This form 10-K contains forward-looking statements. Forward-looking
statements are projections of events, revenues, income, future economic
performance or management's plans and objectives for our future operations. In
some cases, you can identify forward-looking statements by terminology such as
"may", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors" and the risks set out below, any of which may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks include, by way of example and not in
limitation:
This list is not an exhaustive list of the factors that may affect
any of our forward-looking statements. These and other factors should be
considered carefully and readers should not place undue reliance on our
forward-looking statements. Forward looking statements are made based on
management's beliefs, estimates and opinions on the date the statements are
made and we undertake no obligation to update forward-looking statements if
these beliefs, estimates and opinions or other circumstances should change.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States dollars (US$)
and are prepared in accordance with United States Generally Accepted Accounting
Principles. All references to "common stock" refer to the common shares in our
capital stock.
ITEM 1. BUSINESS.
GENERAL
The following is a summary of some of the information contained in
this document. Unless the context requires otherwise, references in this
document to "our Company," "us," "we," "our." "Greenhouse Solutions" or
the "Company" are to Greenhouse Solutions, Inc.
DESCRIPTION OF BUSINESS
Our Company was incorporated under the laws of the State of Nevada
on April 8, 2009. We were previously involved in the sale and distribution of urban
gardening products and greenhouses in the North American market, but we
are currently expanding the
business into the development, marketing, production, and sale of hemp oil
enhanced products for both personal health use and canine use, in addition to
probiotic-based nutraceuticals. As a nutraceutical company, we are engaging in
the acquisition, licensing and commercialization of nutraceutical products and
technologies. We seek strategic licensing partnerships to reduce the risks
associated with the drug development process. We maintain a website at www.ghsolutionsinc.com.
Such website is not incorporated into or a part of this filing.
We
are no longer pursuing our greenhouse design and consulting operations.
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COMPANY OVERVIEW
NUTRACEUTICAL
PRODUCTS
We previously expanded our business model with efforts in the development,
marketing, production, and sales of hemp oil products for both the personal health
and companion pet markets utilizing a licensed probiotic delivery system (US
Patent #6,080,401) and other licensed formulas. Hemp is naturally occurring from
both the cannabis and hemp species of the Cannabis Sativa plant. The extracted oil
is non-psychoactive and is actively being researched and investigated by others
for use in a number of conditions, including: Dravet Syndrome, Multiple Sclerosis
(MS), depression and schizophrenia. As research continues into the broad
spectrum of uses for hemp oil products, We intend to produce and sell various products
for the wellness marketplace that utilize hemp oil and phytocannabinoids.
In furtherance of our objectives, on November 5, 2015, the Company
signed a Joint Venture Agreement with KOIOS, LLC to develop and market a hemp
protein-based energy drink utilizing KOIOS proprietary formulae.
On November 19, 2015, the Company signed a Master License
Agreement with Dr. M.S. Reddy. Dr. Reddy has developed intellectual
property for the nutritional industries pertaining exclusively to the use of
hemp and hemp related products in combination with the probiotics. The
Company has agreed to acquire an exclusive license from Dr. Reddy for use of
the intellectual property in the products and proprietary formulations of
products for marketing. In consideration for the license, the Company issued
Dr. Reddy 3,000,000 shares of the Company's restricted common stock. Dr.
Reddy shall be paid 20% of the net profit from sales of each quantity of
licensed products sold on a 45 day trailing basis and Dr. Reddy may demand
accounting at any time.
KOIOS JOINT
VENTURE
The Company entered into a Joint Venture with KOIOS, LLC to
develop and market a hemp protein-based energy drink. Koios is a nootropic
supplement developer, with products that support cognitive function and mental
clarity. Together with Koios, we developed a new addition to its beverage
product line called "Raspberry Wonder," an infusion of its proprietary and
successful blend of nootropics with hemp oil. Hemp seed oil generally contains
a 3:1 ratio of Omega 6 (linolei/LA) to Omega 3 (alpha-linolenic/LNA) essential
fatty acids, which has been suggested as a ratio that may increase long-term
human nutrition. In addition, hemp seed oil also contains smaller amounts of three
other polyunsaturated fatty acids in gamma-linolenic acid (GLA), oleic acid and
stearidonic acid. This essential fatty acid combination is thought to be unique
among edible oil seeds. Raspberry Wonder is marketed as a dietary supplement to
enhance brain function, boost energy and burn fat, the Raspberry Wonder is
available to purchase through Koios' website, www.mentaltitan.com, as well as at stores throughout the country. Work is
underway now to develop the next generation of Raspberry Wonder, which will use
the Company's patent-protected process to suspend active probiotics in the
beverage.
In order to market the product, the Company and Koios ran a
promotion and as a result, we have identified target distributors who indicated
an interest in distributing our product. Among them are:
-
Europa Sports Products Inc. ("Europa Sports") recently merged with
Lone Star distribution, making them the largest distributor of Sports Nutrition
Products in the country, representing over 50,000 locations. Our target is that
the product will arrive at Koios in the last week in August or first week of
September.
-
The following is a selection of stores, via Europa Sports, that may
stock Raspberry Wonder for distribution:
Max Muscle Sports
Nutrition (nationwide)
Nutrition
Zone
Nutrition
Warehouse
Power
Nutrition
Hi-Health (45
locations)
Gold's
Gym
Powerhouse
Gym
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Smoothie
King (nationwide)
NutriShop
Ultimate
Sport Nutrition
Nutrition
Depot
Anytime
Fitness
Complete
Nutrition
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Muscle Foods USA, the second largest sports nutrition Distributor
in the country, has submitted an order for two pallets of the product when it
arrives at Koios.
-
KeHE Distributors, LLC, one of the largest natural grocery
distributors in the world, is Koios' distribution channel to large and medium
size grocery stores throughout the country. KeHE will receive roughly two
pallets upon arrival at Koios facilities for distribution.
-
Stores in which Koios is currently sold that are serviced by KeHE
and that may also be carrying the Raspberry Wonder beverage with the Company's
hemp oil include:
Sunset
Foods
Pete's Fresh
Markets
Mazyerecks
Tony's Fresh
Market
Better
Health Stores (Koios is currently carried in 14 of their locations and they
have agreed to bring in Raspberry Wonder)
Natural
Health Center
Joseph's
Market
Angelo
Caputo's Fresh Markets
Harvest
Health Foods
Our joint venture, Koios, uses a brokerage firm to help facilitate
new store openings along with adding new stores in the Midwest region. Koios is
focused on the Midwest region because main competitors do not have a presence in
these areas and there is a strong desire for natural and organic
alternatives.
Koios has also invested significant time and effort into creating
a user-friendly and attractive online environment, gaining approximately 6,000
Instagram followers and approximately 9,000 Facebook followers.
Koios continues to expand thier ambassador network and drive
traffic to the brand. Currently, Koios athletes and ambassadors are estimated
to have a combined audience of over one million people. Koios has continued to tap
into the world of CrossFit and e-sports. Koios recently attended the CrossFit
games, which led to approximately 20 new CrossFit gyms that carry Koios products
and that will also carry the Raspberry Wonder beverage with the Company's hemp
oil.
Koios recently entered into an agreement with a Denver-based
distributor, Hyperion Wholesale. Koios believes that this new relationship will add over 300 new stores that carry their products, including Raspberry
Wonder, by the end of 2016. As a result of the relationship with Hyperion, ten
new 7-Eleven stores and several other convenience stores across Colorado's
Front Range are planning to carry the Raspberry Wonder beverage.
WishingUWell is Koios' online distributor, with a web presence on Amazon.com.
OTHER
PRODUCTS
The Company intends to generate future revenues from sales of our hemp
oil enhanced products for both the personal health and companion pet markets,
as well as seeking out other joint venture opportunities in which our hemp oil
can be used.
The Company is working with a major health supplement developer to
produce water-soluble, probiotic infused Phytocannabinoid oils in an ingredient
for nutraceutical product manufacturers. The water solubility of probiotics, an
exclusively licensed innovation of the Company, means that this ingredient
could be integrated into any number of formulations, including capsules and
foods, as well as beverages. A major American university is engaged in a full
study of the compound to establish the health benefits of this new ingredient.
With this, the Company is also engaged in research and development of a new
probiotic hemp oil-
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infused cold-brew coffee beverage.
Due to the uncertainty of our ability to generate sufficient
revenues from our operating activities and/or to obtain the necessary financing
to meet our obligations and repay our liabilities arising from normal business
operations when they come due, in their report on our financial statements for
the year ended March 31, 2016, our registered independent auditors included
additional comments indicating concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures
describing the circumstances that led to this disclosure by our registered
independent auditors. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
CORPORATE STRATEGY
We have
shifted our focus entirely to nutraceutical products for humans and animals.
NUTRACEUTICAL PRODUCTS
Cannabidiol
is a naturally-occurring substance found in both the cannabis and hemp species
of the Cannabis Sativa plant and is generally marketed through hemp oil as a
nutritional supplement. The extracted oil is non-psychoactive and is being
researched by others for possible prescription for a number of conditions,
including: Dravet Syndrom, Multiple Sclerosis (MS), depression, and
schizophrenia. As research continues into the broad spectrum of uses for hemp
oil derived products, we intend to seek to develop various products for the
wellness marketplace that may utilize the ingredient.
We
have begun to develop, market, produce, and sell hemp oil products, through the
Koios Joint Venture, for personal health and may also enter the companion pet
market, some of which may utilize a licensed probiotic delivery system (US
Patent #6,080,401). We acquired a limited license to use the above referenced
Patent developed by scientist Dr. M.S. Reddy for hemp oil and cannabis based
products. Dr. Reddy's patent covers a wide variety of therapeutic and
nutraceutical cannabis and industrial hemp products. We also acquired exclusive
license rights to a number of proprietary nutraceutical formulations from MGRD,
Inc., owned by Officer and Directors Rik Deitsch.
Dr.
Reddy's licensed patent includes the introduction of probiotics as part of the
delivery method for certain therapeutics. Probiotics are bacteria or
micro-organisms that are beneficial to the health of an individual. They are
essentially an opposite of antibiotics, which are inhibitory to other bacteria,
including probiotic bacteria. Probiotics are predominately lactic acid
producing bacteria. In contrast to herbal medicine, probiotics developed as a
science only recently; and this science remains unacknowledged by many medical
practitioners. One of the earliest discoveries that bacteria can improve human
health was by Dr. Metchnikoff, a Russian scientist, in 1907. Since then, there
have been favorable reports about probiotics' utility, including, for example,
that lactobacillus acidophilus reduces colon cancer in humans. In 2011, experts
at Yale University reviewed the research. They concluded that probiotics are
most effective for, but not limited to: Treating childhood diarrhea, treating
ulcerative colitis, treating necrotizing enterocolitis (a type of infection and
inflammation of the intestines mostly seen in infants), preventing
antibiotic-associated diarrhea and infectious diarrhea, preventing pouchitis
(an inflammation of the intestines that can follow intestinal surgery),
treating and preventing eczema associated with cow's milk allergy, helping the
immune system, treating symptoms of irritable bowel syndrome, treating
vaginitis, treating diarrhea caused by C. difficile bacteria, and treating
Crohn's disease.
The
use of pre- and pro-biotics have become commonplace in the last few years, with
research providing evidence for their benefit in the treatment and prevention
of a variety of gastrointestinal issues, as well as immune system dysfunctions.
Probiotics are bacteria or micro-organisms that are beneficial to the health of
an individual. The license includes the introduction of probiotics as part of
the delivery method for certain therapeutic products derived from hemp or
cannabis (at this time being only CBD
without
THC). We intend to develop
different therapeutic products with the help of probiotics, with the design to
deliver therapy more efficiently and at lower dosages, intending to reduce
possible complications, as well as increasing efficacy.
The
Company intends to pursue different products that incorporate both hemp oil,
and the licensed water-soluble probiotics, whether we produce them or we enter
other joint ventures to achieve our goals.
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ONLINE
RETAIL OF PRODUCTS
We
intend to expand our online marketing of our products through our website, in
addition to promoting the sales of our joint venture products through our
website.
Strategic
Focus
Our
corporate strategy in developing our operations is as follows:
To
design and produce hemp oil enhanced nutraceutical products for sale to the
general public.
We
intend to create hemp oil products that contain formulations unseen in the
current market in the nutraceuticals industry. We believe that our formulations
will set us apart from competing products for promoting health.
We
have a license agreement for exclusive rights to formulations for hemp oil
products, intended for, subject to performance, treating various symptoms of
diseases and ailments. We intend to begin manufacturing and marketing of these hemp
oil products with expansion of products over the next five years.
To
further the joint venture relationship with Koios and seek other ventures where
possible.
We
plan to expand our relationship with Koios where possible, including
potentially adding the probiotic aspect to the beverage selection, and seek out
other opportunities for joint ventures with different product categories.
COMPETITION, MARKETS, REGULATION AND
TAXATION
COMPETITION
Nutraceutical
Industry
The
nutraceutical industry is subject to significant competition and pricing
pressures. We may experience significant competitive pricing pressures as well
as competitive products. Several significant competitors may offer products
with prices that may match or are lower than ours. We believe that the products
we offer are generally competitive with those offered by other supplement and
nutraceutical companies; however, we believe that our products are unique and
will set themselves apart from competing products. It is possible that one or
more of our competitors could develop a significant research advantage over us
that allows them to provide superior products or pricing, which could put us at
a competitive disadvantage. Continued pricing pressure or improvements in
research and shifts in customer preferences away from natural supplements could
adversely impact our customer base or pricing structure and have a material and
adverse effect on our business, financial condition, results of operations and
cash flows.
MARKETS
The
user market for hemp oil products and other nutraceuticals is generally an
individual who has a specific health issue where a health advisor or
distributor has provided or directed that user to our product. The market for
nutraceuticals is subject to many influential factors, but the main issues
affecting the market are consumer spending and government regulation.
REGULATION
OF NUTRACEUTICALS
The formulation, manufacturing, processing, labeling,
packaging, advertising and distribution of our products are subject to
regulation by several federal agencies, including the Food and Drug
Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer
Product Safety Commission, the U.S. Department of
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Agriculture ("USDA") and the Environmental Protection
Agency ("EPA"). These activities are also regulated by various agencies of the
states and localities in which our products are sold. The FDA regulates the
processing, formulation, safety, manufacture, packaging, labeling and
distribution of dietary supplements (including vitamins, minerals, and herbs)
and cosmetics, whereas the FTC has jurisdiction to regulate the advertising of
these products.
The
Dietary Supplement Health and Education Act of 1994 ("DSHEA") defines "dietary
supplements" as vitamins, minerals, herbs, other botanicals, amino acids and other
dietary substances for human use to supplement the diet, as well as
concentrates, metabolites, constituents, extracts or combinations of such
dietary ingredients. New dietary ingredients (those not marketed in the U.S.
prior to October 15, 1994) must be the subject of a notification submitted
to the FDA unless the ingredient has been "present in the food supply as an
article used for food" without being "chemically altered." The notification
must be submitted to the FDA at least 75 days before the initial marketing of
the new dietary ingredient. The FDA has issued guidance regarding the content
of a new dietary ingredient notification. Should the FDA choose to enforce the
guidance, it could have a negative effect on the innovation and continued
marketing of dietary supplements; the FDA may not accept any particular
evidence of safety for any new dietary ingredient, preventing the marketing of
those dietary ingredients.
DSHEA
permits "statements of nutritional support" to be included in labeling for dietary
supplements without premarket FDA approval, however, such statements must be
submitted within 30 days of marketing and must bear a label disclosure that
"This statement has not been evaluated by the Food and Drug Administration.
This product is not intended to diagnose, treat, cure, or prevent any disease."
Statements of nutritional support may describe how a particular dietary
ingredient affects the structure, function or general well-being of the body,
or the mechanism of action by which a dietary ingredient may affect body
structure, function or well-being, but may not expressly or implicitly
represent that a dietary supplement will diagnose, cure, mitigate, treat, or
prevent a disease. A company using such statements must possess scientific
evidence substantiating that the statement is truthful and not misleading. Any
statements determined to be outside of these guidelines or unsubstantiated
would be prevented from being used.
DSHEA
also provides that so-called "third-party literature," a peer-reviewed
scientific publication linking a particular dietary ingredient with health
benefits, may be used "in connection with the sale of a dietary supplement to
consumers" without the literature being subject to regulation as labeling. Third-party
literature must not be false or misleading; the literature may not "promote" a
particular manufacturer or brand of dietary supplement; and a balanced view of
the available scientific information on the subject matter must be presented. Any
dissemination of non-compliant literature could subject our product to
regulatory action as an illegal drug.
The
FDA's Good Manufacturing Practices ("GMP") regulations require dietary
supplements to be prepared, packaged and held in compliance with strict rules,
and require quality control provisions similar to those in the GMP regulations
for drugs. The FDA could in the future choose to inspect one of our facilities
for compliance with these regulations, and could cause non-compliant products
made or held in the facility to be subject to FDA enforcement actions.
The
FDA has broad authority to enforce the provisions of the FDCA and their
regulation of foods, dietary supplements and cosmetics may increase or become
more restrictive in the future. Additional legislation could be passed which
would impose substantial new regulatory requirements for dietary supplements,
potentially raising our costs and hindering our business.
Our
advertising is subject to regulation by the Federal Trade Commission, or FTC,
under the Federal Trade Commission Act. In recent years the FTC has initiated
numerous investigations of dietary supplement and weight loss products and
companies. Additionally, some states also permit advertising and labeling laws
to be enforced by private attorney generals, who may seek relief for consumers,
seek class action certifications, seek class wide damages and product recalls
of products sold by us. Any of these types of adverse actions against us by
governmental authorities or private litigants could have a material adverse
effect on our business, financial condition and results of operations.
In addition to FDA and FTC regulations, our products may
face further regulation under the Single Convention on Narcotic Drugs 1961,
which governs international trade and domestic control of narcotic substances
including cannabis extracts. Countries may interpret and implement their treaty
obligations in a way that creates a
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legal obstacle to our obtaining marketing approval for our
products in those countries. These countries may not be willing or able to amend
or otherwise modify their laws and regulations to permit our products to be
marketed, or achieving such amendments to the laws and regulations may take a
prolonged period of time. In the case of countries with similar obstacles, we
would be unable to market our product candidates in countries in the near future
or perhaps at all if the laws and regulations in those countries do not change.
CONTROLLED SUBSTANCE
REGULATION
At
some point our products may be developed and be subject to U.S. controlled
substance laws and regulations and failure to comply with these laws and
regulations, or the cost of compliance with these laws and regulations, may
adversely affect the results of our business operations, both during clinical
development and post approval, and our financial condition.
Certain
products we may develop could contain controlled substances as defined in the
federal Controlled Substances Act of 1970, or CSA. Controlled substances that
are pharmaceutical products are subject to a high degree of regulation under
the CSA, which establishes, among other things, certain registration,
manufacturing quotas, security, recordkeeping, reporting, import, export and
other requirements administered by the DEA. The DEA classifies controlled
substances into five schedules: Schedule I, II, III, IV or V substances.
Schedule I substances by definition have a high potential for abuse, no
currently "accepted medical use" in the United States, lack accepted safety for
use under medical supervision, and may not be prescribed, marketed or sold in
the United States. Pharmaceutical products approved for use in the United
States may be listed as Schedule II, III, IV or V, with Schedule II substances
considered to present the highest potential for abuse or dependence and
Schedule V substances the lowest relative risk of abuse among such substances.
Schedule I and II drugs are subject to the strictest controls under the CSA,
including manufacturing and procurement quotas, security requirements and criteria
for importation. In addition, dispensing of Schedule II drugs is further
restricted. For example, they may not be refilled without a new prescription.
We do not intend to produce "controlled substances" at this time, due to
regulatory complications.
RESEARCH
AND DEVELOPMENT ACTIVITIES
Other
than time spent researching our proposed business we have not spent any funds
on research and development activities to date. We do not currently plan to
spend any funds on research and development activities in the future.
COMPLIANCE
WITH ENVIRONMENTAL LAWS
As
we begin to manufacture nutraceutical products, we or our contract
manufacturers will become subject to numerous federal, state, local and foreign
laws and regulations governing our operations, including the handling,
transportation and disposal of our products and our non-hazardous and hazardous
substances and wastes, as well as emissions and discharges into the
environment, including discharges to air, surface water and groundwater.
Failure to comply with those laws and regulations could result in costs for
corrective action, penalties or the imposition of other liabilities. Changes in
environmental laws or the interpretation thereof or the development of new
facts could also cause us to incur additional capital and operational
expenditures to maintain compliance with environmental laws and regulations. We
will also become subject to laws and regulations that impose liability and
cleanup responsibility for releases of hazardous substances into the environment
without regard to fault or knowledge about the condition or action causing the
liability. Failure to comply with environmental laws could have a material
adverse effect on our business or financial performance.
EMPLOYEES
We
have one full-time employee at the present time, John Michak, our COO. Our
officers and directors are responsible for planning, developing and operational
duties, and will continue to do so throughout the early stages of our growth.
We have no intention of hiring additional employees until we have sufficient,
reliable revenue from our operations. We do not have written employment
agreements with any of our officers or directors at this time.
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REPORTS TO SECURITIES HOLDERS
We
provide an annual report that includes audited financial information to our
shareholders. We will make our financial information equally available to any
interested parties or investors through compliance with the disclosure rules
for a small business issuer under the Securities Exchange Act of 1934. We are
subject to disclosure filing requirements including filing Form 10K annually
and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and
information statements from time to time as required. We do not intend to
voluntarily file the above reports in the event that our obligation to file
such reports is suspended under the Exchange Act. The public may read and copy
any materials that we file with the Securities and Exchange Commission,
("SEC"), at the SEC's Public Reference Room at 100 F Street NE,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC.
ITEM 1A. RISK FACTORS.
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS RELATING TO GREENHOUSE SOLUTIONS' PLANS, STRATEGIES, OBJECTIVES,
EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT MAY
CAUSE OUR COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS,
THE FOLLOWING: OUR ABILITY OF TO IMPLEMENT OUR BUSINESS STRATEGY; ABILITY TO
OBTAIN ADDITIONAL FINANCING; GREENHOUSE SOLUTIONS' LIMITED OPERATING HISTORY;
UNKNOWN LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH;
SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES; AND FUTURE
GOVERNMENT REGULATIONS; AND OTHER FACTORS DESCRIBED IN THIS FILING OR IN OTHER
OF GREENHOUSE SOLUTIONS' FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GREENHOUSE SOLUTIONS IS UNDER NO OBLIGATION, TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISKS
RELATED TO OUR COMPANY AND THE BUSINESS
We
sell our products and services in highly competitive markets, which results in
pressure on our profit margins and limits our ability to maintain or increase
the market share of our services.
The
nutraceutical industry is subject to significant competition and pricing
pressures. We will experience significant competitive pricing pressures as well
as competitive products. Several significant competitors offer products with
prices that may match or are lower than ours. We believe that the products we
offer are generally competitive with those offered by other supplement and
nutraceutical companies. It is possible that one or more of our competitors
could develop a significant research advantage over us that allows them to
provide superior products or pricing, which could put us at a competitive
disadvantage. Continued pricing pressure or improvements in research and shifts
in customer preferences away from natural supplements could adversely impact
our customer base or pricing structure and have a material and adverse effect
on our business, financial condition, results of operations and cash flows.
Our
future growth is largely dependent upon our ability to successfully compete
with new and existing competitors by developing or acquiring new products that
achieve market acceptance with acceptable margins.
Our business operates in markets that are characterized by
rapidly changing products, evolving industry standards and potential new
entrants. For example, a number of new companies with innovative products, which
promise significant health benefits are established every year and are
competitive with our products. If these companies gain market acceptance, our
ability to grow our business could be materially and adversely affected.
Accordingly, our future success depends upon
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a number of factors, including our ability to accomplish the
following: identify emerging trends in our target end-markets; develop, acquire
and maintain competitive products; enhance our products by adding innovative
features that differentiate us from our competitors; and develop or acquire and
bring products to market quickly and cost-effectively. Our ability to develop or
acquire new products based on quality research can affect our competitive
position and requires the investment of significant resources. These
acquisitions and development efforts divert resources from other potential
investments in our businesses, and they may not lead to the development of new
research or products on a timely basis. New or enhanced products may not satisfy
consumer preferences and potential product failures may cause consumers to
reject these products. As a result, these products may not achieve market
acceptance and our brand image could suffer. In addition, our competitors may
introduce superior designs or business strategies, impairing our brand and the
desirability of our products, which may cause consumers to defer or forego
purchases of our products or services. Also, the markets for our products and
services may not develop or grow as we anticipate. The failure of our products
to gain market acceptance, the potential for product defects or the obsolescence
of our products could significantly reduce our revenue, increase our operating
costs or otherwise adversely affect our business, financial condition, results
of operations or cash flows.
Adverse
publicity or consumer perception of our products and any similar products
distributed by others could harm our reputation and adversely affect our sales
and revenues.
We
believe we are highly dependent upon positive consumer perceptions of the
safety and quality of our products as well as similar products distributed by
other health and wellness companies. Consumer perception of health products,
nutrition supplements and our products in particular can be substantially
influenced by scientific research or findings, national media attention and
other publicity about product use. Adverse publicity from these sources
regarding the safety, quality or efficacy of nutritional supplements and our
products could harm our reputation and results of operations. The mere
publication of news articles or reports asserting that such products may be harmful
or questioning their efficacy could have a material adverse effect on our
business, financial condition and results of operations, regardless of whether
such news articles or reports are scientifically supported or whether the
claimed harmful effects would be present at the dosages recommended for such
products.
Our
products, or elements of our products, may be shipped from overseas into the
United States and any number of problems may arise during the transport.
Due
to the fact that hemp is not allowed federally to be grown on American soil, it
must be shipped from overseas, and the Company plans to do so through the use
of cargo ships. This includes any number of inherent risks involved in travel.
These are unlikely scenarios but the ship may lose its cargo overboard, the
ship itself may be lost, storms or other factors may cause loss of or damage to
the products. If our competitors are able to deliver products when we cannot,
our reputation may be damaged and we may lose customers to our competitors.
Only
select states allow for the growing of hemp, even without the budding of
marijuana.
It
is currently very difficult to grow hemp in the United States. Despite the
enacting of several new state laws, it is still not legal on a federal level to
grow hemp on American soil. This means that the acquisition of hemp is more
difficult and it must be shipped from foreign countries, causing a period
between when an order is placed and when the product arrives from overseas. It
is possible that there may be a greater demand than there is a supply from
overseas suppliers and, thus, a backlog may develop. This is not expected or
anticipated, but it is a remote possibility. At this time we do not have plans
to grow hemp in the United States.
We intend to purchase hemp oil from China,
however it is possible that their prices, availability or any number of other
factors may change.
It is possible that our Chinese suppliers may face
bankruptcy or some form of litigation in the future. Although the company has no
reasonable expectation that this is the case, such problems or any others may
arise that could pose problems for the Company. It is also possible that the
supplier may, for any number of reasons, change the price of their products and
thus alter our profit margins. If any undesirable issues occur with an overseas
supplier, then the Company may be forced to find another supplier, which would
create at least a minimal delay in service. In addition, it is possible that the
supplier may not have the necessary supply to meet the
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demand for the Company's products. At this time we have not
entered into a Supplier Agreement and we do not have a formal or informal
arrangement with a supplier to supply hemp.
Due
to legal controversy over the Cannabis plant within the United States, we face
challenges getting our products into stores.
The
majority of our products are intended for personal use. Our Company intends to
release products that contain no THC and that are legal for ingestion within
the U.S., however, we anticipate that we may face scrutiny and run into issues
getting our products into stores due to hesitation by food chains to carry any
product even affiliated with the cannabis plant.
The
U.S. laws pertaining to the importation and exportation of hemp-based products
may adversely affect our ability to fully implement our business plan.
In
the United States today the U.S. Customs Service has a "zero tolerance
standard" for the importation of industrial hemp. What this means is that a
product can not have any potentially dangerous substances contained in it or it
will be considered adulterated and unfit for human consumption, and thus
illegal to possess or use per U.S. Federal Law. In 2001 the DEA elaborated on
this and clarified that any product with any quantity of THC in it at all can
not be imported into the United States. Since no hemp-based products containing
THC are legally permitted in the United States, such products with THC are not
allowed to be exported out of the United States either. Because of the strict
laws that exist with the U.S. importation and exportation of hemp products, our
business could be adversely affected.
We
operate in a highly competitive environment, and if we are unable to compete
with our competitors, our
business, financial condition, results of
operations, cash flows and prospects could be materially adversely
affected.
We
operate in a highly competitive environment. Our competition includes all other
companies that are in the business of creating hemp-based products for personal
use or consumption. A highly competitive environment could materially adversely
affect our business, financial condition, results of operations, cash flows and
prospects.
Because
we are a small company and do not have much capital, our marketing campaign may
not be enough to attract sufficient clients to operate profitably. If we do not
make a profit, we may suspend or cease operations.
Due
to the fact we are a small company and do not have much capital, we must limit
our marketing activities and may not be able to make our product known to
potential customers. Because we will be limiting our marketing activities, we
may not be able to attract enough customers to operate profitably. If we cannot
operate profitably, we may have to suspend or cease operations.
We
rely on highly skilled personnel; if we are unable to retain or motivate key
personnel, or hire qualified personnel, we may not be able to grow effectively.
Our
performance largely depends on the talents and efforts of highly skilled
individuals. Our future success depends on our continuing ability to identify,
hire, develop, motivate and retain highly skilled personnel for all areas of
our organization, particularly sales and marketing. Competition in our industry
for qualified employees is intense. In addition, our compensation arrangements,
such as our bonus programs, may not always be successful in attracting new
employees or retaining and motivating our existing employees. Our continued
ability to compete effectively depends on our ability to attract new employees
and to retain and motivate our existing employees.
Our
operating results may fluctuate, which makes our results difficult to predict
and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number
of factors, many of which may be outside of our control. As a result, comparing
our operating results on a period-to-period basis may not be meaningful, and you
should not rely on our past results as an indication of our future performance.
Our quarterly, year-to-date,
-13-
and annual expenses as a percentage of our revenues may
differ significantly from our historical or projected rates. Our operating
results in future quarters may fall below expectations. Each of the following
factors may affect our operating results:
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our
ability to deliver products in a timely manner in sufficient volumes;
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our
ability to recognize product trends;
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our
loss of one or more significant customers;
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the
introduction of successful new products by our competitors; and
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adverse
media reports on the use or efficacy of nutritional supplements.
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our
inability to make our design and consulting service division profitable
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our
inability to make our online marketing division profitable.
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Because
our business is changing and evolving, our historical operating results may not
be useful to you in predicting our future operating results.
We
may not be able to secure additional financing to meet our future capital needs
due to changes in general economic conditions.
We
anticipate needing significant capital to fulfill our contractual obligations,
complete the research and development of our planned services, obtain
regulatory approvals, and execute our business plan, generally. We may use
capital more rapidly than currently anticipated and incur higher operating
expenses than currently expected, and we may be required to depend on external
financing to satisfy our operating and capital needs. We may need new or
additional financing in the future to conduct our operations or expand our
business. Any sustained weakness in the general economic conditions and/or
financial markets in the United States or globally could adversely affect our
ability to raise capital on favorable terms or at all. From time to time we
have relied, and may also rely in the future, on access to financial markets as
a source of liquidity to satisfy working capital requirements and for general
corporate purposes. We may be unable to secure debt or equity financing on terms
acceptable to us, or at all, at the time when we need such funding. If we do
raise funds by issuing additional equity or convertible debt securities, the
ownership percentages of existing stockholders would be reduced, and the
securities that we issue may have rights, preferences or privileges senior to
those of the holders of our common stock or may be issued at a discount to the
market price of our common stock which would result in dilution to our existing
stockholders. If we raise additional funds by issuing debt, we may be subject
to debt covenants, which could place limitations on our operations including
our ability to declare and pay dividends. Our inability to raise additional
funds on a timely basis would make it difficult for us to achieve our business
objectives and would have a negative impact on our business, financial
condition and results of operations.
Our
business and operating results could be harmed if we fail to manage our growth
or change.
Our
business may experience periods of rapid change and/or growth that could place
significant demands on our personnel and financial resources. To manage
possible growth and change, we must continue to try to locate skilled employees
and professionals and adequate funds in a timely manner.
Our
insurance coverage or third party indemnification rights may not be sufficient
to cover our legal claims or other losses that we may incur in the future.
We
maintain insurance, including property and workers' compensation to protect
ourselves against potential loss exposures. In the future, insurance coverage
may not be available at adequate levels or on adequate terms to cover potential
losses, including on terms that meet our customer's requirements. If insurance
coverage is inadequate or unavailable, we may face claims that exceed coverage
limits or that are not covered, which could increase our costs and adversely
affect our operating results.
-14-
If
developed, our brands may become valuable, and any inability to protect them
could reduce the value of our products and brand.
We
may invest significant resources to build and protect our brands. However, we
may be unable or unwilling to strictly enforce our rights, including our
trademarks, from infringement. Our failure to enforce our intellectual property
rights could diminish the value of our brands and product offerings and harm
our business and future growth prospects.
We
may be subject to infringement claims, which are costly to defend, could
require us to pay damages and could limit our ability to sell some of our
products.
Our
industry is characterized by vigorous pursuit and protection of brands, which
has resulted in protracted and expensive litigation for several companies.
Third parties may assert claims of misappropriation of trade secrets or
infringement of intellectual property rights against us or against our partners
for which we may be liable.
As
our business expands, the number of products and competitors in our markets
increases and product overlaps occur, infringement claims may increase in
number and significance. Intellectual property lawsuits are subject to inherent
uncertainties due to the complexity of the technical issues involved, and we
cannot be certain that we would be successful in defending ourselves against
intellectual property claims. Further, many potential litigants have the
capability to dedicate substantially greater resources than we can to enforce
their intellectual property rights and to defend claims that may be brought
against them. Furthermore, a successful claimant could secure a judgment that
requires us to pay substantial damages or prevents us from distributing
products or performing certain services.
An
increase in product returns could negatively impact our operating results and
profitability.
We
will permit the return of damaged or defective products and accept limited
amounts of product returns in certain instances. While such returns are
expected to be nominal and within management's expectations and the provisions
established, future return rates may increase more than anticipated. Any
significant increase in damaged or defective products or expected returns could
have a material adverse effect on our operating results for the period or
periods in which such returns materialize.
We
have no manufacturing capacity and anticipate continued reliance on third-party
manufacturers for the development of our products.
We
do not currently operate manufacturing facilities for production of our
products. We lack the resources and the capabilities to manufacture our
products. We do not intend to develop facilities for the manufacture of
products in the foreseeable future. We will rely on third-party manufacturers
to produce bulk products required to meet our sales needs. We plan to continue
to rely upon contract manufacturers to manufacture commercial quantities of our
products.
Our
contract manufacturers' failure to achieve and maintain high manufacturing
standards, in accordance with applicable regulatory requirements, or the
incidence of manufacturing errors, could result in consumer injury or death,
product shortages, product recalls or withdrawals, delays or failures in
product testing or delivery, cost overruns or other problems that could
seriously harm our business. Contract manufacturers often encounter
difficulties involving production yields, quality control and quality
assurance, as well as shortages of qualified personnel. Our existing
manufacturers and any future contract manufacturers may not perform as agreed
or may not remain in the contract manufacturing business. In the event of a
natural disaster, business failure, strike or other difficulty, we may be
unable to replace a third-party manufacturer in a timely manner and the
production of our products would be interrupted, resulting in delays, additional
costs and reduced revenues.
A
shortage in the supply of key raw materials could increase our costs or
adversely affect our sales and revenues.
All of the raw materials for our products are obtained from
third-party suppliers. Shortages in certain ingredients could result in
materially higher raw material prices or adversely affect our ability to have a
product manufactured. Price increases from a supplier would directly affect our
profitability if we are not able to pass price
-15-
increases on to customers. Our inability to obtain adequate
supplies of raw materials in a timely manner or a material increase in the price
of our raw materials could have a material adverse effect on our business,
financial condition and results of operations.
Because
we are subject to numerous laws and regulations, and we may become involved in
litigation from time to time, we could incur substantial judgments, fines,
legal fees and other costs.
Our
industry is highly regulated. The manufacture, labeling and advertising for our
products are regulated by various federal, state and local agencies as well as
those of each foreign country to which we distribute. These governmental
authorities may commence regulatory or legal proceedings, which could restrict
the permissible scope of our product claims or the ability to manufacture and
sell our products in the future. The U.S. Food and Drug Administration, or FDA,
regulates our products to ensure that the products are not adulterated or
misbranded. Failure to comply with FDA requirements may result in, among other
things, injunctions, product withdrawals, recalls, product seizures, fines and
criminal prosecutions. Our advertising is subject to regulation by the Federal
Trade Commission, or FTC, under the Federal Trade Commission Act. In recent
years the FTC has initiated numerous investigations of dietary supplement and
weight loss products and companies. Additionally, some states also permit
advertising and labeling laws to be enforced by private attorney generals, who
may seek relief for consumers, seek class action certifications, seek class
wide damages and product recalls of products sold by us. Any of these types of
adverse actions against us by governmental authorities or private litigants
could have a material adverse effect on our business, financial condition and
results of operations.
Our products may be unable to achieve the
expected market acceptance and, consequently, limit our ability to generate
revenue from new products.
Even
when product development is successful, our ability to generate significant
revenue depends on the acceptance of our products by consumers. We cannot
assure you that any planned products will achieve market acceptance and revenue
if and when they obtain the requisite regulatory approvals. The market
acceptance of any product depends on a number of factors, including the
indication statement and warnings approved by regulatory authorities in the
product label, continued demonstration of efficacy and safety in commercial
use, the price of the product, competition, and marketing and distribution
support. Any factors preventing or limiting the market acceptance of our
products could have a material adverse effect on our business, results of
operations and financial condition.
Problems
in our manufacturing process, failure to comply with manufacturing regulations
or unexpected increases in our manufacturing costs could harm our business,
results of operations and financial condition.
The
manufacturing of products necessitates compliance with international Good
Manufacturing Practice, or GMP, and other international regulatory
requirements. Important to this is our ability to obtain a successful
manufacturer of our proposed products, which involves obtaining botanical raw
material under highly controlled and standardized conditions, extraction and
purification processes, manufacture of finished products and labeling and
packaging, which includes product information, tamper evidence and
anti-counterfeit features. In addition, we must ensure consistency among our
batches. Demonstrating such consistency may require typical manufacturing
controls as well as clinical data. For each step in the manufacturing process,
we will rely on single manufacturing facilities and no back-up facilities are
yet in place. If we are unable to obtain manufactured products in accordance
with regulatory specifications, or if there are disruptions in our
manufacturing process due to damage, loss or otherwise, or failure to pass
regulatory inspections of our manufacturing facilities, we may not be able to
meet the demand for product or supply sufficient product for use in clinical
trials, and this may also harm our ability to commercialize our product designs
on a timely or cost-competitive basis, if at all. Any problems in our
manufacturing process could have a material adverse effect on our business,
results of operations and financial condition
Product recalls or inventory losses caused by
unforeseen events, cold chain interruption and testing difficulties may
adversely affect our operating results and financial condition.
Our
products will be manufactured and distributed using technically complex
processes requiring specialized facilities, highly specific raw materials and
other production constraints. The complexity of these processes, as well as
strict company and government standards for the manufacture of our products,
subjects us to production risks.
-16-
Consumption of products we sell may decline.
We
rely on consumers' demand for our products. Consumer preferences may shift due
to a variety of factors, including changes in demographic or social trends,
public health policies, and changes in leisure, dining and beverage consumption
patterns. Our continued success will require us to anticipate and respond
effectively to shifts in consumer behavior and tastes. If consumer preferences
were to move away from our products, in any of our major markets, our financial
results might be adversely affected.
A
limited or general decline in consumption in one or more of our product
categories could occur in the future due to a variety of factors, including:
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a
general decline in economic or geopolitical conditions;
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concern
about the health consequences of consuming various nutraceutical products;
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consumer
dietary preferences;
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increased
federal, state, provincial and foreign excise or other taxes on certain
products and possible restrictions on advertising and marketing;
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increased
regulation placing restrictions on the purchase or consumption of our products
or increasing prices due to the imposition of duties or excise tax;
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inflation;
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wars,
pandemics, weather and natural or man-made disasters.
In
addition, our continued success depends, in part, on our ability to develop new
products. The launch and ongoing success of new products are inherently
uncertain especially with regard to their appeal to consumers. The launch of a
new product can give rise to a variety of costs and an unsuccessful launch,
among other things, can affect consumer perception of existing brands and our
reputation. Unsuccessful implementation or short-lived popularity of our
product innovations may result in inventory write-offs and other costs.
Climate
change, or legal, regulatory or market measures to address climate change, may
negatively affect our business or operations, and water scarcity or poor water
quality could negatively impact our production costs and capacity.
There
is a growing concern that carbon dioxide and other so-called 'greenhouse' gases
in the atmosphere may have an adverse impact on global temperatures, weather
patterns and the frequency and severity of extreme weather and natural
disasters. In the event that such climate change has a negative effect on
agricultural productivity, we may be subject to decreased availability or increased
pricing for certain raw materials that are necessary for our products, such as
sugar, cereals, agave and grapes. Water is likely to be a main ingredient in
substantially all of our products and it is also a limited resource in many
parts of the world. As demand for water continues to increase, and as water
becomes scarcer and the quality of available water deteriorates, we may be
affected by increasing production costs or capacity constraints, which could
adversely affect our operations and profitability.
An
increase in the cost of raw materials or energy could affect our profitability.
The
components of our products are largely commodities that are subject to price
volatility caused by changes in global supply and demand, weather conditions,
agricultural uncertainty and/or governmental controls. Commodity price changes
may result in unexpected increases in the cost of raw materials, plastics,
flavors and other packaging materials and our products. We may also be
adversely affected by shortages of such materials or by increases in energy
costs resulting in higher transportation, freight and other operating costs. We
may not be able to increase our prices to offset these increased costs without
suffering reduced volume, sales and operating profit.
Various
diseases, pests and certain weather conditions.
Various diseases, pests, fungi, viruses, drought, frosts and
certain other weather conditions could affect the quality and quantity of plants
and other agricultural raw materials available, decreasing the supply of our
products and negatively impacting profitability. We cannot guarantee that our
suppliers of agricultural raw materials
-17-
will succeed in preventing contamination in existing fields.
Future government restrictions regarding the use of certain materials used in
growing agricultural raw materials may increase costs and/or reduce production
of crops. Growing agricultural raw materials also requires adequate water
supplies. A substantial reduction in water supplies could result in material
losses of crops, which could lead to a shortage of our product supply.
Reliance
on manufacturers and distributors.
Local
market structures and distribution channels vary worldwide. We sell our joint
venture products through distributors to retail outlets. Koios has entered into
arrangements with distributors that generate the majority of our U.S. sales.
The replacement or poor performance of the main distributors could result in
temporary or longer-term sales disruptions or could materially and adversely affect
our results of operations and financial condition for a particular period. Our
inability to collect accounts receivable from our manufacturers or distributors
could also materially and adversely affect our results of operations and
financial condition.
Regulatory decisions and changes in the legal
and regulatory environment could increase our costs and liabilities or limit
its business activities.
Our
operations and those of any contractors are subject to extensive regulatory
requirements relating to production, distribution, importation, marketing,
advertising, promotion, sales, pricing, labeling, packaging, product liability,
labor, pensions, antitrust, compliance and control systems, and environmental
issues. Changes in laws, regulations or governmental or regulatory policies
and/or practices could cause us to incur material additional costs or
liabilities that could adversely affect its business. In particular,
governmental bodies may impose new labeling, product or production
requirements, limitations on the marketing, advertising and/or promotion
activities used to market or products, restrictions on retail outlets,
restrictions on importation and distribution or other restrictions on the
locations or occasions where beverage alcohol is sold which directly or
indirectly limit the sales of our products.
Regulatory
authorities under whose laws we operate may also have enforcement power that
can subject us to actions such as product recall, seizure of products or other
sanctions which could have an adverse effect on our sales or damage its
reputation.
Any
changes to the regulatory environment in which we operate could cause us to
incur material additional costs or liabilities, which could adversely affect
our performance.
Our
products may also become subject to national excise, import duty and other
duties in most countries around the world. An increase in any such duties could
have a significant adverse effect on our sales revenue or margin, both through
reducing overall consumption and by encouraging consumers to switch to
lower-taxed categories of products.
Our
reported after-tax income is calculated based on extensive tax and accounting
requirements in each of its relevant jurisdictions of operation. Changes in tax
law (including tax rates), accounting policies and accounting standards could
materially reduce our reported after tax income.
Damage
to our reputation.
Maintaining
a good reputation is critical to selling our branded products. Product
contamination or tampering or the failure to maintain our standards for product
quality, safety and integrity, including with respect to raw materials,
naturally occurring compounds, packaging materials or product components
obtained from suppliers, may reduce demand for our products or cause production
and delivery disruptions. Although our producer/distributors maintain standards
for the materials and product components received from suppliers, it is
possible that a supplier may not provide materials or product components that
meet the required standards or may falsify documentation associated with the
fulfillment of those requirements. If any of our products becomes unsafe or
unfit for consumption, is misbranded or causes injury, we may have to engage in
a product recall and/or be subject to liability and incur additional costs. A
widespread product recall, multiple product recalls, or a significant product
liability judgment could cause our products to be unavailable for a period of
time, which could further reduce consumer demand and brand equity. Our
reputation could be impacted negatively by public perception, adverse publicity
(whether or not valid), negative comments in social media, or our responses
relating to:
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a
perceived failure to maintain high ethical, social and environmental standards
for all of our operations and activities;
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a
perceived failure to address concerns relating to the quality, safety or
integrity of our products;
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our
environmental impact, including use of agricultural materials, packaging, water
and energy use, and waste management; or
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effects that are
perceived as insufficient to promote the responsible use of our products.
Failure
to comply with local laws and regulations, to maintain an effective system of
internal controls, to provide accurate and timely financial statement
information, or to protect our information systems against service
interruptions, misappropriation of data or breaches of security, could also
hurt our reputation. Damage to our reputation or loss of consumer confidence in
our products for any of these or other reasons could result in decreased demand
for our products and could have a material adverse effect on our business,
financial condition and results of operations, as well as require additional
resources to rebuild our reputation, competitive position and brand equity.
Contamination.
The
success of our brands depends upon the positive image that consumers have of
those brands. Contamination, whether arising accidentally or through deliberate
third-party action, or other events that harm the integrity or consumer support
for our brands, could adversely affect their sales. Contaminants in raw
materials, packaging materials or product components purchased from third
parties and used in the production of our products or defects in the process could
lead to low quality as well as illness among, or injury to, consumers of our
products and may result in reduced sales of the affected brand or all of our
brands.
Dependence
upon trademarks and proprietary rights, failure to protect our intellectual property
rights.
Our
future success depends significantly on our ability to protect our current and
future brands and products and to defend our intellectual property rights. We intend
to seek trademark registrations covering our newly developed brands and
products. We cannot be sure that trademark registrations will be issued with
respect to any of our trademark applications. There is also a risk that we
could, by omission, fail to timely renew or protect a trademark or that our
competitors.
Business
interruptions could delay us in the process of developing our product
candidates and could disrupt our product sales.
Loss
of manufacturing contracts, stored inventory or other facilities through fire
or other causes, or loss of our botanical raw material due to pathogenic
infection or other causes, could have an adverse effect on our ability to meet
demand for product, to continue product development activities and to conduct
our business. Failure to supply our distribution channels with commercial product
may lead to adverse consequences. We currently have no insurance coverage to
compensate us for such business interruptions; however, if obtained, such
coverage may prove insufficient to fully compensate us for the damage to our
business resulting from any significant property or casualty loss to our
inventory or facilities.
If product liability lawsuits are successfully
brought against us, we will incur substantial liabilities and may be required
to limit the commercialization of our product designs.
As
a marketer and distributor of products designed for both human and animal
consumption, we will be subject to product liability claims if the use of our
products is alleged to have resulted in injury. Our products consist of
vitamins, minerals, herbs and other ingredients that are classified as dietary
supplements and topical animal products and in most cases are not subject to
pre-market regulatory approval in the United States or internationally.
Previously unknown adverse reactions resulting from human consumption of these
ingredients could occur.
We have not had any product liability claims filed against
us, but in the future we may be subject to various product liability claims,
including among others that our products had inadequate instructions for use, or
inadequate warnings concerning possible side effects and interactions with other
substances. The cost of defense
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can be substantially higher than the cost of settlement even
when claims are without merit. The high cost to defend or settle product
liability claims could have a material adverse effect on our business and
operating results. While we continue to take what we believe are appropriate
precautions, we may be unable to avoid significant liability if any product
liability lawsuit is brought against us. Although we have purchased insurance to
cover product liability lawsuits, if we cannot successfully defend ourselves
against product liability claims, or if such insurance coverage is inadequate,
we will incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:
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decreased
demand for our products;
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injury
to our reputation;
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costs
of related litigation;
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substantial
monetary awards to consumers;
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increased
cost of liability insurance;
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loss
of revenue; and
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the
inability to successfully commercialize our products.
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We
intend to offer our products in highly competitive markets, which results in
pressure on our profit margins and may limit our ability to maintain or
increase the market share of our services.
The
nutraceutical industry is subject to significant competition and pricing
pressures. We will experience significant competitive pricing pressures.
Several competitors offer products similar to ours. We believe that the products
we offer are generally competitive with those offered by other services. It is
possible that one or more of our competitors could develop a significant
advantage, which could put us at a competitive disadvantage. Continued pricing
pressure or shifts in customer preferences for nutraceutical products could
adversely impact our customer base or pricing structure and have a material and
adverse effect on our business, financial conditions, results of operations,
and cash flows.
Our
future growth of our services is largely dependent upon our ability to
successfully compete with new and existing competitors by achieving market
acceptance with acceptable margins.
Our
business operates in markets that are characterized by rapidly changing
demands, evolving industry standards, and potential new entrants. If these
companies gain market acceptance, our ability to grow our consulting business
could be material and adversely affected. Accordingly, our future success
depends upon a number of factors, including our ability to accomplish the
following: identify emerging trends in our target end-markets; develop,
acquire, and maintain competitive product offerings, and differentiate us from
our competitors. Our ability to market our products can affect our competitive
position and requires the investment of significant resources. These
development efforts may divert resources from other potential investments in
our businesses, and they may not lead to the development of revenues on a
timely basis. As a result, these products may not achieve market acceptance and
our brand image could suffer. In addition, our competitors may introduce
superior business strategies, impairing desirability which may cause users to
defer or forego purchase of our products. Also, the markets for our products
may not develop or grow as we anticipate. The failure of our products to gain
market acceptance could significantly reduce our revenue, increase our
operating costs, or otherwise adversely affect our business, financial
condition, results of operations or cash flows.
Our
joint venture may be unsuccessful or the relationship may deteriorate.
We
currently have a Joint Venture Agreement with Koios, LLC. Our joint venture may
not be successful and we may not fulfill the goals of the joint venture for any
number of reasons. If the relationship is unsuccessful for any reason, the
Company will have to find alternative business ventures or avenues in order to continue
generating new products.
-20-
We depend upon our key personnel and our ability
to attract and retain employees.
Our
future growth and success depend on our ability to recruit, retain, manage and
motivate our employees. The loss of the services of any member of our senior
management or the inability to hire or retain experienced management personnel
could adversely affect our ability to execute our business plan and harm our
operating results. Because of the specialized scientific and managerial nature
of our business, we rely heavily on our ability to attract and retain qualified
scientific, technical and managerial personnel. The competition for qualified
personnel in the pharmaceutical field is intense. Due to this intense
competition, we may be unable to continue to attract and retain qualified
personnel necessary for the development of our business or to recruit suitable
replacement personnel.
We
have limited history of operations and we may incur losses.
As
a company with limited operating history, we are subject to all of the risks
associated with a new business enterprise. Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of development, especially in challenging and
competitive industries. We are unable to give you any assurance that we will generate
material revenues or that any revenues generated will be sufficient for us to
continue operations or achieve profitability.
We
have limited assets.
We
have incurred an accumulated deficit since inception of $4,227,947 through March
31, 2016 and have not yet established a consistent on-going source of revenues
sufficient to cover its operating costs and allow us to continue as a going
concern. The ability of our Company to continue as a going concern is dependent
on us obtaining adequate capital to fund operating losses until it becomes
profitable. If we are unable to obtain adequate capital, we could be forced to
cease operations. Our success will initially depend upon continuing our
business and growing our business by raising the necessary funds to expand
operations.
For
future additional capital requirements, we may raise capital by issuing equity
or convertible debt securities, and when we do, the percentage ownership of our
existing stockholders may be diluted. In addition, any new securities we issue
could have rights, preferences and privileges senior to the common shares
offered herein.
Conflicts
of Interest.
Certain
conflicts of interest may exist between our Company and our officers and
directors. They have other business interests to which they devote their
attention, and may be expected to continue to do so although management time
should be devoted to the business of our Company. As a result, conflicts of
interest may arise that can be resolved only through exercise of such judgment
as is consistent with fiduciary duties to our Company.
Need
for Additional Financing.
In
the event our Company decides to expand our operations we may have very limited
funds to do so. The ultimate success of our Company may depend upon our ability
to raise additional capital. Our Company is continuing to assess the need for
additional capital. If additional capital is needed, there is no assurance that
funds will be available from any source or, if available, that they can be
obtained on terms acceptable to our Company. If not available, our Company's
operations will be limited to those that can be financed with its modest
capital.
Limited Revenue History.
Our
Company is considered in development stage. Our Company must be regarded as a
new or development venture with all of the unforeseen costs, expenses,
problems, risks and difficulties to which such ventures are subject.
No
Assurance of Success or Profitability.
There
is no assurance that our Company will ever operate profitably. There is no assurance
that we will generate profits, or that the value of our Company's Shares will
be increased thereby.
-21-
Lack
of Diversification.
Because
of the limited financial resources that we have, it is unlikely that we will be
able to diversify our operations. Our probable inability to diversify our
activities into more than one area will subject us to economic fluctuations
within our business or industry and therefore increase the risks associated
with our operations.
Dependence
upon Management. Limited Participation of Management.
Our
Company will be heavily dependent upon our management skills, talents, and
abilities, as well as our consultants, to implement our business plan, and may,
from time to time, find that their inability to devote full time attention to
the business of our Company results in a delay in progress toward implementing
our business plan.
Dependence
upon Outside Advisors.
To
supplement the business experience of our officers and directors, we may be
required to employ accountants, technical experts, appraisers, attorneys, or
other consultants or advisors. Our Company's management, without any input from
stockholders, will make the selection of any such advisors. Furthermore, it is
anticipated that such persons may be engaged on an "as needed" basis without a
continuing fiduciary or other obligation to our Company. In the event our
Company considers it necessary to hire outside advisors, they may elect to hire
persons who are affiliates, if they are able to provide the required services.
Based
on our current cash reserves, we will have relatively small operational budget
for the operations that we cannot expand without additional raising capital.
If
we are unable to begin to generate enough revenue to cover our operational
costs, we will need to seek additional sources of funds. Currently, we have no
committed source for any funds as of date hereof. No representation is made
that any funds will be available when needed. In the event funds cannot be
raised if and when needed, we may not be able to carry out our business plan
and could fail in business as a result of these uncertainties.
We
cannot give any assurances that we will be able to raise enough capital to fund
acquisitions and product development.
We
will need to raise additional funds to support not only our budget, but our
expansion operations. We cannot make any assurances that we will be able to
raise such funds or whether we would be able to raise such funds with terms
that are favorable to us. We may seek to borrow monies from lenders at
commercial rates, but such lenders will probably be at higher than bank rates,
which higher rates could, depending on the amount borrowed, make the net
operating income insufficient to cover the interest.
-22-
RISKS
RELATED TO CONTROLLED SUBSTANCES
Controlled
substance legislation differs between countries and legislation in certain
countries may restrict or limit our ability to develop our product candidates.
Most
countries are parties to the Single Convention on Narcotic Drugs 1961, which
governs international trade and domestic control of narcotic substances,
including hemp oil extracts. Countries may interpret and implement their treaty
obligations in a way that creates a legal obstacle to our obtaining marketing
approval for our products in those countries. These countries may not be
willing or able to amend or otherwise modify their laws and regulations to
permit our products to be marketed, or achieving such amendments to the laws
and regulations may take a prolonged period of time. In the case of countries
with similar obstacles, we would be unable to market our product candidates in
countries in the near future or perhaps at all if the laws and regulations in
those countries do not change.
At
some point our products may be developed and be subject to U.S. controlled
substance laws and regulations and failure to comply with these laws and
regulations, or the cost of compliance with these laws and regulations, may
adversely affect the results of our business operations, both during clinical
development and post approval, and our financial condition.
At
this time we do not intend to use controlled substances in any products.
Certain
products we may develop could contain controlled substances as defined in the
federal Controlled Substances Act of 1970, or CSA. Controlled substances that
are pharmaceutical products are subject to a high degree of regulation under
the CSA, which establishes, among other things, certain registration,
manufacturing quotas, security, recordkeeping, reporting, import, export and
other requirements administered by the DEA. The DEA classifies controlled
substances into five schedules: Schedule I, II, III, IV or V substances.
Schedule I substances by definition have a high potential for abuse, no currently
"accepted medical use" in the United States, lack accepted safety for use under
medical supervision, and may not be prescribed, marketed or sold in the United
States. Pharmaceutical products approved for use in the United States may be
listed as Schedule II, III, IV or V, with Schedule II substances considered to
present the highest potential for abuse or dependence and Schedule V substances
the lowest relative risk of abuse among such substances. Schedule I and II
drugs are subject to the strictest controls under the CSA, including
manufacturing and procurement quotas, security requirements and criteria for
importation. In addition, dispensing of Schedule II drugs is further
restricted. For example, they may not be refilled without a new prescription. We
do not intend to produce "controlled substances" at this time, due to
regulatory complications.
RISK FACTORS RELATED TO
OUR SECURITIES
We
may in the future issue more shares which could cause a loss of control by our
present management and current stockholders.
We
may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be those new stockholders and management would
control our Company, and persons unknown could replace our management at this
time. Such an occurrence would result in a greatly reduced percentage of
ownership of our Company by our current shareholders, which could present
significant risks to investors.
We
have not paid dividends but may in the future.
We
have not paid dividends on our common stock. While we intend to pay dividends
in future after allocating adequate reserves, we do not guarantee, commit and
undertake that dividends will be paid in the foreseeable future.
-23-
A limited public market exists for our common
stock at this time, and there is no assurance of a future market.
Our
common stock has been quoted on the OTC Pink since November 24, 2010, under the
symbol "GRSU." There
is a limited public market for our common stock, and no assurance can be given
that a market will continue or that a shareholder ever will be able to
liquidate his investment without considerable delay, if at all. If a market
should develop, the price may be highly volatile. Factors such as those
discussed in the "Risk Factors" section may have a significant impact upon the
market price of the shares offered hereby. Due to the low price of our securities,
many brokerage firms may not be willing to effect transactions in our
securities. Even if a purchaser finds a broker willing to effect a transaction
in our shares, the combination of brokerage commissions, state transfer taxes,
if any, and any other selling costs may exceed the selling price. Further, many
lending institutions will not permit the use of our shares as collateral for
any loans.
The
regulation of penny stocks by SEC and FINRA may discourage the tradability of
our securities.
We
are a "penny stock" company. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or Accredited Investors. For purposes of the rule, the phrase
"Accredited Investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers of
our stock to sell their securities in any market that might develop therefore
because it imposes additional regulatory burdens on penny stock transactions.
In
addition, the Securities and Exchange Commission has adopted a number of rules
to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks"
within the meaning of the rules, the rules would apply to us and to our securities.
The rules will further affect the ability of owners of shares to sell our
securities in any market that might develop for them because it imposes
additional regulatory burdens on penny stock transactions.
Shareholders
should be aware that, according to Securities and Exchange Commission, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include (i) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) "boiler room" practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differentials and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to
be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities.
Rule
144 sales in the future may have a depressive effect on our stock price.
Our
shareholders may be able to use Rule 144 as an exemption for resale, but
resales under Rule 144 could have a depressive effect on the market trading
price, if any. Investors will have no effective way to combat this.
-24-
Our
shares are thinly traded.
The
shares of our common stock may continue to be thinly-traded on the OTC Markets
under the symbol GRSU, meaning that the number of persons interested in
purchasing our common shares at or near ask prices at any given time may be
relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that we are a small company which is relatively
unknown to stock analysts, stock brokers, institutional investors and others in
the investment community that generate or influence sales volume, and that even
if we came to the attention of such persons, they tend to be risk-averse and
would be reluctant to follow an unproven, early stage company such as ours or
purchase or recommend the purchase of any of our Securities until such time as
we became more seasoned and viable. As a consequence, there may be periods of
several days or more when trading activity in our Securities is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without
an adverse effect on Securities price. We cannot give you any assurance that an
active public trading market for our common Securities will ever develop or be
sustained, or that any trading levels will be sustained. Due to these
conditions, we can give investors no assurance that they will be able to sell
their shares at or any prices or at all if they need money or otherwise desire
to liquidate their securities of our Company. Our common stock may not be able
to be liquidated at or near ask prices in any volume in the markets.
Our
common stock market prices may be volatile, which substantially increases the
risk that investors may not be able to sell their Securities at or above the
price that was paid for the security.
Because
of the limited trading market for our common stock and because of the possible
price volatility, shareholders may not be able to sell their shares of common
stock when desired. The inability to sell Securities in a rapidly declining market
may substantially increase the risk of loss because of such illiquidity and
because the price for our Securities may suffer greater declines because of our
price volatility.
Certain
factors, some of which are beyond our control, that may cause our share price
to fluctuate significantly include, but are not limited to the following:
-
Variations
in our quarterly operating results;
-
Loss
of a key relationship or failure to complete significant transactions;
-
Additions
or departures of key personnel; and
-
Fluctuations
in stock market price and volume.
Additionally,
in recent years the stock market in general, and the personal care markets in
particular, have experienced extreme price and volume fluctuations. In some
cases, these fluctuations are unrelated or disproportionate to the operating
performance of the underlying company. These market and industry factors may
materially and adversely affect our stock price, regardless of our operating
performance. In the past, class action litigation often has been brought
against companies following periods of volatility in the market price of those
companies common stock. If we become involved in this type of litigation in the
future, it could result in substantial costs and diversion of management
attention and resources, which could have a further negative effect on
shareholders' investments in our stock.
Future
dilution may occur due to issuances of Shares for various consideration in the
future.
There
may be substantial dilution to our shareholders as a result of future decisions
of the Board to issue shares without shareholder approval for cash, services,
acquisitions, or pursuant to a Employee/Consultant Stock Option Plan for which
one million shares have been reserved but are not issued. Award/Earnings/Vesting
criteria under the Plan have not been set, however the price per share for
exercise will be no less than market value at the date of issue. No options are
currently outstanding under the Plan.
-25-
Our
new investors will suffer a disproportionate risk and there will be immediate
dilution of purchasers' investments.
Our
present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to warrants will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, new investors will bear most of the risk of loss.
Possible
Depressive Effect of Future Sales of Shares issued pursuant to a Warrant
Exercise.
We
intend to register the shares underlying warrants that we have issued or may
issue in the future. If the securities are sold prior to registration, the securities
must bear a legend to the effect that the transfer is prohibited, pursuant to
registration under the Act, or pursuant to an available exemption from
registration. In the event all of the warrants are eventually exercised, and a
registration statement was effective the resulting common shares would be free
trading and could be sold into the secondary market. Such sales would most
likely have a depressive effect on the price of the common stock in any
over-the-counter market that may develop, since the large supply of shares
available in the market would most likely reduce the price purchasers need to
pay for the stock. The exercise of the warrants would also reduce the
percentage of our common stock owned by our shareholders.
Our
business is highly speculative and the investment is therefore highly risky.
Due
to the speculative nature of our business, it is probable that the investment
in shares offered hereby will result in a total loss to the investor. Investors
should be able to financially bear the loss of their entire investment.
Investment should, therefore, be limited to that portion of discretionary funds
not needed for normal living purposes or for reserves for disability and
retirement.
The
ongoing economic downturn and continued uncertainty in the financial markets
and other adverse changes in general economic or political conditions may
adversely affect our industry, business and results of operations.
The
global credit and financial markets have continued to experience disruptions,
including diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates, and
uncertainty about economic stability. There can be no assurance that there will
not be future deterioration in credit and financial markets and confidence in
economic conditions. These economic uncertainties affect businesses such as
ours in a number of ways, making it difficult to accurately forecast and plan
our future business activities. We are unable to predict the likely duration
and severity of the current disruptions in the credit and financial markets and
adverse global economic conditions, and if the current uncertain economic
conditions continue or further deteriorate, our business and results of
operations could be materially and adversely affected.
Potential
changes in accounting practices and/or taxation may adversely affect our
financial results.
We
cannot predict the impact that future changes in accounting standards or
practices may have on our financial results. New accounting standards could be
issued that change the way we record revenues, expenses, assets and
liabilities. These changes in accounting standards could adversely affect our
reported earnings. Increases in direct and indirect income tax rates could
affect after tax income. Equally, increases in indirect taxes could affect our
products affordability and reduce our sales.
We
will rely on third parties for services in conducting our business and any
disruption of these relationships could adversely affect our business.
We
will have contracts with third parties. If these relationships are disrupted
for any reason our results of operation and financial condition could be
adversely affected.
-26-
There
is a risk that shareholders will never receive dividends.
We
do not guarantee, commit or undertake to issue a dividend to shareholders for
the foreseeable future even if cash were available to do so as we would
re-invest those available funds back into the operations of our Company to
attempt to expand. We cannot assure shareholders that we will achieve results
or maintain a tax status that will ever allow any specified level of cash
distribution or year-to-year increases in cash distribution.
Reporting
Information.
Our
Company is subject to the reporting requirements under the Securities and
Exchange Act of 1934. As a result, shareholders will have ready access to the
information required to be reported by publicly held companies under the
Securities and Exchange Act and the regulations thereunder. Our Company intends
to provide our shareholders with annual reports containing financial
information prepared in accordance with Generally Accepted Accounting
Principles as required by Sec. 13 of the Securities Exchange Act of 1934.
Limited
Financing - Lack of Loan Availability.
The
monies currently on hand may not be sufficient for the continued expanded
operations of our Company. There is no assurance that additional monies or
financing will be available in the future or, if available, will be at terms
favorable to our Company. (See "Business Summary")
Our
Company may borrow money to finance its operations on terms to be determined.
Any such borrowing will increase the risk of loss to the investor in the event
our Company is unsuccessful in repaying such loans.
Capital
Resources.
The
only capital resources of our Company are our shares.