Corporate
History
Next Graphite, Inc. (the “Company”)
was incorporated under the name Zewar Jewellery, Inc. on September 26, 2012 in the State of Nevada. The business plan of the Company
was originally to operate as an on-line imitation jewelry retailer. Immediately after the completion of the Share Exchange, as
such term is defined below, the Company discontinued its on-line imitation jewelry business and changed its business plan to exploration
and development of the area under Exclusive Prospecting License 3895 in the Bethanien District Namibia. Effective December 16,
2013, the Company changed its name to Next Graphite, Inc.
Share
Exchange Agreement
On
November 14, 2013, we consummated transactions (the “Share Exchange”) pursuant to a Share Exchange Agreement (the
“Share Exchange Agreement”) dated November 14, 2013 by and among the Company and the stockholders of African Graphite,
Inc., a private Nevada corporation (“AGI” and the “AGI Stockholders”), whereby AGI Stockholders transferred
100% of the outstanding shares of common stock of AGI held by them, in exchange for an aggregate of 8,980,046 newly issued shares
of the Company’s common stock, par value $.0001 per share (“Common Stock”).
Stock
Purchase Option Agreement
On November 14, 2013, AGI entered into a Stock
Purchase Option Agreement (the “Option Agreement”) with NMC Corp., a corporation organized under the laws of the Province
of Ontario, Canada (“NMC”), whereby NMC granted to AGI an option to purchase 90 ordinary shares, par value one Namibian
dollar per share, of Gazania Investments Two Hundred and Forty Two (Proprietary) Limited, a corporation organized under the laws
of the Republic of Namibia ("Gazania"), representing 90% of the issued and outstanding shares of Gazania, for $240,000.
NMC had entered into an option agreement dated March 29, 2013, as amended on November 4, 2013 (the “Centre Agreement”),
with Centre for Geoscience Research CC (formerly known as “Industrial Minerals and Rock Research Centre CC”), a company
organized under the laws of the Republic of Namibia ("Centre"), whereby Centre agreed to transfer to Gazania 100% undivided
interest in the Exclusive Prospecting License No. 3895 known as AUKAM originally issued to Centre by the government of the Republic
of Namibia on April 4, 2011 and renewed on April 4, 2013 (the “License”). The License grants the right to conduct
prospecting operations, bulk sampling and pilot production in the license area called AUKAM located in southern Namibia in the
Karas Region within the Bethanien district. The License area covers about 96,000 acres. AUKAM is the only mine in Namibia that
has produced graphite and is situated in the license area. The ore body lies on the eastern slope of a prominent range of hills,
which rises 120 to 150 meters above the level of the surrounding alluvial-covered valleys. The country rock consists almost entirely
of grayish, medium-to-coarse grained granite and gneissic rocks of the Namaqualand Metamorphic Complex. The License applies to
“base and rare metals” and “industrial minerals” and Gazania is the only party licensed to conduct mining
operations of this type in the area. The transfer of the License to Gazania was approved by the Ministry of Mines and Energy of
the Republic of Namibia on February 25, 2014.
Under
the Option Agreement, AGI was required to pay to NMC $90,000 as an advance payment to be credited towards the purchase price of
the Gazania shares. The Company made the advance payment on November 14, 2013. The balance of the purchase price in the amount
of $150,000 was paid by AGI upon exercise of the Option that was completed on March 14, 2014. As a result, Gazania became a direct
90% owned subsidiary of AGI and an indirect subsidiary of the Company.
On
November 14, 2013, the Company issued 12,600,003 shares of Common Stock to NMC in connection with the Option grant closing under
the Option Agreement. In connection with the issuance of 12,600,003 shares of Common Stock, NMC entered into a Stock Escrow Agreement
and a Lock-Up Agreement with the Company. Pursuant to the Stock Escrow Agreement, NMC delivered to the escrow agent the shares
of Common Stock issued to it to be held by the escrow agent pending the closing of the Option exercise to purchase shares of Gazania
by AGI under the Option Agreement in which case such 12,600,003 shares of Common Stock will be released by the escrow agent to
NMC. The shares were released from escrow following the closing of the option exercise on March 14, 2013.
Under
the Option Agreement, we undertook to provide at least $260,000 of working capital to or for the benefit of Gazania from the option
grant closing date to June 30, 2014. The $260,000 of working capital was provided prior to June 30, 2014.
Under
the Lockup Agreement executed on November 14, 2013, NMC agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, sell short, grant any option, right or warrant to purchase, lend
or otherwise transfer or dispose of any shares of Common Stock, or enter into any swap or other arrangement that transfers any
economic consequences of ownership of Common Stock until 12 months after the date therein.
Private
Placement of Common Stock
From
November 2013 to November 2014, the Company entered into and consummated transactions pursuant to a series of the Subscription
Agreements (the “Subscription Agreements”) with certain accredited investors whereby the Company issued and sold to
the investors for $1.00 per share an aggregate of 1,501,402 shares of the Company’s Common Stock for an aggregate purchase
price of $1,501,400 (the “Private Placement”).
The
Subscription Agreements contain representations and warranties by the Company and the investors which are customary for transactions
of this type such as, with respect to the Company: organization, good standing and qualification to do business; capitalization;
subsidiaries, authorization and enforceability of the transaction and transaction documents; valid issuance of stock, consents
being obtained or not required to consummate the transaction; litigation; compliance with securities laws; and no brokers used,
and with respect to the investors: authorization, accredited investor status and investment intent.
Stock
Split
On December 16, 2013, a 7.8-for-1 forward
stock split of the Company’s issued and outstanding Common Stock was effected (the “Stock Split”). As a result
of the Stock Split, 9,602,569 shares of common stock issued and outstanding immediately before the Forward Split increased automatically,
and without any further action from the Company’s stockholders, to 74,900,039 shares of common stock. The authorized number
and par value of common stock were unchanged.
Issuance
of Common Stock
On
January 1, 2015, the Company issued 300,004 shares of its Common Stock to a service provider in exchange for services pursuant
to a board consent dated April 5, 2015.
Private
Placement of Secured Convertible Notes
On
October 2, 2014, the Company sold and issued to an accredited investor a secured convertible promissory note in the principal
amount of $100,000 (the “2014 Note”), which was due and payable on December 31, 2015 and accrued interest at the rate
of 5% per annum and has a default interest rate of 7%. In addition, all or any outstanding amount of the 2014 Note was convertible
one year from the date of this Note at the Holder’s discretion into the Company’s Common Stock at a 25% discount to
the market price of the Company’s Common Stock at the time of conversion. This note has not been converted. Although the
note has passed its maturity date, the lender has agreed for the note to continue accruing interest at the annual rate until the
note is paid in full.
The
foregoing descriptions of the 2014 Note are qualified in their entirety by reference to the provisions of the 2014 Note, which
is included as Exhibit 4.2 to this Report and are incorporated by reference herein.
On
June 10, 2015, the Company issued a convertible note payable with an interest rate of 8.0% per annum in the amount of $28,000.
The outstanding balance and any accrued interest was due on March 13, 2016. The note was convertible at the holder’s discretion
into shares of the Company’s Common Stock at the date of exercise using three days lowest stock price average times 61 percent
discount. On December 11, 2015, the note was paid in full and retired.
Issuance
of Non-Convertible Notes
On
February 10, 2015, the Company issued a secured promissory note with a principal amount of $24,000 to Iron Grid Ltd. This note
had a maturity date of July 31, 2015 and accrued interest at 5% per annum. This note is secured by the assets of the Company and
has a default interest rate of 7%. Although the note has passed its maturity date, the lender has agreed for the note to continue
accruing interest at the annual rate until the note is paid in full.
On
March 31, 2015, the Company issued a secured promissory note with a principal amount of $10,000 to Pacific Seaboard Investments
Ltd. This note had a maturity date of September 30, 2015 and accrued interest at 5% per annum. This note is secured by the assets
of the Company and has a default interest rate of 7%. Although the note has passed its maturity date, the lender has agreed for
the note to continue accruing interest at the annual rate until the note is paid in full.
On July 8, 2015, the Company issued an unsecured
promissory note with a principal amount of $2,500 to Charles C. Bream, our Chief Executive Officer. This note had a maturity date
of September 18, 2015 and accrued interest at 7% per annum and has a default interest rate of 8%. Although the note has passed
its maturity date, the lender has agreed for the note to continue accruing interest at the annual rate until the note is paid
in full.
On
July 8, 2015, the Company issued an unsecured promissory note with a principal amount of $2,500 to Michael Doron, the Chairman
of our Board of Directors. This note had a maturity date of September 18, 2015 and accrued interest at 7% per annum and has a
default interest rate of 8%. Although the note has passed its maturity date, the lender has agreed for the note to continue accruing
interest at the annual rate until the note is paid in full.
On
August 24, 2015, the Company issued an unsecured promissory note with a principal amount of $1,500 to Charles C. Bream. This note
had a maturity date of November 24, 2015 and accrued interest at 7% per annum and has a default interest rate of 8%. Although
the note has passed its maturity date, the lender has agreed for the note to continue accruing interest at the annual rate until
the note is paid in full.
Issuance of Warrants
On May 28, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 150,000 shares of the Company’s Common Stock with an exercise
price of $0.011 and a term of five years.
On May 28, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 125,000 shares of the Company’s Common Stock with an exercise
price of $0.011 and a term of five years.
On May 28, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 25,000 shares of the Company’s Common Stock with an exercise price
of $0.011 and a term of five years.
On May 28, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 200,000 shares of the Company’s Common Stock with an exercise
price of $0.011 and a term of five years.
On May 28, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 2,255,000 shares of the Company’s Common Stock with an exercise
price of $0.011 and a term of five years.
On June 16, 2015, the Company issued a warrant
to a service provider in exchange for services to purchase 2,000,000 shares of the Company’s Common Stock with an exercise
price of $0.008 and a term of five years.
On July 8, 2015, the Company issued a warrant
to purchase 25,000 shares of its Common Stock with a five year term and an exercise price of $.005, to a service provider in connection
with an unsecured promissory note issued by the Company to our Chief Executive Officer in the amount of $2,500 on July 8, 2015.
On
July 8, 2015, the Company issued a warrant to purchase 25,000 shares of its Common Stock
with
a five year term and an exercise price of $.005, to a service provider in connection with an unsecured promissory note issued by
the Company to our Chairman in the amount of $2,500 on July 8, 2015.
On August 24, 2015, the Company issued a warrant
to purchase 10,000 shares of its Common Stock to a service provider in connection with an unsecured promissory note issued by the
Company to our Chief Executive Officer in the amount of $1,000 on August 24, 2015. The warrant has an exercise price of $.011 and
a term of five years.
Company’s
Corporate Structure
Gazania
Investments Two Hundred and Forty Two (Proprietary) Limited is now a 100% wholly-owned Namibia subsidiary of African Graphite,
Inc. AGI is a 100% wholly-owned Nevada subsidiary Next Graphite, Inc., also a Nevada corporation.
Going
concern
The
Company's financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of obligations in the normal course of business. However, it has $15,563 in cash, has losses and an accumulated deficit, and a
working capital deficiency. The Company does not currently have any revenue generating operations. These conditions, among others,
raise substantial doubt about the ability of the Company to continue as a going concern.
In
view of these matters, continuation as a going concern is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to, meets its financial requirements, raise additional capital, and the success of its future
operations. The financial statements do not include any adjustments to the amount and classification of assets and liabilities
that may be necessary should the Company not continue as a going concern.
Management believes they will have sufficient
funds to support their business based on the following: (a) the joint venture agreement signed in June 2015 which calls for our
joint venture partner to provide cash payments to the Company, cover certain operating expenses, and build a processing facility;
(b) revenues derived from purchase orders called for in a non-binding letter of intent with an off taker signed by our joint venture
partner in March 2016; and (c) the ability to raise additional funds needed to support our business plan. Management intends to
seek new capital from owners and related parties to provide needed funds, as necessary. However, there can be no assurance that
the Company can raise any additional funds, or if it can, that such funds will be on terms acceptable to the Company.
Aukam
Processing & Preliminary Economic Report
On February 18, 2015, an outside geologist
consultant prepared and issued a preliminary report that addresses the building requirements for an overall processing circuit
facility on site that would adequately accommodate the processing of Aukam graphite, initially its tailing heaps. The report states
that there are conceptual resources of about 4 million tonnes of graphite from hydrothermal source on the site. As reported by
the Company in August of 2014, its 500 tonne bulk sampling program extracted from on site mine dumps a total of 150 tonnes of
high grade lumps, at a 3:1 lump to waste ratio with an average grade of 42% graphite. The majority of the graphitic lumps ranged
in purity from 40-80% graphite, and a residual 350 tonnes of lesser grade material graded an average of 34% graphite. In December
2014, the Company reported additional testing at Gecko Laboratories, Namibia, including industry –standard flotation tests
that reported the flotation characteristics of its lump graphite that influenced the Company’s plant design. The tests were
conducted on 1,763 pounds of composite samples drawn from the 150 tonnes of pre-screened graphitic lump, residual and waste material.
Flotation tests carried out on samples and then tested for purity and grade demonstrated a 212-micron grind was the optimal size
for flotation, and delivered a result of 97.1 % pure graphite after a single, rough float. An average of 96.2 % graphite was recorded
in the concentrates across all samples including waste material.
Below
is a brief summary of the biographical information of our geologist consultant, Mr. Flint, is set forth below:
Mr.
Ian Flint
holds a PhD in Mining and Mineral Processing Engineering from the University of British Columbia, and a Master of
Science degree in Metallurgical Engineering and Bachelor of Science degree in Geological Engineering, both from the University
of Toronto. He has 24 years of graphite experience, including geology, test work, pilot plants, circuit design, mine development,
purchasing, management, marketing and service as a public company corporate director. Mr. Flint is currently on a project for
Elcora Resources Corp. (TSXV: ERA), and he has previously worked on projects for companies such as the Graphene Corporation, Dalhousie,
Integrated Carbonics, Quinto, Bissett Creek, Mount Cameron Minerals, Worldwide Graphite (Superior), Farrell, Crystal Graphite,
Victoria Graphite, CalGraphite. Mr. Flint has served on the Board or Advisor to several mining and graphite companies including;
The Graphene Corporation, Dalhousie, Integrated Carbonics, Quinto, Bissett Creek, Mount Cameron Minerals, Worldwide Graphite (Superior),
Farrell, Crystal Graphite, Victoria Graphite, CalGraphite.
New
Business Relationships
In June 2015 the Company entered into
a Joint Venture Agreement (“JVA”) with CKR Carbon Corporation (“CKR”; which acquired the Company’s
original JV partner, Micron Investments Pty. Ltd]. It requires our joint venture partner to provide the Company with $180,000 in
cash, to spend $1.1 million dollars towards building a graphite processing plant, and to cover all plant operational expenses for
the first five months of commercial operations. In exchange, our partner will receive, upon achievement of certain milestones,
up to a 63% interest in the mining and mineral rights held by the Company.
In March 2016, our JV partner
signed a Letter of Intent for the joint venture to supply 5,000 tonnes of unrefined graphite from our Aukam site, with first shipment
of 2,000 - 3,000 tonnes targeted for July 2016. Discussions with other off takers are taking place for additional sales. Revenues
will be split on a fully farmed-out basis (63% CKR / 37% Next), as the joint venture partner will be putting up the required capital.
Our
Business
Next
Graphite, Inc. is an exploration development stage company targeting the growing global graphite production industry with the
Company's 96,000-acre African-based Aukam Graphite Project. The Aukam Graphite Mine was established in 1940 in the current Republic
of Namibia, and has produced USD $30 million of graphite at today's prices. The Aukam property is estimated to still contain a
significant amount of high grade, vein type graphitic material. Global graphite demand is being driven by the development of new
markets for clean and efficient energy alternatives, smart grid infrastructure and military capabilities. Next Graphite has immediately
available, surface dumps, which contains large quantities of high-grade graphite lumps. The Company also believes that it can
offer competitive projected mining and processing costs.
Location
of the Project and Infrastructure
The
Aukam Graphite Mine is located in southern Namibia in the Karas region within the Betanie district 169 km from the port of Luderitz.
The nearest town of Aus is some 87 km away by road. The license area spurns about 96,000-acre stratiform base metal that form
part of the Namaqualand meta-sedimentary sequence.
The
infrastructure in the area is good with access to the site possible throughout the year. The Aukam Graphite deposit is relatively
close to a main tar road and well graded so the only construction required would be an approximately 2 km long access road to
the site. There is a national power grid that passes right by the property. Water is available in large amounts from underground
aquifers. The nearest rail link is located next to the main highway (some 70 km from the site).
Climate
The
Aukam Graphite Mine deposit is located in an unusual area of southern Namibia with both summer and winter rainfall. In the austral
summer, day-time temperature peak in the mid 40° Celsius, while in winter temperatures can go as low as freezing. Rainfall
in winter is generally light drizzle with occasional harder falls and sometimes flurries. In summer, the rainfall is associated
with occasional thunderstorms and is of short duration, but can be of very high intensity. All of the streams within the area
are ephemeral and can flow very strongly after summer rainfall. Average annual rainfall is 50-150 mm.
Geology
The
Aukam Graphite Mine is the only mine in Namibia that has produced graphite. The ore body lies on the eastern slope of a prominent
range of hills which rises 120 to 150 meters above the level of the surrounding sand covered valleys. The country rock consists
almost entirely of grayish, medium- to coarse grained granite and gneissic rocks of the Namaqualand Metamorphic Complex.
The
graphite-bearing shear zone, which strikes east-west, is about 50-150 m wide and is traceable over a distance of some 350 m. The
graphite, which is of the fine-flaky to lumpy type, usually contains malachite specks, while sulphur occurs along cracks. The
graphite veins are flanked by a pale green, highly epidotized and kaolinized granite that is soft and highly decomposed. Parallel
stringers of ferruginous and micaceous talcose material are associated with the veins.
Graphite
deposit in the Aukam Graphite Mine
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The best quality graphite is located in the central lode and was initially worked by opencast mining along the slope, as the softness of the rocks in this area greatly facilitated mining operations. The excavation, which now measures 45 by 35 m, was later supplemented by two adits sited further downhill along the same lode, and a third was developed above the opencast pit. The lowermost tunnel is about 120 m long. Large-scale sloping from these adits yielded several thousand tons of graphite. The deposits were mined from 1940 to 1956 when the workings were interrupted by fire. Production was resumed in 1964 and ceased in 1974.
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Graphite
occurs as veins and lenses in the East-West striking vertical zone, 10m wide and 350m long. At the bottom of the hill it disappears
underneath the sand cover, whereas near the summit it peters out. The zone comprises three parallel lodes. Veins, lenses and pockets
of ore, several meters wide, dip 70o to 90o to the south. There are nine major vein lodes are on the site, all which have characteristics
of being well-mineralized.
The
Industry
The
global graphite market was valued at $15.06 billion in 2014 and it is expected to grow at a CAGR of 4% during the period 2015
- 2020. The major drivers behind the growth of the graphite market include increasing use of high-end graphite in batteries, the
growing demand of graphite in the steel industry, and increasing use of graphite in the automotive industry. At the same time,
increase in electric vehicle ownership is expected to propel the lithium-ion market. The commercial acceptance of graphene is
anticipated to provide further opportunities for the graphite market in near future.
There is no shortage of generic graphite
and lower quality forms of graphite. The mineral is common and exposed in rocks covering hundreds of square kilometers in many
areas of the world. Unlike the graphite at the Company’s site, generic graphite has limited uses.
High-End
Lump Graphite
Next
Graphite’s Aukam site contains a rare mixing of geothermal waters providing naturally precipitated graphite as solid carbon
with a highly perfect crystallinity. The result is a special form of graphite known as “lump” or vein.
Aukam’s
high-end, clean Lump Graphite with a low sulphur content is available in only a few locations worldwide, including our Aukam site
in Namibia, and in Sri Lanka.
Lump
Graphite Prices, Supply and Demand
The
Lump Graphite market is extremely illiquid. In 2015 a total of 8,000 tonnes of lump graphite was produced and sold into the market.
Lump Graphite production has declined significantly from 34,000 tonnes in 1935 to 8,000 tonnes today. This has made this type
of graphite extremely valuable to end users that desire this type of graphite for their value added manufacturing supply chain.
The price of Lump Graphite has been relatively stable in 2015 depending on the purity and flake size distribution and has ranged
between USD $2,200 / tonne - USD $3,500 / tonne.
The statements made
in this section, “The Industry,” reflect management opinions and beliefs based on the information obtained from a
variety of sector and industry sources. These include but are not limited to: IM Graphite Report, Angel Publishing,
Industrial Minerals Magazine, RR Market Research, and the U.S. Geological Survey of Mineral Commodity Summaries.
Our
Strategy
As mentioned, the Company has entered
into a Joint Venture to re-launch mining production and on-site processing at an estimated cost, from inception through plant completion,
of approximately $3,000,000, with almost $1,300,000 of that now coming from our Joint Venture partner. The completed, re-opened
mine will initially be targeting an estimated 5,000 tonnes of annual production of processed-graphite. This will be preceded by
the sale of unprocessed graphite to generate necessary pre-plant revenues.
In
2014, we conducted the following pre-production activities: the transfer of the mining license to Next Graphite Inc.; (i) initial
testing of the Aukam Graphite Mine samples and the compilation of its initial geological report; (ii) process testing of surface
graphite samples from on-site tailings; preparation of an Environmental Impact Assessment report; (iii) application for a Mining
License for extraction; (iv) preliminary drilling and advanced product testing; preliminary economic analysis based on our findings
and a scoping study that details the engineering for production, mining design, flowchart and operations and (v) construction
planning for a small-scale processing facility; and continuing public company governance, overhead & professional services.
In 2015 we conducted the following additional
pre-production activities: (i) concluded a 25-tonne Underground Bulk Sampling Program; (ii) delivered 1,000kg lower adit samples
for testing, processing and customer review; (iii) reported up to 96% natural, lump, vein graphite grade from our aforementioned
bulk sampling program. Favorable testing results indicated: (a) that the average grade of samples is 35.6% carbon as graphite
(Cg); (b) that this graphite is upgradeable to approximately 50% by screening and sorting; (c) that it is further upgradeable
to commercial grade (+96%) by dual flotation and mild acid wash and (d) that even further optimization is possible. As a result
of this testing, the Company believes it is the only site for high-grade lump, crystalline vein graphite outside of Sri Lanka.
Recent
Developments
In
February of 2016, the Company received a Conditional Renewal of its exclusive prospecting license from the Namibian Ministry of
Mines and Energy. As set forth above, our Joint Venture Partner Signed a non-binding Letter of Intent in March of 2016 to supply
5,000 tonnes of unrefined graphite from our Aukam site, with the first shipment of 2,000 - 3,000 tonnes targeted for July of 2016.
Market,
Customers and Distribution Methods
Although
there can be no assurance, large and well-capitalized markets are readily available for all industrial minerals, metals and precious
metals throughout the world. A very sophisticated futures market for the pricing and delivery of future production also exists.
The price for metals and minerals is affected by a number of global factors, including economic strength and resultant demand
for metals and minerals for production, fluctuating supplies, mining activities and production by others in the industry, and
new and or reduced uses for subject metals and minerals.
The
mining industry is highly speculative and of a very high-risk nature. As such, mining activities involve a high degree of risk,
which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Few mining projects actually
become operating mines. The mining industry is subject to a number of factors, including intense industry competition, high susceptibility
to economic conditions (such as the price of metal, foreign currency exchange rates, and capital and operating costs), and political
conditions (which could affect such things as import and export regulations, foreign ownership restrictions). Furthermore, the
mining activities are subject to all hazards incidental to mineral exploration, development and production, as well as risk of
damage from earthquakes, any of which could result in work stoppages, damage to or loss of property and equipment and possible
environmental damage. Hazards such as unusual or unexpected geological formations and other conditions are also involved in mineral
exploration and development.
Our methods of distributing our mined graphite will in part
be dictated by what our initial drilling activities indicate relative to quality, quantity, concentration and cost of
extraction. We plan to market our graphite via off-takes, to graphite distributors, traders and other companies that market
graphite from more than one mining company.
The
Company’s costs of operation will also be largely influenced by the factors noted above such as quality, quantity, concentration,
and cost of extraction. Based on our initial planned small-scale operation, the cost to build our processing plant are estimated
to be approximately $1,100,000 and is planned to be provided by our Joint Venture partner. We anticipate the Company’s on-going
costs of operation will be relatively low given our low Namibian labor costs and low extraction costs based on testing to date.
Intellectual
Property
The
Company does not have any Intellectual Property at this time.
Competition
The
mineral exploration industry is highly competitive. We are a new exploration stage company and have a weak competitive position
in the industry. We compete with junior and senior mineral exploration companies, independent producers and institutional and
individual investors who are actively seeking to acquire mineral exploration properties throughout the world together with the
equipment, labor and materials required to operate on those properties. Competition for the acquisition of mineral exploration
interests is intense with many mineral exploration leases or claims available in a competitive bidding process in which we may
lack the technological information or expertise available to other bidders.
Many
of the mineral exploration companies with which we compete for financing and for the acquisition of mineral exploration properties
have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend
greater amounts on acquiring mineral exploration interests of merit or on exploring or developing their mineral exploration properties.
This advantage could enable our competitors to acquire mineral exploration properties of greater quality and interest to prospective
investors who may choose to finance their additional exploration and development. Such competition could adversely impact our
ability to attain the financing necessary for us to acquire further mineral exploration interests or explore and develop our current
or future mineral exploration properties.
We
also compete with other junior mineral exploration companies for financing from a limited number of investors that are prepared
to invest in such companies. The presence of competing junior mineral exploration companies may impact our ability to raise additional
capital in order to fund our acquisition or exploration programs if investors perceive that investments in our competitors are
more attractive based on the merit of their mineral exploration properties or the price of the investment opportunity. In addition,
we compete with both junior and senior mineral exploration companies for available resources, including, but not limited to, professional
geologists, land specialists, engineers, camp staff, helicopters, float planes, mineral exploration supplies and drill rigs.
General
competitive conditions may be substantially affected by various forms of energy legislation and/or regulation introduced from
time to time by the governments of the United States and other countries, as well as factors beyond our control, including international
political conditions, overall levels of supply and demand for mineral exploration. In the face of competition, we may not be successful
in acquiring, exploring or developing profitable mineral properties or interests, and we cannot give any assurance that suitable
oil and gas properties or interests will be available for our acquisition, exploration or development. Despite this, we hope to
compete successfully in the mineral exploration industry by:
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keeping
our costs low;
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relying
on the strength of our management’s contacts; and
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using
our size and experience to our advantage by adapting quickly to changing market conditions or responding swiftly to potential
opportunities.
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Government
Regulation
In
Namibia, all mineral rights are vested in the state. The Minerals (Prospecting and Mining) Act of 1992 regulates the mining industry
in the country. The Ministry of Mines and Energy is responsible for mining. Licenses and permits are authorized by the Minister
on recommendation of the Mining Commissioner. Namibia's mining industry is also regulated by the Minerals Development Fund of
Namibia Act of 1996 and the Diamond Act of 1999. Several types of mining and prospecting licenses exist as follows:
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Non-Exclusive Prospecting Licenses, valid for 12 months,
permit prospecting non-exclusively in any open group not restricted by other mineral rights.
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Reconnaissance Licenses allow regional remote sensing
techniques, and are valid for 6 months (renewable under special circumstances) and can be made exclusive in some instances.
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Exclusive Prospecting Licenses can cover areas not exceeding
1000 square kilometers and are valid for 3 years, with two renewals of 2 years each and discretionary renewals thereafter. Two
or more EPLs can be issued for more than one mineral in the same area.
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Mineral Deposit Retention Licenses (MDRLs) allow successful
prospectors to retain rights to mineral deposits which are uneconomical to exploit immediately. MDRLs are valid for up to 5 years
and can be renewed subject to limited work and expenditure obligations.
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Mining Licenses can be awarded to Namibian citizens
and companies registered in Namibia. They are valid for an initial 25 years, renewable up to 15 years at a time.
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There is no requirement that the Government should hold
equity participation in mining ventures.
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The Company has an Exclusive Prospecting
License. We will be required to comply with the foregoing government regulations. An Environmental Impact Analysis was prepared
and accepted by the Namibia Ministry of Environment and Tourism on September 22, 2014. In February 2016 Next Graphite received
a Conditional Renewal of its exclusive prospecting license from the Namibian Ministry of Mines and Energy; The final step in obtaining
Formal Renewal is for the Ministry to give approval to Next Graphite’s “Proposal for Fulfilling Ministry of Mines and
Energy Conditions of Renewal of EPL 3895”. We believe this approval will be given by, June 2016. The Company will then be
issued the formal renewal of its EPL 3895 license. However, there can be no assurance that the issuance of the approval will occur
as anticipated or at all.
Additional
approvals and authorizations may be required from other government agencies, depending upon the nature and scope of the proposed
exploration program. The amount of these costs is not known as we do not know the size, quality of any resource or reserve at
this time. It is impossible to assess the impact of any capital expenditures on earnings or our competitive position.
Environmental
Regulations
Our
exploration activities are also subject to laws and regulations of Namibia governing protection of the environment. These laws
are continually changing and, as a general matter, are becoming more restrictive. Our policy is to conduct business in a way that
safeguards public health and the environment and in material compliance with applicable environmental laws and regulations. Changes
to current laws and regulations in the jurisdictions where we operate could require additional capital expenditures and increased
operating costs. Although we are unable to predict what additional legislation and the associated costs of such legislation, if
any, might be proposed or enacted, additional regulatory requirements could render certain exploration activities uneconomic.
Employees
As
of December 31, 2015, the Company and its subsidiaries had no employees. The Company utilizes the services of consultants and
advisors. These include its principal executive officer, chief financial officer, geological personnel, accountants, and attorneys.
Some of these positions, especially those of a technical nature, may be converted to employment if and when the Company's business
requires and resources permit.
Emerging
Growth Company
The
Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS
Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not “emerging growth companies” including, but not limited to, not being required to comply with
the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections
14A(a) and (b) of the Securities Exchange Act of 1934 to hold a nonbinding advisory vote of shareholders on executive compensation
and any golden parachute payments not previously approved.
The
Company has elected to use the extended transition period for complying with new or revised accounting standards under Section
102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election,
our financial statements may not be comparable to companies that comply with public company effective dates.
We
will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year during which our
revenues exceed $1 billion, (2) the date on which we issue more than $1 billion in non-convertible debt in a three year period,
(3) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities
pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended, or (4) when the market
value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently
completed second fiscal quarter.
To
the extent that we continue to qualify as a “smaller reporting company”, as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, certain of the exemptions available
to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being
required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive
compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three
years.
An
investment in the Company is subject to risks and uncertainties. The occurrence of any one or more of these risks or uncertainties
could have a material adverse effect on the value of any investment in the Company and the business, prospects, financial position,
financial condition or operating results of the Company. Prospective investors should carefully consider the information presented
in this report, including the following risk factors, which are not an exhaustive list of all risk factors associated with an
investment in the Company or the Company’s shares or in connection with the operations of the Company:
The
Company has a limited history of operations and Aukam Graphite Project is the Company’s sole asset. There can be no assurance
that any of the Company’s planned exploration and development activities on the Aukam Graphite Project will ever lead to
the re-launch of graphite production from it.
The
Company has a limited history of operations and is in the early stage of development. The Company is engaged in the business of
exploring, resuming production and developing a single asset, the Aukam Graphite Project, in the hope of ultimately, at some future
point, placing the Aukam Graphite Project back into production. The Aukam Graphite Project will be for the foreseeable future
the Company’s sole asset. Although management believes the Aukam Graphite Project has sufficient merit to justify focusing
all the Company’s limited resources upon it, the Company will in consequence be exposed to some heightened degree of risk
due to the lack of property diversification. The Aukam Graphite Project is assumed to still host graphitic material that has been
historically mined. However, there are no guarantees that the re-launched production of these potentially indicated and inferred
resources will ever be demonstrated, in whole or in part, to be profitable to mine. Development of the Aukam Graphite Project
will only follow upon obtaining satisfactory results from the recommended multi-phase testing, exploration and development program
and any subsequent work and studies that may be required. There can be no assurance that any of the Company’s planned exploration
and development activities on the Aukam Graphite Project will ever lead to the re-launch of graphite production from it.
There
is no guarantee that the mineral deposit contained in the Aukam Graphite Project will be commercially viable.
The
exploration and development of mineral projects is highly speculative in nature and involves a high degree of financial and other
risks over a significant period of time, which even a combination of careful evaluation, experience and knowledge may not reduce
or eliminate. The Aukam Graphite Project will constitute the Company’s sole asset. However, there are no guarantees that
there will ever be a profitable mining operation on the Aukam Graphite Project. The proposed multi-phase exploration and development
program on the Aukam Graphite Project is subject to a significant degree of risk. Whether a mineral deposit will be commercially
viable depends on a number of factors, including the particular attributes of the deposit (i.e. size, grade, access, flake size
distribution, contaminants, and proximity to infrastructure), financing costs, the cyclical nature of commodity prices and government
regulations (including those relating to prices, taxes, currency controls, royalties (both product and monetary), land tenure,
land use, importing and exporting of mineral products, and environmental protection). The effect of these factors or a combination
thereof cannot be accurately predicted but could have an adverse impact on the Company.
The
Company has no history of mineral production.
Even
though the Aukam Graphite Project has produced graphite historically, the Company has never had an interest in a mineral-producing
property. There is no assurance that commercial quantities of minerals will be discovered at any future properties, nor is there
any assurance that any future exploration programs of the Company on the Aukam Graphite Project or any future properties will
yield any positive results. Even where commercial properties of minerals are discovered, there can be no assurance that any property
of the Company will ever be brought to a stage where mineral reserves can be profitably produced thereon. Factors that may limit
the ability of the Company to produce mineral resources from its property include, but are not limited to, the price of mineral
resources are explored, availability of additional capital and financing and the nature of any mineral deposits.
The
Company’s operations will be subject to all of the hazards and risks normally encountered in mineral exploration and development.
The Company does not currently carry insurance against these risks and there is no assurance that such insurance will be available
in the future, or if available, at economically feasible premiums or acceptable terms.
Mining
operations generally involve a high degree of risk. The Company’s operations will be subject to all of the hazards and risks
normally encountered in mineral exploration and development. Such risks include unusual and unexpected geological formations,
seismic activity, rock bursts, cave-ins, water inflows, fires and other conditions involved in the drilling and removal of material,
environmental hazards, industrial accidents, periodic interruptions due to adverse weather conditions, labor disputes, political
unrest and theft. The occurrence of any of the foregoing could result in damage to, or destruction of, mineral properties or interests,
production facilities, personal injury, damage to life or property, environmental damage, delays or interruption of operations,
increases in costs, monetary losses, legal liability and adverse government action. The Company does not currently carry insurance
against these risks and there is no assurance that such insurance will be available in the future, or if available, at economically
feasible premiums or acceptable terms. The potential costs associated with losses or liabilities not covered by insurance coverage
may have a material adverse effect upon the Company’s financial condition.
The
Company has a limited operating history and financial resources.
The
Company has a limited operating history, has no operating revenues and is unlikely to generate any revenues from operations in
the immediate future. Its existing cash resources are not sufficient to cover its projected funding requirements for the ensuing
year. If its phased exploration and development program is successful, additional funds will be required to bring the Aukam Graphite
Project back into production. The Company has limited financial resources and there is no assurance that sufficient additional
funding will be available to enable it to fulfill its obligations or for further exploration and development on acceptable terms
or at all. Failure to obtain additional funding on a timely basis could result in delay or indefinite postponement of further
exploration and development and could cause the Company to reduce or terminate its operations.
If
we cease to continue as a going concern, due to lack of funding or otherwise, you may lose your entire investment in the Company.
Our
current plans indicate that we will need substantial additional capital to implement our plan of operations before we have any
anticipated revenues. When we require additional funds, general market conditions or the then-current market price of our common
stock may not support capital raising transactions such as additional public or private offerings of our common stock. If we require
additional funds and we are unable to obtain them on a timely basis or on terms favorable to us, we may be required to scale back
our development of new products, sell or license some or all of our technology or assets, or curtail or cease operations.
The
Company is subject to Namibian government regulation of its mining operations. Although the Company believes that the Aukam Graphite
Project is in substantial compliance with all material laws and regulations that currently apply to its activities, there can
be no assurance, however, that the Company will obtain on reasonable terms or at all the permits and approvals, and the renewals
thereof, which it may require for the conduct of its future operations or that compliance with applicable laws, regulations, permits
and approvals will not have an adverse effect on plans to explore and develop the Aukam Graphite Project.
The
future operations of the Company, including exploration and development activities and the commencement and continuation of commercial
production, require licenses, permits or other approvals from various federal, provincial and local governmental authorities and
such operations are or will be governed by laws and regulations relating to prospecting, development, mining, production, exports,
taxes, labor standards, occupational health and safety, waste disposal, toxic substances, land use, water use, environmental protection,
land claims of indigenous people and other matters. The Company believes that the Aukam Graphite Project is in substantial compliance
with all material laws and regulations that currently apply to its activities. There can be no assurance, however, that the Company
will obtain on reasonable terms or at all the permits and approvals, and the renewals thereof, which it may require for the conduct
of its future operations or that compliance with applicable laws, regulations, permits and approvals will not have an adverse
effect on plans to explore and develop the Aukam Graphite Project. Possible future environmental and mineral tax legislation,
regulations and actions could cause additional expense, capital expenditures, restrictions and delay on the Company’s planned
exploration and operations, the extent of which cannot be predicted.
Failure
to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures
requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations.
The
initial property report was based on production data generated from the Namibian Ministry of Mines and Energy and from prior exploration
work. There is no guarantee in reliability of such data.
In
preparing the initial property report, The Aukam Property Geological Report of February 16, 2014, the authors of that report from
Element 12 Consulting relied upon certain data generated on production from the government-mining ministry, and by exploration
work carried out by geologists employed by others. There is no guarantee that data generated from government records or by prior
exploration work is 100% reliable and discrepancies in such data not discovered by the Company may exist. Such errors and/or discrepancies,
if they exist, could have impact on the accuracy of the subject report.
If
we lose the services of key management personnel and are unable to attract and retain highly skilled employees, we may not be
able to execute our business strategy effectively.
The
success of the Company will be largely dependent upon the performance of its senior management and directors. Due to the relative
small size of the Company, the loss of these persons or the inability of the Company to attract and retain additional highly skilled
employees may adversely affect its business and future operations. The Company has not purchased any “key-man” insurance
nor has it entered into any non-competition or non-disclosure agreements with any of its directors, officers or key employees
and has no current plans to do so.
While
our executive officers and directors are highly experienced in business, they do not come from the mining industry and rely on
Company managers and consultants for specific mining expertise. The Company has hired and may continue to rely upon consultants
and others for geological and technical expertise. The Company’s current personnel may not include persons with sufficient
technical expertise to carry out the future development of the Company’s properties. There is no assurance that suitably
qualified personnel can be retained or will be hired for such development.
The
Company faces increased competition for equipment and experienced personnel from competitors with greater financial and technical
resources.
The
mineral exploration and mining business is competitive in all of its phases. The mining industry is facing a shortage of equipment
and skilled personnel and there is intense competition for experienced geologists, field personnel, contractors and management,
including from competitors with greater financial resources. There is no assurance that the Company will be able to compete successfully
with others in acquiring such equipment or personnel.
There
is no guarantee that the Company will be successful in its competition for productive mineral properties and financing with competitors
possessing greater financial and technological resources.
The
mineral exploration and mining business is competitive in all phases of exploration, development and production. The Company competes
with a number of other entities in the search for and acquisition of productive mineral properties. As a result of this competition,
the majority of which is with companies with greater financial resources than the Company, the Company may be unable to acquire
attractive properties in the future on terms it considers acceptable. The Company also competes for financing with other resources
companies, many of whom have greater financial resources and/or more advanced properties. There can be no assurance that additional
capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable
to the Company.
There
can be no assurance that the Company will be able to secure the renewal of the prospecting license or grant of a mining license
on terms satisfactory to it, or that governments having jurisdiction over the Aukam Graphite Project will not revoke or significantly
alter such license or other tenures or that such license and tenures will not be challenged or impugned.
The
Company possesses the license to the Aukam Graphite Project allowing for prospecting operations, bulk sampling and pilot production
(subject to ministry approval) in the license area, which expired on April 3, 2015. We submitted our application for an extension
to our current Exploratory License on March 13, 2015 and are confident of it being renewed, given that on February 4 2016, the
Company received a Conditional Renewal of its exclusive prospecting license from the Namibian Ministry of Mines and Energy The
exploration license will be followed by a mining license, which cost is dependent on a number of variables that the Namibian Ministry
of Mines will determine. We do not expect that the mining license will exceed $20,000 in annual cost. While the Namibian government
has an interest in the license area being developed and the Company believes that it will be able to obtain necessary extensions
on the prospecting license and grant of a mining license required to recommence mining operations, there can be no assurance that
the Company will be able to secure the renewal of the prospecting license or grant of a mining license on terms satisfactory to
it, or that governments having jurisdiction over the Aukam Graphite Project will not revoke or significantly alter such license
or other tenures or that such license and tenures will not be challenged or impugned.
If
environmental hazards are identified on the Aukam Graphite Project, it may have the potential to negatively impact on the Company’s
exploration and development plans for the Aukam Graphite Project.
All
phases of the Company’s operations will be subject to environmental regulation in the jurisdictions in which it operates.
These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation and provide
for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain
mining industry activities and operations. They also set forth limitations on the generation, transportation, storage and disposal
of hazardous waste. A breach of such regulation may result in the imposition of fines and penalties. In addition, certain types
of mining operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving
in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors
and employees. The cost of compliance with changes in governmental regulations has the potential to reduce the viability or profitability
of operations of the Company. The Aukam Graphite Project has in the past been subject to an environmental study. Additional environmental
studies will, however, be required as the Company’s anticipated exploration and development programs unfold. It is always
possible that, as work proceeds, environmental hazards may be identified on the Aukam Graphite Project which are at present unknown
to the Company and which may have the potential to negatively impact on the Company’s exploration and development plans
for the Aukam Graphite Project.
The
price of the Company’s securities, its financial results and its exploration, development and mining activities may be significantly
adversely affected by declines in the price of graphite.
The
price of the Company’s securities, its financial results and its exploration, development and mining activities may be significantly
adversely affected by declines in the price of graphite. Industrial mineral prices fluctuate widely and are affected by numerous
factors beyond the Company’s control such as the sale or purchase of industrial minerals by various dealers, interest rates,
exchange rates, inflation or deflation, currency exchange fluctuation, global and regional supply and demand, production and consumption
patterns, speculative activities, increased production due to improved mining and production methods, government regulations relating
to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection, the degree
to which a dominant producer uses its market strength to bring supply into equilibrium with demand, and international political
and economic trends, conditions and events. The prices of industrial minerals have fluctuated widely in recent years, and future
price declines could cause continued exploration and development of the Aukam Graphite Project to be impracticable. Further, reserve
calculations and life-of-mine plans using significantly lower industrial mineral prices could result in material write-downs of
the Company’s investment in the Aukam Graphite Project and increased amortization, reclamation and closure charges. In addition
to adversely affecting reserve estimates and the Company’s financial condition, declining commodity prices can impact operations
by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management
decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined
to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until
the reassessment can be completed.
As
our business grows, we will need to hire highly skilled personnel and, if we are unable to retain or motivate hire additional
qualified personnel, we may not be able to grow effectively.
Although
no assurance can be given, the Company contemplates that growth will occur as the Company implements its business strategies.
The Company expects the expansion of its business to place a significant strain on its limited managerial, operational, and financial
resources. The Company will be required to expand its operational and financial systems significantly and to expand, train, and
manage its work force in order to manage the expansion of its operations. The Company’s failure to fully integrate new employees
into its operations could have a material adverse effect on its business, prospects, financial condition, and results of operations.
The Company’s ability to attract and retain highly skilled personnel in connection with its growth is critical to its operations
and expansion. The Company faces competition for these types of personnel from other mining companies and more established organizations,
many of which have significantly larger operations and greater financial, marketing, human, and other resources than does the
Company. The Company may not be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms,
or at all. If the Company is not successful in attracting and retaining these personnel, its business, prospects, financial condition,
and results of operations will be materially adversely affected.
The
market price of the common stock may fluctuate significantly.
There
was no quotation for the Company common stock until March 6, 2014. An active public market for the Company's common stock may
not be sustained. The market price of the common stock may fluctuate significantly in response to factors, some of which are beyond
the Company's control, such as product liability claims or other litigation, the announcement of new pharmaceuticals or pharmaceutical
enhancements by the Company’s competitors, developments concerning intellectual property rights and regulatory approvals,
quarterly variations in competitors' results of operations, changes in earnings estimates or recommendations by securities analysts,
developments in our industry, and general market conditions and other factors, including factors unrelated to our operating performance.
Issuance
of additional shares of common stock or securities convertible into common stock may substantially dilute the ownership interests
of our existing stockholders.
We
may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests
of our common stockholders. We are currently authorized to issue one hundred million shares of common stock and ten million shares
of preferred stock with such designations, preferences and rights as determined by our board of directors. Issuance of additional
shares of common stock may substantially dilute the ownership interests of our existing stockholders. We may also issue additional
shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the
hiring of personnel, future acquisitions, future public or private placements of our securities for capital raising purposes,
or for other business purposes. Any such issuance would further dilute the interests of our existing stockholders.
The
outcomes of any legal action may have a material adverse effect on the financial results of the Company.
From
time to time, the Company may be involved in lawsuits. The outcomes of any such legal actions may have a material adverse effect
on the financial results of the Company on an individual or aggregate basis.
The
Company does not anticipate paying any dividends on its common stock.
The
Company has no earnings or dividend record and does not anticipate paying any dividends on its common shares in the foreseeable
future.
Our
common stock is considered a “penny stock” and, as a result, it may affect the ability of investors to sell their
shares.
The
SEC has adopted regulations that generally define "penny stock" to be an equity security that has a market or exercise
price of less than $5.00 per share, subject to specific exemptions. The market price of the Company’s common stock may be
below $5.00 per share and therefore may be designated as a "penny stock" according to SEC rules. This designation requires
any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement
from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict
the ability of brokers or dealers to sell such shares and may affect the ability of investors to sell their shares. In addition,
since the Company’s common stock is currently quoted on the OTCQB, investors may find it difficult to obtain accurate quotations
of the stock and may find few buyers to purchase the stock or a lack of market makers to support the stock price.
Failure
to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could prevent
the Company from producing reliable financial reports or identifying fraud. In addition, current and potential stockholders could
lose confidence in the Company's financial reporting, which could have an adverse effect on the Company's stock price.
Effective
internal controls are necessary for the Company to provide reliable financial reports and effectively prevent fraud, and a lack
of effective controls could preclude the Company from accomplishing these critical functions. We are required to document and
test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), which requires annual management assessments of the effectiveness of the Company's internal
controls over financial reporting.
If
we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls
over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment
could cause investors to lose confidence in our reported financial information, which could have an adverse effect on our stock
price.
Under
the JOBS Act we have elected to use an extended period for complying with new or revised accounting standards.
We
have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1),
which allows us to delay adoption of new or revised accounting standards that have different effective dates for public and private
until those standards apply to private companies. As a result of this election, our financial statements may not be comparable
to companies that comply with public company effective dates.