Item 1. Business
History and Organization
We were incorporated on December 27, 2010 as
ATVROCKN, a Nevada corporation. On June 20, 2017, our corporate name was changed to Ameritek Ventures. We consider ourselves to
be an emerging growth company under applicable federal securities laws and will be subject to reduced public company reporting
requirements. (See “Implications of Being an ‘Emerging Growth Company’ ” below in this Section. Under our
original business plan, it was our intention to
market a "housing
molding"
product to place audio equipment and lighting on 4-wheel drive vehicles such as
All Terrain Vehicles (“ATV”)
and Utility Terrain Vehicles (“UTV”). We did not manufacturer any units as we utilized the services of a contract manufacturer
to make the unit for us. We had no material agreement with our contract manufacturer other than we paid them to produce product
for us based on our needs. As we were undercapitalized, we were unable to produce the required housing molding(s) we believe would
best sell in the ATV/UTV aftermarket.
In August 2017, the Company completed its move
into a new production and design facility in Roanoke, Virginia. On August 30, 2017, the Company acquired fiber optic assets from
its largest shareholder and director. These assets will be used to fabricate and assemble machines incorporating its new PCVD (Plasma
Chemical Vapor Deposition) technology that is used in the manufacturing of specialty optical fiber preforms, which is the basis
for specialized optical fiber production to satisfy a variety of fiber optic cable applications. In addition to building PCVD machines,
the Company will be finalizing design work for its first 5 million km/year VAD/OVD (Vapor Axial Deposition/Outside Vapor Deposition)
optical fiber preform production line, slated for assembly, testing and production in 2018. This process makes optical fiber preforms
that are the mainstay for fiber optic cable that is used in the telecommunications industry to transmit large amounts of data to
and from communication towers for the Internet, cable television and telephone industries. This new VAD/OVD production line represents
the first phase of a planned 20 million km/year preform manufacturing facility. Ameritek Ventures’ brand new design and technology
hub will help execute the Company's sustained growth and emergence strategy as a provider of high quality optical fiber preforms
for the rapidly expanding Fiber Optic Cable worldwide market that in the past has been dominated by firms like Corning Incorporated,
Shin-Etsu Chemical Co. Ltd., Prysmian SpA, Jiangsu Fasten Co. Ltd and Fujikura Ltd.
Implications of Being an “Emerging
Growth Company
As a public reporting company with less
than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart
our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of certain reduced reporting
requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies.
In particular, as an emerging growth company we:
·
|
are not required to obtain an attestation report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
|
4
·
|
are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis);
|
|
|
·
|
are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);
|
|
|
·
|
are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
|
|
|
·
|
may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations, or MD&A;
|
·
|
are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and
|
|
|
·
|
are exempt from any PCAOB rules relating to mandatory audit firm rotation and any requirement to include an auditor discussion and analysis narrative in our audit report.
|
|
|
We intend to take advantage of all of
these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial
accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare
our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the
phase-in periods under §107 of the JOBS Act.
Certain of these reduced reporting requirements
and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under
SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation report regarding management’s
assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are
not required to a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements
and related MD&A disclosure.
Under the JOBS Act, we may take advantage
of these reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to
a registration statement declared effective under the Securities Act of 1933, or such earlier time that we no longer meet the definition
of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company”
if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates,
or issue more than $1.0 billion of non-convertible debt over a three-year period. Furthermore, under current SEC rules we will
continue to qualify as a “smaller reporting company” for so long as we (1) have a public float (i.e., the market value
of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second
fiscal quarter; or (2) for so long as we have a public float of zero, have annual revenues of less than $50 million during our
most recently completed fiscal year.
Investors should be aware that we will
be subject to the "Penny Stock" rules adopted by the Securities and Exchange Commission, which regulate broker-dealer
practices in connection with transactions in Penny Stocks. These regulations may have the effect of reducing the level of trading
activity, if any, in the secondary market for our stock, and investors in our common stock may find it difficult to sell their
shares.
5
Business of Issuer
In August 2017, the Company completed its move
into a new production and design facility in Roanoke, Virginia. On August 30, 2017, the Company acquired fiber optic assets from
its largest shareholder and director. These assets will be used to fabricate and assemble machines incorporating its new PCVD (Plasma
Chemical Vapor Deposition) technology that is used in the manufacturing of specialty optical fiber preforms, which is the basis
for specialized optical fiber production to satisfy a variety of fiber optic cable applications. In addition to building PCVD machines,
the Company will be finalizing design work for its first 5 million km/year VAD/OVD (Vapor Axial Deposition/Outside Vapor Deposition)
optical fiber preform production line, slated for assembly, testing and production in 2018. This process makes optical fiber preforms
that are the mainstay for fiber optic cable that is used in the telecommunications industry to transmit large amounts of data to
and from communication towers for the Internet, cable television and telephone industries. This new VAD/OVD production line represents
the first phase of a planned 20 million km/year preform manufacturing facility. Ameritek Ventures’ brand new design and technology
hub will help execute the Company's sustained growth and emergence strategy as a provider of high quality optical fiber preforms
for the rapidly expanding Fiber Optic Cable worldwide market that in the past has been dominated by firms like Corning Incorporated,
Shin-Etsu Chemical Co. Ltd., Prysmian SpA, Jiangsu Fasten Co. Ltd and Fujikura Ltd.
Market Size
The current market value of the optical
fiber industry is $3 billion US dollars, and is projected to grow to over $5 billion US dollars by 2021. An increase of almost
10,000 tons of perform is projected in the next five years, which is equivalent to more than 300 million kilometers per year of
performs.
Competition
We will be involved in intense competition
with other business entities, many of which will have a competitive edge over us by virtue of their more substantial financial
resources and prior experience in business. Some examples include firms like Corning Incorporated, Shin-Etsu Chemical Co. Ltd.,
Prysmian SpA, Jiangsu Fasten Co. Ltd and Fujikura Ltd. We also face numerous other smaller companies at the same stage of development
as we are.
Patents, Trademarks and Licenses
We do not have any trademarks, patents,
or other intellectual property.
Employees
Ameritek
Ventures
currently has two employees, its two officers.
Ameritek Ventures
plans to utilize independent contractors on a part-time/as needed basis to assist in its development activities, marketing, and
financial and accounting support.
Need for Government Approval
With the exception of a business license, we
are not required to apply for or have any government approval for our services.
In the future we may be subject to additional
laws, regulations, policies, approvals and the like of federal, state, local, municipal, and other bodies.
6
Item 1A. Risk Factors
RISK FACTORS RELATING TO OUR FINANCIAL
CONDITION
1. WE HAVE NO OPERATING HISTORY AND
LIMITED HISTORICAL FINANCIAL INFORMATION UPON WHICH YOU MAY EVALUATE OUR PERFORMANCE.
We have no operating history and we
are subject to all risks inherent in a developing business enterprise. Our likelihood of success must be considered in light of
the problems, expenses, difficulties, complications, and delays frequently encountered developing a business enterprise and the
competitive environment in which we operate. You should consider, among other factors, our prospects for success in light of the
risks and uncertainties encountered by companies that, like us, are in their early stages of research and business development.
We may not be able to successfully address these risks and uncertainties or successfully implement our operating and acquisition
strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair
the value of our preferred and common stock to the point that the investors may lose their entire investment. Even if we accomplish
these objectives, we may not be able to generate positive cash flows or profits that we anticipate in the future.
2.
Our
auditors have made reference to the substantial doubt as to our ability to continue as a going concern,
THERE IS NO ASSURANCE
THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN.
Our financial statements included with
this Annual Report for the year ended May 31, 2017 have been prepared assuming that we will continue as a going concern. Our auditors
have made reference to the substantial doubt as to our ability to continue as a going concern in their audit report on our audited
financial statements for the year ended May 31, 2017. Because the Company has been issued an opinion by our auditors that substantial
doubt exists as to whether the Company can continue as a going concern, it may be more difficult for the Company to attract investors.
Since our auditors have raised a substantial doubt about our ability to continue as a going concern, this typically results greater
difficulty to obtain loans than businesses that do not have a qualified auditors opinion. Additionally, any loans we might obtain
may be on less advantageous terms. Our future is dependent upon our ability to obtain financing and upon future profitable operations
from our business. We plan to seek additional funds through private placements of our preferred and common stock. You may be investing
in a company that will not have the funds necessary to continue to deploy its business strategies. If we are not able to achieve
sufficient revenues or find financing to cover our expenses, then we likely will be forced to cease operations and investors will
likely lose their entire investment.
3. WE MAY NOT BE ABLE TO ATTAIN PROFITABILITY WITHOUT
ADDITIONAL FUNDING, WHICH MAY BE UNAVAILABLE.
For the period from inception (December
27, 2010) through the year end for May 31, 2017, we experienced a cumulative net loss of $(471,149). Our ability to continue to
operate as a going concern is fully dependent upon the Company obtaining sufficient financing to continue its development and operational
activities. The ability to achieve profitable operations is in direct correlation to our ability to generate revenues or raise
sufficient financing. It is important to note that even if the appropriate financing is received, there is no guarantee that we
will ever be able to operate profitably or derive any significant revenues from its operation. If we are unable to obtain additional
funding, we may be forced to cease operations.
7
COMPANY RISK FACTORS
4.
We are in a highly competitive market WITH a small number of business opportunities. there is a risk that we would be an insignificant
participant among other companies with larger financial resources.
The Company is and will continue to
be an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions of small private
and public entities. A large number of established and well-financed entities, including venture capital firms, are active in mergers
and acquisitions of companies that may be desirable target candidates for us.
Nearly all these entities have significantly
greater financial resources, technical expertise and managerial capabilities than we do and, consequently, we will be at a competitive
disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will
also compete in seeking merger or acquisition candidates with numerous other small public companies
5.
We will depend on third-party delivery services to deliver our product to our future customers on a timely and consistent basis,
and any deterioration in our relationship with any one of these third parties or increases in the fees that they charge could harm
our reputation and adversely affect our business and financial condition.
We will rely on third parties for the shipment
of our product and we cannot be sure that these relationships will continue on terms favorable to us, or at all. Shipping costs
have increased from time-to-time, and may continue to increase, which could harm our business, prospects, financial condition and
results of operations by increasing our costs of doing business and resulting in reduced gross margins. In addition, if our relationships
with these third parties are terminated or impaired, or if these third parties are unable to deliver products for us, whether due
to labor shortage, slow down or stoppage, deteriorating financial or business condition, responses to terrorist attacks or for
any other reason, we would be required to use alternative carriers for the shipment of products to our customers. Changing carriers
could have a negative effect on our business and operating results due to reduced visibility of order status and package tracking
and delays in order processing and product delivery, and we may be unable to engage alternative carriers on a timely basis, upon
terms favorable to us, or at all.
6. THERE MAY BE A POSSIBLE INABILITY
TO FIND SUITABLE EMPLOYEES.
In order to implement our business plan,
management recognizes that additional staff will be required. No assurances can be given that we will be able to find suitable
employees that can support our needs or that these employees can be hired on favorable terms. We do not plan to hire any additional
employees until our cash flows can justify the expense.
8
7.
We face intense competition and operate in an industry with limited barriers to entry, and most all of our competitors may have
greater resources than us.
Our industry is competitive, with products
distributed through multi-tiered and overlapping channels. Barriers to entry are low, and current and new competitors can offer
a similar product that we offer at a relatively low cost. Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater financial, marketing, technical, management and other
resources than we do. In addition, some of our competitors have used and may continue to use aggressive pricing tactics and devote
substantially more financial resources to website and system development than we do. Increased competition may result in reduced
sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. Increased competition
from any supplier capable of maintaining high sales volumes and acquiring products at lower prices than us could significantly
reduce our market share and adversely impact our financial results.
8. FINANCIAL DIFFICULTIES OR BANKRUPTCY
OF ONE OR MORE OF OUR MAJOR CLIENTS COULD ADVERSELY AFFECT OUR RESULTS.
Future revenues and our ability to collect
accounts receivable depend, in part, on the financial strength of clients. We initially plan to market our product to the major
distributors in the U.S. In the event these distributors experience financial difficulty, and particularly if bankruptcy results,
profitability is further impacted by our failure to collect accounts receivable in excess of the estimated allowance. Additionally,
our future revenues would be reduced by the loss of these distributors.
9. NATURAL DISASTERS OR ACTS OF TERRORISM
COULD DISRUPT SERVICES.
Storms, earthquakes, drought, floods
or other natural disasters or acts of terrorism may result in reduced revenues or property damage. Disasters may also cause economic
dislocations throughout the country. In addition, natural disasters or acts of terrorism may increase the volatility of financial
results, either due to increased costs caused by the disaster with partial or no corresponding compensation from clients.
Other issues and uncertainties may include:
-
New accounting pronouncements
or changes in accounting policies;
-
Labor shortages that
adversely affect our ability to employ entry level personnel;
-
Legislation or other
governmental action that detrimentally impacts expenses or reduces revenues by adversely affecting our clients; and
-
The resignation, termination,
death or disability of one or more key executives that adversely affects client retention or day-to-day management.
9
10.
If we fail to offer a broad selection of products at competitive prices to meet our customers’ demands, our revenue could
decline.
In order to expand our business, we must successfully
offer, products that meet the needs of our future customers. Currently, we have only developed one product that we are offering
for sale. Management believes to be successful, any new product offerings must be broad and deep in scope, competitively priced,
well-made, innovative and attractive to a wide range of consumers. We cannot predict with certainty that we will be successful
in offering products that meet all of these requirements. If our product offerings fail to satisfy our customers’ requirements
or respond to changes in customer preferences, this would have an adverse effect on any future results for our Company.
11. OUR LARGEST SHAREHOLDER OWNS APPROXIMATELY
73% OF THE CONTROLLING INTEREST IN OUR VOTING STOCK AND INVESTORS WILL NOT HAVE ANY VOICE IN OUR MANAGEMENT, WHICH COULD RESULT
IN DECISIONS ADVERSE TO OUR GENERAL SHAREHOLDERS.
Our largest shareholder, Clinton L. Stokes,
our sole director, beneficially has the right to vote approximately 73% of our outstanding common stock. As a result, this shareholder
will have the ability to control substantially all matters submitted to our stockholders for approval including:
|
a.
|
election of our board of directors;
|
|
b.
|
removal of any of our directors;
|
|
c.
|
amendment of our Articles of Incorporation or bylaws; and
|
|
d.
|
adoption of measures that could delay or prevent a change in control or impede a merger, takeover
or other business combination involving us.
|
As a result of his ownership and position as
officer/director in the Company, Clinton L. Stokes has the ability to influence all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions. In addition, the future prospect of sales of significant
amounts of shares held by our director and executive officer could affect the market price of our common stock if the marketplace
does not orderly adjust to the increase in shares in the market and the value of your investment in the company may decrease. Management's
stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
10
12. WE WILL INCUR INCREMENTAL COSTS
AS A RESULT OF OPERATING AS A PUBLIC COMPANY.
Since we are a full reporting
company with the U. S. Securities and Exchange Commission, we will incur additional legal, accounting and other expenses. Moreover,
the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as well as new rules subsequently implemented by the SEC,
have imposed various new requirements on public companies, including requiring changes in corporate governance practices. There
may be further increases if and when we are no longer an "emerging growth company." Moreover, these rules and regulations
will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We project
that the total incremental operating expenses of being a public company will be approximately $100,000 for 2017. The incremental
costs are estimates, and actual incremental expenses could be materially different from these estimates. Unless we can generate
sufficient revenues and profits, we
may not be able to absorb the costs of being a
public
company.
13. As a result
of operating as a public company our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant
legal, accounting and other expenses that we would not incur as a private company. There may be further increases if and when we
are no longer an "emerging growth company". The Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules subsequently
implemented and yet to be implemented by the U. S. Securities and Exchange Commission have imposed and will impose various new
requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these
new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will
make some activities more time-consuming and costly, particularly after we are no longer an "emerging growth company."
For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.
In addition, the Sarbanes-Oxley Act
requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting
to allow management, as required by Section 404 of the Sarbanes-Oxley Act. Compliance will require us to increase our general and
administrative expense in order to pay added compliance personnel, outside legal counsel and consultants to assist us in, among
other things, external reporting, instituting and monitoring a more comprehensive compliance function and board governance function,
establishing and maintaining internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act,
and preparing and distributing periodic public reports in compliance with our obligations under the U.S. federal securities laws.
We currently do not have an internal audit group, and we will evaluate the need to hire additional accounting and financial staff
with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the
requirements of Section 404 in a timely manner, the market price of our stock could decline.
11
However, for as long as we remain an
"emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth
companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, 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 will remain an emerging growth company until the earliest
of (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last
day of our fiscal year ending after the fifth anniversary of the first sale of our common equity securities under an effective
registration statement; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in
non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act.
14.
We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable
to public companies may result in our financial statements not being comparable to those of some other public companies. As a result
of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive
to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of exemptions from
certain reporting requirements available to “emerging growth companies” under that Act, including but not limited to
not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (relating
to the effectiveness of our internal control over financial reporting), reduced disclosure obligations regarding executive compensation
in our periodic reports and any proxy statements we may be required to file, and exemptions from the requirements of holding a
non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can delay the adoption of certain
accounting standards until those standards would apply to private companies.
We are electing to delay such adoption
of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards on the relevant
dates on which adoption of such standards is required for other public companies that are not “emerging growth companies.”
Consequently, our financial statements may not be comparable to the financial statements of other public companies. We may take
advantage of these reporting exemptions until we are no longer an “emerging growth company.” In this regard, we will
remain an “emerging growth company” for up to five years after the first sale of our common equity securities under
an effective registration statement, although if the market value of our common stock that is held by non-affiliates exceeds $700
million as of any November 30 before that time, we would cease to be an “emerging growth company” as of the next following
May 31.
We cannot predict if investors will
find our securities less attractive due to our reliance on these exemptions. If investors were to find our securities less attractive
as a result of our election, we may have difficulty raising funds in future offerings.
12
15. WE DO NOT HAVE INSURANCE AND,
THEREFORE, LIABILITY WE INCUR COULD HAVE SUBSTANTIAL IMPACT ON OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have limited capital and, therefore,
we do not currently have a policy of insurance against liabilities arising out of the negligence of our officer and director and/or
arising from deficiencies in any of our business operations. Even assuming we obtained insurance, there is no assurance that such
insurance coverage would be adequate to satisfy any potential claims made against us, our officers and directors, or our business
operations or assets. Any such liability which might arise could be substantial and would likely exceed our total assets. However,
our Articles of Incorporation and Bylaws provide for indemnification of officers and directors to the fullest extent permitted
under Nevada law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors,
officer and controlling persons, it is the opinion of the U. S. Securities and Exchange Commission that such indemnification is
against public policy, as expressed in the Act, and is therefore, unenforceable.
16. WE ARE CURRENTLY REPORTING AS
A NON-SHELL REGISTRANT AS DEFINED IN RULE 12B-2 OF THE SECURITIES AND EXCHANGE ACT DESPITE HAVING LIMITED REVENUE SINCE INCEPTION.
The Company received a favorable legal
opinion supporting our position as a non-shell company from outside legal counsel and continue to believe we qualify as a non-shell
company as defined through the Jumpstart our Business Startup Act of 2012. However, since we have generated limited revenue since
inception and no revenue since the fiscal year ending May 31, 2012 and we continue to search for a viable business candidate; the
Securities and Exchange Commission may challenge our non-shell status at some point in the future. We can provide no assurance
as to a favorable outcome upon a regulatory review or the potential impact on certain shareholders’ ability to freely trade
their common stock and the effect it may have on our stock price.
RISK FACTORS RELATING TO OUR PREFERRED AND COMMON STOCK.
17. OUR PREFERRED STOCK DOES NOT
PAY ANY DIVIDENDS AND CAN BE CONSIDERED ILLIQUID.
We have one Series of Preferred Shares
issued and outstanding as of May 31, 2017. Our registered preferred stock, par value $0.001, shall not be entitled to receive any
dividends, shall not have any liquidation rights and shall not be entitled to (a) any voting rights or (b) notice of any meeting
of the shareholders of the corporation. The registered preferred stock can be converted at the ratio of one hundred (100) shares
of Common Stock for every one (1) share of the registered preferred stock converted; however, the conversion is limited whereby
the beneficial owner cannot beneficially own in excess of 4.9% of the shares of the Common Stock outstanding immediately after
giving effect to such conversion or exercise.
Management has no intention
to
apply to have any Series of the Company’s preferred stock listed
or quoted on any exchange or inter-dealer quotation
system. This will make ownership of our preferred shares very illiquid.
13
18.
We
have authorized and
unissued shares Series A,
B and C Preferred stock
that may be issued in the future, which would dilute your ownership in the Company.
We have 5,000,000 preferred shares authorized
for each of our Series A, B and C preferred stock. We currently have 119,200 shares of the registered Series A preferred stock
issued and outstanding; no Series B preferred stock issued and outstanding and no Series C stock issued and outstanding. The Series
C stock is undesignated at this time. Therefore, if each Series has 5,000,000 authorized, this gives the Board of Directors a great
deal of discretion, in the future, to issue more shares in each Series, without shareholder approval. The issuance of more shares
of any Series would dilute your ownership in the Company, which would mean your percent of ownership in the Company would decrease.
19. WE HAVE NEVER DECLARED DIVIDENDS
ON OUR COMMON STOCK AND DO NOT PLAN TO DO SO IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings
to finance the operation and expansion of its business and do not anticipate paying any cash dividends in the foreseeable future.
As a result, stockholders will need to sell shares of common stock in order to realize a return on their investment, if any. You
should not rely on an investment in our Company if you require dividend income. The only possibility of any income to investors
would come from any rise in the market price of your stock, which is uncertain and unpredictable.
A holder of common stock will be entitled
to receive dividends only when, as, and if declared by the Board of Directors out of funds legally available therefore. We have
never issued dividends on our common stock. Our Board of Directors will determine future dividend policy based upon our results
of operations, financial condition, capital requirements, and other circumstances.
20. HOLDERS OF OUR PREFERRED AND
COMMON STOCK HAVE A RISK OF POTENTIAL DILUTION IF WE ISSUE ADDITIONAL SHARES OF PREFERRED AND/OR COMMON STOCK IN THE FUTURE.
Although our Board of Directors intends
to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection
with any future issuance of our common stock, the future issuance of additional shares of our preferred and common stock would
cause immediate, and potentially substantial, dilution to the net tangible book value of those shares of preferred and common stock
that are issued and outstanding immediately prior to such transaction. Any future decrease in the net tangible book value of our
issued and outstanding shares could have a material effect on the market value of the shares.
21. IF WE FAIL TO MAINTAIN AN EFFECTIVE
SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD AND AS A RESULT, INVESTORS
MAY BE MISLED AND LOSE CONFIDENCE IN OUR FINANCIAL REPORTING AND DISCLOSURES, AND THE PRICE OF OUR PREFERRED AND COMMON STOCK MAY
BE NEGATIVELY AFFECTED.
The Sarbanes-Oxley Act of 2002 requires
that we report annually on the effectiveness of our internal control over financial reporting. A "significant deficiency"
means a deficiency or a combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness yet important enough to merit attention by those responsible for oversight of the Company's financial reporting. A "material
weakness" is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected
on a timely basis.
14
As of May 31, 2017 management assessed
the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial
reporting. The matters involving internal controls and procedures that our management considered to be material weaknesses under
the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of
a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective
oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties
consistent with control objectives.
In addition, in connection with our
on-going assessment of the effectiveness of our internal control over financial reporting, we may discover "material weaknesses"
in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A
material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Failure to provide effective internal
controls may cause investors to lose confidence in our financial reporting and may negatively affect the price of our preferred
and common stock. Moreover, effective internal controls are necessary to produce accurate, reliable financial reports and to prevent
fraud. If we have deficiencies in our internal controls over financial reporting, these deficiencies may negatively impact our
business and operations.
22. LOW-PRICED STOCKS MAY AFFECT
THE RESALE OF OUR SHARES.
Penny Stock Regulation Broker-dealer
practices in connection with transactions in "Penny Stocks" are regulated by certain penny stock rules adopted by the
Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ system). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document
that provides information about penny stocks and the risk associated with the penny stock market. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules generally require that prior to a transaction in a penny stock; the broker-dealer must make
a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement
to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary
market for a stock that is subject to the penny stock rules.
15
23. THE MARKET PRICE OF OUR COMMON
STOCK MAY BE HIGHLY VOLATILE, AND YOU COULD LOSE ALL OR PART OF YOU INVESTMENT.
The trading price of our common stock
is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for
your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:
actual or anticipated fluctuations in our quarterly or annual financial results;
additional needs for financing;
announcements
by us or our competitors of significant acquisitions, strategic partners, joint ventures or capital commitments;
sales of our common stock or other securities in the open market;
additions or departures of key personnel;
failure of any of our initiatives;
regulatory or political developments;
changes in accounting principles or methodologies;
litigation or governmental investigations;
negative publicity about us in the media and online;
general financial market conditions or events; and
other events or factors, many of which are beyond our control.
Additionally, in recent years the stock
market in general, and the penny stock 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.