Imagine turning your toddler’s bedtime screaming into peaceful dreaming, in minutes!
Introducing Whisper, the Hush Buddy, a patented sleep training system that teaches children how to fall asleep quickly and quietly with 100% proven results.
Complete with a nightlight named Whisper, storybook, and parent’s guide, Whisper’s nightlight character comes to life and glows brightly when the child is quiet, but dims with sound.
Whisper, the Hush Buddy's holistic approach, game changing technology, and clinically proven sleep methods help turn a child's imagination into healthy sleep time.
Mom tested and family approved, it’s easy as 1, 2, 3 — story, set, sleep!
Current Fundraise Summary
Revenue share loan investing explained
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Fine Dining for Two-- on Us!
You'll receive a gift certificate for $200 for a fine dining restaurant in your area. Remember to raise a glass to celebrate your role in bringing Whisper, the Hush Buddy to homes across the US!
Your Name Displayed on “Hush Buddy Hall of Fame” in Hush Buddy HQ
Your name will appear on the “Hush Buddy Hall of Fame” proudly planned for display in Hush Buddy HQ.
Name in First Edition of "Whisper, The Hush Buddy" Book
Your name and/or the name of a child will appear in an exclusive list of donors in the first edition "Whisper, The Hush Buddy" book, that ships with first run Whisper, the Hush Buddy Sleep Systems. Sure to become a family keepsake!
Whisper, the Hush Buddy Sleep System
Invest and receive a gift card for a Whisper, the Hush Buddy Sleep System to keep or give to a special toddler in your life. Imagine turning your toddler’s bedtime screaming into peaceful dreaming, in minutes!
This is an overview of the previous and planned financings of the business, including the capital needs the business is looking to cover in the current financing.
Who are your target customers?
Please see attached the Five "Mom Personas" that make up the bulk of our target market(s). We will target Striving, Conventional, and Alpha Moms as they make up 66% of the market and are most likely the early adopters and product evangelists.
Do you have current customers?
We currently have almost 700 people on our "Pre-sale" list, and we haven't published a price. These are people who registered on our site after seeing our video which went somewhat viral. Through organic means only, our first video appeared in 900,000 Facebook feeds and was watched by over 300,000, with over 50,000 watching more than 75% of the video.
What market(s) are you in?
We will compete in the Juvenile Products Industry, Initially US only. Hush Buddy is the first in the world intelligent night light that actually works to modify the child's behavior. We have the patent on this device, and there are no other like competitors. We do however recognize that toddler "soothers" are currently being used by parents to try to help their children get to sleep. The soother market includes various white noise machines and other lighted devices that do not have the same proven sleep science components as Hush Buddy. The US baby sleep industry as a whole is currently worth approximately $325 million annually1.
1Marketplace.org, Sleeping like a baby is a $325 million industry, Jenny Gold, January 16, 2017.
Who are your competitors?
From a device standpoint, Hush Buddy does not have a similar competitor. Our patented device will disrupt the current market, and we expect to take a portion of the baby "soother" market which has little sleep science to speak of. The established soother companies do have deeper pockets however; and, we do expect to see their marketing efforts increased in attempts to outspend Hush Buddy and drown out our success stories. Our pricing strategy will be a competitive advantage...we will offer a discounted rate for each "pre sell" event, and decrease the discount until the market determines our value in relation to other less effective devices.
It's worthy to note that our true competition is within the clinical community of "Sleep Specialists" who get paid significant sums of money to assist toddlers in developing effective sleep strategies. At any price, Hush Buddy is a bargain by comparison based on the results we have seen with our test families. As we grow, Hush Buddy will attempt to partner with these Sleep Specialists to develop a symbiotic relationship that benefits everyone involved.
What is your competitive advantage?
Our competitive advantage is two-fold. First, we believe we are first to market and have a proprietary device that the competition cannot match. Second, we are the first ever toddler sleep device to employ 3 of the top 4 clinically proven methods of sleep success in children. We employ the "Graduated Extinction Method," Positive Routines, and Parental Education to create a clinically proven solution consisting of:
- A friendly parent introduction to their child’s brain, and a positive routine guide to help set up a successful bedtime practice. It is important to note that a consistent and positive routine is essential for success. The Hush Buddy alone is not a panacea or short cut to good nighttime parental routines and limit setting.
- A friendly story book of “Whisper,” an essence that has thoughtfully chosen to sleep in that child’s room, and as such become their “buddy” at bedtime. This critical component of the system, allows the parent to transfer ownership of any “Sleep Onset Association Disorder,” to Whisper, thus allowing a graceful exit from the room.
- Whisper, the device, reacts in the manner as told through the story book. This proprietary reaction rewards positive behavior, and draws attention to negative behavior. This critical technology piece is the first of its kind to utilize light as a peaceful means to assist with a modified graduated extinction behavior therapy.
How do you sell your product or service?
Initially, we will sell first production Hush Buddy on the Indiegogo crowd funding platform. We feel this type of customer will help us gain the traction that we need as well as help us deploy a product fulfillment system with a "forgiving" customer base. We will take the lessons learned from this activity and then use a pre-sell strategy to sell Hush Buddy exclusively on our website. Once we have a full understanding of our customer acquisition costs, we will evaluate an affiliate program and deploy if it makes good business sense to do so. We will also evaluate a specialty retail offering; however, our market value price needs to be stabilized within the market first....this may take 12-24 months.
How do you market your product or service?
Video is the best story teller for Hush Buddy. We will employ video via social media as these methods reaches our intended Mom Personas perfectly. We will have a phased approach that educates parents as well as establishes Hush Buddy as the "Sage" Archetype.
Our Marketing strategy will be rolled out in four main phases to coincide with sales and production activities. Our primary education medium will be social media (Facebook, Pinterest, Instagram, Twitter, You Tube, et al) with focus on creating partnerships with respected Mom Bloggers as well as prominent Facebook parenting pages, and other social media influencers. Efforts consider that “testimonials from parents” and “positive online reviews” comprise over 50% of the evidentiary proof parents need to purchase a Hush Buddy (see Hush Buddy Business Plan).
Our marketing efforts will be aligned with Millennials and Gen X mothers, with a focus on the five “Mom” personas14 identified across these groups. Our logic for this focused effort is based on the way our target personas purchase and who they turn to for advice before making a purchase. See Appendix A, Hush Buddy Business Plan.
Phase I: (2-3 Months) Focus on social media campaigns generating awareness and credibility. Seek an Angel investor and/or Localstake NC Crowdfunding ($50K - $100K). In addition, to gain traction and visibility, we will crowdfund Hush Buddy on the Indiegogo platform. From that momentum, create partnerships with influential mom bloggers and other social media influencers in our market. All activity is geared towards generating interest and gathering contact information prior to our crowd funding event. Participate in local events such as “One Million Cups,” and the “Triangle Tech Breakfast” to generate interest and excitement.
Phase II: (2-8 Months) Social media campaigns for initial and ongoing pre-sell events to support cash flow for manufacturing scale up. Pre-sell events are to ensure we don’t “over produce” and thus, spend our capital smartly. Continue to gain traction with the mom blog communities. Evaluate the mom personas with which we are having success, and determine how to better penetrate that market. Establish our own social media “Toddler Sleep Channel” to create a forum for all effective sleep training methods, as well as a peer-to-peer mom network to support the training and use of Hush Buddy. Reach out to contacts in national news affiliates to conduct independent testing, and gain free publicity.
Phase III: (3-6 months) Continue expanding social media marketing efforts, focus on mom personas with which we need to improve relationships. Foster relationships with preschool and daycare professionals, medical professionals, and lobby to participate in sleep studies. Continue to ramp up production, and evaluate a Fulfillment by Amazon (FBA) sales and delivery model as well as “best fit” retail opportunities. Continue to look for opportunities to expand reach and credibility.
Phase IV: (4-8 months) Continue to expand social media presence, asserting leadership in the toddler sleep training space. Create referral partnerships with sleep training experts to assist in local markets if necessary. Continue to look for opportunities to expand reach and credibility.
Significant research demonstrates that social media will be the most effective across 80% of the mom personas, with the need to capture them as influencers and advocates for Hush Buddy:
Anindya Ghose, professor at NYU Stern School of Business observes, “Social media has vastly expanded the ways that new parents can share with one another. Influential so-called mommy bloggers have expanded beyond blogs to Pinterest, Facebook and Instagram. The trend is to cross-pollinate across multiple platforms — you increase your probability that people will come across your content.15”
UK Trade & Investment, US Industry Overview on Baby Goods provides the following insight into the buying habits of Millennial and Gen X moms. “In 2014, BabyCenter conducted a survey to compare Millennial Moms’ (18-32 years old) habits and expectations versus those of Gen X Moms (33-44 years old). The graphs below show how Millennial Moms are more influenced by and active on social media and interactive applications. The internet is their second resource for information and advice; a number of these moms write their own blogs and turn to social media platforms to read and share their tips and experiences on their preferred brand’s website.16”
Michael Dwyer, Juvenile Products Manufacturers’ Association Executive Director asserts, “The Internet has changed many aspects of life, including how we parent and shop for baby gear.” He also noted, “Parents today are tech-savvy and utilizing online resources for all things baby, including safety tips, connecting with friends and family, and researching and establishing relationships with their favourite products and brands.17”
Hush Buddy must be cognizant of the fact that current parents are much better educated, concerned about safety, aware of brands they can trust, and are also interested in the origin of a product.
(Please see Hush Buddy Business Plan for additional detail).
Provide us with some background on your products and services.
Hush Buddy is a sleep training system for toddlers focused at their most critical stage of cognitive development. Children between the ages of 2 - 4 years who struggle with sleep, tend to exhibit diminished capacity of higher-level cognitive functions. Hush Buddy aims to help toddlers fall asleep easier, and stay asleep longer. Hush Buddy's holistic approach, game changing technology, and clinically proven sleep methods help turn a child's imagination into healthy sleep time.
Hush Buddy’s patented technology is the first to offer sound activated sleep training for children. Specifically, the patent protects of the idea of turning off power to a night light when sound of a certain decibel level is registered. Basically, the light stays on as long at the child is quiet, and dims when there is sound, thus being the first technology application of the "Graduated Extinction" method of sleep training.
Hush Buddy has proven effective in all test homes, with parents very enthusiastic of the improvement in their child’s sleep habit. With real world feedback, we are moving from prototype to production, with final design imminent. We hope to swiftly move to manufacturing after a crowd funding event targeted for late March 2018. Through a strong social media campaign, and growing success in a wider user base, Hush Buddy will help create a better quality of life for toddlers and their parents.
A child’s inability to fall asleep, and stay asleep is a familiar problem that affects millions of children and their parents.
A review of 52 sleep treatment studies conducted by The American Academy of Sleep Medicine validates that bedtime sleep problems and frequent night wakings affect up to 50% of children over the age of 6 months1. Further, a nationwide survey of 400 parents with children age 0 – 4 years, suggest that number is even higher, with 75% saying they struggle at least sometimes with getting their child to sleep at night2.
A study conducted by the United Kingdom’s, “The Telegraph” suggests that one third of parents are pressured to lie about their children’s sleep patterns under pressure to be a “perfect parent3.” As parents and creators of Hush Buddy, we have shared similar experiences in attempting to develop proper sleep habits for our children…and to find it within ourselves to deal with sleep struggles and be the best parent possible.
Scott Hanson is the father of twins and took charge of the bedtime routine. It was a frustrating exercise in opposites, with one twin going to sleep independently, while the other struggled, bargained, and cajoled to extend bedtime, and endured the effects of less sleep the next day.
Ed Danyo was a single father raising a son who could stay awake for days at a time, and feeling like a failed parent on more than one occasion. At one point, he remembers caging young Edward in his room with double baby gates, eliminating everything that could be a safety hazard, and then sleeping outside the gated room on the floor.
Sleep deprivation is a serious issue, for both the child in their critical period of cognitive development (2-4 years), as well as parents. WebMD asserts that, “While toddlers need up to 14 hours a day of sleep, they typically get only about 104.”
Studies suggest that children up to the age of two are not negatively impacted by lack of sufficient sleep. However, after age two, “There is increasing evidence that sleep disruption and/or insufficient sleep has deleterious effects on children’s cognitive development (e.g., learning, memory consolidation, executive function), mood regulation (e.g., chronic irritability, poor modulation of affect), attention, and behavior (e.g., aggressiveness, hyperactivity, poor impulse control), as well as health (e.g., metabolic and immune function, accidental injuries) and overall quality of life5.”
The story is not promising for parents either. “The cumulative long-term effects of sleep loss (and sleep disorders) have been associated with a wide range of deleterious health consequences including an increased risk of hypertension, diabetes, obesity, depression, heart attack, and stroke6.” Further, this doesn’t account for the decrease in quality of life and relationship strains that are pervasive when not parents are not fully rested.
At the macro level, the federal Centers for Disease Control and Prevention point to sleeplessness as a public health concern. The safety aspects are the most distressing with sleeplessness being cited as a contributing factor in major catastrophes such as the Challenger Shuttle disaster7. The monetary affects are significant as well as the RAND Corporation study “calculated the business loss of poor sleep in the United States at $411 billion, a gross domestic product loss of 2.28 percent8.”
(Please see Hush Buddy Business Plan for additional detail and all references)
What is your product development timeline?
Taking feedback from our test families and from our design firm, we are in the final stage of development. Upon successful crowdfunding event, we will have the plastic molds completed in August 2018, with first run Hush Buddy delivery within 2 weeks of mold completion. With an emphasis on creating user advocates through social media, and extensive social media marketing, our sales can hit $6 million in the first 12 months.
We have received requests for a Hush Buddy carry bag (for over nights away from home) and other merchandise which we will evaluate as we receive feedback from our user base.
Hush Buddy 2.0 is planned with additional features that will help us broaden the Hush Buddy story as well as start tracking the sleep patterns of children. The tracking feature will be a parental "opt in" feature and will need to be enabled in conjunction with a sleep study conducted by a sleep doctor.
What is your production process?
Our model is to use contract manufacturing for each component of the Hush Buddy system. Each of those components will be shipped only once to the PCB manufacturer who will also assemble, test, package and ship Hush Buddy to our end customers.
We intend to have redundant suppliers for each component (understanding we will work with only one supplier in each category initially). The current breakdown as follows: The three plastic base parts will be produced by two firms in Iowa. Whisper's head (the globe) will be produced by firms in Michigan and Ohio, with the face printing occurring in Pennsylvania. The books and packaging will be produced locally in NC. Armacell in Mebane will be producing a component to ensure there is no light bleed through the base.
The PCB manufacturer and 100% PCB testing, device assembly, device functionality test, packaging and shipment will initially be completed by a firm in Pennsylvania. After the process issues have been ironed out, we will be working with local North Carolina firms to determine their capability to provide this end-to-end service.
We have started investigating near shore options to evaluate the cost benefit and balance the risk of producing outside of the United States.
Provide detail on your hiring plans
It is impossible to determine how many employees will be hired over the next 5 years. We will operate with a lean mentality and hire "just in time" resources as they are needed. Our overarching philosophy will be to contract payroll, HR, manufacturing, testing, assembly and distribution. Our goal will be to contract with as many North Carolina firms as possible.
Once Hush Buddy has cash flow, the President and COO will start taking a sustainable salary so that they can focus their entire time on Hush Buddy production. Other important employees to be hired will be internal Marketing Manager, Customer Service Manager, and Production Manager.
What is the composition of your current team?
As co-founders often do in a start up, many tasks and decisions are made jointly. Information is freely shared, and we challenge each other to answer one fundamental question at every cross road decision - "Will this decision help the child get to sleep easier?" With that said, we do have roles that have become well defined, with critical decisions being made by all three co-founders.
Scott Hanson, President - Scott is an Emmy award winning journalist, inventor, and chief story teller. Scott is primarily responsible for all marketing and messaging for Hush Buddy. Scott also owns a videography business, and his professionalism in video production is evident in the Hush Buddy videos that he has produced. Scott is also responsible for the customer data collection, both with our test families as well as our outreach in surveys, etc. From this data, Scott is also the chief point of contact driving the design of Whisper the Hush Buddy.
Edward Danyo, COO - Ed has successfully managed the P&L for a $40 million telecom business. Additionally Ed has an MBA and is also Lean Sigma certified. As such, Ed has researched and developed the Hush Buddy Business Plan, as well as created all production models, budget estimates and pro forma financial analysis. Ed is also responsible for all business and production processes to include finding and negotiating all supplier agreements, and aligning the end-to-end assembly, test, packaging and fulfillment processes.
Jim Passe' CLO - Jim has researched and filed all patent information for Hush Buddy. Additionally, Jim has filed for international protection as well as additional scope to widen the reach and authority of the Hush Buddy patent.
We have currently contracted with Abundant Marketing, a local Raleigh firm, to assist with developing our market strategy as well as making Hush Buddy relevant on our social media channels. We anticipate hiring additional contract marketing resources as needed, and will hire a full time Marketing Manager for Hush Buddy when appropriate.
We have currently contracted with Jon Spinney at Malartu, a local Raleigh firm, to consolidate our various data platforms into a single dashboard. This dashboard will be paramount in creating KPIs, understanding our customer acquisition costs, and will help guide our future marketing decisions with a goal of intelligently spending our capital on activities that generate the most revenue.
Edward A Danyo
Co-Founder & COO. Entrepreneur who has performed live on stage with Blue Man Group, Interviewed by Forbes magazine and now happily focused on improving the quality of life of toddler's through precious sleep. Background in Electrical Engineering and Six Sigma coupled with an MBA, significant process and P&L growth responsibility with $40 million company.
Scott Ray Hanson
Scott Hanson is the inventor of Hush Buddy. As a former Emmy award winning journalist, Scott brings his story telling skills to help parents learn how Hush Buddy can transform their bedtimes. Scott oversees product research and design, and marketing strategies.
Passe Intellectual Property LLC is an intellectual property law firm specializing in assiting individuals, start-ups and companies with small to medium sized patent portfolios and trademark needs to file and obtain patent and trademark coverage and develop a coherent patent and trademark strategy for commercial development of a product. We handle Life sciences as well as business methods, electrical, IT, internet, nanotech,articles of manufacture, processes, machines and the like. See our web site www.passeip.com for more detailed information or call us directly at 919-256-8196
Specialties: We handle drafting and prosecution of patent applications in biotech, chemistry, medical devices, as well as business methods, electrical, IT, internet, articles of manufacture, processes, machines and the like. We handle all forms of trademark issues including filing and prosecution of applications.
Malartu, Raleigh, NC
We have currently contracted with Jon Spinney at Malartu, a local Raleigh firm, to consolidate our various data platforms into a single dashboard. This dashboard will be paramount in creating KPIs, understanding our customer acquisition costs, and will help guide our future marketing decisions with a goal of intelligently spending our capital on activities that generate the most revenue.
Abundant Marketing, Raleigh, NC
We have currently contracted with Abundant Marketing, a local Raleigh firm, to assist with developing our market strategy as well as making Hush Buddy relevant on our social media channels. We anticipate hiring additional contract marketing resources as needed, and will hire a full time Marketing Manager for Hush Buddy when appropriate.
EPD Electronics, Natrona Heights, PA
EPD Electronics in Natrona Heights, PA is the firm finalizing our design. We are also in negotiations with EPD to assemble, test and package. Whisper v.1 design completion is scheduled for late March. That critical phase will be the key to negotiating all of our production deals as we will then know our printed circuit board (PCB), assembly, test and packaging costs.
About Whisper, the Hush Buddy
|Entity||Hush Buddy, LLC|
|State Organized||North Carolina|
|Location Type||Co Working Space|
|Comments||We want to be in the heart of Raleigh, and feel the Industrious co-working space is where we will set up our headquarters. Location: 555 Fayetteville Street, 3rd Floor, Raleigh, NC 27601|
Risks & Disclosures
The Company's management will have broad discretion in use of proceeds
The Company has preliminarily designated the use of the proceeds from this Offering for purchasing equipment, sales and marketing efforts, general working capital purposes and other necessary expenditures as determined in the discretion of management. Accordingly, the Company's management will have significant flexibility and broad discretion in applying the proceeds of the Offering. The failure of management to apply these funds effectively could have a material adverse effect on the Company's business, results of operations, prospects, and financial condition.
Limited operating history
The Company was founded in February 2017, is an early stage company with limited operating history upon which to evaluate its business and has generated no revenues to date. The Company is not currently profitable. Although management of the Company currently anticipates that its business strategy will be successful, the Company may not be able to achieve the revenue growth in the coming years necessary to achieve profitability. The Company's prospects also must be considered in light of the risks and difficulties frequently encountered by startup companies in today's business environment. The Company may not be successful in addressing these risks, and the business strategy may not be successful.
Unpredictability of future revenues; Potential fluctuation in operating results
Because the Company has limited operating history, the ability to forecast revenues is limited. The Company's future financial performance and operating results may vary significantly from projected amounts and fluctuate substantially from quarter to quarter due to a number of factors, many of which are likely to be outside of the Company's control. These factors, each of which could adversely affect results of operations and future valuation, include:
• demand for the Company's products and services;
• introduction or enhancement of products and services by the Company and its competitors;
• actual capital expenditures required to bring the Company's products and services to market;
• market acceptance of new products and services of the Company and its competitors;
• price reductions by the Company or its competitors or changes in how products and services are priced;
• the Company's ability to attract, train and retain qualified personnel;
• the amount and timing of operating costs and capital expenditures related to the development and expansion of the Company's business, operations and infrastructure;
• unexpected costs and delays relating to the expansion of operations;
• change in federal or state laws and regulations;
• timing and number of strategic relationships that are established;
• loss of key business partners; and
• fluctuations in general economic conditions.
The projections of the Company's future operating costs are based upon assumptions as to future events and conditions, which the Company believes to be reasonable, but which are inherently uncertain and unpredictable. The Company's assumptions may prove to be incomplete or incorrect, and unanticipated events and circumstances may occur. Due to these uncertainties and the other risks outlined herein, the actual results of the Company's future operations can be expected to be different from those projected, and such differences may have a material adverse effect on the Company's prospects, business or financial condition. Any projections that were prepared or provided by the Company were not prepared with a view toward public disclosure or complying with the published guidelines of the American Institute of Certified Public Accountants or the Securities Exchange Commission regarding projected financial information. Under no circumstances should such information be construed to represent or predict that the Company is likely to achieve any particular results.
Need to establish new and maintain existing customer relationships
The market for the Company's products is rapidly evolving. The Company is unable to predict whether its products will satisfy customer demands or if they will be supplanted by new products. To date, the Company has developed no customer relationships. The Company's efforts to market and sell its services could be significantly affected by competitive and technological developments. If this occurs and if the Company is unable to adapt quickly enough to the change, it may fail to develop customer relationships, and maintain those relationships, and its business, financial condition and results of operations could be materially adversely affected.
No assurances of sufficient financing; Additional capital may be required
Although the Company believes the proceeds of this Offering will provide adequate funding to develop and successfully support its business plans, there can be no assurances that such funds will be adequate. If the Company's cash requirements exceed current expectations, the Company may need to raise additional equity or debt capital, beyond what is being sought with current efforts. There can be no assurance that adequate additional financing on acceptable terms will be available when needed. The unavailability of sufficient financing when needed would have a material adverse effect on the Company and could require the Company to terminate its operations. If the Company is left without sufficient capital, Investors could lose all, or a significant portion of, their investment.
Reliance on key management employees and future personnel
The success of the Company is dependent on the efforts of a limited number of key people. The Company has not made plans to purchase key person life insurance. The loss of key personnel could have a serious adverse effect on the Company's prospects, business, operating results, and financial condition. To fulfill its operating plans, the Company's future success also depends on its ability to identify, attract, hire, train, retain and motivate additional personnel to fulfill various roles within the Company. The failure to attract and retain the necessary personnel could materially and adversely affect the Company's business, prospects, financial condition and results of operations.
Competition from other businesses
The Company's core product will compete in a competitive market with several established sleep training nightlights. The Company expects competition to increase in the future. If and when the Company expands the scope of its product offerings, it may compete with a greater number of companies across a wider range of products. Many of the Company's current competitors and potential new competitors may have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical and marketing resources than the Company. These advantages may allow them to respond more quickly to new or emerging technologies, changes in laws or regulations, and changes in client and/or user requirements. There can be no assurance that the Company will be able to compete successfully in its chosen markets and competitive pressures may materially and adversely affect the Company's business, prospects, financial condition and results of operations. Any significant success of the Company's competitors can damage relationships with its customers and service providers, diminish the Company's market share, and present significant obstacles to the further development of the Company.
Limited ability to protect intellectual property rights
The Company's business model is dependent on proprietary technology. As such, licensing, developing and protecting the proprietary nature of this technology is crucial to the success of the Company. The Company will rely on intellectual property laws, all of which offer only limited protection. Competitors may infringe upon the patent that the Company has taken out on its proprietary technology, or the trademark the Company has filed on its name. Failure to adequately protect its intellectual property from current competitors or new entrants to the market could have a material adverse effect on the Company's business, operating results, and financial condition. If the Company resorts to legal proceedings to enforce the Company's intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk.
Additionally, the Company may become subject to third-party claims that it infringed upon their proprietary rights or trademarks. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against the Company or the payment of damages by the Company.
Control of the Company
The managers, officers and/or directors comprising the Company’s management team will have sole management authority over the business of the Company, regardless of the opposition of Investors to pursue an alternate course of action. Investors will not become members of the Company and shall have no voting, dividend, minority ownership rights, or other rights or status as a member of the Company as a result of his, her or its investment. Investors will have no right to vote with respect to the management or to participate in any decision regarding management of the Company’s business.
Existing and potential litigation
Although management is unaware of any threatened or pending litigation against the Company or management, there can be no assurance that future claims will not be asserted and that, even if without merit, the cost to defend against such claims would not be significant, thus having a material adverse effect on the Company's business, financial condition and results of operations. The Company has never filed any lawsuit against any other person or entity, or been the subject of a lawsuit.
The Company is obligated to indemnify its management
Executive officers and managers of the Company owe certain duties to the Company they serve in connection with the use of its assets. Executive officers and managers are fiduciaries, and as such are under obligations of trust and confidence to the Company and owners to act in good faith and for the interest of the Company and its owners, with due care and diligence. Notwithstanding the foregoing, the Company is obligated to indemnify officers and managers of the Company for actions or omissions to act by such officers and managers of the Company on behalf of the Company that are authorized under the organizational documents of the Company. In addition, an officer may be entitled to advancement of expenses they may incur associated with or in defense of charges, claims or legal action arising from such person’s position as an officer or manager of the Company, which could result in a decrease in the assets available for Investors in certain circumstances. The assets of the Company will be available to satisfy these indemnification obligations. Such obligations will survive dissolution of the Company. There are very limited circumstances under which the management of the Company can be held liable to the Company. Accordingly, it may be very difficult for the Company or any Investor to pursue any form of action against the management of the Company.
No audited financial statements
The Company has not yet sought to have its financial information audited by an independent certified public accountant and there is no assurance that it will do so in the future. All financial information provided in the Offering Materials has been prepared by the Company's management team and has not been reviewed or compiled by an independent accounting firm.
Agreement for proposed location has not been finalized
The Company has not yet secured a location for its operations. It is the Company’s expectation that a location will be secured on reasonable terms in the near future, however if this does not occur, the Company’s operations and financial condition will be adversely affected.
Sufficient insurance coverage
The Company has not yet obtained insurance coverage related to its operations, including but not limited to: manufacturing liability, business/general liability, and workman's comp insurance. The cost of insurance policies maintained by the Company to protect the Company's business and assets could increase in the future. In addition, some types of losses, such as losses resulting from natural disasters, generally are not insured because they are uninsurable or it is not economically practical to obtain insurance to cover them. Moreover, insurers recently have become more reluctant to insure against these types of events. Should an uninsured loss or a loss in excess of insured limits occur, this could have a material adverse effect on the Company's business, results of operations and financial condition.
Reliance on third parties for product inputs
The Company will rely on various third parties to provide its product inputs and other goods and services. Certain of these third parties are not yet under contract with the Company. The Company may experience difficulties in finding appropriate third parties for their product inputs, these third parties may become unable to or refuse to continue to provide these goods and services on commercially reasonable terms consistent with the Company’s business practices, or otherwise discontinue a service important for the Company to continue to operate under normal conditions. If the Company fails to find or replace these goods and services in a timely manner or on commercially reasonable terms, the operating results and financial condition of the Company could be harmed. In addition, the Company exercises limited control over third-party vendors, which increases vulnerability to problems with goods and services those vendors provide. If the goods and services of the third parties were to fail to perform as expected, it could subject the Company to potential liability, adversely affect renewal rates, and have an adverse effect on the Company's financial condition and results of operations.
The Company is required to hold certain licenses and permits
The Company operates in a highly regulated industry as a manufacturer of child-age products. In order to operate the Company, the Company must obtain approvals from the FCC, UL and Consumer Product Safety Commission (CPSC), permitting the activities contemplated by the business model. The Company has not secured the regulatory approvals necessary to begin operations and commence retail sales. The Company expects to have all necessary approvals in place in the coming months, however there is no guarantee they will be successful in doing so. If the Company is unable to secure the necessary approvals, its financial and operational results may be adversely affected. In addition, the violation of the requirements associated with the provision of these approvals could result in fines, a cease and desist order against the subject operations or even revocation or suspension of the Company’s approval to operate the subject business.
Regulatory and other industry changes may adversely affect the Company
The Company operates in a highly regulated environment, and is subject to a comprehensive statutory and regulatory regime as well as oversight by governmental agencies and self-regulatory organizations. Federal and state laws, regulations and policies concerning the Company's industry may heavily influence the market for the Company's products. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and reputational damage, which could have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company will have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. If violations do occur, they could damage the Company's reputation and increase its legal and compliance costs, and ultimately adversely impact the Company's results of operations. Laws, regulations or policies currently affecting the Company may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, the Company's business may also be adversely affected by future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement. A change in the current regulatory environment could make it more difficult or costly for the Company to operate as currently anticipated. The Company cannot predict how changes in regulation or other industry changes will affect the market for the Company's product offerings.
Need to maintain existing, and develop new products and services
The success of the Company is dependent upon the Company's ability to maintain a certain level of quality in, and enhance existing products as well as to develop and introduce in a timely manner new products that incorporate technological advances, keep pace with evolving industry standards, and respond to changing customer requirements. If the Company is unable to develop and introduce new products or enhancements in a timely manner in response to changing market conditions or customer requirements, while maintaining a certain level of quality in its existing products, the Company's business, financial condition and results of operations would be materially adversely affected.
Reliance on third parties for technology development
The Company has relied on and plans to continue to rely on third parties to provide the resources necessary to develop its technology. These third parties may become unable to or refuse to continue to provide these services on commercially reasonable terms consistent with the Company’s business practices, or otherwise discontinue a service important for the Company to continue to operate under normal conditions. If the Company fails to replace these services in a timely manner or on commercially reasonable terms, the operating results and financial condition of the Company could be harmed. In addition, the Company exercises limited control over third-party vendors, which increases vulnerability to problems with services those vendors provide. If the services of the third parties were to fail to perform as expected, it could subject the Company to potential liability, adversely affect renewal rates, and have an adverse effect on our financial condition and results of operations.
Reliance on host providers to deliver the Company’s services; Host provider concentration
The Company’s technology has been developed as an application to be added into the existing technology of a host provider. As such, the Company is reliant upon a limited number of host providers (currently Shopify, with plans to expand to other host providers) to execute the Company’s services. The Company plans to continue to rely on host providers to provide the resources necessary to deliver its technology. These third parties may become unable to or refuse to continue to provide these services on commercially reasonable terms consistent with the Company’s business practices, or otherwise discontinue a service important for the Company to continue to operate under normal conditions. If the Company fails to replace these services in a timely manner or on commercially reasonable terms, the operating results and financial condition of the Company could be harmed.
The Company’s revenues are currently derived exclusively through one host provider. Such concentration issues increase the risk to the operations of the Company in the event that a relationship with a host provider was to be discontinued.
In addition, the Company exercises limited control over third-party vendors, which increases vulnerability to problems with services those vendors provide. If the services of the host vendors were to fail to perform as expected, it could subject the Company to potential liability, adversely affect renewal rates, and have an adverse effect on our financial condition and results of operations.
Investments in property requiring substantial construction carry significant risks
Because the Property requires substantial construction efforts, there are additional risks relating to the nature of such construction efforts. Construction risks include, but are not limited to, the timeliness of the project’s completion, the integrity of appraisal values, and the length of the ultimate construction process. If construction work is not completed (due to contractor abandonment, unsatisfactory work performance, or various other factors) and all available financing has already been expended, then in the event of a default the Company may in some instances borrow significant additional funds to complete the construction work. Any such investment could potentially require that it be repaid by the Company prior to the Investors being paid back on their investment; in such event, the ability of the Investors to realize on their investment would be materially adversely affected. Default risks also exist where it takes the Developer longer than anticipated either to construct the Property, or if the Company does not receive sufficient proceeds from the planned financings to repay the Note Investors in full. Investments involving properties with such development or significant rehabilitation business plans have an increased risk of failure.
Each investment is subject to the terms and conditions of the Investor Registration Agreement
Each Investor's subscription for and purchase of the RSAs is governed by, and subject to, the terms and conditions of the Investor Registration Agreement entered into between the Placement Agent and such Investor, including, without limitation, the investment limits established by the Placement Agent for such Investor, the Placement Agent's rights to terminate the offering or any Investor's registration with the Placement Agent.
An investment in the RSAs is speculative and involves a high degree of risk
An investment in the Company should not be made by persons unable to bear the risk of loss of their entire investment or by persons who may have a need for liquidity from their investment. In making an investment decision, you must rely on your examination of the Company and the terms of the Offering, including the merits and the risks involved. Like all investments, an investment in the Company involves the risk of the loss of capital, and the RSAs should not be purchased by anyone who cannot afford the loss of his, her or its entire investment. Investors must be prepared to bear the economic risk of an investment in the Company for an indefinite period of time and be able to withstand a total loss of their investment. Investors are encouraged to consult their own investment or tax advisors, accountants, legal counsel, or other advisors to determine whether an investment in the RSAs is appropriate.
There is no market for the RSAs and no such market is expected to develop
The RSAs are subject to restrictions on transferability and resale and may not be transferred or resold by any Investor to a person that is not a resident of North Carolina during the 6-month period after the RSAs were issued to the Investor. If you sell or otherwise transfer your RSAs within 6 months after the RSAs were issued to a person that is not a resident of North Carolina, your investment in the RSAs is void. If your investment in the RSAs is void as a result of such sale or transfer, the Company may recover damages from the misrepresenting offeree or you. These damages include, but are not limited to, the Company's expenses in resolving the misrepresentation. However, such damages shall not exceed the amount of your investment in the RSAs. Investors may be required to bear the financial risks of the investment in the Company for an indefinite period of time. Persons who desire liquidity from this investment should not invest.
Investors will be subject to certain suitability requirements
The RSAs will not be sold to an Investor until such Investor delivers an executed representation, as contained in the Eligible Investor Questionnaire and Subscription Agreement, that he, she or it is an Eligible Investor and meets certain standards, including being a bona fide resident of North Carolina. Persons who are not Eligible Investors are not permitted to invest. The fact that a person is an Eligible Investor represents the minimum suitability requirement for an Investor, and compliance with such standards does not necessarily indicate that this would be a suitable investment for such person.
The RSAs have not been registered under the Securities Act
The RSAs offered by the Company have not been registered under the Securities Act, nor any applicable state securities laws, in reliance on the exemption from registration in Securities Act Rule 147A (the "Intrastate Sales Exemption") as enacted by the SEC, as well as other exemptions from registration requirements, including Section G.S. 78A-17.1 of the NC PACES Act (the "Invest NC Exemption"). The investment contemplated by the RSAs has not been recommended, approved, or disapproved by the SEC, or any state securities commission, or other regulatory authority, nor have any of these authorities passed upon or endorsed the merits of this Offering or the accuracy, completeness, or adequacy of the Offering Materials. Any representation to the contrary is a criminal offense.
The Company will have the right to refuse any subscription in its sole discretion
The Company will have the right to refuse any subscription in its sole discretion and for any reason (or no reason), including the Company’s belief that an Investor does not meet the applicable suitability requirements or that exemptions from the registration requirements of any applicable jurisdiction are not available with respect to the issuance of the RSAs to any Investor under this Offering. The Company may make or cause to be made such further inquiry and obtain such additional information as it deems appropriate with regard to the suitability of Investors. The Company reserves the right to modify the suitability standards with respect to certain Investors in order to comply with any applicable state or local laws, rules, regulations or otherwise.
The Company reserves the right to reject some or all of any prospective investment
The offer of the RSAs by the Company is subject to prior sale and certain other conditions. The Company reserves the right, in the Company's sole discretion and for any reason, to withdraw, cancel, or modify the Offering and to accept or reject some or all of any prospective investment. The Company will have no liability to any Investor in the event that the Company takes any of these actions.
The Offering Materials do not purport to be all-inclusive
The Offering Materials provided to Investors do not purport to be all-inclusive or contain all of the information that you may desire in investigating the Company. You must rely on your own examination of the Company and the terms of the Offering, including the merits and risks involved in making an investment in the RSAs. Prior to making an investment decision, you should consult your own counsel, accountants, and other advisors and carefully review and consider all of the Offering Materials provided and the other information that you acquire. You should not construe any statements made in the Offering Materials provided as investment, tax or legal advice.
The Company will be available to you to answer questions and furnish additional information
The Company will make available to you, upon request, copies of material agreements and other documents relating to the Company and will afford you the opportunity to ask questions and receive answers from the Company concerning its business and financial condition. The Company will also provide you an opportunity to meet with representatives of the Company to obtain other additional information.
The information presented in the Offering Materials was prepared by the Company and is being furnished solely for your use in connection with the Offering
The Offering Materials (together with any amendments or supplements and any other information that may be furnished by the Company) includes or may include certain forward-looking statements, estimates, and projections with respect to the Company's anticipated future performance. Examples of forward-looking statements include statements regarding the Company's future sales, purchase orders, financial results, operating results, acquisitions, business and monetization strategies, projected costs, revenues, products, competitive positions and plans and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "would," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Such forward-looking statements, estimates, and projections are not guarantees of future performance and reflect various assumptions of the Company's management that may or may not prove correct and involve various risks and uncertainties over which the Company may have no influence or control. While the Placement Agent has reviewed them, no independent party has verified or confirmed the reasonableness of the assumptions that form the basis of the forecasts. These and many other factors could affect the Company's future financial and operating results, and could cause actual results to differ materially from expectations based on forward-looking statements made in the Offering Materials or elsewhere by the Company (or on its behalf). The likelihood of the Company's success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with growing a startup business. There can be no assurance that the Company will generate any particular level of revenue or will be able to continue to operate profitably.
The terms, conditions and restrictions of the RSAs are fully set forth in the Offering Materials
The terms, conditions and restrictions of the RSAs are fully set forth in the Revenue Sharing Agreement, which you will be required to execute if you decide to invest, the form of which has been provided to you in the Offering Materials section for this Offering on the Company Offering Profile. You should not invest unless you have completely and thoroughly reviewed the provisions of the Revenue Sharing Agreement. In the event that any of the terms, conditions, or other provisions of the Revenue Sharing Agreement are inconsistent with or contrary to the information provided in the Offering Materials, that agreement will control. Any additional information or representations given or made by the Company in connection with the Offering, whether oral or written, are qualified in their entirety by the information set forth in the Offering Materials, including, but not limited to, the risks of investment.
No solicitation in any state or other jurisdiction in which such solicitation is not authorized
The Offering Materials do not constitute an offer to sell, or a solicitation of an offer to buy, any security in any state or other jurisdiction in which such an offer or solicitation is not authorized. Except as otherwise indicated, the offering materials speak as of the date the Offering was initiated. Neither access to the Offering Materials nor any sale of the RSAs shall, under any circumstances, create an implication that there has been no change in the Company's affairs from the date the Offering was initiated.
Only the Offering Materials may be relied upon in connection with this Offering
Only the information expressly set forth in the Offering Materials, including any communications provided by the Company through the communications channel made available on the Company Offering Profile or contained in documents furnished by the Company upon request may be relied upon in connection with this Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Materials and, if given or made, such information or representations must not be relied upon. Access to the Offering Materials at this time does not imply that information therein is correct as of any time subsequent to this date.
Securities to be offered to investors
Closing procedures for the Offering
The Offering shall be available to potential Investors until the final closing of the sale and purchase of the RSAs (the "Final Closing"), which will occur upon the earlier of (i) the date the Company has closed on the purchase and sale of RSAs for the Maximum Offering Amount, (ii) 12 months after receiving notice from the date of Notice of Effectiveness from the State of North Carolina, or (iii) the Company terminates the Offering in its sole and absolute discretion (the "Termination Date").
The RSAs are offered by the Company on a best efforts, minimum-maximum basis as specified herein. As such, the Offering is contingent upon the Company's receipt of the Minimum Offering Amount prior to the Termination Date. All funds received from Investors will be deposited and held in an FDIC-insured bank account established by Localstake Marketplace LLC (the "Placement Agent"), with Kingdom Trust Company (the "Escrow Agent"), at Independence Bank, exclusively for the benefit of the Issuer (the "Escrow Account"), until the Minimum Offering Amount has been satisfied. Once the Minimum Offering Amount has been received by the Escrow Agent in the Escrow Account, pursuant to the terms of the Escrow Agreement and provided that (i) the Company has provided advance written notice to Investors of at least five (5) business days, (ii) the Offering has been available on the Company Offering Profile for a minimum of twenty-one (21) days, (iii) there has been no material change that would require an extension of the Offering and reconfirmation of the investment commitment, and (iv) the Escrow Account continues to meet the Minimum Offering Amount at the end of the five business day period after Investors have been notified of the closing, the Placement Agent shall direct the Escrow Agent to initiate the transfer of Investor funds (net of the placement fee to be paid to the Placement Agent on such amounts) from the Escrow Account to a deposit account maintained by the Company (the "Initial Closing"), which funds shall constitute net proceeds usable by the Company for the purposes outlined in the Offering Materials. After the Initial Closing, additional Investor funds will be held in the Escrow Account until, and at such time as, the Placement Agent chooses to, in its sole discretion, direct the Escrow Agent to release the additional Investor funds, (each a "Closing"), to be facilitated using the same procedures identified herein for the Initial Closing. The Company will continue to accept investment commitments up until the occurrence of the Final Closing.
If the Minimum Offering Amount is not received by the Company into the Escrow Account prior to the Termination Date of the Offering, no RSAs will be sold in the Offering, and the Offering will not be consummated. All investment commitments will be cancelled and the Escrow Agent will initiate a return of any Investor funds deposited in the Escrow Account to such Investors within ten (10) days. Investor funds will not earn interest while in escrow and no interest will be returned with Investor funds if the Offering is not consummated. Any RSAs subscribed for by control persons of the Company or the Placement Agent (or their affiliates or related persons thereof) will not be counted in determining whether the Minimum Offering Amount has been satisfied.
The Company's acceptance of investments and cancellations
The Company reserves the right to accept, through execution of a countersignature on the Subscription Documents, an Investor’s subscription for RSAs at any time during the Offering and may reject the Subscription Documents based upon the Company’s review thereof for any reason or for no reason. Should the Company receive investment commitments for greater than the Maximum Offering Amount, the Company will determine, in its sole discretion, which subscriptions to accept up to the Maximum Offering Amount.
If the Investor has chosen to transfer their investment funds electronically, these funds will be transferred from their linked bank account as specified on the Company Offering Profile to the Escrow Account, forty-eight (48) hours after the Company’s acceptance thereof. If the Investor has chosen another form of funds transfer, the Investor will receive a notice containing instructions for transferring funds to the Escrow Account. Investors may cancel their investment commitment in the RSAs, using the methods made available on the Company Offering Profile, and have their investment funds returned (if applicable) for any reason prior to the Closing applicable to the Investor’s investment. If an Investor has not canceled his, her or its investment commitment in the RSAs prior to such deadline, the Investor’s subscription for the RSAs shall be irrevocable by the Investor, and will be documented through the receipt of an executed copy of the RSAs, which will also be recorded and maintained on the books of the Company. The Company does not intend to employ the services of a transfer agent.
Material changes to the Offering
Should a material change be made by the Company to the Offering Materials, including, but not limited to a change to the Termination Date or the Maximum Offering Amount, the Offering shall be temporarily suspended until such time as the necessary amendments have been made to the Offering Materials and the updated Offering Materials have been filed with the appropriate securities regulators and received a notice of compliance. Once the Offering recommences, the Company will provide to all Investors who have made investment commitments notice of the material change. If the Investor does not reconfirm his or her investment commitment within five (5) business days of receipt of such notice, the Investor’s investment commitment will be cancelled and the Investor will receive a notification verifying that the investment commitment was cancelled, the reason for the cancellation and the refund amount that the Investor should expect to receive. The Escrow Agent will initiate a return of the Investor’s funds deposited in the Escrow Account to such Investor within ten (10) days.
Fees for placement agent services
As compensation for the Placement Agent’s services in connection with the Offering, the Placement Agent shall be entitled to receive a placement fee paid by the Company (the "Placement Fee"). Below is a breakdown of the Gross Proceeds, estimated Placement Fee and Net Proceeds for the Offering.For Minimum Offering Amount
- Gross Proceeds: $50,000
- Estimated Placement Fee: $2,500
- Net Proceeds: $47,500
- Gross Proceeds: $100,000
- Estimated Placement Fee: $5,000
- Net Proceeds: $95,000
Subscribing for an investment and transferring funds
Investors interested in subscribing for the RSAs will be required to complete and return to the Company (via the Localstake NC Platform) an Eligible Investor Questionnaire, Subscription Agreement and Revenue Sharing Agreement (collectively, the "Subscription Documents"). Payment of the investment amount is preferred via electronic ACH transfer, but may also be made by check or domestic wire. Instructions for each method of payment into the Escrow Account will be provided upon completion of investment via the Company Offering Profile.
Use of proceeds in the Offering
The Company intends to use the net proceeds of this Offering for purchasing equipment, sales and marketing efforts, general working capital purposes and other necessary expenditures as determined in the discretion of management of the Company, as detailed below.
Funding Uses for Target Raise ($50k)
• Equipment Purchase: $45,320: Our funding dollars will go towards the 4 plastic molds required to make the product. Total mold cost is $45,320. We need $22,660.00 as an initial deposit on the molds with the balance due at mold completion/test. Molds will take 12-14 weeks to create, thus the time lapse between the first and second payment is 3 months (roughly). We will also use the money raised for sales and marketing of the product.
Funding Uses for Max Raise ($100k)
• Funding uses outlined in the Target Raise scenario, plus
• Sales and Marketing: $45,000
The remaining amounts not specified in both scenarios include the expected placement fee and a cash buffer.
Securities laws being utilized and investor qualifications
This Offering is made in reliance upon an exemption from registration under the federal Securities Act of 1933, as amended (the "Securities Act") as set forth in Rule 147A thereof, and is being made exclusively to North Carolina residents. The RSAs will be offered and sold only to persons who meet certain qualifications, including, but not limited to, being either (i) "accredited investors" ("Accredited Investors") as defined in Rule 501(a) of Regulation D promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act, residing in North Carolina or (ii) "non-accredited investors" residing in North Carolina whose investment in the RSAs is not more than $5,000 ((i) and (ii) collectively referred to as the "Eligible Investors"). The minimum investment that will be accepted by the Company from an Eligible Investor is $500.
Restrictions on transferability
The RSAs offered by the Company have not been registered under the Securities Act, nor any applicable state securities laws, in reliance on the exemption from registration in Securities Act Rule 147A (the "Intrastate Sales Exemption") as enacted by the SEC, as well as other exemptions from registration requirements, including Section G.S. 78A-17.1 of the NC PACES Act (the "Invest NC Exemption"). As a result, the RSAs are subject to restrictions on transferability and resale and may not be transferred or resold by any Investor to a person that is not a resident of North Carolina during the 6 month period after the RSAs were issued to the Investor. In addition, there is no market for the RSAs being offered and the Company does not expect that any market will be developed in the foreseeable future.
Investors may not receive a return of their investment amounts and there is no guarantee of return
Investors will be entitled to receive a return on their investment only through the RSAs and the monthly revenue share payments thereunder. The only source of funds for the repayment of the Investors' investment amounts and a return on such investment amounts is the Company's operations. The return to Investors and the future value of the investment will depend on a number of factors which cannot be predicted at this time and which may be beyond the control of the Company. These include the general, local, and industry-related economic conditions. In the event that the Company does not generate sufficient revenues from operations, the Investors may not receive any return at all and may lose a substantial portion (or possibly all) of their investment amounts. Neither the Company nor the Placement Agent makes any representations or warranties with respect to any return on an investment in the Company. There can be no assurance that an Investor will receive any return on an investment in the Company or realize any profits on such Investor's investment in the Company.
No market; Lack of liquidity
There currently is no public or other trading market for the RSAs being offered or any other securities of the Company and there can be no assurance that any market may ever exist for the RSAs being offered or any other securities of the Company. If a public market does develop, factors such as competitors' announcements about performance, failure to meet securities analysts' expectations, changes in laws, government regulatory action, and market conditions for the industry in which the Company operates in general could harm the price of the Company's publicly traded securities. The Company has no obligation to register the RSAs being offered or any other securities under the Securities Act or any state securities laws. Investors should be prepared to hold their RSAs for an indefinite period.
Investors are reliant on the Administrative Agent for servicing and collections
The Investors will not be able to pursue collection against the Company themselves. If the Administrative Agent were to become subject to a bankruptcy or similar proceeding or were to otherwise become unable to perform its duties under the RSAs, enforcement of Investors’ rights could be uncertain, recovery of funds due on the RSAs may be substantially delayed, and any funds recovered may be substantially less than the amounts due or to become due on the RSAs. The RSAs require that the Company hold the responsibility to replace the Administrative Agent in the event the Administrative Agent is unable to perform its duties.
Investors will not become members of the Company
Investors will not become members of the Company and shall have no rights to share in the Company’s net assets (other than pursuant to their RSAs), cash flow, or net income, and shall have no voting or dividend rights, as a result of his, her or its investment. Investors shall only be entitled to their pro rata share of collected gross revenue of the Company, up to the Maximum Revenue Share Amount. The only return on the investment is the monthly revenue share payments set forth in the RSAs.
The obligations of the Company under the RSAs will be unsecured obligations
The Company's obligations under the RSAs will be unsecured obligations. Therefore, upon the occurrence of an event of default under the RSAs, an Investor will have no recourse against the assets of the Company and rights that the Investor may have under the RSAs will be subordinate and inferior to the Company's other creditors at such time, if any, unless an explicit subordination agreement has been entered into, prioritizing the Investor to another creditor of the Company. The Company is not restricted from issuing or entering into any other debt obligations. The issuance of additional debt by the Company would materially affect the likelihood of Investors recovering any amounts owed in the event of default under the RSAs, In this scenario, Investors may not receive any return at all and may lose a substantial portion (or possibly all) of their investment amounts.
Investors are required to indemnify and reimburse the Administrative Agent; There will be little or no recourse against the Administrative Agent.
As a condition of agreeing to the terms of the RSAs, the Investor has agreed to indemnify and reimburse the Administrative Agent, ratably from and against any and all actual liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (other than those expenses and costs to be borne by the Administrative Agent in the ordinary course of its or its agents’ fulfillment of administrative agent services), which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of the RSAs or any action taken or omitted under the RSAs, provided that the Investor shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct.
Disputes may be resolved only through mandatory binding arbitration
The RSAs provide that any claims or disputes between the Investor and the Company and its affiliates and agents (including the Placement Agent) must be resolved by confidential mandatory binding arbitration before a private dispute resolution service and forum provider. Investors will not have a right to litigate claims through a trial, and will be required to knowingly and voluntarily waive their rights to litigate any claims in a court.
No analysis has been done of potential state or local tax consequences
Investors should consider potential state and local tax consequences of an investment in the RSAs and they are urged to consult their own tax advisor to determine the state and local income tax consequences of investing in the RSAs. The Offering Materials make no attempt to summarize the state and local tax consequences to potential investors.
The RSAs will be treated as debt for federal income tax purposes
The Company intends to treat RSAs as debt for federal tax purposes. No clear guidance exists that definitively provides that RSAs are either debt or equity for federal tax purposes; and thus, a risk exists that the Internal Revenue Service could successfully assert that RSAs should be treated as equity instead of debt. Such a determination is dependent upon all attendant facts and circumstances surrounding the issuance and holding of RSAs, including, but not limited to the following:
• the presence or absence of an unconditional promise to pay a sum certain at a fixed maturity date;
• the right to enforce payment of principal and interest;
• the status of the contribution in relation to regular corporate creditors (whether or not subordinate to general creditors);
• the intent of the parties, especially as to non-tax purposes
• the names given to the certificates evidencing the indebtedness;
• the source of payments;
• participation in management flowing as a result;
• thin or adequate capitalization;
• identity of interest between creditor and stockholder;
• source of interest payments;
• the ability of the entity to obtain loans from outside lending institutions;
• the extent to which the advance was used to acquire capital assets or to meet current operating expenses; and
• the failure of the debtor to repay on the due date or to seek a postponement, as well as the actual payment of the interest.
If the IRS were to prevail that RSAs should be treated as equity for tax purposes, each holder would be considered to be a member of the Company and, because the Company is taxed as a partnership, interest payments received by a holder would be recharacterized as distributions from a partnership, which could impact the tax treatment of the holder. Because a partnership generally is not a taxable entity, it will incur no federal income tax liability. Rather, each holder would be required to take into account in computing its federal income tax liability its allocable share of income, gains, losses, deductions, and credits of the Company, regardless of whether cash distributions are made.
General tax considerations
Investors in the RSAs are urged to consult their tax advisors concerning the federal, state, local and foreign income tax consequences of acquiring, owning, and disposing of, the RSAs as well as the application of state, local and foreign income and other tax laws. Any federal tax discussion contained in these Offering Materials, including any attachments, was written in connection with the Offering of the RSAs by the Company, and is not intended or written to be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government. Nothing in these Offering Materials shall be deemed tax or legal advice by the Company or its members.
The tax-related information herein summarizes certain material U.S. federal income tax aspects of the purchase and ownership of the RSAs. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), the regulations thereunder, published administrative rulings, and judicial decisions in effect on the date of the Offering Materials. No assurance can be given that future legislative or administrative changes or court decisions will not significantly modify the statements expressed in these Offering Materials. Any such changes may or may not be retroactive with respect to transactions completed prior to the effective dates of such changes.
The tax-related information herein is a general discussion of U.S. federal income tax consequences of investing in RSAs by individuals and does not purport to deal with all federal income tax consequences applicable thereto or the federal income tax consequences applicable to all categories of Investors, some of which may be subject to special rules (e.g., Investors who do not reside in or citizens of the U.S.). This discussion is not intended as a substitute for careful tax planning. Any federal tax discussion contained in these Offering Materials, including any attachments, was written in connection with the offering of RSAs by the Company, and is not intended or written to be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government. Investors are urged to consult their own tax advisors, lawyers, or accountants with specific reference to their own tax situations.
Backup withholding with respect to the RSAs
Under certain circumstances, interest paid on RSAs may be subject to "backup withholding" of federal income tax. Backup withholding does not apply to corporations and certain other exempt recipients which may be required to establish their exempt status. Backup withholding generally applies if, among other circumstances, a non-exempt holder fails to furnish his or her correct social security number or other taxpayer identification number. Special backup withholding rules may apply when payment is made through one or more financial institutions or by a custodian, nominee, broker or other agent of the shareholder. If applicable, Investors should contact their brokers to ensure that the appropriate procedures are followed which will prevent the imposition of backup withholding.
Gain or loss on disposition of the RSAs
If the RSAs are sold, the selling holder will recognize gain or loss equal to the difference between the amount realized from the sale and the selling holder's adjusted basis in the RSAs. The adjusted basis generally will equal the cost of the RSAs paid by the seller, increased by any OID on the RSAs included in the seller's income and reduced (but not below zero) by any payments on the RSAs. Because the RSAs are characterized as contingent payment debt instruments under the Code and Treasury Regulations, any gain recognized upon a sale, exchange, retirement, or other disposition of an RSAs will generally be treated as interest income and any loss will be ordinary to the extent of prior interest income inclusion.
Investors will recognize interest income on the RSAs each year even if no payments are actually received
Investors in the RSAs, regardless of whether the Investor reports income under the cash or accrual method of accounting, will be required to recognize interest income from the RSAs each year under the original issue discount ("OID") rules contained in the Code, even if no payments are made with respect to the RSAs (so called "phantom income"). Because both the amount of each payment and the timing of the payments to holders of the RSAs are contingent on the Company's ability to generate revenue, a fixed payment schedule cannot be established. Consequently, the Company is required to use the "noncontingent bond method" contained in the Treasury Regulations to determine annual interest and principal payments to the Investors in the RSAs.
In general, under the noncontingent bond method the Company must first determine the yield at which a debt instrument with terms and conditions similar to the RSAs could be issued by the Company (the "comparable yield") and prepare a projected payment schedule for the RSAs which reasonably reflects the relative expected timing and amounts of the payments to be received by the Investors in the RSAs. Accruals of interest are then attributed to each day included in the projected payment schedule. If no payments are made during the year, the amount of interest reported to the holder would be equal to the amounts accrued as interest based on the project payment schedule. If payments are made during the year, the actual interest reported with respect to the RSAs is determined by adjusting the amounts derived from the projected payment schedule for any differences between the actual payments made and the projected payment schedule. A positive adjustment occurs when the actual amount paid exceeds the projected amount, while a negative adjustment occurs when the actual amount paid is less than the projected amount.
All adjustments are netted for the tax year. A net positive adjustment is treated as additional interest for the year. A net negative adjustment first reduces the interest accrued on the RSAs for the current year, then is treated as an ordinary loss to the extent of interest previously accrued on the RSAs, and any excess adjustment is carried forward to future years. If any net negative adjustment remains at the time of a sale or retirement of the RSAs, it is treated as a reduction in the proceeds received. A risk exists that the IRS could dispute these determinations which could impact the amount, character and timing of the payments reported by the Company to the Investors in the RSAs.
Ongoing reporting requirements associated with the Offering
In addition to the Information Rights provided to Investors under the RSAs, the Company will file a report with the State of North Carolina, and distribute such report to the Investors, on a quarterly basis until no RSAs issued through this Offering are outstanding. Quarterly reports will be due 45 days after the end of each fiscal quarter, beginning after the Minimum Offering Amount has been reached. Quarterly reports will include (i) details of the compensation received by each director and executive officer of the Company; (ii) an analysis by management of the business operations and financial condition of the Company; and (iii) details on the progress of the Offering toward the Maximum Offering Amount, if the Offering is still ongoing.
The Company will be available to you to answer questions and furnish additional information. Investors are provided the opportunity to participate in a public discussion regarding the Offering with the Company and other interested Investors via a channel provided on the Company Offering Profile located at https://nc.localstake.com/businesses/hush-buddy-llc-north-carolina?show=forum. The Company will make available to you, upon request, copies of material agreements and other documents relating to the Company and will afford you the opportunity to ask questions and receive answers from the Company concerning its business and financial condition. The Company will also provide you an opportunity to meet with representatives of the Company to obtain other additional information.
Additional information requests
All additional communications or inquiries relating to the Offering Materials or to a possible investment in the Company which cannot be made via the means described above should be made through the Placement Agent or the Company at its principal office listed below.
Localstake Marketplace LLC
1010 Central Ave., Suite C, Indianapolis, IN 46202
Hush Buddy, LLC
Attn: Edward Danyo
7901 Tylerton Dr., Raleigh, NC, 27613
Target Closing Date: Sunday, June 9, 2019 at 11:59 pm EDT. See offering materials for full details.
1 Express Interest
Express interest to follow progress and access details.
Expressing Interest FAQ
Expressing interest covers a few different functions. First, it acts as your indication to the business that you have a potential interest in considering an investment. It is also the means by which you are able to access additional materials from the business. The reason you must express interest to view this information is so that the business can keep track of who has accessed their sometimes confidential information. Lastly, expressing interest allows you to keep in touch and stay updated on the progress of the business as they work through their fundraise.
An expression of interest is non-binding. Providing a dollar amount of interest to the business is exclusively a way for them to get a better understanding of whether there is sufficient aggregate interest from investors to support their fundraise goals. If you do not provide a dollar amount to the business, this is fine, but they may decide to cancel their fundraise if they do not have a clear enough picture as to whether there is enough interest to meet their goals.
Yes. Interest can be cancelled at any time, and after cancelling the business will have no means by which to contact you. If you cancel your interest, you can always express interest again if you change your mind.
Yes. The business will be able to contact you through Localstake NC platform messaging. They will not receive any other personal contact information (i.e. email address, phone number, etc.).
When you express interest in a business, they will receive a notification that you are interested. On their investor management interface, they will see your name, state of residence, occupation, and amount of investment.
2 Commit to Invest
Once you've indicated interest, you can commit to invest.
Committing to Invest FAQ
Committing to invest should constitute a binding commitment on the part of the investor that you are going to follow through on investing the amount you have provided to the business. You should only commit to invest once you are sure that you want to invest in the opportunity.
Your commitment will make you eligible to receive any perks available to investors for which you meet applicable eligibility requirements. Note that you are not guaranteed a spot in the fundraise until the business has approved your investment. Once you have committed, you can continue on to complete your investment and submit it to the business for approval.
A commitment shoud be treated as binding. If you do not plan to move forward with an investment, you should not commit to doing so. However, you are not irrevocably committed to investing until 3 days after the business has approved your investment and countersigned your investment documents.
You can commit to invest at any time. Commitments help show traction in the fundraise to other investors, so the earlier you are ready to make your commitment, the better. This will help the business in its efforts to attract additional investors to their fundraise.
The business owners are the only people that will have this information. No other investors will know that you committed to invest, only that someone committed to invest. The aggregate amount of commitments is shared with other interested investors.
No. You will still need to provide an electronic signature on the investment documents and select a method to transfer your funds. You will need to wait to complete these steps until
3 Sign Documents
Once you have committed to invest, you will review and sign the investment documents.
Signing Documents FAQ
When you make an investment in a business, you enter into legally binding contract that outlines your rights as an investor. The specific documents you sign will vary based upon the type of security you are investing in (i.e. debt or equity). Every investment will include an investor questionnaire document that will be pre-populated with information from your investment account that provides proof of your eligibility to invest in the offering. These documents act as your proof of investment and provide all of the details about your investment and your role as an investor. You should read these documents carefully before investing.
Your investment documents will be pre-populated with information from your investment account to help identify you, including your SSN which the business needs in order to produce tax documents for your investment. There will also be information about your personal financial situation on the documents to help provide proof of your eligibility to invest in the offering.
Yes, once the business has accepted your investment and countersigned your investment documents, a copy of your signed agreement will be stored on your Investment Portfolio page on Localstake NC.
We can help you complete an investment for the following investor types: self-directed IRA, joint with spouse, entities, and trusts. Contact us if you would like to make an investment of a type other than as an individual.
4 Transfer Funds
Once you have reviewed and signed investment documents, you will choose how you would like to transfer funds.
Transferring Funds FAQ
The business owner will then receive your proposed investment and accept and countersign it.
The business will wait to accept your investment until their funding target has been reached.
For most fundraises, there are three options to choose from when transferring invesment funds.
- 1. Electronic Transfer - transfer your funds by electronic ACH transfer. You will need to connect a personal bank account in order to use this transfer method.
- 2. Wire Transfer - call your bank and give them instructions on where you would like your investment funds to be sent. With a wire transfer, you will receive instructions on where to transfer the funds after the business accepts your investment.
- 3. Check - When selecting to make your investment by check, you will receive instructions on where to mail your check after the business accepts your investment.
Fund transfers do not occur until the business has accepted your investment and the funding target has been reached.
Fund transfers do not occur until the business has accepted your investment and the funding target has been reached.
If you transfer your funds via electronic transfer, the funds will be transferred from your bank account as soon as the business reaches their fundraise target and accepts your investment. You will receive a notice two business days prior to the electronic transfer occurring. If you transfer funds via check or wire, you will need to complete the fund transfer outside of the Localstake NC platform.
If you would like to change something about your investment, such as the information on your investment documents, or to decrease the amount of your investment, please contact us. If you only wish to increase the amount of your investment, you can make a second investment by clicking the 'Invest Again' button.
You may cancel your investment at any time up to 48 hours after the business has countersigned your documents. To cancel your investment, please contact us.
Businesses send payments to investors over the Localstake NC platform
If the business you invest in reaches their funding goal, they will be making payments to you over the Localstake NC platform. If you use electronic transfer for your investment, these payments will be made back to the bank account you linked for your electronic transfer. If you do not set up an electronic transfer for your initial investment, you may do so on your bank account page once you log in.
If the business you invest in does not reach their funding goal, your investment funds do not need to be transferred to the business and will remain in your account.
State specific offerings
Certain offerings are only made available to residents of a particular state, in this case North Carolina. If and when you choose to access the details of this offering, you will be prompted to provide investment account information, including your state of residence. If you are not currently a resident of North Carolina, you will not be able to access the details of this offering or make an investment.