or services
could decrease and differ materially from current expectations. Further, some of our customers may require substantial financing
in order to fund their operations and subscribe or purchase products or services from us. The inability of these customers to obtain
sufficient credit to finance purchases of our products or services and meet their payment obligations to us or possible insolvencies
of our customers could result in decreased customer demand and could adversely impact our financial results.
Risks
Related to Our Common Stock
The market price
of our Common Stock is likely to be highly volatile given our status as a relatively unknown company with a small and thinly traded
public float, and lack of profits, and you may lose some or all of your investment.
The market for our Common
Stock is characterized by significant price volatility when compared to the securities of larger, more established companies that
have large public floats, and we expect that the price of our Common Stock will continue to be more volatile than the securities
of such larger, more established companies for the indefinite future. The volatility in the price of our Common Stock is attributable
to a number of factors. First, as noted above, our Common Stock is, compared to the securities of such larger, more established
companies, sporadically and thinly traded. The price of our Common Stock could, for example, decline precipitously in the
event that a large number of shares of our Common Stock is sold on the market without commensurate demand. Secondly, we are a speculative
or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more
inclined to sell their shares of Common Stock on the market more quickly and at greater discounts than would be the case with the
securities of a larger, more established company that has a large public float. Such volatility can also occur due to a variety
of other factors, including the following:
●
the inability to maintain the quotation of the
Common Stock on the over-the-counter market;
●
changes in applicable laws or regulations;
●
risks relating to the uncertainty of our projected
financial information; and
●
risks related to the organic and inorganic growth
of our business and the timing of expected business milestones.
In addition, the stock
markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of
those companies. Broad market and industry factors, as well as general economic, political, regulatory and market conditions, may
negatively affect the market price of our Common Stock, regardless of our actual operating performance. Many of these factors are
beyond our control and may decrease the market price of our Common Stock regardless of our operating performance.
Volatility in
the prices of our Common Stock could subject us to securities class action litigation.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price
of its securities or the completion of a merger. If we face such litigation, it could result in substantial costs and a diversion
of management’s attention and resources, which could harm our business.
Our Common Stock is quoted on the
Experts Market tier of the OTC Markets Group Inc., which may have an unfavorable impact on the price of our Common Stock and liquidity.
Our Common Stock may not be eligible for listing on a national securities exchange.
Our Common Stock is quoted on the Experts
Market tier of OTC Markets Group, Inc. This tier is a significantly more limited market than other national securities exchanges,
such as those operated by The Nasdaq Stock Market LLC. The quotation of our Common Stock on the over-the-counter market may result
in a less liquid market available for existing and potential stockholders to trade shares of our Common Stock, could depress the
trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in the future. There
is no guarantee that any such national securities exchange or other quotation system will permit our Common Stock to be listed
and traded. As a result, investors may find it difficult to buy or sell or obtain accurate quotations for our Common Stock, and
the liquidity of our Common Stock remain limited. These factors may have an adverse impact on the trading and price of our Common
Stock.
We cannot predict the extent to which
an active public trading market for our Common Stock will develop or be sustained. If an active public trading market for our Common
Stock does not develop or cannot be sustained, you may be unable to liquidate your investment in our securities.
At present, there is minimal public trading
in our Common Stock. We cannot predict the extent to which an active public market for our Common Stock will develop or be sustained
due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock
brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even
if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such
as ours or purchase or recommend the purchase of our securities until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our Common Stock is minimal or non-existent, as compared
to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without
an adverse effect on market price. We cannot give you any assurance that an active public trading market for our securities will
develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our securities.
U.S. broker-dealers may be discouraged
from effecting transactions in shares of our Common Stock because they may be considered penny stocks and thus be subject to the
penny stock rules.
The SEC has adopted a number of rules to
regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect
of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than
$5.00 per share (other than securities registered on certain national securities exchanges if current price and volume information
with respect to transactions in such securities is provided by the exchange or system). Our shares of Common Stock have in the
past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional
sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions
in shares of our Common Stock, which could severely limit the market liquidity of such shares of Common Stock and impede their
sale in the secondary market.
A U.S. broker-dealer selling a penny stock
to anyone other than an established customer or “accredited investor” (generally, an individual with a net worth in
excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S.
broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance
with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt.
A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent
price information with respect to the “penny stock” held in a customer’s account and information with respect
to the limited market in “penny stocks”.
Stockholders should be aware that, according
to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns
include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons;
(iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the
same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive
within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Because certain of our stockholders
control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder
approval.
As of the date of the filing of this Annual
Report and in part due to the Change of Control, Arena, together with its affiliates, beneficially owns an aggregate of 2,347,661,906
shares of Common Stock as well as all shares of outstanding Series B Preferred Stock, par value $0.001 per share (the “Series
B Preferred Stock”), providing such holder the ability to vote approximately 90.2% of the total voting power of our capital
stock. One of the entities affiliated with Arena, Portents Holdings LLC, beneficially owns all of our outstanding Series B Preferred
Stock, which shares alone entitles it to voting power equivalent to the number of votes equal to 51% of the total voting power
of each class of stock outstanding. Due to such disproportionate voting power, new investors will not be able to effect a change
in our business or management, and therefore, stockholders would have limited recourse as a result of decisions made by management.
As a result, Arena has the ability to control the outcome of matters submitted to our stockholders for approval, including the
election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, Arena has the
ability to control the management and affairs of our Company. Accordingly, this concentration of ownership might harm the market
price of our Common Stock by:
●
delaying, deferring or preventing a change in corporate control;
●
impeding a merger, consolidation, takeover or other business combination involving us; or
●
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
If securities
or industry analysts do not publish research or reports about us, or publish negative reports, the price of our Common Stock and
trading volume could decline.
The trading market
for our Common Stock will depend, in part, on the research and reports that securities or industry analysts publish about us.
We do not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of
the analysts who cover us downgrade our Common Stock, change their opinion, or reduce the target stock price for our Common Stock,
our Common Stock price would likely decline. If one or more of these analysts do not publish reports on us regularly or at all,
we will not likely have visibility in the financial markets, which could cause our Common Stock price or trading volume to decline.
Because we do
not anticipate paying any cash dividends on our shares of Common Stock in the foreseeable future, capital appreciation, if any,
would be your sole source of gain if you hold such shares.
We currently anticipate
that we will retain future earnings for the development, operation and expansion of our business and we do not anticipate declaring
or paying any cash dividends on our Common Stock for the foreseeable future. As a result, capital appreciation, if any, of our
Common Stock would be your sole source of gain on an investment in such shares for the foreseeable future.
14
A large number
of outstanding shares of our Common Stock is currently restricted from resale. The number of shares eligible for public sale upon
the lapse of such restrictions and conversions of outstanding convertible notes and preferred stock could depress the market price
of our Common Stock dilute the ownership interests of existing stockholders.
The following summarizes
certain transactions in which a large number of shares of Common Stock were issued, which shares are currently restricted from
resale but may in the future be sold upon the lapse of such restrictions:
● In connection with the issuance of convertible notes to the Investors, we issued to them shares
of our Series F convertible preferred stock, par value $0.001 per share (“Series F Preferred Stock”), which was subsequently
converted into 192,073,017 shares of Common Stock.
● In connection with the issuance of a promissory note to Z4 in December 2021, we issued it warrants
to purchase up to 500,000 shares of our Common Stock.
● 155,000 issued and outstanding shares of our Series D convertible preferred stock, par value $0.001
per share (the “Series D Preferred Stock”), may be converted into 155,000,000 shares of Common Stock.
● We have issued 1,152,500 shares of the Series E-1 convertible preferred stock, par value $0.001
per share (the “Series E-1 Preferred Stock”), which were issued in September 2021 and automatically convert into 1,152,500,000
shares of Common Stock two years from the date of issuance. The Company has not processed such conversions as of the date of this
Annual Report.
● We have issued 39,895 shares of Series H convertible preferred stock, par value $0.001 per share
(the “Series H Preferred Stock”), which may be converted into 39,895,000 shares of Common Stock.
● As of the date of this Annual
Report, the outstanding aggregate principal balance, including accrued interest, of outstanding
convertible notes, excluding the Investors’ Notes all of which are currently in
default is convertible into approximately 163,000,000 shares of Common Stock.
Sales of our Common
Stock as such restrictions are lifted and such conversions occur (or in connection with any anticipated conversions) may make it
more difficult for us to sell our Common Stock and other equity securities in the future at a time and at a price that we deem
appropriate. Such conversions and sales could also cause the trading price of our Common Stock to fall and dilute the ownership
of our existing stockholders.
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their
voting rights; and provisions in our organizational documents could discourage a takeover that stockholders may consider favorable.
Our articles of incorporation, as amended
(“Articles of Incorporation”), authorizes the issuance of up to 50,000,000 shares of “blank check” preferred
stock with designations, rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without
stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights which
could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock
could be used as a method of discouraging, delaying, or preventing a change in control of the Company. For example, it would be
possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success
of any attempt to change control of the Company. Currently, shares of our Series B Preferred Stock, Series D Preferred Stock, Series
E-1 Preferred Stock and Series H Preferred Stock are currently outstanding, each with preferential rights over the Common Stock.
Our Articles of Incorporation, amended
and restated bylaws (“Bylaws”) and Nevada law have anti-takeover provisions that could discourage, delay or prevent
a change in control, which may cause the prices of our securities to decline.
Our Articles of Incorporation, Bylaws and
Nevada law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction
would be beneficial to our stockholders. We are currently authorized to issue up to 50,000,000 shares of “blank check”
preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of
issuance by our board of directors without further action by stockholders. Currently, shares of our Series B Preferred Stock, Series
D Preferred Stock, Series E-1 Preferred Stock and Series H Preferred Stock are currently outstanding, each with preferential rights
over the Common Stock. The terms of such series of preferred stock any other series of preferred stock may include voting rights
(including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption
rights and sinking fund provisions. Such classes of preferred stock now and hereinafter issued could materially adversely affect
the rights of the holders of our securities, and therefore, reduce the value of our securities. In particular, specific rights
granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third
party and thereby preserve control by current management.
Our Articles of Incorporation, Bylaws or
Nevada law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such
practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors
rather than to attempt a hostile takeover. These provisions include, among others:
●
the inability of our stockholders to call a special meeting;
●
the right of our Board of Directors to issue preferred stock without stockholder approval; and
●
the ability of our directors to fill vacancies on our Board of Directors.
● Provisions of our Articles of Incorporation, Bylaws or
Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or
preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or
frustrate attempts by our stockholders to replace or remove our management. In particular, our Articles of Incorporation, our
Bylaws or Nevada law, as applicable, among other things, may provide our Board of Directors with the ability to alter our Bylaws
without stockholder approval, and provide that vacancies on our Board of Directors may be filled by a majority of directors in
office, although less than a quorum.
In addition, we are subject to Nevada’s
Combination with Interested Stockholders Statute (Nevada Revised Statutes 78.411 – 78.444), which prohibits an interested
stockholder from entering into a “combination” with the corporation, unless certain conditions are met. These provisions
are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of our company to first negotiate with our Board of Directors. These provisions may delay or prevent someone
from acquiring or merging with us, which may cause the market price of our Common Stock to decline.
We are also subject to Nevada’s Acquisition
of Controlling Interest Statute (Nevada Revised Statutes 78.378 – 78.3793), which prohibits an acquirer, under certain circumstances,
from voting shares of a corporation’s stock after crossing specific threshold ownership percentages. These provisions have
the effect of discouraging or delaying from acquiring or merging with us.
Item 1B. Unresolved Staff Comments.
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 1C. Cybersecurity.
Not applicable.
Item 2. Properties.
We are a remote-only company. Accordingly,
we maintain basic headquarters at 2500 Westchester Avenue, Suite 401, Purchase, New York, for which there is no lease.