ITEM 1. BUSINESS.
GENERAL
The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to “our Company,” “us,” “we,” “our.” “Greenhouse Solutions" or the "Company" are to Greenhouse Solutions, Inc.
DESCRIPTION OF BUSINESS
Our Company was incorporated under the laws of the State of Nevada on April 8, 2009. We were previously involved in the sale and distribution of urban gardening products and greenhouses in the North American market, but we are currently expanding the business into the development, marketing, production, and sale of hemp oil enhanced products for both personal health use and canine use, in addition to probiotic-based nutraceuticals. As a nutraceutical company, we are engaging in the acquisition, licensing and commercialization of nutraceutical products and technologies. We seek strategic licensing partnerships to reduce the risks associated with the drug development process. We maintain a website at www.ghsolutionsinc.com. Such website is not incorporated into or a part of this filing. We are no longer pursuing our greenhouse design and consulting operations.
COMPANY OVERVIEW
NUTRACEUTICAL PRODUCTS
We previously expanded our business model with efforts in the development, marketing, production, and sales of hemp oil products for both the personal health and companion pet markets utilizing a licensed probiotic delivery system (US Patent #6,080,401) and other licensed formulas. Hemp is naturally occurring from both the cannabis and hemp species of the Cannabis Sativa plant. The extracted oil is non-psychoactive and is actively being researched and investigated by others for use in a number of conditions, including: Dravet Syndrome, Multiple Sclerosis (MS), depression and schizophrenia. As research continues into the broad spectrum of uses for hemp oil products, We intend to produce and sell various products for the wellness marketplace that utilize hemp oil and Phyto cannabinoids.
In furtherance of our objectives, on November 5, 2015, the Company signed a Joint Venture Agreement with KOIOS, LLC to develop and market a hemp protein-based energy drink utilizing KOIOS proprietary formulae.
On November 19, 2015, the Company signed a Master License Agreement with Dr. M.S. Reddy. Dr. Reddy has developed intellectual property for the nutritional industries pertaining exclusively to the use of hemp and hemp related products in combination with the probiotics. The Company has agreed to acquire an exclusive license from Dr. Reddy for use of the intellectual property in the products and proprietary formulations of products for marketing. In consideration for the license, the Company issued Dr. Reddy 3,000,000 shares of the Company's restricted common stock. Dr. Reddy shall be paid 20% of the net profit from sales of each quantity of licensed products sold on a 45 day trailing basis and Dr. Reddy may demand accounting at any time.
KOIOS JOINT VENTURE
The Company entered into a Joint Venture with KOIOS, LLC to develop and market a hemp protein-based energy drink. Koios is a nootropic supplement developer, with products that support cognitive function and mental clarity. Together with Koios, we developed a new addition to its beverage product line called “Raspberry Wonder,” an infusion of its proprietary and successful blend of nootropics with hemp oil. Hemp seed oil generally contains a 3:1 ratio of Omega 6 (linolei/LA) to Omega 3 (alpha-linoleic/LNA) essential fatty acids, which has been suggested as a ratio that may increase long-term human nutrition. In addition, hemp seed oil also contains smaller amounts of three other polyunsaturated fatty acids in gamma-linolenic acid (GLA), oleic acid and stearidonic acid. This essential fatty acid combination is thought to be unique among edible oil seeds. Raspberry Wonder is marketed as a dietary supplement to enhance brain function, boost energy and burn fat, the Raspberry Wonder is available to purchase through Koios’ website, www.mentaltitan.com, as well as at stores throughout the country. Work is underway now to develop the next generation of Raspberry Wonder, which will use the Company’s patent-protected process to suspend active probiotics in the beverage.
In order to market the product, the Company and Koios ran a promotion and as a result, we had identified target distributors who indicated an interest in distributing our product. Among them are:
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Europa Sports Products Inc. (“Europa Sports”) recently merged with Lone Star distribution, making them the largest distributor of Sports Nutrition Products in the country, representing over 50,000 locations. Our target is that the product will arrive at Koios in the last week in August or first week of September.
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The following is a selection of stores, via Europa Sports, that may stock Raspberry Wonder for distribution:
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Max Muscle Sports Nutrition (nationwide)
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Nutrition Zone
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Nutrition Warehouse
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Power Nutrition
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Hi-Health (45 locations)
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Gold’s Gym
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Powerhouse Gym
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Smoothie King (nationwide)
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NutriShop
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Ultimate Sport Nutrition
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Nutrition Depot
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Anytime Fitness
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Complete Nutrition
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Muscle Foods USA, the second largest sports nutrition Distributor in the country, has submitted an order for two pallets of the product when it arrives at Koios.
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KeHE Distributors, LLC, one of the largest natural grocery distributors in the world, is Koios’ distribution channel to large and medium size grocery stores throughout the country. KeHE will receive roughly two pallets upon arrival at Koios facilities for distribution.
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Stores in which Koios is currently sold that are serviced by KeHE and that may also be carrying the Raspberry Wonder beverage with the Company’s hemp oil include:
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Sunset Foods
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Pete’s Fresh Markets
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Mazyerecks
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Tony's Fresh Market
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Better Health Stores (Koios is currently carried in 14 of their locations and they have agreed to bring in Raspberry Wonder)
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Natural Health Center
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Joseph’s Market
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Angelo Caputo’s Fresh Markets
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Harvest Health Foods
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Our joint venture, Koios, uses a brokerage firm to help facilitate new store openings along with adding new stores in the Midwest region. Koios is focused on the Midwest region because main competitors do not have a presence in these areas and there is a strong desire for natural and organic alternatives.
Koios has also invested significant time and effort into creating a user-friendly and attractive online environment, gaining approximately 6,000 Instagram followers and approximately 9,000 Facebook followers.
Koios continues to expand thier ambassador network and drive traffic to the brand. Currently, Koios athletes and ambassadors are estimated to have a combined audience of over a million people. Koios has continued to tap into the world of CrossFit and e-sports. Koios recently attended the CrossFit games, which led to approximately 20 new CrossFit gyms that carry Koios products and that will also carry the Raspberry Wonder beverage with the Company’s hemp oil.
Koios recently entered into an agreement with a Denver-based distributor, Hyperion Wholesale. Koios believes that this new relationship we will add over 300 new stores that carry their products, including Raspberry Wonder, by the end of 2016. As a result of the relationship with Hyperion, ten new 7-Eleven stores and several other convenience stores across Colorado’s Front Range.
WishingUWell is Koios’ online distributor, with a web presence on Amazon.com.
OTHER PRODUCTS
The Company intends to generate future revenues from sales of our hemp oil enhanced products for both the personal health and companion pet markets, as well as seeking out other joint venture opportunities in which our hemp oil can be used.
The Company is working with a major health supplement developer to produce water-soluble, probiotic infused Phytocannabinoid oils in an ingredient for nutraceutical product manufacturers. The water solubility of probiotics, an exclusively licensed innovation of the Company, means that this ingredient could be integrated into any number of formulations, including capsules and foods, as well as beverages. A major American university is engaged in a full study of the compound to establish the health benefits of this new ingredient. With this, the Company is also engaged in research and development of a new probiotic hemp oil-infused cold-brew coffee beverage.
Due to the uncertainty of our ability to generate sufficient revenues from our operating activities and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, in their report on our financial statements for the year ended March 31, 2017 and 2016, our registered independent auditors included additional comments indicating concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our registered independent auditors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
CORPORATE STRATEGY
We have shifted our focus entirely to nutraceutical products for humans and animals.
NUTRACEUTICAL PRODUCTS
Cannabidiol is a naturally-occurring substance found in both the cannabis and hemp species of the Cannabis Sativa plant and is generally marketed through hemp oil as a nutritional supplement. The extracted oil is non-psychoactive and is being researched by others for possible prescription for a number of conditions, including: Dravet Syndrom, Multiple Sclerosis (MS), depression, and schizophrenia. As research continues into the broad spectrum of uses for hemp oil derived products, we intend to seek to develop various products for the wellness marketplace that may utilize the ingredient.
We have begun to develop, market, produce, and sell hemp oil products, through the Koios Joint Venture, for personal health and may also enter the companion pet market, some of which may utilize a licensed probiotic delivery system (US Patent #6,080,401). We acquired a limited license to use the above referenced Patent developed by scientist Dr. M.S. Reddy for hemp oil and cannabis based products. Dr. Reddy's patent covers a wide variety of therapeutic and nutraceutical cannabis and industrial hemp products. We also acquired exclusive license rights to a number of proprietary nutraceutical formulations from MGRD, Inc., owned by Officer and Directors Rik Deitsch.
Dr. Reddy's licensed patent includes the introduction of probiotics as part of the delivery method for certain therapeutics. Probiotics are bacteria or micro-organisms that are beneficial to the health of an individual. They are essentially an opposite of antibiotics, which are inhibitory to other bacteria, including probiotic bacteria. Probiotics are predominately lactic acid producing bacteria. In contrast to herbal medicine, probiotics developed as a science only recently; and this science remains unacknowledged by many medical practitioners. One of the earliest discoveries that bacteria can improve human health was by Dr. Metchnikoff, a Russian scientist, in 1907. Since then, there have been favorable reports about probiotics’ utility, including, for example, that lactobacillus acidophilus reduces colon cancer in humans. In 2011, experts at Yale University reviewed the research. They concluded that probiotics are most effective for, but not limited to: Treating childhood diarrhea, treating ulcerative colitis, treating necrotizing enterocolitis (a type of infection and inflammation of the intestines mostly seen in infants), preventing antibiotic-associated diarrhea and infectious diarrhea, preventing pouchitis (an inflammation of the intestines that can follow intestinal surgery), treating and preventing eczema associated with cow’s milk allergy, helping the immune system, treating symptoms of irritable bowel syndrome, treating vaginitis, treating diarrhea caused by C. difficile bacteria, and treating Crohn’s disease.
The use of pre- and pro-biotics have become commonplace in the last few years, with research providing evidence for their benefit in the treatment and prevention of a variety of gastrointestinal issues, as well as immune system dysfunctions. Probiotics are bacteria or micro-organisms that are beneficial to the health of an individual. The license includes the introduction of probiotics as part of the delivery method for certain therapeutic products derived from hemp or cannabis (at this time being only CBD
without
THC). We intend to develop different therapeutic products with the help of probiotics, with the design to deliver therapy more efficiently and at lower dosages, intending to reduce possible complications, as well as increasing efficacy.
The Company intends to pursue different products that incorporate both hemp oil, and the licensed water-soluble probiotics, whether we produce them or we enter other joint ventures to achieve our goals.
ONLINE RETAIL OF PRODUCTS
We intend to expand our online marketing of our products through our website, in addition to promoting the sales of our joint venture products through our website.
Strategic Focus
Our corporate strategy in developing our operations is as follows:
To design and produce hemp oil enhanced nutraceutical products for sale to the general public.
We intend to create hemp oil products that contain formulations unseen in the current market in the nutraceuticals industry. We believe that our formulations will set us apart from competing products for promoting health.
We have a license agreement for exclusive rights to formulations for hemp oil products, intended for, subject to performance, treating various symptoms of diseases and ailments. We intend to begin manufacturing and marketing of these hemp oil products with expansion of products over the next five years.
To further the joint venture relationship with Koios and seek other ventures where possible.
We plan to expand our relationship with Koios where possible, including potentially adding the probiotic aspect to the beverage selection, and seek out other opportunities for joint ventures with different product categories.
COMPETITION, MARKETS, REGULATION AND TAXATION
COMPETITION
Nutraceutical Industry
The nutraceutical industry is subject to significant competition and pricing pressures. We may experience significant competitive pricing pressures as well as competitive products. Several significant competitors may offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies; however, we believe that our products are unique and will set themselves apart from competing products. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.
MARKETS
The user market for hemp oil products and other nutraceuticals is generally an individual who has a specific health issue where a health advisor or distributor has provided or directed that user to our product. The market for nutraceuticals is subject to many influential factors, but the main issues affecting the market are consumer spending and government regulation.
The market for greenhouses includes household consumers and agricultural businesses alike. The market for greenhouses may see increased demand amongst agricultural businesses, particularly in states like Colorado, Oregon, and Washington, with the legalization of cannabis.
REGULATION OF NUTRACEUTICALS
The formulation, manufacturing, processing, labeling, packaging, advertising and distribution of our products are subject to regulation by several federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission, the U.S. Department of Agriculture (“USDA”) and the Environmental Protection Agency (“EPA”). These activities are also regulated by various agencies of the states and localities in which our products are sold. The FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of dietary supplements (including vitamins, minerals, and herbs) and cosmetics, whereas the FTC has jurisdiction to regulate the advertising of these products.
The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) defines “dietary supplements” as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. New dietary ingredients (those not marketed in the U.S. prior to October 15, 1994) must be the subject of a notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” The notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA has issued guidance regarding the content of a new dietary ingredient notification. Should the FDA choose to enforce the guidance, it could have a negative effect on the innovation and continued marketing of dietary supplements; the FDA may not accept any particular evidence of safety for any new dietary ingredient, preventing the marketing of those dietary ingredients.
DSHEA permits “statements of nutritional support” to be included in labeling for dietary supplements without premarket FDA approval, however, such statements must be submitted within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Statements of nutritional support may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company using such statements must possess scientific evidence substantiating that the statement is truthful and not misleading. Any statements determined to be outside of these guidelines or unsubstantiated would be prevented from being used.
DSHEA also provides that so-called “third-party literature,” a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used “in connection with the sale of a dietary supplement to consumers” without the literature being subject to regulation as labeling. Third-party literature must not be false or misleading; the literature may not “promote” a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. Any dissemination of non-compliant literature could subject our product to regulatory action as an illegal drug.
The FDA’s Good Manufacturing Practices (“GMP”) regulations require dietary supplements to be prepared, packaged and held in compliance with strict rules, and require quality control provisions similar to those in the GMP regulations for drugs. The FDA could in the future choose to inspect one of our facilities for compliance with these regulations and could cause non-compliant products made or held in the facility to be subject to FDA enforcement actions.
The FDA has broad authority to enforce the provisions of the FDCA and their regulation of foods, dietary supplements and cosmetics may increase or become more restrictive in the future. Additional legislation could be passed which would impose substantial new regulatory requirements for dietary supplements, potentially raising our costs and hindering our business.
Our advertising is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.
In addition to FDA and FTC regulations, our products may face further regulation under the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.
CONTROLLED SUBSTANCE REGULATION
At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.
Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.
RESEARCH AND DEVELOPMENT ACTIVITIES
Other than time spent researching our proposed business we have not spent any funds on research and development activities to date. We do not currently plan to spend any funds on research and development activities in the future.
COMPLIANCE WITH ENVIRONMENTAL LAWS
As we begin to manufacture nutraceutical products, we or our contract manufacturers will become subject to numerous federal, state, local and foreign laws and regulations governing our operations, including the handling, transportation and disposal of our products and our non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water and groundwater. Failure to comply with those laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. Changes in environmental laws or the interpretation thereof or the development of new facts could also cause us to incur additional capital and operational expenditures to maintain compliance with environmental laws and regulations. We will also become subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment without regard to fault or knowledge about the condition or action causing the liability. Failure to comply with environmental laws could have a material adverse effect on our business or financial performance.
EMPLOYEES
We have one full-time employee at the present time, John Michak, our COO. Our officers and directors are responsible for planning, developing and operational duties, and will continue to do so throughout the early stages of our growth. We have no intention of hiring additional employees until we have sufficient, reliable revenue from our operations. We do not have written employment agreements with any of our officers or directors at this time.
REPORTS TO SECURITIES HOLDERS
We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements including filing Form 10K annually and Form 10Q quarterly. In addition, we will file Form 8K and other proxy and information statements from time to time as required. We do not intend to voluntarily file the above reports in the event that our obligation to file such reports is suspended under the Exchange Act. The public may read and copy any materials that we file with the Securities and Exchange Commission, ("SEC"), at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
ITEM 1A. RISK FACTORS.
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO GREENHOUSE SOLUTIONS’ PLANS, STRATEGIES, OBJECTIVES, EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT MAY CAUSE OUR COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: OUR ABILITY OF TO IMPLEMENT OUR BUSINESS STRATEGY; ABILITY TO OBTAIN ADDITIONAL FINANCING; GREENHOUSE SOLUTIONS’ LIMITED OPERATING HISTORY; UNKNOWN LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH; SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES; AND FUTURE GOVERNMENT REGULATIONS; AND OTHER FACTORS DESCRIBED IN THIS FILING OR IN OTHER OF GREENHOUSE SOLUTIONS’ FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. GREENHOUSE SOLUTIONS IS UNDER NO OBLIGATION, TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISKS RELATED TO OUR COMPANY AND THE BUSINESS
We sell our products and services in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our services.
The nutraceutical industry is subject to significant competition and pricing pressures. We will experience significant competitive pricing pressures as well as competitive products. Several significant competitors offer products with prices that may match or are lower than ours. We believe that the products we offer are generally competitive with those offered by other supplement and nutraceutical companies. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products or pricing, which could put us at a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preferences away from natural supplements could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial condition, results of operations and cash flows.
Our future growth is largely dependent upon our ability to successfully compete with new and existing competitors by developing or acquiring new products that achieve market acceptance with acceptable margins.
Our business operates in markets that are characterized by rapidly changing products, evolving industry standards and potential new entrants. For example, a number of new companies with innovative products, which promise significant health benefits are established every year and are competitive with our products. If these companies gain market acceptance, our ability to grow our business could be materially and adversely affected. Accordingly, our future success depends upon a number of factors, including our ability to accomplish the following: identify emerging trends in our target end-markets; develop, acquire and maintain competitive products; enhance our products by adding innovative features that differentiate us from our competitors; and develop or acquire and bring products to market quickly and cost-effectively. Our ability to develop or acquire new products based on quality research can affect our competitive position and requires the investment of significant resources. These acquisitions and development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new research or products on a timely basis. New or enhanced products may not satisfy consumer preferences and potential product failures may cause consumers to reject these products. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, our competitors may introduce superior designs or business strategies, impairing our brand and the desirability of our products, which may cause consumers to defer or forego purchases of our products or services. Also, the markets for our products and services may not develop or grow as we anticipate. The failure of our products to gain market acceptance, the potential for product defects or the obsolescence of our products could significantly reduce our revenue, increase our operating costs or otherwise adversely affect our business, financial condition, results of operations or cash flows.
Adverse publicity or consumer perception of our products and any similar products distributed by others could harm our reputation and adversely affect our sales and revenues.
We believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products as well as similar products distributed by other health and wellness companies. Consumer perception of health products, nutrition supplements and our products in particular can be substantially influenced by scientific research or findings, national media attention and other publicity about product use. Adverse publicity from these sources regarding the safety, quality or efficacy of nutritional supplements and our products could harm our reputation and results of operations. The mere publication of news articles or reports asserting that such products may be harmful or questioning their efficacy could have a material adverse effect on our business, financial condition and results of operations, regardless of whether such news articles or reports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for such products.
Our products, or elements of our products, may be shipped from overseas into the United States and any number of problems may arise during the transport.
Due to the fact that hemp is not allowed federally to be grown on American soil, it must be shipped from overseas, and the Company plans to do so through the use of cargo ships. This includes any number of inherent risks involved in travel. These are unlikely scenarios, but the ship may lose its cargo overboard, the ship itself may be lost, storms or other factors may cause loss of or damage to the products. If our competitors are able to deliver products when we cannot, our reputation may be damaged, and we may lose customers to our competitors.
Only select states allow for the growing of hemp, even without the budding of marijuana.
It is currently very difficult to grow hemp in the United States. Despite the enacting of several new state laws, it is still not legal on a federal level to grow hemp on American soil. This means that the acquisition of hemp is more difficult, and it must be shipped from foreign countries, causing a period between when an order is placed and when the product arrives from overseas. It is possible that there may be a greater demand than there is a supply from overseas suppliers and, thus, a backlog may develop. This is not expected or anticipated, but it is a remote possibility. At this time, we do not have plans to grow hemp in the United States.
We intend to purchase hemp oil from China, however it is possible that their prices, availability or any number of other factors may change.
It is possible that our Chinese suppliers may face bankruptcy or some form of litigation in the future. Although the company has no reasonable expectation that this is the case, such problems or any others may arise that could pose problems for the Company. It is also possible that the supplier may, for any number of reasons, change the price of their products and thus alter our profit margins. If any undesirable issues occur with an overseas supplier, then the Company may be forced to find another supplier, which would create at least a minimal delay in service. In addition, it is possible that the supplier may not have the necessary supply to meet the demand for the Company’s products. At this time, we have not entered into a Supplier Agreement and we do not have a formal or informal arrangement with a supplier to supply hemp.
Due to legal controversy over the Cannabis plant within the United States, we face challenges getting our products into stores.
The majority of our products are intended for personal use. Our Company intends to release products that contain no THC and that are legal for ingestion within the U.S., however, we anticipate that we may face scrutiny and run into issues getting our products into stores due to hesitation by food chains to carry any product even affiliated with the cannabis plant.
The U.S. laws pertaining to the importation and exportation of hemp-based products may adversely affect our ability to fully implement our business plan.
In the United States today the U.S. Customs Service has a “zero tolerance standard” for the importation of industrial hemp. What this means is that a product cannot have any potentially dangerous substances contained in it or it will be considered adulterated and unfit for human consumption, and thus illegal to possess or use per U.S. Federal Law. In 2001 the DEA elaborated on this and clarified that any product with any quantity of THC in it at all cannot be imported into the United States. Since no hemp-based products containing THC are legally permitted in the United States, such products with THC are not allowed to be exported out of the United States either. Because of the strict laws that exist with the U.S. importation and exportation of hemp products, our business could be adversely affected.
We operate in a highly competitive environment, and if we are unable to compete with our competitors, our
business, financial condition, results of operations, cash flows and prospects could be materially adversely
affected.
We operate in a highly competitive environment. Our competition includes all other companies that are in the business of creating hemp-based products for personal use or consumption. A highly competitive environment could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.
Because we are a small company and do not have much capital, our marketing campaign may not be enough to attract sufficient clients to operate profitably. If we do not make a profit, we may suspend or cease operations.
Due to the fact we are a small company and do not have much capital, we must limit our marketing activities and may not be able to make our product known to potential customers. Because we will be limiting our marketing activities, we may not be able to attract enough customers to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.
We rely on highly skilled personnel; if we are unable to retain or motivate key personnel, or hire qualified personnel, we may not be able to grow effectively.
Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization, particularly sales and marketing. Competition in our industry for qualified employees is intense. In addition, our compensation arrangements, such as our bonus programs, may not always be successful in attracting new employees or retaining and motivating our existing employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many of which may be outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date, and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Each of the following factors may affect our operating results:
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our ability to deliver products in a timely manner in sufficient volumes;
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our ability to recognize product trends;
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our loss of one or more significant customers;
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the introduction of successful new products by our competitors;
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adverse media reports on the use or efficacy of nutritional supplements.
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our inability to make our design and consulting service division profitable
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our inability to make our online marketing division profitable.
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Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results.
We may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.
We anticipate needing significant capital to fulfill our contractual obligations, complete the research and development of our planned services, obtain regulatory approvals, and execute our business plan, generally. We may use capital more rapidly than currently anticipated and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs. We may need new or additional financing in the future to conduct our operations or expand our business. Any sustained weakness in the general economic conditions and/or financial markets in the United States or globally could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.
Our business and operating results could be harmed if we fail to manage our growth or change.
Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial resources. To manage possible growth and change, we must continue to try to locate skilled employees and professionals and adequate funds in a timely manner.
Our insurance coverage or third party indemnification rights may not be sufficient to cover our legal claims or other losses that we may incur in the future.
We maintain insurance, including property and workers’ compensation to protect ourselves against potential loss exposures. In the future, insurance coverage may not be available at adequate levels or on adequate terms to cover potential losses, including on terms that meet our customer’s requirements. If insurance coverage is inadequate or unavailable, we may face claims that exceed coverage limits or that are not covered, which could increase our costs and adversely affect our operating results.
If developed, our brands may become valuable, and any inability to protect them could reduce the value of our products and brand.
We may invest significant resources to build and protect our brands. However, we may be unable or unwilling to strictly enforce our rights, including our trademarks, from infringement. Our failure to enforce our intellectual property rights could diminish the value of our brands and product offerings and harm our business and future growth prospects.
We may be subject to infringement claims, which are costly to defend, could require us to pay damages and could limit our ability to sell some of our products.
Our industry is characterized by vigorous pursuit and protection of brands, which has resulted in protracted and expensive litigation for several companies. Third parties may assert claims of misappropriation of trade secrets or infringement of intellectual property rights against us or against our partners for which we may be liable.
As our business expands the number of products and competitors in our markets increases and product overlaps occur, infringement claims may increase in number and significance. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we would be successful in defending ourselves against intellectual property claims. Further, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing products or performing certain services.
An increase in product returns could negatively impact our operating results and profitability.
We will permit the return of damaged or defective products and accept limited amounts of product returns in certain instances. While such returns are expected to be nominal and within management’s expectations and the provisions established, future return rates may increase more than anticipated. Any significant increase in damaged or defective products or expected returns could have a material adverse effect on our operating results for the period or periods in which such returns materialize.
We have no manufacturing capacity and anticipate continued reliance on third-party manufacturers for the development of our products.
We do not currently operate manufacturing facilities for production of our products. We lack the resources and the capabilities to manufacture our products. We do not intend to develop facilities for the manufacture of products in the foreseeable future. We will rely on third-party manufacturers to produce bulk products required to meet our sales needs. We plan to continue to rely upon contract manufacturers to manufacture commercial quantities of our products.
Our contract manufacturers’ failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in consumer injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel. Our existing manufacturers and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of our products would be interrupted, resulting in delays, additional costs and reduced revenues.
A shortage in the supply of key raw materials could increase our costs or adversely affect our sales and revenues.
All of the raw materials for our products are obtained from third-party suppliers. Shortages in certain ingredients could result in materially higher raw material prices or adversely affect our ability to have a product manufactured. Price increases from a supplier would directly affect our profitability if we are not able to pass price increases on to customers. Our inability to obtain adequate supplies of raw materials in a timely manner or a material increase in the price of our raw materials could have a material adverse effect on our business, financial condition and results of operations.
Because we are subject to numerous laws and regulations, and we may become involved in litigation from time to time, we could incur substantial judgments, fines, legal fees and other costs.
Our industry is highly regulated. The manufacture, labeling and advertising for our products are regulated by various federal, state and local agencies as well as those of each foreign country to which we distribute. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or the ability to manufacture and sell our products in the future. The U.S. Food and Drug Administration, or FDA, regulates our products to ensure that the products are not adulterated or misbranded. Failure to comply with FDA requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Our advertising is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class action certifications, seek class wide damages and product recalls of products sold by us. Any of these types of adverse actions against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.
Our products may be unable to achieve the expected market acceptance and, consequently, limit our ability to generate revenue from new products.
Even when product development is successful, our ability to generate significant revenue depends on the acceptance of our products by consumers. We cannot assure you that any planned products will achieve market acceptance and revenue if and when they obtain the requisite regulatory approvals. The market acceptance of any product depends on a number of factors, including the indication statement and warnings approved by regulatory authorities in the product label, continued demonstration of efficacy and safety in commercial use, the price of the product, competition, and marketing and distribution support. Any factors preventing or limiting the market acceptance of our products could have a material adverse effect on our business, results of operations and financial condition.
Problems in our manufacturing process, failure to comply with manufacturing regulations or unexpected increases in our manufacturing costs could harm our business, results of operations and financial condition.
The manufacturing of products necessitates compliance with international Good Manufacturing Practice, or GMP, and other international regulatory requirements. Important to this is our ability to obtain a successful manufacturer of our proposed products, which involves obtaining botanical raw material under highly controlled and standardized conditions, extraction and purification processes, manufacture of finished products and labeling and packaging, which includes product information, tamper evidence and anti-counterfeit features. In addition, we must ensure consistency among our batches. Demonstrating such consistency may require typical manufacturing controls as well as clinical data. For each step in the manufacturing process, we will rely on single manufacturing facilities and no back-up facilities are yet in place. If we are unable to obtain manufactured products in accordance with regulatory specifications, or if there are disruptions in our manufacturing process due to damage, loss or otherwise, or failure to pass regulatory inspections of our manufacturing facilities, we may not be able to meet the demand for product or supply sufficient product for use in clinical trials, and this may also harm our ability to commercialize our product designs on a timely or cost-competitive basis, if at all. Any problems in our manufacturing process could have a material adverse effect on our business, results of operations and financial condition
Product recalls or inventory losses caused by unforeseen events, cold chain interruption and testing difficulties may adversely affect our operating results and financial condition.
Our products will be manufactured and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as strict company and government standards for the manufacture of our products, subjects us to production risks.
Consumption of products we sell may decline.
We rely on consumers’ demand for our products. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns. Our continued success will require us to anticipate and respond effectively to shifts in consumer behavior and tastes. If consumer preferences were to move away from our products, in any of our major markets, our financial results might be adversely affected.
A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:
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a general decline in economic or geopolitical conditions;
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concern about the health consequences of consuming various nutraceutical products;
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consumer dietary preferences;
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increased federal, state, provincial and foreign excise or other taxes on certain products and possible restrictions on advertising and marketing;
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increased regulation placing restrictions on the purchase or consumption of our products or increasing prices due to the imposition of duties or excise tax;
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inflation; and
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wars, pandemics, weather and natural or man-made disasters.
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In addition, our continued success depends, in part, on our ability to develop new products. The launch and ongoing success of new products are inherently uncertain especially with regard to their appeal to consumers. The launch of a new product can give rise to a variety of costs and an unsuccessful launch, among other things, can affect consumer perception of existing brands and our reputation. Unsuccessful implementation or short-lived popularity of our product innovations may result in inventory write-offs and other costs.
Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business or operations, and water scarcity or poor water quality could negatively impact our production costs and capacity.
There is a growing concern that carbon dioxide and other so-called 'greenhouse' gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or increased pricing for certain raw materials that are necessary for our products, such as sugar, cereals, agave and grapes. Water is likely to be a main ingredient in substantially all of our products and it is also a limited resource in many parts of the world. As demand for water continues to increase, and as water becomes scarcer and the quality of available water deteriorates, we may be affected by increasing production costs or capacity constraints, which could adversely affect our operations and profitability.
An increase in the cost of raw materials or energy could affect our profitability.
The components of our products are largely commodities that are subject to price volatility caused by changes in global supply and demand, weather conditions, agricultural uncertainty and/or governmental controls. Commodity price changes may result in unexpected increases in the cost of raw materials, plastics, flavors and other packaging materials and our products. We may also be adversely affected by shortages of such materials or by increases in energy costs resulting in higher transportation, freight and other operating costs. We may not be able to increase our prices to offset these increased costs without suffering reduced volume, sales and operating profit.
Various diseases, pests and certain weather conditions.
Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of plants and other agricultural raw materials available, decreasing the supply of our products and negatively impacting profitability. We cannot guarantee that our suppliers of agricultural raw materials will succeed in preventing contamination in existing fields. Future government restrictions regarding the use of certain materials used in growing agricultural raw materials may increase costs and/or reduce production of crops. Growing agricultural raw materials also requires adequate water supplies. A substantial reduction in water supplies could result in material losses of crops, which could lead to a shortage of our product supply.
Reliance on manufacturers and distributors.
Local market structures and distribution channels vary worldwide. We sell our joint venture products through distributors to retail outlets. Koios has entered into arrangements with distributors that generate the majority of our U.S. sales. The replacement or poor performance of the main distributors could result in temporary or longer-term sales disruptions or could materially and adversely affect our results of operations and financial condition for a particular period. Our inability to collect accounts receivable from our manufacturers or distributors could also materially and adversely affect our results of operations and financial condition.
Regulatory decisions and changes in the legal and regulatory environment could increase our costs and liabilities or limit its business activities.
Our operations and those of any contractors are subject to extensive regulatory requirements relating to production, distribution, importation, marketing, advertising, promotion, sales, pricing, labeling, packaging, product liability, labor, pensions, antitrust, compliance and control systems, and environmental issues. Changes in laws, regulations or governmental or regulatory policies and/or practices could cause us to incur material additional costs or liabilities that could adversely affect its business. In particular, governmental bodies may impose new labeling, product or production requirements, limitations on the marketing, advertising and/or promotion activities used to market or products, restrictions on retail outlets, restrictions on importation and distribution or other restrictions on the locations or occasions where beverage alcohol is sold which directly or indirectly limit the sales of our products.
Regulatory authorities under whose laws we operate may also have enforcement power that can subject us to actions such as product recall, seizure of products or other sanctions which could have an adverse effect on our sales or damage its reputation.
Any changes to the regulatory environment in which we operate could cause us to incur material additional costs or liabilities, which could adversely affect our performance.
Our products may also become subject to national excise, import duty and other duties in most countries around the world. An increase in any such duties could have a significant adverse effect on our sales revenue or margin, both through reducing overall consumption and by encouraging consumers to switch to lower-taxed categories of products.
Our reported after-tax income is calculated based on extensive tax and accounting requirements in each of its relevant jurisdictions of operation. Changes in tax law (including tax rates), accounting policies and accounting standards could materially reduce our reported after tax income.
Damage to our reputation.
Maintaining a good reputation is critical to selling our branded products. Product contamination or tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials or product components obtained from suppliers, may reduce demand for our products or cause production and delivery disruptions. Although our producer/distributors maintain standards for the materials and product components received from suppliers, it is possible that a supplier may not provide materials or product components that meet the required standards or may falsify documentation associated with the fulfillment of those requirements. If any of our products becomes unsafe or unfit for consumption, is misbranded or causes injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period of time, which could further reduce consumer demand and brand equity. Our reputation could be impacted negatively by public perception, adverse publicity (whether or not valid), negative comments in social media, or our responses relating to:
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a perceived failure to maintain high ethical, social and environmental standards for all of our operations and activities;
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a perceived failure to address concerns relating to the quality, safety or integrity of our products;
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our environmental impact, including use of agricultural materials, packaging, water and energy use, and waste management; or
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effects that are perceived as insufficient to promote the responsible use of our products.
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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.
Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights.
Our future success depends significantly on our ability to protect our current and future brands and products and to defend our intellectual property rights. We intend to seek trademark registrations covering our newly developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of our trademark applications. There is also a risk that we could, by omission, fail to timely renew or protect a trademark or that our competitors.
Business interruptions could delay us in the process of developing our product candidates and could disrupt our product sales.
Loss of manufacturing contracts, stored inventory or other facilities through fire or other causes, or loss of our botanical raw material due to pathogenic infection or other causes, could have an adverse effect on our ability to meet demand for product, to continue product development activities and to conduct our business. Failure to supply our distribution channels with commercial product may lead to adverse consequences. We currently have no insurance coverage to compensate us for such business interruptions; however, if obtained, such coverage may prove insufficient to fully compensate us for the damage to our business resulting from any significant property or casualty loss to our inventory or facilities.
If product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be required to limit the commercialization of our product designs.
As a marketer and distributor of products designed for both human and animal consumption, we will be subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products consist of vitamins, minerals, herbs and other ingredients that are classified as dietary supplements and topical animal products and in most cases are not subject to pre-market regulatory approval in the United States or internationally. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur.
We have not had any product liability claims filed against us, but in the future we may be subject to various product liability claims, including among others that our products had inadequate instructions for use, or inadequate warnings concerning possible side effects and interactions with other substances. The cost of defense can be substantially higher than the cost of settlement even when claims are without merit. The high cost to defend or settle product liability claims could have a material adverse effect on our business and operating results. While we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us. Although we have purchased insurance to cover product liability lawsuits, if we cannot successfully defend ourselves against product liability claims, or if such insurance coverage is inadequate, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our products;
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injury to our reputation;
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costs of related litigation;
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substantial monetary awards to consumers;
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increased cost of liability insurance;
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loss of revenue; and
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the inability to successfully commercialize our products.
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We intend to offer our products in highly competitive markets, which results in pressure on our profit margins and may limit our ability to maintain or increase the market share of our services.
The nutraceutical industry is subject to significant competition and pricing pressures. We will experience significant competitive pricing pressures. Several competitors offer products similar to ours. We believe that the products we offer are generally competitive with those offered by other services. It is possible that one or more of our competitors could develop a significant advantage, which could put us at a competitive disadvantage. Continued pricing pressure or shifts in customer preferences for nutraceutical products could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial conditions, results of operations, and cash flows.
Our future growth of our services is largely dependent upon our ability to successfully compete with new and existing competitors by achieving market acceptance with acceptable margins.
Our business operates in markets that are characterized by rapidly changing demands, evolving industry standards, and potential new entrants. If these companies gain market acceptance, our ability to grow our consulting business could be material and adversely affected. Accordingly, our future success depends upon a number of factors, including our ability to accomplish the following: identify emerging trends in our target end-markets; develop, acquire, and maintain competitive product offerings, and differentiate us from our competitors. Our ability to market our products can affect our competitive position and requires the investment of significant resources. These development efforts may divert resources from other potential investments in our businesses, and they may not lead to the development of revenues on a timely basis. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, our competitors may introduce superior business strategies, impairing desirability which may cause users to defer or forego purchase of our products. Also, the markets for our products may not develop or grow as we anticipate. The failure of our products to gain market acceptance could significantly reduce our revenue, increase our operating costs, or otherwise adversely affect our business, financial condition, results of operations or cash flows.
Our joint venture may be unsuccessful or the relationship may deteriorate.
We currently have a Joint Venture Agreement with Koios, LLC. Our joint venture may not be successful and we may not fulfill the goals of the joint venture for any number of reasons. If the relationship is unsuccessful for any reason, the Company will have to find alternative business ventures or avenues in order to continue generating new products.
We depend upon our key personnel and our ability to attract and retain employees.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of the services of any member of our senior management or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results. Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
We have limited history of operations and we may incur losses.
As a company with limited operating history, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and competitive industries. We are unable to give you any assurance that we will generate material revenues or that any revenues generated will be sufficient for us to continue operations or achieve profitability.
We have limited assets.
We have incurred an accumulated deficit since inception of $4,619,039 through March 31, 2017 and have not yet established a consistent on-going source of revenues sufficient to cover its operating costs and allow us to continue as a going concern. The ability of our Company to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until it becomes profitable. If we are unable to obtain adequate capital, we could be forced to cease operations. Our success will initially depend upon continuing our business and growing our business by raising the necessary funds to expand operations.
For future additional capital requirements, we may raise capital by issuing equity or convertible debt securities, and when we do, the percentage ownership of our existing stockholders may be diluted. In addition, any new securities we issue could have rights, preferences and privileges senior to the common shares offered herein.
Conflicts of Interest.
Certain conflicts of interest may exist between our Company and our officers and directors. They have other business interests to which they devote their attention, and may be expected to continue to do so although management time should be devoted to the business of our Company. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to our Company.
Need for Additional Financing.
In the event our Company decides to expand our operations we may have very limited funds to do so. The ultimate success of our Company may depend upon our ability to raise additional capital. Our Company is continuing to assess the need for additional capital. If additional capital is needed, there is no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to our Company. If not available, our Company’s operations will be limited to those that can be financed with its modest capital.
Limited Revenue History.
Our Company is considered in development stage. Our Company must be regarded as a new or development venture with all of the unforeseen costs, expenses, problems, risks and difficulties to which such ventures are subject.
No Assurance of Success or Profitability.
There is no assurance that our Company will ever operate profitably. There is no assurance that we will generate profits, or that the value of our Company’s Shares will be increased thereby.
Lack of Diversification.
Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within our business or industry and therefore increase the risks associated with our operations.
Dependence upon Management. Limited Participation of Management.
Our Company will be heavily dependent upon our management skills, talents, and abilities, as well as our consultants, to implement our business plan, and may, from time to time, find that their inability to devote full time attention to the business of our Company results in a delay in progress toward implementing our business plan.
Dependence upon Outside Advisors.
To supplement the business experience of our officers and directors, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Our Company’s management, without any input from stockholders, will make the selection of any such advisors. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to our Company. In the event our Company considers it necessary to hire outside advisors, they may elect to hire persons who are affiliates, if they are able to provide the required services.
Based on our current cash reserves, we will have relatively small operational budget for the operations that we cannot expand without additional raising capital.
If we are unable to begin to generate enough revenue to cover our operational costs, we will need to seek additional sources of funds. Currently, we have no committed source for any funds as of date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan and could fail in business as a result of these uncertainties.
We cannot give any assurances that we will be able to raise enough capital to fund acquisitions and product development.
We will need to raise additional funds to support not only our budget, but our expansion operations. We cannot make any assurances that we will be able to raise such funds or whether we would be able to raise such funds with terms that are favorable to us. We may seek to borrow monies from lenders at commercial rates, but such lenders will probably be at higher than bank rates, which higher rates could, depending on the amount borrowed, make the net operating income insufficient to cover the interest.
RISKS RELATED TO CONTROLLED SUBSTANCES
Controlled substance legislation differs between countries and legislation in certain countries may restrict or limit our ability to develop our product candidates.
Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including hemp oil extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.
At some point our products may be developed and be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.
At this time we do not intend to use controlled substances in any products.
Certain products we may develop could contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription. We do not intend to produce “controlled substances” at this time, due to regulatory complications.
RISK FACTORS RELATED TO OUR SECURITIES
We may in the future issue more shares which could cause a loss of control by our present management and current stockholders.
We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of our Company by our current shareholders, which could present significant risks to investors.
We have not paid dividends but may in the future.
We have not paid dividends on our common stock. While we intend to pay dividends in future after allocating adequate reserves, we do not guarantee, commit and undertake that dividends will be paid in the foreseeable future.
A limited public market exists for our common stock at this time, and there is no assurance of a future market.
Our common stock has been quoted on the OTC Pink since November 24, 2010, under the symbol “GRSU.” There is a limited public market for our common stock, and no assurance can be given that a market will continue or that a shareholder ever will be able to liquidate his investment without considerable delay, if at all. If a market should develop, the price may be highly volatile. Factors such as those discussed in the “Risk Factors” section may have a significant impact upon the market price of the shares offered hereby. Due to the low price of our securities, many brokerage firms may not be willing to effect transactions in our securities. Even if a purchaser finds a broker willing to effect a transaction in our shares, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of our shares as collateral for any loans.
The regulation of penny stocks by SEC and FINRA may discourage the tradability of our securities.
We are a “penny stock” company. None of our securities currently trade in any market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or Accredited Investors. For purposes of the rule, the phrase “Accredited Investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers of our stock to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute “penny stocks” within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Rule 144 sales in the future may have a depressive effect on our stock price.
Our shareholders may be able to use Rule 144 as an exemption for resale, but resales under Rule 144 could have a depressive effect on the market trading price, if any. Investors will have no effective way to combat this.
Our shares are thinly traded.
The shares of our common stock may continue to be thinly-traded on the OTC Markets under the symbol GRSU, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of any of our Securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our Securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price. We cannot give you any assurance that an active public trading market for our common Securities will ever develop or be sustained, or that any trading levels will be sustained. Due to these conditions, we can give investors no assurance that they will be able to sell their shares at or any prices or at all if they need money or otherwise desire to liquidate their securities of our Company. Our common stock may not be able to be liquidated at or near ask prices in any volume in the markets.
Our common stock market prices may be volatile, which substantially increases the risk that investors may not be able to sell their Securities at or above the price that was paid for the security.
Because of the limited trading market for our common stock and because of the possible price volatility, shareholders may not be able to sell their shares of common stock when desired. The inability to sell Securities in a rapidly declining market may substantially increase the risk of loss because of such illiquidity and because the price for our Securities may suffer greater declines because of our price volatility.
Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to the following:
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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; and
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Fluctuations in stock market price and volume.
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Additionally, in recent years the stock market in general, and the personal care markets in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those companies common stock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on shareholders’ investments in our stock.
Future dilution may occur due to issuances of Shares for various consideration in the future.
There may be substantial dilution to our shareholders as a result of future decisions of the Board to issue shares without shareholder approval for cash, services, acquisitions, or pursuant to a Employee/Consultant Stock Option Plan for which one million shares have been reserved but are not issued. Award/Earnings/Vesting criteria under the Plan have not been set, however the price per share for exercise will be no less than market value at the date of issue. No options are currently outstanding under the Plan.
Our new investors will suffer a disproportionate risk and there will be immediate dilution of purchasers' investments.
Our present shareholders have acquired their securities at a cost significantly less than that which the investors purchasing pursuant to warrants will pay for their stock holdings or at which future purchasers in the market may pay. Therefore, new investors will bear most of the risk of loss.
Possible Depressive Effect of Future Sales of Shares issued pursuant to a Warrant Exercise.
We intend to register the shares underlying warrants that we have issued or may issue in the future. If the securities are sold prior to registration, the securities must bear a legend to the effect that the transfer is prohibited, pursuant to registration under the Act, or pursuant to an available exemption from registration. In the event all of the warrants are eventually exercised, and a registration statement was effective the resulting common shares would be free trading and could be sold into the secondary market. Such sales would most likely have a depressive effect on the price of the common stock in any over-the-counter market that may develop, since the large supply of shares available in the market would most likely reduce the price purchasers need to pay for the stock. The exercise of the warrants would also reduce the percentage of our common stock owned by our shareholders.
Our business is highly speculative and the investment is therefore highly risky.
Due to the speculative nature of our business, it is probable that the investment in shares offered hereby will result in a total loss to the investor. Investors should be able to financially bear the loss of their entire investment. Investment should, therefore, be limited to that portion of discretionary funds not needed for normal living purposes or for reserves for disability and retirement.
The ongoing economic downturn and continued uncertainty in the financial markets and other adverse changes in general economic or political conditions may adversely affect our industry, business and results of operations.
The global credit and financial markets have continued to experience disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that there will not be future deterioration in credit and financial markets and confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. We are unable to predict the likely duration and severity of the current disruptions in the credit and financial markets and adverse global economic conditions, and if the current uncertain economic conditions continue or further deteriorate, our business and results of operations could be materially and adversely affected.
Potential changes in accounting practices and/or taxation may adversely affect our financial results.
We cannot predict the impact that future changes in accounting standards or practices may have on our financial results. New accounting standards could be issued that change the way we record revenues, expenses, assets and liabilities. These changes in accounting standards could adversely affect our reported earnings. Increases in direct and indirect income tax rates could affect after tax income. Equally, increases in indirect taxes could affect our products affordability and reduce our sales.
We will rely on third parties for services in conducting our business and any disruption of these relationships could adversely affect our business.
We will have contracts with third parties. If these relationships are disrupted for any reason our results of operation and financial condition could be adversely affected.
There is a risk that shareholders will never receive dividends.
We do not guarantee, commit or undertake to issue a dividend to shareholders for the foreseeable future even if cash were available to do so as we would re-invest those available funds back into the operations of our Company to attempt to expand. We cannot assure shareholders that we will achieve results or maintain a tax status that will ever allow any specified level of cash distribution or year-to-year increases in cash distribution.
Reporting Information.
Our Company is subject to the reporting requirements under the Securities and Exchange Act of 1934. As a result, shareholders will have ready access to the information required to be reported by publicly held companies under the Securities and Exchange Act and the regulations thereunder. Our Company intends to provide our shareholders with annual reports containing financial information prepared in accordance with Generally Accepted Accounting Principles as required by Sec. 13 of the Securities Exchange Act of 1934.
Limited Financing – Lack of Loan Availability.
The monies currently on hand may not be sufficient for the continued expanded operations of our Company. There is no assurance that additional monies or financing will be available in the future or, if available, will be at terms favorable to our Company. (See “Business Summary”)
Our Company may borrow money to finance its operations on terms to be determined. Any such borrowing will increase the risk of loss to the investor in the event our Company is unsuccessful in repaying such loans.
Capital Resources.
The only capital resources of our Company are our shares.