ITEM 1A. RISK FACTORS
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS,
INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO SOLEI SYSTEM’S 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; SOLEI SYSTEMS’S 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 SOLEI SYSTEMS’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. SOLEI SYSTEMS, INC. IS UNDER NO OBLIGATION TO PUBLICLY
UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISK FACTORS RELATING TO OUR COMPANY
LIMITED OPERATING HISTORY
There can be no assurance that our management
will be successful in its attempts to implement our business plan, build the corporate infrastructure required to support operations
at the levels called for by our business plan or that we will generate sufficient revenues to meet expenses or to achieve or maintain
profitability. We will encounter risks and difficulties that companies at a similar stage of development frequently experience,
including the potential failure to:
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Obtain sufficient working capital to support our establishment and expansion;
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Find and realize the asset management opportunities required to generate revenue;
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Maintain adequate control of our expenses allowing us to realize anticipated income growth; and
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Anticipate and adapt to changing conditions in the nutritional supplement industry resulting from changes in government regulations, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.
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OUR MANAGEMENT TEAM HAS MINIMAL EXPERIENCE
OPERATING A PUBLIC COMPANY. ANY FAILURE TO COMPLY OR ADEQUATELY COMPLY WITH FEDERAL AND STATE SECURITIES LAWS, RULES OR REGULATIONS
COULD SUBJECT US TO FINES OR REGULATORY ACTIONS, WHICH MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Members of our management team have minimal
experience managing and operating a public Company and may rely in many instances on the professional experience and advice of
third parties including attorneys and accountants. Failure to comply or adequately comply with any federal or state securities
laws, rules, or regulations may result in fines or regulatory actions, which may materially adversely affect our business, results
of operation, or financial condition and could result in delays in achieving either the effectiveness of a registration statement
or the development of an active and liquid trading market for our common stock.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The audited financial statements included in
this filing have been prepared assuming that we will continue as a going concern and do not include any adjustments that might
result if we cease to continue as a going concern. We have incurred significant losses since our inception. We have funded these
losses primarily through open account borrowing from our majority shareholder and Chairman.
Based on our financial history since inception,
in their report on the financial statements for the period ended December 31, 2018 and 2017, our independent registered public
accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage Company
that has not yet generated significant revenue. There is no assurance that any significant revenue will be realized in the future.
There can be no assurance that we will have
adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all,
or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital
resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have
a material adverse effect on our business, results of operations and ability to operate as a going concern.
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE,
ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF OUR MANAGEMENT TEAM.
Our current directors are also acting as our
officers. We will be heavily dependent upon their skills, talents, and abilities, as well as several consultants to us, to implement
our business plan, and may, from time to time, find that the inability of the officers, directors and consultants to devote their
full-time attention to our business results in a delay in progress toward implementing our business plan. Consultants may be employed
on a part-time basis under a contract to be determined.
Our directors and officers are, or may become,
in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety
of businesses. Thus, our officers and directors may have potential conflicts involving their time and efforts in participation
with other business entities. Each officer and director of our business is engaged in business activities outside of our business,
and the amount of time they devote as officers and directors to our business will be up to 40 hours per week. Mr. Scott, CEO and
director, spends up to 40 hours a week
on our Company’s business. Mr. Flood,
President, spends approximately 40 hours a week on our Company’s business. Because investors will not be able to manage our
business, they should critically assess all of the information concerning our officers and directors.
We do not know of any reason other than outside
business interests that would prevent them from devoting full-time to our Company when the business may demand such full-time participation.
WE WILL BE DEPENDENT UPON KEY PERSONNEL FOR
THE FORESEEABLE FUTURE.
We will be dependent on several key members
of our management and operations teams for the foreseeable future. In particular, we are dependent on Charles O. Scott as our CEO
and Joshua Flood as our President and Chief Financial Officer, as well as Dr. John Korangy, MD as President of our CareClix, Inc.
subsidiary. The loss of the services of any executive could have a material adverse effect on our operations and prospects. At
this time, we have no employment agreements with any of these individuals, though it is contemplated that the Company may enter
into such agreements with certain of its key employees on terms and conditions usual and customary for its industry. We do not
currently have any "key man" life insurance on any employees or officers.
WE WILL INCUR SIGNIFICANT COSTS TO BE A PUBLIC
COMPANY AND TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO ABSORB SUCH
COSTS.
We may incur significant costs associated with
our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including
requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect
these costs to be approximately $125,000-$150,000 per year. We expect all of these applicable rules and regulations to significantly
increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that
these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on
our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these
newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
In addition, we may not be able to absorb these costs of being a public Company which will negatively affect our business operations.
WE ARE AN “EMERGING GROWTH COMPANY,”
AND ANY DECISION ON OUR PART TO COMPLY ONLY WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO “EMERGING GROWTH COMPANIES”
COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.
We are an “emerging growth Company,”
as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we expect and fully
intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging
growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company”
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed
$1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.
In addition, Section 107 of the JOBS Act also
provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)2(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have elected to opt in to the extended
transition period for complying with the revised
accounting standards. We have elected to rely on these exemptions and reduced disclosure requirements applicable to “emerging
growth companies” and expect to continue to do so.
WE MAY NOT BE ABLE TO MEET THE FILING AND INTERNAL
CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC WHICH MAY RESULT IN A DECLINE IN THE PRICE OF OUR COMMON SHARES AND AN INABILITY
TO OBTAIN FUTURE FINANCING.
As directed by Section 404 of the Sarbanes-Oxley
Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the SEC adopted rules requiring each public company to include a report
of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent
registered public accounting firm auditing a company’s financial statements may have to also attest to and report on management’s
assessment of the effectiveness of the Company’s internal controls over financial reporting. We may be required to include
a report of management on its internal control over financial reporting. The internal control report must include a statement
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Of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;
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Of management’s assessment of the effectiveness of its internal control over financial reporting as of year-end; and
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Of the framework used by management to evaluate the effectiveness of our internal control over financial reporting.
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Furthermore, our independent registered public
accounting firm may be required to file its attestation on whether it believes that we have maintained, in all material respects,
effective internal control over financial reporting.
While we expect to expend significant resources
in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a
risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable
to receive a positive attestation from our independent registered public accounting firm when that becomes required with respect
to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock
price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent
registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements,
and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy
of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K
with the SEC, which could also adversely affect the market price of our common stock and our ability to secure additional financing
as needed.
REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT
AND COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, INCLUDING ESTABLISHING AND MAINTAINING ACCEPTABLE INTERNAL CONTROLS OVER FINANCIAL
REPORTING, ARE COSTLY AND MAY INCREASE SUBSTANTIALLY.
The rules and regulations of the SEC require
a public Company to prepare and file periodic reports under the Exchange Act, which will require that the Company engage legal,
accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate
internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically
qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial
reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our
internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial
condition and result in loss of investor confidence and a decline in our share price.
As a public company, we will be subject to
the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 and other applicable securities
rules and regulations. Despite recent reforms made
possible by the JOBS Act, compliance with these
rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult,
time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging
growth Company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with
respect to our business and operating results.
We are working with our legal, accounting and
financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage
our growth and our obligations as a public Company. These areas include corporate governance, corporate control, disclosure controls
and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other
areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public Company
could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel,
such as a chief financial officer familiar with the obligations of public Company reporting; consultants to design and implement
internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand
dollars per year. In addition, if and when we retain independent directors and/or additional members of senior management, we may
incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance,
the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and
similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or
in the aggregate, may also be material.
In addition, being a public company could make
it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability
insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors, our board committees or as executive officers.
The increased costs associated with operating
as a public company may decrease our net income or increase our net loss and may cause us to reduce costs in other areas of our
business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these
requirements divert our management’s attention from other business concerns, they could have a material adverse effect on
our business, financial condition and results of operations.
THE JOBS ACT ALLOWS US TO DELAY THE ADOPTION
OF NEW OR REVISED ACCOUNTING STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE COMPANIES.
Since, we have elected to use the extended
transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election
allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private
companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable
to companies that comply with public Company effective dates.
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION
OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS
OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.
Our By-Laws include provisions that eliminate
the personal liability of the directors of the Company for monetary damages to the fullest extent possible under the laws of the
State of Florida or other applicable law. These provisions eliminate the liability of directors to the Company and its stockholders
for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Florida law, however,
such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii)
acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends
or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper
benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages
by third parties. The position of the SEC with regard to such indemnification and limitation provisions is that they are contrary
to the intent of the federal securities laws and are not enforceable as written.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE
FUTURE LOSSES.
As of June 30, 2019, we had an accumulated
deficit of $3,839,402.
As a result of this, among other factors, we
received from our registered independent public accountants in their report for the financial statements for the years ended December
31, 2018 and 2017, an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT
TO MEET OUR ONGOING OPERATING EXPENSES.
We have limited sources of income at this time
and insufficient assets to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt
and/or equity, we may be unable to meet our ongoing operating expenses.
BECAUSE OUR CEO AND CHAIRMAN CONTROLS OUR ACTIVITIES,
THAT MAY CAUSE US TO ACT IN A MANNER THAT IS MOST BENEFICIAL TO HIM AND NOT TO OUTSIDE SHAREHOLDERS WHICH COULD CAUSE US NOT TO
TAKE ACTIONS THAT OUTSIDE INVESTORS MIGHT VIEW FAVORABLY
Our Chief Executive Officer and Chairman also
is the majority shareholder of our issued and outstanding common stock and beneficially owns approximately 55% of our issued and
outstanding common stock. As a result, he effectively controls all matters requiring director and stockholder approval, including
the election of directors, and the approval of significant corporate transactions, such as mergers and related party transactions.
This insider also has the ability to delay or perhaps even block, by his ownership of our stock, an unsolicited tender offer. This
concentration of ownership could have the effect of delaying, deterring or preventing a change in control of our Company that you
might view favorably.
WE MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY
NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.
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 Board 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 us. In
the event we consider it necessary to hire outside advisors, we may elect to hire persons who are affiliates, if they are able
to provide the required services.
WE MAY FACE DIFFICULTIES ESTABLISHING A NEW
BRAND
Our principal business strategy is to develop
the new brand name Vasanoxol® to replace the Panoxol brand name as a respected brand associated with the highest quality nutritional
supplements. The marketing of consumer goods such as high-quality, premium nutritional supplements is highly dependent on creating
favorable consumer perception through well-orchestrated advertising and public relations. We will be expending a significant percentage
of the proceeds of any future cash raises for advertising and promotional activities. Our Company has little advertising experience,
having spent only minimal amounts on such activities to-date. Our Company’s competitors have significantly greater advertising
resources and experience and enjoy well-established brand names. There can be no assurance that our initial advertising and promotional
activities will be successful in creating the desired consumer perception.
OUR COMPETITION IS MUCH LARGER AND HAS BEEN
IN THE MARKETPLACE MUCH LONGER
Several large, well-financed competitors with
long-standing brand recognition, successful histories of new product introductions and long-standing relationships dominate the
market for the distribution of nutritional supplements. We compete with well-established companies for sales to distributors and
to consumers. While we believe that the rapidly
expanding market for sales of nutritional supplements
has created room for new competitors to achieve substantial sales and profits, there can be no assurance that we can compete successfully
on price or in obtaining raw materials, building facilities and attracting and keeping skilled labor, which could result in material
adverse effects on our business.
WE MAY BE SUBJECT TO LITIGATION IN THE FUTURE
WHICH COULD IMPACT THE FINANCIAL HEALTH OF THE COMPANY.
Currently there are no legal proceedings threatened
against our Company. However, from time to time, we may become involved in various lawsuits and legal proceedings that arise in
the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters
may arise from time to time that may harm our 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 nutritional supplement industry is subject
to significant competition and pricing pressures. The telemedicine market is a relatively new and rapidly growing market with many
competitors. 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 companies. It is possible that one or more of our competitors could develop
a significant 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 raw materials and shifts in customer preferences away from supplement products 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 PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE WITH
ACCEPTABLE MARGINS.
Our business operates in markets that are characterized
by legal and regulatory pressures and evolving industry standards. If similar high-end supplement companies gain market acceptance,
our ability to grow our business could be materially 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 and
maintain competitive products; enhance our products by increasing the associated brand reputation that differentiate us from our
competitors; and develop and bring products to market quickly and cost-effectively. Our ability to develop new products can affect
our competitive position and requires the investment of significant resources. These development efforts divert resources from
other potential investments in our businesses, and they may not lead to the development of new 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 products 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 lawsuits, 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 quality of our products and services as well as similar products and services distributed by other
supplement companies or telemedicine providers. Consumer perception of nutritional supplement products 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 or quality of 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 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.
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 to the CareClix™
software. We have trademark registrations covering our brands and products, and expect to continue to file, trademark applications
seeking to protect 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 will challenge, invalidate or circumvent any existing or future trademarks issued to or licensed by us.
In addition, we face additional risks related to the potential failure to protect the intellectual property rights covered by our
license to market Panoxol and the risk of patent infringement claims being filed against us due to our license to market Panoxol.
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.
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.
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.
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. All of our supplement products are manufactured in the United States and, while we rely primarily on one manufacturer
for our product, multiple other US manufacturers are available that we can employ as needed.
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 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.
DAMAGE TO OUR REPUTATION.
Maintaining a good reputation is critical to
selling our branded products and telemedicine services. 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 and services;
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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.
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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
RISKS RELATING TO OWNERSHIP OF
SOLEI SYSTEMS, INC. COMMON STOCK
NO ACTIVE PUBLIC MARKET EXISTS FOR OUR COMMON
STOCK AT THIS TIME, AND THERE IS NO ASSURANCE OF A FUTURE MARKET. SOLI CURRENTLY TRADES ON THE “GREY MARKET” WITH APPROXIMATELY
565 SHAREHOLDERS.
There is a no active public market for our
common stock, although recently reported activity on the grey market has resulted in an increase in the average trading price of
our stock, trading under the symbol SOLI, and in the volume of daily trades. No assurance can be given that a market will develop
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. 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.
We have determined to seek listing of our common
stock on the OTC Markets and have sought to convince a market maker to file a Form 15©-211 to allow transactions on the OTC
Markets. There can be no assurance that such a filing will be accomplished or that, if filed, the application will be granted.
OUR STOCK WILL, IN ALL LIKELIHOOD, BE THINLY
TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of our common stock may be thinly-traded.
We are a small Company which is relatively unknown to stock analysts, stock brokers, institutional stockholders and others in the
investment community that generate or influence sales volume, so 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 a broader or more active public trading market for our common securities will develop or
be sustained, or that any trading levels will be sustained. Due to these conditions, we can give stockholders no assurance that
they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their
securities.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the possible price volatility, you
may not be able to sell your shares of common stock when you desire to do so. The inability to sell your securities in a rapidly
declining market may substantially increase your risk of loss because of such illiquidity and because the price for our securities
may suffer greater declines because of our price volatility.
The price of our common stock that will prevail
in the market, if ever available for trading, may be higher or lower than the price you may pay. 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:
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Variations in our quarterly operating results;
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Loss of a key relationship or failure to complete significant transactions;
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Additions or departures of key personnel;
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Fluctuations in stock market price and volume;
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Changes to the industry; and
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Regulatory developments, particularly those affecting the supplement market.
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Additionally, in recent years the stock market
in general, has 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 Company’s 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 your investment in our stock.
THE REGULATION OF PENNY STOCKS BY THE SEC AND
FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.
We are a “penny stock” Company,
as our stock price is less than $5.00 per share. None of our securities currently trade in any market other than the grey 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 stockholders.
For purposes of the rule, the phrase “accredited stockholders” 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 in this offering 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.
Stockholders should be aware that, according
to the 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.
Investors in penny stocks have limited remedies
in the event of violations of penny stock rules. While the courts are always available to seek remedies for fraud against us, most,
if not all, brokerages require their customers to sign mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Stockholders may file a complaint with FINRA against the broker allegedly
at fault, and FINRA may be the arbiter, under FINRA rules. Arbitration rules generally limit discovery and provide more expedient
adjudication, but also provide limited remedies in damages usually only the actual economic loss in the account. Stockholders should
understand that if a fraud case is filed an against a Company in the courts it may be vigorously defended and may take years and
great legal expenses and costs to pursue, which may not be economically feasible for small stockholders.
Absent arbitration agreements, specific legal
remedies available to stockholders of penny stocks which include the following:
If a penny stock is sold to the investor in
violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the
purchase and receive a refund of the investment.
If a penny stock is sold to the investor in
a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock Company
will cause many brokers to refuse to handle transactions in the stocks, and may discourage trading activity and volume, or result
in wide disparities between bid and ask prices. These may cause stockholders significant illiquidity of the stock at a price at
which they may wish to sell or in the opportunity to complete a sale. Stockholders will have no effective legal remedies for these
illiquidity issues.
WE WILL PAY NO DIVIDENDS IN THE FORESEEABLE
FUTURE.
We have not paid dividends on our common stock
and do not anticipate paying such dividends in the foreseeable future. Stockholders whose investment criteria are dependent on
dividends should not invest in our common stock.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR
STOCK PRICE.
The majority of our outstanding shares of common
stock are held by our present officers, directors, and affiliate stockholders as "restricted securities" within the meaning
of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the
Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted
securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares
that does not exceed the greater of 1.0% of a Company's outstanding common stock or the average weekly trading volume during the
four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate
after the owner has held the restricted securities for a period of one year. A sale under Rule 144 or under any other exemption
from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have
a depressive effect upon the price of the common stock in any market that may develop.
OUR STOCKHOLDERS MAY SUFFER DILUTION DUE TO
ISSUANCES OF SECURITIES IN CONVERSION OF OUTSTANDING PROMISSORY NOTES
In April and May, 2019, we issued $1,680,000
in face amount convertible promissory notes, which may be converted after six months, at the election of the holder, into our
common stock at a 50 percent discount to market. Any conversions under these notes will result in dilution to our current shareholders
by the issuance of discounted common stock.
OUR STOCKHOLDERS MAY SUFFER FUTURE DILUTION
DUE TO ISSUANCES OF SECURITIES FOR VARIOUS CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to Solei
Systems, Inc. stockholders as a result of future decisions of the Board to issue shares without shareholder approval for cash,
services, or acquisitions. The current pending private offering of up to $3,000,000 in principal amount of convertible notes will,
if issued, also result in substantial potential dilution in our common stock, as the terms of conversion contained in the convertible
notes allows a holder to elect to convert all or part of the principal amount of each note, plus interest accrued at 6 percent
per annum, to be converted into common stock at any time after an initial six month holding period and thereafter up to maturity,
at a conversion price equal to of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period
ending on the latest complete Trading Day prior to the Conversion Date of any such election. As of the date of this Report, we
have closed on the sale of $1,680,000 in principal amount of the convertible notes, which were issued in April and May 2019.