Item 1. Business.
Overview
We operate primarily in the healthcare industry and provide services that include management consulting related to sales, marketing, business development and advisory board functions to healthcare organizations; and financial incentive program services to identify grants, tax credits and other government incentives for companies across a variety of industries including healthcare. Unless context requires otherwise, references to “we,” “our,” “us” and “our Company” refer to Healthcare Business Resources Inc., a Delaware corporation, and all subsidiaries.
Business Development
Healthcare Business Resources Inc. was incorporated in Delaware on September 9, 2019. We conduct all our operations through our wholly owned subsidiaries HBR Business Development, LLC, incorporated in Delaware on January 21, 2020 and UPlus Health, LLC, a Delaware limited liability company, incorporated in Delaware on June 15 2021.
As a result of our management’s inability to devote sufficient time to the growth and management of our business at this time, to date, we have only been generating limited revenues. We hope eventually to successfully execute our business plan.
PointClear Solutions, Inc. Transaction
On March 12, 2021, our Company, through our wholly owned subsidiary HBR Pointclear, LLC, a Delaware limited liability company (“HBRP”); and PointClear Solutions, Inc., an Alabama corporation (“PointClear”) entered into an Option Agreement To Purchase Business Assets (the “Option Agreement”). The Option Agreement provided HBRP the exclusive non-cancelable right to require PointClear to enter into an Asset Purchase Agreement (“Asset Purchase Agreement”) under which, HBRP would (i) purchase all of PointClear’s tangible and intangible assets used in, or useful to the PointClear business (the “Business Assets”), and (ii) assume certain defined liabilities and contracts of PCS related to the Business. As partial consideration for receiving its rights to purchase the Business Assets under the Option Agreement, HBRP arranged for a loan of up to $750,000 to PointClear pursuant to the Improvement Loan Agreement (the “Improvement Loan Agreement”) evidenced by and repaid in accordance with the terms of a promissory note (the “Promissory Note”). On March 16, 2021, pursuant to the Option Agreement and Improvement Loan Agreement, PointClear made its first draw under the Improvement Loan Agreement for $200,000.
On September 29, 2021, all of the above parties entered into a Separation and Settlement Agreement (“Separation and Settlement Agreement”), effective October 1, 2021, and terminated their mutual obligations under the Option Agreement and Improvement Loan Agreement. Pursuant to the Separation and Settlement Agreement, with respect to the:
| 1. | Option Agreement, the Option Agreement was cancelled and neither of the parties have any current or future rights or obligations under the Option Agreement. |
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| 2. | Improvement Loan Agreement, the principal owed by PointClear under the Improvement Loan Agreement was reduced to $150,000. Within 30 days of October 1, 2021, PointClear shall pay to HBRP, or its designee, $25,000 which shall reduce the principal owed under the Improvement Loan Agreement to $125,000. PointClear shall pay to HBRP, or its designee, $25,000 upon receipt from CHC of the amount owed following “Final Acceptance” testing. Any balance remaining under the Improvement Loan Agreement is hereby converted to a 60-month term loan pursuant to Section 2.05 of the Improvement Loan Agreement, and its repayment shall remain subject to the Improvement Loan Agreement. |
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| 3. | Consulting and Registrant Stock Option Agreements, the Consulting Agreements by and between HBRP and related consultants were cancelled by mutual consent and no money or consideration is owed or payable to any party thereunder according to the terms of such Consulting Agreements. The related stock option agreements by and between the Company and related consultants were cancelled by mutual consent and all option shares, vested or unvested were terminated. |
UPlus Health, LLC Transaction
On June 18, 2021, we and HBR Sub, Inc., a Delaware corporation and our wholly owned subsidiary entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”), with UserTech U.S. LLC, a Delaware limited liability company (“UPlus”) and UPlus Health, LLC, a Delaware limited liability company and a wholly-owned subsidiary of UPlus (“UPlus Health”). Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, HBR Sub, Inc. was merged with and into UPlus Health, with UPlus Health surviving the merger on the terms and subject to the conditions set forth in the Merger Agreement and certain ancillary agreements. UPlus Health is now our Company’s wholly owned subsidiary. UPlus helps companies across multiple industries with continuous innovation and market development through the implementation of its proprietary technology called the U+Method, which is a is a step-by-step product development methodology that focuses on front–loading the risky parts of product development before starting large buildouts (the “U+Method Technology”). UPlus has licensed to UPlus Health the U+Method Technology and related intellectual property for use in the health care and medical services industry (the “Medical Industry”), pursuant to a separate license agreement (the “License Agreement”).
UPlus and the Company believe that their individual capabilities and expertise could be combined to provide a unique integrated solution to clients in the Medical Industry; and UPlus’ post transaction participation in providing the anticipated integrated solution is set forth in a separate services agreement (the “Services Agreement”). The Company’s post transaction financial metrics plan for UPlus Health and the anticipated integrated solution is set forth in UPlus Health’s financial metrics plan (“Financial Metrics Plan”). UPlus Health is managed by the Company’s current management team.
The consideration for the merger consisted of our Company’s issuance to UPlus of 1,000,000 shares of our common stock and a three-year warrant to purchase 1,400,000 shares of our common stock for $0.50 per share, subject to the Special Adjustments described in the Merger Agreement, which includes UPlus’ right to unwind the merger in the event we fail to meet the Financial Metrics Plan described in the Merger Agreement. As of August 31, 2021, the total purchase price for the acquisition was determined to be $857,990, which consisted of 1,000,000 shares of common stock with a fair value of $500,000 and 1,400,000 stock warrants with a fair value of $357,990. The Company concluded the transaction qualified as an asset acquisition and all such acquisition costs have been capitalized.
Principal Services
Our business plan provides for us to generate revenue by providing consulting services. These services include:
| · | management consulting related to sales, marketing, business development and advisory board functions to healthcare organizations |
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| · | financial incentive program services to identify grants, tax credits and other government incentives for companies across a variety of industries including healthcare; and |
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| · | technology consulting and engineering services. |
Our management, board of advisors and board of directors have extensive experience in market expansion strategies, financial analysis, acquisition integration, management consulting and training, healthcare law, corporate law, capital markets, mergers and acquisitions. We believe the combined experience, knowledge, credibility and connections of our people are unique and potentially valuable to prospective clients. However, as a result of our management’s inability to devote sufficient time to the growth and management of our business at this time, to date, we have generated limited revenues. We hope eventually to successfully execute our business plan. See “Description of Business - Our Competitive Strengths.”
Management consulting services
Our management consulting services are designed to help clients increase revenue, improve overall efficiency of their operations, grow strategically and increase profitability. Our goal is to provide clients with advice and assistance tailored to address each client’s challenges and opportunities, with a focus on healthcare organizations that face operational and financial changes. We believe that distressed companies respond to challenges by restructuring their business and capital structure, while healthy companies strive to capitalize on opportunities by improving operations, reducing costs and maximizing revenue. Many organizations have limited resources dedicated to respond effectively to challenges and opportunities. As a result, we believe many organizations seek to supplement their internal resources with experienced independent consultants like us.
As part of our management consulting services, we will perform an initial review of a prospective clients relevant financial, tax and business documentation at no cost to determine areas for potential corporate improvement and growth opportunities.
We charge clients a fee for our management consulting services based on time (e.g., hourly or monthly) or based on a percentage of cost savings or incremental revenue (e.g., revenue or cost savings). As of the date of this report on Form 10-K, we have acquired one customer who has contracted with us to market its services in exchange for a performance-based fee equal to 50% of any fee collected by this customer from business referred by our Company to this customer. We cannot estimate the value of the fee or fees we may obtain from this engagement, if any. This customer presently provides our Company with our sole source of management consulting revenue.
As of the date of this report on Form 10-K, we have generated limited management and consulting services revenue. We cannot assure you that we will ever generate enough management consulting revenue to sustain our operations.
Financial incentive program services
Our financial incentive program services are designed to identify grants, tax credits and other government incentives for companies across a variety of industries including healthcare. Our plan is to assist with advising on and documenting business processes related to such credits and rebates and work with certified public accounting firms and business owners to compile reports and documentation required to apply for various financial incentive programs.
As part of our financial incentive program services, we will perform an initial review of a prospective client’s relevant financial, tax and business documentation at no cost to determine the potential economic benefits from various federal and state incentive programs.
We will charge clients a fee primarily based on the economic benefit we facilitate from any incentive programs, when permitted by any applicable rules and guidelines. Where contingency fees are not permissible, fixed fee contracts may be used. As part of our incentive program services, we may be at risk for certain third-party accounting, legal and consulting fees until such time as we are reimbursed by our client, if ever.
As of the date of this report on Form 10-K, we have no customers enrolled in our financial incentive program services. Further, we cannot assure you that we will ever generate enough financial incentive program revenue to sustain our Company’s operations.
Technology consulting and engineering services
Our technology consulting and engineering services include digital strategy, design, development, and management services, with expertise in enterprise software, mobile and web-based application solutions. These services are designed to help clients speed innovation, expand market share, drive revenue, and encourage patient satisfaction and population health.
As part of our technology consulting and engineering services, we will perform an initial review of a prospective clients' challenges and relevant technologies to determine areas for potential improvement and growth opportunities. We will charge clients a fee for our technology consulting and engineering services based on the project.
We implement the U+Method as our step-by-step product development methodology that focuses on front–loading the risky parts of product development before starting large build–outs. The U+Method enables us to determine whether and where a product fits in the market, create a learning organization to continue iterations, and, ultimately, drive profitability:
STAGE 1 - Ideation/ IP Prioritization
Ideation or IP prioritization including potential use cases
| · | Definition of commercialization goals |
| · | IP inventory & prioritization |
| · | Ranking based on highest revenue potential vs. likelihood of winning |
STAGE 2 – Validation
Initial idea validation and market testing
| · | MVP target markets (geographic) for rapid adoption |
| · | Initial GTM proposition / product |
| · | Target users |
| · | Product positioning |
| · | High-level user stories |
| · | Legal requirements |
STAGE 3 - Market Testing
Strategy for taking the MVP to market
| · | Channel testing |
| · | Pricing sensitivity |
| · | Brand and communications |
| · | Wireframe prototype of the MVP scope to test with users |
| · | Iteration of prototypes based on feedback |
| · | Microsite smoke testing |
STAGE 4 - Tech Build
Specification and build of the MVP
| · | Product definition |
| · | MVP specification |
| · | MVP scoping |
| · | UI design for target group and market |
| · | Information Architecture |
| · | AWS infrastructure and DevOps setup |
| · | Buildout in agile mode |
STAGE 5 – Scaling
Launching with the early customers and scaling operations
| · | Early customer feedback gathering |
| · | Future tech roadmap |
| · | Marketing campaigns |
| · | Customer acquisition |
| · | Customer onboarding optimization |
| · | Customer support |
| · | Ecosystem buildout |
As of the date of this report on Form 10-K, we generated no revenue from technology consulting and engineering services and we are unable to determine how long, if ever, it would take to attract paying clients. We cannot assure you that we will ever generate enough revenue to sustain our operations.
Strategy
The key elements of our business model and growth strategy are as follows:
1. | Attract highly qualified advisors and consultants. We believe performance-based compensation, including stock option plan participation, will enable us to attract top talent. Presently, we engage independent advisors and consultants to minimize our fixed operating expenses. We have entered into advisory board agreements with advisors who have healthcare industry experience in market expansion strategies, financial analysis, acquisition integration, management consulting and training, healthcare law, corporate law, capital markets, mergers and acquisitions. |
2. | Grow our network of potential clients . We hope to continue to grow our network of healthcare and other organizations that could benefit from our services. To be successful, we must establish and strengthen the awareness of our brand. We believe that maintaining and enhancing our brand recognition is an important aspect of our efforts to generate revenue. We will promote awareness of our services through public relations efforts, social media outreach, Internet marketing and business development partnerships. Our goal is to attract healthcare and other organizations who are primarily interested in growing their business through sales, marketing and business development. |
3. | Pursue strategic acquisitions . We will evaluate select acquisitions of complementary businesses as another means to broaden the scope of our capabilities and our client base. For example, we are interested in acquiring companies that provide consulting, training, education, marketing, audits, cost recovery, group purchasing, compliance, certification, security, information technology and other non-clinical healthcare business services. We believe strategic acquisitions can enable us to scale our revenue with less business risk. Any future acquisition may result in unforeseen operating difficulties and expenditures particularly if the key personnel of the acquired company choose not to work for us and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. |
Sales and Marketing
We presently identify prospective management consulting and financial incentive program opportunities through personal and professional relationships of our CEO Stephen Epstein. We may pay for online advertisements and may enter into third-party marketing agreements to expand our reach.
We may also position ourselves as an opinion leader in the field through the creation of media and content; podcasts, articles, essays and other such materials to build good PR for the business and attract interest for our various consulting and advisory services. This includes possibly exhibiting and speaking at conferences and advertising in trade journals, associations, etc. We may generate referral and word-of-mouth programs to drive interest for services.
Our marketing budget is subject to several factors, including our results of operations and cash flow.
Competition
We operate in a highly competitive industry. The market for our services is competitive and rapidly changing, and the barriers to entry are relatively low. We experience competition from large established businesses possessing large, existing customer bases, substantial financial resources and established distribution channels. We expect competition to persist and intensify in the future. Competition could result in reduced sales, reduced margins or the failure of our services to achieve or maintain more widespread market acceptance, any of which could harm our business and our operating results could be harmed. Our principal competitors include any entity or individual providing consulting services, but not limited to business consultants, growth consultants, sales consultants, marketing consultants, distribution consultants and financial consultants.
Our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their offerings. Our current and potential competitors have more extensive customer bases and broader customer relationships than we have. If we are unable to compete with such companies, the demand for our offering could substantially decline.
Our Competitive Strengths
We believe our competitive strength comes from our people, our approach to business and our business model.
1. | Our people: Our management, board of advisors and board of directors have extensive experience and relationships in market expansion strategies, financial analysis, acquisition integration, management consulting and training, healthcare law, corporate law, capital markets, mergers and acquisitions. We believe the combined experience, knowledge, credibility and connections of our people are unique and potentially valuable to prospective clients. |
2. | Our business approach: We believe that the best business relationships provide tangible benefits to each party. A central tenet of our business approach is to ensure that we can provide significant value to a prospective client before entering into any services agreement. To understand the scope of a potential engagement and ensure we can satisfy the prospective clients’ primary objectives of any engagement, we are willing and able to spend time with their management team, on a completely complimentary basis, to discuss challenges and opportunities and perform an initial review of their relevant financial, tax and business circumstances. We believe the business approach of investing time and effort upfront and before any service engagement, helps establish trust and credibility, while enabling us and the prospective client to better determine if and how we can add value before entering into any agreement. |
3. | Our business model: Aside from the traditional management consulting services model where compensation is based on an hourly or monthly fee, our business model supports the engagement with clients on a performance basis. We believe that offering select clients the option to compensate us based entirely on the tangible value we provide is uncommon in our field and may enable us to attract and retain clients in competitive scenarios. |
Intellectual Property
We do not own any patents, trademarks, licenses, franchises or concessions aside from the HealthcareBusinessResources.com domain name. To protect our proprietary rights, we will generally rely on copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties.
Third parties may copy or obtain and use our proprietary ideas, know-how and other proprietary information without authorization or independently develop similar or superior intellectual property. Our competitors may obtain proprietary rights that would prevent, or limit or interfere with our ability to sell our services. If we are found to infringe on the proprietary rights of others and may be required to incur substantial costs to defend any litigation, cease offering our services, obtain a license from the holder of the infringed intellectual property right or redesign our services.
Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights are still evolving. We cannot be sure of the future viability or value of any of our proprietary rights or of similar rights of other companies within this market. We cannot be certain that the steps taken by us will prevent misappropriation or infringement of our proprietary information.
Any litigation might result in substantial costs and diversion of resources and management attention and could have a material adverse effect on our business, results of operations and financial condition.
Technology
We currently use off the shelf technology to operate our business.
Regulation of our Business
We are not currently subject to direct regulation by any governmental agency other than laws and regulations generally applicable to businesses. We are subject to common business, tax and regulations pertaining to the operation of our business. We believe that compliance of governmental regulations will be additional responsibilities of our management.
Employees
We have one part-time employee and one part-time subcontracted accountant in the United States. From time to time, we expect to employ additional independent contractors as well as legal, accounting and other specialized professionals to support our sales, marketing, business development and administrative needs.
Our success will depend on our ability to hire and retain additional qualified marketing, sales, technical and other personnel. Qualified personnel are in high demand. We face considerable competition from other management consulting service firms for these personnel, many of which have significantly greater resources than we have.
Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. You should consider carefully all of the material risks described below, together with the other information contained in this report on Form 10-K. If any of the following events occur, our business, financial condition, results of operations and cash flows may be materially adversely affected. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also significantly impair our business operations and could result in a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As described in Note 1 of our accompanying audited financial statements, our auditors have issued a going concern opinion on our February 28, 2023 financial statements, expressing substantial doubt that we can continue as an ongoing business for the next twelve months after issuance of their report based on our history of negative cash flows from operations and reporting of a net loss, and the expectation that we will continue to report negative cash flows from operations and a net loss. Management believes that the cash on hand is sufficient to fund its planned operations into but not beyond the near term. Presently, management has no formal plan in place to address this concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot raise the necessary capital to continue as a viable entity, we could experience a material adverse effect on our business and our stockholders may lose some or all of their investment in us. We can provide no assurances that any additional sources of financing will be available to us on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we will be unable to continue to move forward and execute on our business plan.
Because we have a limited operating history, you may not be able to accurately evaluate our operations.
We have had limited operations to date. Therefore, we have a limited history upon which to evaluate the merits of investing in our Company. You should be aware of the difficulties normally encountered by newer companies and the high rate of failure of such enterprises. The likelihood of success must be considered considering the problems, expenses, difficulties, complications and delays encountered in connection with the operations that we may undertake. These potential problems include, but are not limited to, unanticipated problems relating to the ability to generate enough cash flow to operate our business, and additional costs and expenses that may exceed current estimates. We expect to incur significant losses into the foreseeable future. We recognize that if our business is not succeeding, we will not be able to continue business operations. There is limited history upon which to base any assumption as to the likelihood that we will prove successful, and it is doubtful that we will ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
We have experienced operating losses in the past and we may not generate enough funds to sustain a level of profitability in the future.
Since our inception, we have incurred significant losses and experienced negative operating cash flow. We incurred a net loss of $166,596 and $1,652,199 as of February 28, 2023 and 2022, respectively, and we anticipate that we will continue to incur significant operating losses through the foreseeable future. As a result, we will require additional debt or equity financing to sustain our operations, generate revenue and achieve profitability, and we cannot assure you that we obtain any such financing.
Our profitability is tied to the strength of the companies from whom we provide consulting services, which are subject to general business and macroeconomic conditions beyond our control.
Our profitability will be closely related to the strength of companies from whom we provide consulting services, which can be cyclical in nature and affected by changes in national, state and local economic conditions which are beyond our control. Macroeconomic conditions that could adversely impact the growth of our business and those we consult to include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit or higher interest rates, increased costs of conducting business, inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, war or terrorist attacks, other pandemics, natural disasters or adverse weather events, or the public perception that any of these events may occur. Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States or other markets we enter and operate within could negatively affect the affordability of, and consumer demand for, our services, which could have a material adverse effect on our business and profitability.
We may never generate enough income to become profitable.
Our ability to generate income from consulting services and become profitable will depend, among other things, upon our ability to successfully prospect for clients, negotiate consulting agreements, become engaged by clients, add value and collect our payment for consulting services rendered. Even if we are able to successfully do these and other things that are within our control, there are numerous other factors, some of which are not within our control, that could impact our ability to generate income or cash flows or be profitable, including those discussed in these risk factors.
We are unable to predict the timing or amount of future cash receipts, or when or whether we will be able to achieve or maintain profitability. Even if we secure consulting agreements as described above, we anticipate incurring significant costs associated with our efforts to achieve or maintain profitability. Further, we may not receive the cash amounts that we expect, or any at all, from any of our current or future consulting agreements.
We expect our Company’s business model to continue to evolve.
As our Company moves forward with its business plans, our Company’s business model may need to evolve. From time to time, we may materially modify aspects of our business model relating to our product and service offerings. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business. Such circumstances would have a material adverse effect on the ability of our Company to continue as a going concern, which would harm the business, prospects or operations of the Company and potentially the value of our common stock.
Our business strategy depends on our ability to enter into consulting agreements with healthcare organizations. We may not be able to enter additional contracts in the future or enter into the number of additional contracts that we anticipate would be necessary to support our business model.
Our strategy depends in large part on our ability to benefit from economies of scale. Accordingly, we must actively pursue additional consulting contracts that we intend to enter into in the future, which, as of late, we have not been successfully doing. We are also experiencing significant difficulties entering into these types of contracts. We do not know if future potential clients will agree to enter consulting agreements and we may not be able to attract enough additional contracts. For example, future potential clients may not view our consulting services as an attractive value proposition to them due to any number of factors, including differing expectations of an appropriate purchase price, which may be based on any number of factors. As a result, we may be forced to revise our business model.
It is difficult to estimate with precision the projected consulting payments under any agreement because such estimation is necessarily based on future events that may or may not occur and that could change based on a number of factors that are hard to control.
Due to the inherent uncertainty in predicting the future, it is difficult to estimate with precision the projected future payments associated with our consulting agreements. These estimations are based on future events that may or may not occur. Additionally, future events change based on several factors that are difficult or impossible to control. As a result, it is difficult to predict an accurate stream of revenue and our competitive position, results of operations, financial condition and cash flows could be materially adversely impacted if we receive less revenue from consulting contracts than estimated.
Acquisitions, partnerships and joint ventures are part of our growth strategy and any acquisitions, partnerships or joint ventures that we make or enter into could disrupt our business and harm our financial condition.
Acquisitions, partnerships and joint ventures are part of our growth strategy. We evaluate, and expect in the future to evaluate, potential acquisitions of, and partnerships or joint ventures with, complementary businesses, services or technologies. We may not be successful in identifying acquisition, partnership, and joint venture targets. In addition, we may not be able to successfully finance or integrate any businesses, services, or technologies that we acquire or with which we form a partnership or joint venture, and we may lose customers as a result of any acquisition, partnership, or joint venture. Furthermore, the integration of any acquisition, partnership, or joint venture may divert management’s time and resources from our core business and disrupt our operations. We may spend time and money on projects that do not increase our revenue or impinge on our current business plans.
Our business may be adversely affected by competitive market conditions and we may not be able to execute our business strategy.
We intend to increase revenue and cash flow over time through a business strategy which requires us, among other things, to enter into consulting agreements with healthcare organizations. We face competition from other consulting firms and may not be successful in securing favorable agreements. Expanding our client base will require sustained management focus, organization and coordination over significant periods of time. The results of our strategy and the success of our implementation of this strategy will not be known for some time in the future. If we are unable to implement our strategy successfully or properly react to changes in market conditions, our financial condition, results of operations and cash flows could be adversely affected.
As of February 28, 2023, we had an aggregate of $78,271 of principal plus $3,177 in accrued interest from outstanding senior secured convertible credit line.
We will be required to repay the aggregate principal amount of our outstanding senior secured convertible credit line, including accrued interest, in cash. Based on our current cash balance and projected net uses of cash in the future, it is highly unlikely that we would be able to repay the aggregate principal amounts at maturity in cash without securing additional capital or other financing. Such additional debt financing may not be available on favorable terms, or at all, and could increase our Company’s debt balance and result in significant expense to our Company. If our Company is unable to raise additional debt financing, we may be forced to raise additional equity financing. Again, such equity financing may not be available on favorable terms, if at all. Management efforts to raise either additional debt or equity financing likely would require substantial time and effort and may further divert management from implementation of our business plans. In the event the Company is unable to raise additional debt or equity financing, we may: (i) have to cease operations, in which case we may file a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 7, whereby a trustee will be appointed to sell off our assets, and the money will be used to pay off our debts in order of their priority. With respect to priority, stockholders, will be behind all of the Company’s secured and unsecured creditors, including the holders of promissory notes; or (ii) file a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 11 to restructure our debt. The Chapter 11 reorganization plan will describe stockholders’ rights and what stockholders can expect to receive, if anything, from the Company. For additional information on our outstanding promissory notes, See “Note 4 – Notes Payable” in the notes to the financial statements appearing elsewhere in this report on Form 10-K.
Our level of indebtedness and other potential financial obligations may limit our financial flexibility.
Our Company’s indebtedness pursuant to outstanding promissory notes and other potential financial obligations may affect our operations in several ways, including, but not limited to: (i) putting our Company at a competitive disadvantage compared to similar companies that have less debt and financial obligations; and (ii) preventing us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes, or causing us to incur higher costs and include more restrictive covenants for such financing. These factors and other factors that could affect our ability to obtain additional financing, some of which may be beyond our control and could adversely affect our ability to take advantage of strategic opportunities that might otherwise benefit our Company. For additional information on our outstanding promissory notes, See “Note 4 – Notes Payable” in the notes to the financial statements appearing elsewhere in this report on Form 10-K.
Unpredictable events and associated business disruptions could continue to seriously harm our revenues and financial condition, delay our operations, increase our costs and expenses, and impact our ability to raise capital.
Our operations could be subject to unpredictable events, such as earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, hostilities and social unrest, medical epidemics or pandemics such as the COVID-19 outbreak, changes in government policies, and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. We do not carry insurance for any categories of risk that our business may encounter. The occurrence of any of these business disruptions could seriously harm our operations and financial condition, delay our marketing efforts, and increase our costs and expenses.
The spread of the novel coronavirus, or COVID-19, underscores certain investment risks, such as the severe impact on most economic activity in the United States during 2021 and 2022. The ultimate impact of such unpredictable events on our Company is unknown, but our operations and financial condition could continue to suffer in the event of any of these types of events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows.
We will need additional capital in the future, which may not be available to us on favorable terms, or at all, and may dilute your ownership of our securities.
We have historically relied on outside financing and cash from operations to fund our operations, capital expenditures and expansion. We will continue to require additional capital from equity or debt financing in the future to fund our operations. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our existing shareholders could suffer significant dilution in their percentage ownership of our Company, and any new securities we issue could have rights, preferences and privileges senior to those of the securities we are offering herein. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.
We may expand through acquisitions of, or investments in, other companies or through business relationships, all of which may divert our management’s attention, resulting in additional dilution to our shareholders and consumption of resources that are necessary to sustain our business.
We may acquire competing or complementary services, technologies or businesses. Any future acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. We may encounter difficulties assimilating or integrating the acquired businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized or that we would not be exposed to unknown liabilities, nor can we assure you that we will be able to complete any acquisitions on favorable terms or at all.
If we fail to develop our brand cost-effectively, our business may be adversely affected.
Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brands. If we fail to successfully promote and maintain our brand or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new operators to the extent necessary to realize a sufficient return on our brand-building efforts, and our business and results of operations could suffer.
The market in which we participate is competitive and, if we do not compete effectively, our operating results could be harmed.
We operate in a highly competitive industry. The market for our services is competitive and rapidly changing, and the barriers to entry are relatively low. We experience competition from large established businesses possessing large, existing customer bases, substantial financial resources and established distribution channels. We expect competition to persist and intensify in the future. Competition could result in reduced sales, reduced margins or the failure of our services to achieve or maintain more widespread market acceptance, any of which could harm our business and our operating results could be harmed. Our principal competitors include any entity or individual providing consulting services, but not limited to business consultants, growth consultants, sales consultants, marketing consultants, distribution consultants and financial consultants.
Our current and potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their offerings. Our current and potential competitors have more extensive customer bases and broader customer relationships than we have. If we are unable to compete with such companies, the demand for our offering could substantially decline.
We incur significant costs complying with our obligations as a reporting issuer, which decreases our profitability.
We file periodic reports with the U.S. Securities and Exchange Commission (“SEC”), including financial statements and disclosure regarding changes in our operations. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major impact on the amount of time to be spent by our auditors and attorneys. However, we estimate that these costs will exceed $100,000 per year for the next few years. Those fees will be higher if our business volume and activity increases. Those obligations will reduce our resources to fund our operations and may prevent us from meeting our normal business obligations. Compliance costs will be charged to operations and will negatively impact our profitability.
RISKS RELATED TO OUR MANAGEMENT
Because our officers and directors engage in other business activities, they may not be able or willing to devote a sufficient amount of time to our business operations, causing our business to fail.
Stephen Epstein, our Chief Executive Officer, currently devotes up to 5 hours per week providing management services to us. Presently, he does not possess adequate time to attend to our interests, and is unable to devote sufficient time to the management of our business. The loss of any of our officers or directors could negatively impact our business development.
We are highly dependent on our ability to attract, train and retain consultants.
Our business is highly dependent on our ability to attract, train and retain consultants. In addition, because consultants become more productive as they gain experience, retaining those individuals is very important for our success. If we are unable to attract, train and retain effective consultants, our business, financial condition, cash flows or results of operations could be adversely affected. If we are unable to attract and retain consultants in our business, it could adversely affect our business, financial condition, cash flows and results of operations.
If we fail to retain our key personnel, we may not be able to achieve any level of growth and our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel. Our future also depends on the continued contributions of our Stephen Epstein, our Chief Executive Officer who is critical to the management of our business and operations and the development of our strategic direction. Presently, Mr. Epstein does not possess adequate time to attend to our interests, and is unable to devote sufficient time to the management of our business. The permanent loss of the services of our Chief Executive Officer or any other key personnel and the process to replace any of our key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives. Any growth of our business could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage growth, we may not be able to successfully implement our business plan.
If we experience a period of rapid growth in our operations, such growth may place, to the extent that we are able to sustain such growth, a significant strain on our management and our administrative, operational and financial reporting infrastructure.
Our success will depend in part on the ability of our senior management to manage growth effectively. To do so, we believe we will need to continue to hire, train and manage new employees or contractors as needed. If our new team members perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new team members, or if we are not successful in retaining our existing employees or contractors, our business may be harmed. To manage any growth of our operations and personnel, we will need to continue to improve our operational and financial controls and update our reporting procedures and systems. The addition of new team members and the capital investments that we anticipate will be necessary to manage our growth will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy or completeness of our financial reports and the market price of our common stock may decline.
We need to improve the design, implementation, and testing of the internal controls over financial reporting requirements. If we are unable to remedy material weaknesses or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of its internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected. We also could become subject to investigations by the Securities and Exchange Commission, or other regulatory authorities, which could require additional financial and management resources.
We do not have written documentation of our internal control policies and procedures. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. To the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. As of February 28, 2023, the initiation of transactions and recording of transactions are performed solely by Stephen Epstein, our Chief Executive Officer.
We do not have a compensation or an audit committee, so shareholders will have to rely on our directors to perform these functions.
We do not have an audit or compensation committee comprised of independent directors. These functions are performed by the members of our board of directors. Until we have an audit committee, there may be less oversight of management decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
Our officers and directors own a controlling interest in our voting stock and investors will not have any voice in our management, which could result in decisions adverse to our general shareholders.
Our officers and directors, in the aggregate, beneficially own or have the right to vote 71.8% of our outstanding common shares on a fully diluted basis. As a result, these shareholders, acting together, have the ability to control substantially all matters submitted to our shareholders for approval including: election of our board of directors; removal of any of our directors, amendment of our certificate of incorporation or by-laws; and adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us. As a result of their ownership and positions, our officers and directors collectively can influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. The interests of our officers may differ from the interests of the other shareholders, and they may influence decisions with which the other shareholders may not agree. Such decisions may be detrimental to our business operations and they may cause the business to fail in which case you may lose your entire investment.
We rely on third party consultants and other outside advisors for many aspects of our business, which creates additional risk.
We rely on third party consultants and other outside advisors for many aspects of our business, including accounting legal and compliance. If the third parties that we rely on do not perform satisfactorily, our operations could be disrupted, which could result in customer dissatisfaction, damage our reputation, harm our business or reduce the value of our shares.
RISKS RELATED TO OUR SYSTEMS
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
We face growing risks and costs related to cybersecurity threats to our data and customer, employee data, including but not limited to:
● | the failure or significant disruption of our operations from various causes, including human error, computer malware, ransomware, insecure software, zero-day threats, or other events related to our critical information technologies and systems |
● | the increasing level and sophistication of cybersecurity attacks, including distributed denial of service attacks, data theft, fraud or malicious acts on the part of trusted insiders, social engineering, or other unlawful tactics aimed at compromising the systems and data of our officers, employees, operators and their customers (including via systems not directly controlled by us, such as those maintained by independent sales agents, joint venture partners and third party service providers) |
● | the reputational and financial risks associated with a loss of data or material data breach (including unauthorized access to our proprietary business information or personal information of our customers, employees and independent sales agents), the transmission of computer malware. |
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to information technology systems via viruses, worms, and other malicious software, to phishing to advanced and targeted hacking launched by individuals or organizations. These attacks may be directed at the Company, its employees, operators, third-party service providers, joint venture partners and others.
In the ordinary course of our business, we and our third-party service providers store sensitive data, including our proprietary business information and intellectual property and that of our clients as well as personally identifiable information, sensitive financial information and other confidential information of our employees and customers. Additionally, we increasingly rely on third-party data processing, storage providers, and critical infrastructure services, including cloud solution providers. The secure processing, maintenance and transmission of this information are critical to our operations and with respect to information collected and stored by our third-party service providers, we are reliant upon their security procedures. A breach or attack affecting one of our third-party service providers or partners could harm our business even if we do not control the service that is attacked.
In addition, the increasing prevalence and the evolution of cyber-attacks and other efforts to breach or disrupt our systems or those of our employees, customers, third-party service providers and/or joint venture partners will likely continue to lead, to increased costs to us with respect to preventing, investigating, mitigating and remediating these risks, as well as any related attempted or actual fraud.
Our facilities and systems are vulnerable to natural disasters and other unexpected events and any of these events could result in an interruption of our ability to execute our business operations.
We will depend on the efficient and uninterrupted operations of our third-party data centers and hardware systems. The data centers and hardware systems are vulnerable to damage from earthquakes, tornados, hurricanes, fire, floods, power loss, telecommunications failures and similar events. If any of these events results in damage to third-party data centers or systems, we may be unable to provide our clients with our service until the damage is repaired and may accordingly lose clients and revenues. In addition, subject to applicable insurance coverage, we may incur substantial costs in repairing any damage.
Any significant disruption in service on our website or in our computer systems, or in our customer support services, could reduce the attractiveness of our services and result in a loss of customers.
The satisfactory performance, reliability and availability of our services are critical to our operations, level of customer service, reputation and ability to attract new customers and retain customers. Most of our computing hardware are co-located in third-party hosting facilities. None of the companies who host our systems guarantee that our customers’ access to our products will be uninterrupted, error-free or secure. Our operations depend on their ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality, temperature, humidity and other environmental concerns, computer viruses or other attempts to harm our systems, criminal acts and similar events. If our arrangements with third-party data centers are terminated, or there is a lapse of service or damage to their facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities. Any interruptions or delays in access to our services, whether as a result of a third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and our reputation. These factors could damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause customers to cancel their accounts, any of which could adversely affect our business, financial condition and results of operations.
We do not have a disaster recovery system, which could lead to service interruptions and result in a loss of customers.
We do not have any disaster recovery systems. In the event of a disaster in which our software or hardware are irreparably damaged or destroyed, we would experience interruptions in access to our services. Any or all these events could cause our customers to lose access to our services.
We rely on third-party computer hardware and software that may be difficult to replace or that could cause errors or failures of our service, which could cause us to suffer a decline in revenues and profitability.
We rely on computer hardware purchased and software licensed from third parties in order to offer our services. This hardware and software may not continue to be available on commercially reasonable terms, or at all. If we lose the right to use any of this hardware or software or such hardware or software malfunctions, our customers could experience delays or be unable to access our services until we can obtain and integrate equivalent technology or repair the cause of the malfunctioning hardware or software. Any delays or failures associated with our services could upset our customers and harm our business.
RISKS RELATED TO OUR SECURITIES
Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.
We are authorized to issue up to 200,000,000 shares of common stock. As of the date of this report on Form 10-K, we will have approximately 21,303,000 shares of common stock issued and outstanding. Our board of directors has the authority to cause us to issue additional shares of common stock without the consent of any of our shareholders. Consequently, you may experience more dilution in your ownership of our securities in the future.
We do not intend to pay any cash dividends on our shares of common stock, so stockholders will not be able to receive a return on their investment unless they can sell their shares.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our shares of common stock. Unless we pay dividends, our stockholders will not be able to receive a return on their investment unless they can sell their shares.
There is no active market for our common stock, which may make it more difficult for you to sell your stock; purchasers of our stock may have difficulty selling their shares.
There is currently no active public trading market for our common stock and an active trading market in our common may not develop or, if developed, may not be sustained. Our common stock is quoted on the OTC Markets (OTC Pink) under the symbol “HCBR.” To date, however, no active public trading market has developed, so purchasers and/or holders of our securities may have difficulty selling their shares should they desire to do so. In the event an active market develops in our securities, it may not be sustained. As a result, you should purchase shares only as a long-term investment, and you must be prepared to hold your shares for an indefinite period.
Financial Industry Regulatory Authority (FINRA) sales practice requirements may limit your ability to buy and sell our shares.
FINRA rules 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 our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares, depressing our share price.
State securities laws may limit secondary trading, which may restrict the states in which, and conditions under which, you can sell the securities sold in this offering.
Secondary trading in our securities will not be possible in any state in the U.S. unless and until the securities are qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. We cannot assure you that we will be successful in registering or qualifying our securities for secondary trading or identifying an available exemption for secondary trading in our securities in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the securities in any state, the securities could not be offered or sold to, or purchased by, a resident of that state. If a significant number of states refuse to permit secondary trading in our securities, the market for our securities could be adversely affected.
We are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which would likely make it difficult for our stockholders to sell their securities.
Rule 3a51-1 of the Securities Exchange Act of 1934 (“Exchange Act”) establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification could severely and adversely affect any market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
| ● | The basis on which the broker or dealer made the suitability determination; and |
| ● | That the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commission payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of stockholders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our common stock, in all probability, will be subject to such penny stock rules for the foreseeable future and our stockholders will, in all likelihood, find it difficult to sell their shares of common stock.
In the event an active trading market for our common stock develops, the price of our common stock may fluctuate significantly.
In the event an active trading market for our common stock develops, the market price for our common stock could fluctuate significantly for various reasons, many of which are outside our control. Broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to litigation, including class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Our Bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our bylaws provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for:
| · | any derivative action or proceeding brought on behalf of our Company; |
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| · | any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee, or agent of the Company to the Company or the Company's stockholders; |
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| · | any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the Certificate of Incorporation, or these by-laws; or |
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| · | any action asserting a claim governed by the internal affairs doctrine; |
This provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ bylaws and certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any action, a court could find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable in such action. Additionally, these provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act, the Securities Act of 1933, as amended (“Securities Act”) or any other claim for which the federal courts have exclusive or concurrent jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to these provisions. Our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.