Item 9 Labs (INLB) Risk Analysis
Risk Overview Q3, 2022
Source: the company's latest filing for the period ended Sep 30, 2022, filed Jan 13, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1Provisions under Delaware law could make an acquisition of our company the Company more difficult, limit attempts by our their stockholders to replace or remove our their current management.
In addition to the Company's corporate charter and their bylaws, because they are incorporated in Delaware, they are subject to the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of their capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.
- Share Price & Shareholder Rights - Risk 2Because we the Company became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we the Company may not be able to attract the attention of research analysts at major brokerage firms.
Because the Company did not become a reporting company by conducting an underwritten initial public offering, or IPO, of the Company's Common Stock, and because the Company is not listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of the Company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on the Company's behalf because they may be less familiar with the Company as a result of more limited coverage by analysts and the media, and because the Company became public at an early stage in its development.
- Share Price & Shareholder Rights - Risk 3Our The Company's common stock may become subject to the SEC's penny stock rules, which may make it difficult for broker-dealers to complete customer transactions and could adversely affect trading activity in our their securities.
The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of the Company's common stock may be less than $5.00 per share for some period of time and therefore would be a "penny stock" according to SEC rules, unless the Company is listed on a national securities exchange. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: - make a special written suitability determination for the purchaser;- receive the purchaser's prior written agreement to the transaction;- provide the purchaser with risk disclosure documents which identify certain risks associated with investing in "penny stocks" and which describe the market for these "penny stocks" as well as a purchaser's legal remedies; and - obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a "penny stock" can be completed. If required to comply with these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in the Company's securities may be adversely affected.
- Share Price & Shareholder Rights - Risk 4We The Company currently have has outstanding, and we they may, in the future future, issue instruments which are convertible into shares of common stock, Common Stock, which may result in shareholder stockholder dilution.
The Company currently has outstanding instruments which are convertible into shares of Common Stock, and they may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of Common Stock, or that the Company makes additional issuances of other convertible or exchangeable securities, stockholders could experience additional dilution. Furthermore, the Company cannot guarantee that they will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.
- Debt & Financing - Risk 5If we the Company cannot obtain additional funding, we they may be required to: (i) limit our their expansion; (ii) limit our their marketing efforts and (iii) decrease or eliminate capital expenditures. Such reductions could adversely affect our their business and our their ability to compete.
Even if the Company does find a source of additional capital, they may not be able to negotiate terms and conditions for receiving the additional capital that are favorable to the Company. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of its existing stockholders. In addition, new equity or convertible debt securities issued by the Company to obtain financing could have rights, preferences and privileges senior to their Common Shares. The Company cannot give any assurance that any additional financing will be available to the Company, or if available, will be on terms favorable to the Company.
- Debt & Financing - Risk 6If we need the Company needs additional capital to fund our their growing operations, we the Company may not be able to obtain sufficient capital and may be forced to limit the scope of our the Company's operations.
If adequate additional financing is not available on reasonable terms, the Company may not be able to expand their business operations and they would have to modify their business plans accordingly. There is no assurance that additional financing will be available to the Company. In connection with its growth strategies, the Company may experience increased capital needs and accordingly, the Company may not have sufficient capital to fund their future operations without additional capital investments. The Company's capital needs will depend on numerous factors, including: (i) their profitability; (ii) the release of competitive products by their competition; (iii) the level of their investment in marketing and branding their products and (iv) the amount of their capital expenditures. The Company cannot assure one that they will be able to obtain capital in the future to meet their needs. In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies, especially those in the cannabis industry, have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, the Company's securities can also be expected to be subject to volatility resulting from market forces over which the Company will have no control. If the Company needs additional funding they will, most likely, seek such funding in the United States and the effect of market fluctuations on their stock price could limit their ability to obtain equity financing.
- Debt & Financing - Risk 7If we fail the Company fails to raise additional capital, our the Company's ability to implement our its business model and strategy could be compromised.
The Company has limited capital resources. To date, the Company's operations have been funded by and through the Company's operations, private placements of the Company's securities and financing from the Company's financing partners. The Company expects to require substantial additional capital in the near future, including through this Offering, in order to execute the Company's businesses as planned, to develop and expand the Company's operations, expand the Company's brand in the marketplace, and to establish the targeted levels of production. The Company may not be able to obtain additional financing on terms acceptable to us, or at all. Even if the Company obtains financing for its near-term operations, the Company expects that they will require additional capital beyond the near term. If the Company is unable to raise capital when needed, its business, financial condition and results of operations would be materially adversely affected, and the Company could be forced to reduce or discontinue the Company's operations.
- Corporate Activity and Growth - Risk 8Our independent auditors have The Company has expressed substantial doubt about the Company's its ability to continue as a going concer, concern, which may hinder our its ability to obtain future financing.
As of September 30, 2021, the Company had $1,454,460 of cash and negative working capital of ($4,393,385) (current assets minus current liabilities), compared with $84,677 of cash and ($7,396,258) of negative working capital as of September 30, 2020. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $33,874,094 at September 30, 2021. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
- Corporate Activity and Growth - Risk 9Failure to effectively manage growth of internal operations and business may strain our the Company's financial resources.
The Company intends to significantly expand the scope of their business operations in the near term. The Company's growth rate may place a significant strain on their financial resources for a number of reasons, including, but not limited to, the following: - The need for continued development of the Company's financial reporting and information management systems;- The need to manage strategic relationships and agreements with manufacturers, suppliers, customers and partners; and - Difficulties in hiring and retaining skilled management, technical and other personnel necessary to support and manage the Company's business. Additionally, the Company's strategy envisions a period of rapid growth that may impose a significant burden on their administrative and operational resources. The Company's ability to effectively manage growth will require them to substantially expand the capabilities of their administrative and operational resources and to attract, train, manage and retain qualified management and other personnel. The Company's failure to successfully manage growth could result in their sales not increasing commensurately with capital investments. The Company's inability to successfully manage growth could materially adversely affect their business.
Risk Highlights Q3, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 51
- Share Price & Shareholder Rights - Risk 1FINRA sales practice requirements may also limit a stockholder's ability to buy and sell the Company's stock.
In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority ("FINRA") has adopted rules that require 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 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 believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy the Company's Common Stock, which may limit one's ability to buy and sell the Company's stock and have an adverse effect on the market for the Company's shares.
- Share Price & Shareholder Rights - Risk 2The Company's common stock may become subject to the SEC's penny stock rules, which may make it difficult for broker-dealers to complete customer transactions and could adversely affect trading activity in their securities.
The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of the Company's common stock may be less than $5.00 per share for some period of time and therefore would be a "penny stock" according to SEC rules, unless the Company is listed on a national securities exchange. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: - make a special written suitability determination for the purchaser; - receive the purchaser's prior written agreement to the transaction;? - provide the purchaser with risk disclosure documents which identify certain risks associated with investing in "penny stocks" and which describe the market for these "penny stocks" as well as a purchaser's legal remedies; and? - obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a "penny stock" can be completed. If required to comply with these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in the Company's securities may be adversely affected.
- Share Price & Shareholder Rights - Risk 3The Company's stock has historically experienced volatile market pricing.
The market price for the Company's securities may be volatile and subject to wide fluctuations in response to numerous factors, many of which will be beyond the Company's control. Financial markets have at times experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Company's securities may decline even if the Company's operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, the Company's operations could be adversely impacted, and the trading price of the Company's securities may be materially adversely affected.
- Share Price & Shareholder Rights - Risk 4Sales of substantial amounts of a particular class of securities may have an adverse effect on the market price of such securities.
Sales of substantial amounts of a particular class of securities of the Company, or the availability of such securities for sale, could adversely affect the prevailing market prices for such class of securities. A decline in the market prices of a particular class of the Company's securities could impair the Company's ability to raise additional capital through the sale of securities should it desire to do so.
- Share Price & Shareholder Rights - Risk 5The market for the Company's Common Stock may be thinly traded, so one may be unable to sell at or near ask prices or at all if one needs to sell one's shares to raise money or otherwise desire to liquidate one's shares.
The Company's Common Stock has been historically thinly traded on the OTC Markets, meaning that the number of persons interested in purchasing the Company's shares at or near ask prices at any given time has been relatively small or non-existent. This situation is attributable to several factors, including that the Company is a small company that is relatively unknown to stock analysts, stockbrokers, institutional investors, and others in the investment community. Even if the Company came to such persons' attention, those persons tend to be risk-averse and would be reluctant to follow an unproven company such as the Company or purchase or recommend the purchase of the Company's shares until they became more seasoned and viable. Consequently, there may be periods of several days or more when trading activity in the Company's shares is minimal or non-existent 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 the Company's share price. The Company cannot assure one that a broader or more active public trading market for the Company's Common Shares will develop or be sustained or that current trading levels will be maintained.
- Share Price & Shareholder Rights - Risk 6The indemnification provisions in the Company's certificate of incorporation and bylaws under Delaware law may result in substantial expenditures by the Company and may discourage lawsuits against the Company's directors, officers, and employees.
The Company's certificate of incorporation contains provisions that eliminate the Company's directors' liability for monetary damage to the Company and stockholders. The Company's bylaws also require them to indemnify their officers and directors. The Company may also have contractual indemnification obligations under their agreements with their directors, officers, and employees. These indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers, and employees that they may not recoup. Pursuant to the laws of the State of Delaware, the Company's certificate of incorporation excludes personal liability for its directors for monetary damage based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of the Delaware General Corporation Law, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right, which a director may have to be indemnified, and does not affect any director's liability under federal or applicable state securities laws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to provisions of the State of Delaware, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.
- Share Price & Shareholder Rights - Risk 7The Company is classified as a "smaller reporting company" and they cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make their Common Stock less attractive to investors.
The Company is currently a "smaller reporting company." Specifically, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; 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 have certain other decreased disclosure obligations in their SEC filings. Decreased disclosures in the Company's SEC filings due to their status as a smaller reporting company may make it harder for investors to analyze their results of operations and financial prospects.
- Share Price & Shareholder Rights - Risk 8Holders of the Company's Common Stock may face significant restrictions on the resale of the Common Stock due to states' "blue sky" laws or rules.
The Company intends to offer and sell their securities to private subscribers and retail customers, from time to time, in every state in the United States plus the District of Columbia and Puerto Rico. The National Securities Markets Improvement Act of 1996 ("NSMIA"), which is a U.S. federal statute, preempts the states from regulating transactions in certain securities, which are referred to as "covered securities," and which include the Units and components thereof offered hereby pursuant to Regulation A. NSMIA nevertheless allows the states to investigate if there is a suspicion of fraud or deceit, or unlawful conduct by a broker or dealer, in connection with the sale of securities. If there is a finding of fraudulent activity, the states can bar the sale of covered securities in a particular case. The various states and other jurisdictions can impose fines on the Company or take other regulatory actions against the Company if they fail to comply with their securities laws. Although the Company is taking steps to help ensure that they will conduct all offers and sales of its securities in compliance with all blue sky laws, there can be no assurance that they will be able to achieve such compliance in all instances, or avoid fines or other regulatory actions if they do not achieve compliance.
- Share Price & Shareholder Rights - Risk 9Because the Company became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, the Company may not be able to attract the attention of research analysts at major brokerage firms.
Because the Company did not become a reporting company by conducting an underwritten initial public offering, or IPO, of the Company's Common Stock, and because the Company is not listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of the Company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on the Company's behalf because they may be less familiar with the Company as a result of more limited coverage by analysts and the media, and because the Company became public at an early stage in its development.
- Share Price & Shareholder Rights - Risk 10Provisions under Delaware law could make an acquisition of the Company more difficult, limit attempts by their stockholders to replace or remove their current management.
In addition to the Company's corporate charter and their bylaws, because they are incorporated in Delaware, they are subject to the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of their capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.
- Share Price & Shareholder Rights - Risk 11The Company currently has outstanding, and they may, in the future, issue instruments which are convertible into shares of Common Stock, which may result in stockholder dilution.
The Company currently has outstanding instruments which are convertible into shares of Common Stock, and they may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of Common Stock, or that the Company makes additional issuances of other convertible or exchangeable securities, stockholders could experience additional dilution. Furthermore, the Company cannot guarantee that they will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.
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