ITEM
1 DESCRIPTION OF BUSINESS
History
and Background
Smartag
International, Inc., a Nevada corporation (“Smartag,” “Company,” “we,” “us,” or
“our”), was formed as Theca Corporation on March 24, 1999 in Colorado. On November 29, 2004, we merged
with Art4Love, Inc., a Delaware corporation, into Art4Love, Inc. a Nevada corporation. Art4love, Inc. attempted to
sell and lease art to companies and individuals from artists’ collections worldwide. On February 10, 2009, Art4Love
changed its name to Smartag International, Inc. when the Company was taken over and controlled by a Malaysian listed entity named
Smartag Solutions Berhad (later known as SMTRACK Berhad) from 2009 until March 2016.
On
March 23, 2017, various related parties relieved the Company of loans totaling $1,227,457 in exchange for the issuance of 61,372,850
shares of the Company’s common stock.
In
November 2015, Smartag signed an agreement with Bobby Tang Siu Ki and Yang Ye Cai, the co-owners and founders of Shenzhen Shen
Nan Shun Technology Co. Ltd (“SSNST”), a company based in Shenzhen, China which is involved in e-commerce trading
on e-Bay, Amazon and Alipay platforms. Using the expertise of SSNST, Smartag is developing block chain technology used in the
business of e-Commerce trading, procurement, collection and distribution through a new joint venture company in Hong Kong. On
January 1, 2016, the Company entered into a revenue sharing agreement with Vander. The Company charged 5% commission as a collection
and processing agent for some of Vander’s Ecommerce platform
sales.
On February 2, 2018, Smartag entered into a Joint Venture & Shareholder’s Agreement with Vander (“JV Agreement”).
As a result, the previous agreements with SSNST and Vander was terminated. Under the terms of the JV Agreement, Smartag and Vander
formed a new Hong Kong entity called Smartag HK. Smartag HK shall pursue e-Commerce and related Fintech e-Money and e-remittance
solutions. Smartag owns 70% and Vander owns 30% of Smartag HK.
On
the February 27, 2018, Smartag International, Inc. (“Smartag,” “we” or “Company) entered into joint
venture agreement with PT. Supratama Makmur Sejahtera (“PTSMS”) an Indonesian Fintech company to form a Joint Venture
Indonesian PMA company in which Smartag shall own 51% equity and PTSMS shall own 49%. The new Indonesian PMA company plans to
undertake the Project to provide up to 10,000 boarding schools which are owned by the local Islamic Baitu Maal or BMT co-operatives
in their respective villages or districts within Indonesia with sharia financial technology (Fintech) e-Wallet platform. Smartag
plans to provide the financing, to develop the Fintech technology for the Islamic Fintech e-Wallet platform.
Overview
The
Company plans to focus on new technologies, especially Fintech. The Company plans to add value by combining Fintech with existing
established e-Commerce, e-Wallet and remittance players. In particular, the Company will continue with the development of a multi-faceted
Indonesian sharia e-Wallet using the Company’s state-of-the-art sharia Fintech features together with its two local Indonesian
partners namely,
(1)
the Baitu Ma’al (“BMT”) co-operatives (including the Pesantren schools). BMT has a total membership of approximately
30 million members; and
(2)
Telkomsel is the largest Indonesian mobile operator with its own TCASH e-Wallet.
By
collaborating with these two entities, new business models are expected for Company as the current businesses of the BMT and their
micro finance houses will migrate towards the new sharia Fintech platforms whereby not only current domestic funds transfers,
utility payments and small micro finance loans will continue but in a more efficient manner and with less expensive rates. Additionally,
new and enlarged Fintech businesses of e-Commerce coupled with rural e-logistics distribution will be introduced for BMT members.
Telkomsel has the wide reach into the rural interior where telecommunications connectivity is essential for operating the e-Wallet
platform.
Wherever
feasible the Company plans to add value with block chain traceability to increase the overall efficiency and reduce costs especially
for B2B e-Logistics and e-Know Your Client or e-KYC technologies to recruit many more members for the e-Wallet. Our mission is
to add value using our Fintech platform which includes new e-KYC and e-Logistics track and trace supply chain solutions. Our difference
will be that many items found on the supply chain can be traced to the source of origin using block chain solutions. These solutions
will not only safeguard the interests of the stakeholders within the supply chain route but will protect the needs of the customers.
The customers need to know what is safe and genuine. The suppliers need the payment assurances at the other end of the supply
chain.
Regulation
Government
regulation impacts key aspects of our business. We are subject to laws and regulations that affect the ecommerce industry in many
countries where we operate.
We
are subject to laws and regulations affecting our domestic and international operations in a number of areas, including consumer
protection, data privacy requirements, intellectual property ownership
and
infringement, prohibited items and stolen goods, resale of event tickets, tax, anti-competition, export requirements, anti-corruption,
labor, advertising, digital content, real estate, billing, ecommerce, promotions, quality of services, telecommunications, mobile
communications and media, environmental, and health and safety regulations, as well as laws and regulations intended to combat
money laundering and the financing of terrorist activities.
Compliance
with these laws, regulations, and similar requirements may be onerous and expensive, and variances and inconsistencies from jurisdiction
to jurisdiction may further increase the cost of compliance and doing business. Any such costs, which may rise in the future as
a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our
products and services less attractive to our customers, delay the introduction of new products or services in one or more regions,
or cause us to change or limit our business practices. We have implemented policies and procedures designed to ensure compliance
with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate
such laws and regulations or our policies and procedures.
It
is not always clear how laws and regulations governing matters relevant to our business, such as property ownership, copyrights,
trademarks, and other intellectual property issues, parallel imports and distribution controls, taxation, libel and defamation,
and obscenity apply to our businesses. Many of these laws were adopted prior to the advent of the Internet, mobile, and related
technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Many
of these laws, including some of those that do reference the Internet are subject to interpretation by the courts on an ongoing
basis and the resulting uncertainty in the scope and application of these laws and regulations increases the risk that we will
be subject to private claims and governmental actions alleging violations of those laws and regulations.
As
our activities, the products and services we offer, and our geographical scope continue to expand, regulatory agencies or courts
may claim or hold that we or our users are subject to additional requirements (including licensure) or prohibited from conducting
our business in their jurisdiction, either generally or with respect to certain actions. Financial and political events have increased
the level of regulatory scrutiny on large companies, and regulatory agencies may view matters or interpret laws and regulations
differently than they have in the past and in a manner adverse to our businesses. Our success and increased visibility have driven
some existing businesses that perceive us to be a threat to their businesses to raise concerns about our business models to policymakers
and regulators. These businesses and their trade association groups employ significant resources in their efforts to shape the
legal and regulatory regimes in countries where we have significant operations. They may employ these resources in an effort to
change the legal and regulatory regimes in ways intended to reduce the effectiveness of our businesses and the ability of users
to use our products and services. These established businesses have raised concerns relating to pricing, parallel imports,
professional seller obligations, selective distribution networks, stolen goods, copyrights, trademarks and other intellectual
property rights and the liability of the provider of an Internet marketplace for the conduct of its users related to those and
other issues. Any changes to the legal or regulatory regimes in a manner that would increase our liability for third-party listings
could negatively impact our business.
Numerous
U.S. states and foreign jurisdictions, including the State of California, have regulations regarding “auctions” and
the handling of property by “secondhand dealers” or “pawnbrokers.” Several states and some foreign jurisdictions
have attempted to impose such regulations upon us or our users, and others may attempt to do so in the future. Attempted enforcement
of these laws against some of our users appears to be increasing and we could be required to change the way we or our users do
business in ways that increase costs or reduce revenues, such as forcing us to prohibit listings of certain items or restrict
certain listing formats in some locations. We could also be subject to fines or other penalties, and any of these outcomes could
harm our business.
Principal
Executive Offices
Our
principal executive offices are currently located at 3651 Lindell Road Ste D269, Las Vegas, NV 89103. Our telephone number is
+1-(702) 589-2176. We believe our facilities are inadequate to meet our current and near-term needs for the next twelve months
and we intend to lease premises within the state of California or Nevada within this period.
Insurance
We
do not currently maintain property, business interruption and casualty insurance. We intend to obtain such insurance in accordance
with customary industry practices.
Employees
As
of September 30, 2018, we had 2 full-time and 30 part-time consultants in Indonesia. Since inception, we have never had a work
stoppage, and our employees are not represented by labor unions. We consider our relationship with our employees to be positive.
The
following important factors, and the important factors described elsewhere in this report or in our other filings with the SEC,
could affect (and in some cases have affected) our results and could cause our results to be materially different from estimates
or expectations. Other risks and uncertainties may also affect our results or operations adversely. The following and these other
risks could materially and adversely affect our business, operations, results or financial condition.
An
investment in the Company is highly speculative in nature and involves an extremely high degree of risk.
We
have a history of net losses and will not achieve or maintain profitability.
We
have a history of incurring losses from operations. As of September 30, 2018, we had an accumulated deficit of approximately
$3,560,458. We anticipate that our existing cash and cash equivalents will be sufficient to fund our business needs
in the near term. Our ability to continue may prove more expensive than we currently anticipate and we may incur significant additional
costs and expenses in connection with the launching of our business.
We
depend on key personnel to manage our business effectively, and, if we are unable to hire, retain or motivate qualified personnel,
our ability to design, develop, market and sell our systems could be harmed.
The
loss of the services of any of our key personnel may seriously harm our business, financial condition and results of operations.
In addition, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly operations,
finance, accounting, sales and marketing personnel, may also seriously harm our business, financial condition and results of operations.
Our ability to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful
in the future.
We
will continue to incur the expenses of complying with public company reporting requirements.
We
have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act which includes the filing
with the SEC of periodic reports, proxy statements and other documents relating to our business, financial conditions and other
matters, even though compliance with such reporting requirements is economically burdensome.
Our
business is difficult to evaluate because we have no recent operating history.
As
the Company has minimal operating history, revenue and assets, there is a risk that we will be unable to continue as a going concern.
We have no significant assets or financial resources except for the financial support from our holding company
Our
financial statements indicate conditions exist that raise substantial doubt as to whether we will continue as a going concern.
Our
audited financial statements for the year ended September 30, 2018 indicate conditions exist that raise substantial doubt as to
whether we will continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain financing
to fund the continued development of products and working capital requirements.
Substantial
and increasingly intense competition worldwide in ecommerce may harm our business.
The
businesses and markets in which we operate are intensely competitive. We currently and potentially compete with a wide variety
of online and offline companies providing goods and services to consumers and merchants. The Internet and mobile networks provide
new, rapidly evolving and intensely competitive channels for the sale of all types of goods and services. We compete in two-sided
markets, and must attract both buyers and sellers to use our platforms. Consumers who purchase or sell goods and services through
us have more and more alternatives, and merchants have more channels to reach consumers. We expect competition to continue to
intensify. Online and offline businesses increasingly are competing with each other and our competitors include a number of online
and offline retailers with significant resources, large user communities and well-established brands. Moreover, the barriers to
entry into these channels can be low, and businesses easily can launch online sites or mobile platforms and applications at nominal
cost by using commercially available software or partnering with any of a number of successful ecommerce companies. As we respond
to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions
that may be controversial with and lead to dissatisfaction among sellers, which could reduce activity on our platform and harm
our profitability.
We
face increased competitive pressure online and offline. In particular, the competitive norm for, and the expected level of service
from, ecommerce and mobile commerce has significantly increased, due to, among other factors, improved user experience, greater
ease of buying goods, lower (or no) shipping costs, faster shipping times and more favorable return policies. Also, certain platform
businesses, such as Alibaba, Apple, Google and Facebook, many of whom are larger than us or have greater capitalization, have
a dominant and secure position in other industries or certain significant markets, and offer other goods and services to consumers
and merchants that we do not offer. If we are unable to change our products, offerings and services in ways that reflect the changing
demands of ecommerce and mobile commerce marketplaces, particularly the higher growth of sales of fixed-price items and higher
expected service levels (some of which depend on services provided by sellers on our platforms), or compete effectively with and
adapt to changes in larger platform businesses, our business will suffer.
Competitors
with other revenue sources may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive
pricing policies and devote more resources to website, mobile platforms and applications and systems development than we can.
Other competitors may offer or continue to offer faster and/or free shipping, delivery on Sunday, same-day delivery, favorable
return policies or other transaction-related services which improve the user experience on their sites and which could be impractical
or inefficient for our sellers to match. Competitors may be able to innovate faster and more efficiently, and new technologies
may increase the competitive pressures by enabling competitors to offer more efficient or lower-cost services.
Some
of our competitors control other products and services that are important to our success, including credit card interchange, Internet
search, and mobile operating systems. Such competitors could manipulate pricing, availability, terms or operation of service related
to their products and services in a manner that impacts our competitive offerings. For example, Google, which operates a shopping
platform service, has from time to time made changes to its search algorithms that reduced the amount of search traffic directed
to us from searches on Google. If we are unable to use or adapt to operational changes in such services, we may face higher costs
for such services, face integration or technological barriers or lose customers, which could cause our business to suffer.
Consumers
who might use our sites to buy goods have a wide variety of alternatives, including traditional department, warehouse, boutique,
discount and general merchandise stores (as well as the online and mobile operations of these traditional retailers), online retailers
and their related mobile offerings, online and offline classified services and other shopping channels, such as offline and online
home shopping networks. In the United States, these include Amazon.com (which recently opened an experimental brick-and-mortar
store in New York City and continues to expand into new geographies and lines of business), Google, Wal-Mart, Target, Sears, Macy’s,
JC Penney, Costco, Office Depot, Staples, OfficeMax, Sam’s Club, Rakuten, Yahoo! Shopping, MSN, QVC and Home Shopping Network,
among others. In addition, consumers have a large number of online and offline channels focused on one or more of the categories
of products offered on our site.
Consumers
also can turn to many companies that offer a variety of services that provide other channels for buyers to find and buy items
from sellers of all sizes, including social media, online aggregation and classifieds platforms, such as craigslist, Oodle.com
and a number of international websites operated by Schibsted ASA or Naspers Limited. Consumers also can turn to shopping-comparison
sites, such as Google Shopping. In certain markets, our fixed-price listing and traditional auction-style listing formats increasingly
are being challenged by other formats, such as classifieds.
Consumers
and merchants who might use our sites to sell goods also have many alternatives, including general ecommerce sites, such as Amazon
and Alibaba, and more specialized sites, such as Etsy. Our international sites also compete for sellers with general and specialized
ecommerce sites. Sellers may also choose to sell their goods through other channels, such as classifieds platforms. Consumers
and merchants also can create and sell through their own sites, and may choose to purchase online advertising instead of using
our services. In some countries, there are online sites that have larger customer bases and greater brand recognition, as well
as competitors that may have a better understanding of local culture and commerce. We increasingly may compete with local competitors
in developing countries that have unique advantages, such as a greater ability to operate under local regulatory authorities.
Global
and regional economic conditions could harm our business.
Our
operations and performance depend significantly on global and regional economic conditions. Adverse economic conditions and events
(including volatility or distress in the equity and/or debt or credit markets) have in the past negatively impacted regional and
global financial markets and will likely continue to do so from time to time in the future. These events and conditions could
have a negative and adverse impact on companies and customers with which we do business or cause us to write down our assets or
investments. In addition, financial turmoil affecting the banking system or financial markets could cause additional consolidation
of the financial services industry, or significant financial service institution failures, new or incremental tightening in the
credit markets, low liquidity, and extreme volatility in fixed income, credit, currency, and equity markets. Adverse impacts to
the companies and customers with which we do business, the banking system, or financial markets could have a material adverse
effect on our business, including a reduction in the volume and prices of transactions on our commerce platforms.
Any
factors that reduce cross-border trade or make such trade more difficult could harm our business.
Cross-border
trade is an important source of products. Cross-border trade also represents our primary (or in some cases, only) presence in
certain important markets, such as China, and various other countries. In addition, our cross-border trade is also subject to,
and may be impacted by, foreign exchange rate fluctuations.
The
interpretation and application of specific national or regional laws, such as those related to intellectual property rights of
authentic products, selective distribution networks, and sellers in other countries listing items on the Internet, and the potential
interpretation and application of laws of multiple jurisdictions (e.g., the jurisdiction of the buyer, the seller, and/or the
location of the item being sold) are often extremely complicated in the context of cross-border trade. The interpretation and/or
application of such laws could impose restrictions on, or increase the costs of, purchasing, selling, shipping, or returning goods
across national borders.
The
shipping of goods across national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures
and reviews, including duty-free thresholds in various key markets, the interaction of national postal systems, and security related
governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create
shipping uncertainties. Any factors that increase the costs of cross-border trade or restrict, delay, or make cross-border trade
more difficult or impractical would lower our revenues and profits and could harm our business.
Laws
and regulations could harm our business.
It
is not always clear how laws and regulations governing matters relevant to our business, such as property ownership, copyrights,
trademarks, and other intellectual property issues, parallel imports and distribution controls, taxation, libel and defamation,
and obscenity apply to our businesses. Many of these laws were adopted prior to the advent of the Internet, mobile, and related
technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Many
of these laws, including some of those that do reference the Internet are subject to interpretation by the courts on an ongoing
basis and the resulting uncertainty in the scope and application of these laws and regulations increases the risk that we will
be subject to private claims and governmental actions alleging violations of those laws and regulations.
As
our activities, the products and services we offer, and our geographical scope continue to expand, regulatory agencies or courts
may claim or hold that we or our users are subject to additional requirements (including licensure) or prohibited from conducting
our business in their jurisdiction, either generally or with respect to certain actions. Financial and political events have increased
the level of regulatory scrutiny on large companies, and regulatory agencies may view matters or interpret laws and regulations
differently than they have in the past and in a manner adverse to our businesses. Our success and increased visibility have driven
some existing businesses that perceive us to be a threat to their businesses to raise concerns about our business models to policymakers
and regulators. These businesses and their trade association groups employ significant resources in their efforts to shape the
legal and regulatory regimes in countries where we have significant operations. They may employ these resources in an effort to
change the legal and regulatory regimes in ways intended to reduce the effectiveness of our businesses and the ability of users
to use our products and services. These established businesses have raised concerns relating to pricing, parallel imports,
professional seller obligations, selective distribution networks, stolen goods, copyrights,
trademarks
and other intellectual property rights and the liability of the provider of an Internet marketplace for the conduct of its users
related to those and other issues. Any changes to the legal or regulatory regimes in a manner that would increase our liability
for third-party listings could negatively impact our business.
The
volatility of our stock price could adversely affect an investment in our common stock
The
market price of our common stock has been, and may continue to be, highly volatile. We believe that a variety of factors could
cause the price of our common stock to fluctuate, perhaps substantially, including:
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announcements
and rumors of developments related to our business or the industry in which we compete,
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quarterly
fluctuations in our actual or anticipated operating results and order levels,
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general
conditions in the worldwide economy,
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acquisition
announcements,
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new
products or product enhancements by us or our competitors,
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developments
in patents or other intellectual property rights and litigation,
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developments
in our relationships with our customers and suppliers, and
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any
significant acts of terrorism.
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In
addition, in recent years the stock market in general and the markets for shares of “high-tech” companies in particular,
have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies.
Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common
stock may decline.
Our
information systems or those of our outside vendors may be subject to disruption, delays or security incidents that could adversely
impact our customers and operations
We
rely on our information systems and those of third parties for things such as processing customer orders, delivery of products,
providing services and support to our customers, billing and tracking our customers, hosting and managing customer data, and otherwise
running our business. Any disruption in our information systems and those of the third parties upon whom we rely could have a
significant impact on our business.
A
security incident in our own systems or the systems of our third party providers may compromise the confidentiality, integrity,
or availability of our own internal data, the availability of our products and websites designed to support our customers, or
our customer data. Unauthorized access to our proprietary business information or customer data may be obtained through break-ins,
breach of our secure network by an unauthorized party, employee theft or misuse, breach of the security of the networks of our
third party providers, or other misconduct. It is also possible that unauthorized access to customer data may be obtained through
inadequate use of security controls by customers. While our products and services provide and support strong password controls,
IP restriction and other security mechanisms, the use of such mechanisms are controlled in many cases by our customers.
We
may also experience delays or interruptions caused by a number of factors, including access to the internet, the failure of our
network or software systems, or significant variability in visitor traffic on our product websites. It is also possible that hardware
or software failures or errors in our systems, or in those of our third party providers, could result in data loss or corruption
or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. These
failures and interruptions could harm our reputation and cause us to lose customers.
Our
global operations expose us to risks and challenges associated with conducting business internationally, and our results of operations
may be adversely affected by our efforts to comply with U.S. laws which apply to international operations, such as the Foreign
Corrupt Practices Act and US export control laws, as well as the laws of other countries.
We
operate on a global basis with offices or activities in Asia, the Middle East, and North America. We face several risks inherent
in conducting business internationally, including compliance with international and U.S. laws and regulations that apply to our
international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition
regulations, import and trade restrictions, export control laws, U.S. laws such as export control laws and the FCPA, and
similar laws in other countries which also prohibit corrupt payments to governmental officials or certain payments or remunerations
to customers. Many of our products are subject to U.S. export law restrictions that limit the destinations and types of customers
to which our products may be sold or require an export license in connection with sales outside the United States. Given the high
level of complexity of these laws, there is a risk that some provisions may be inadvertently breached, for example through fraudulent
or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise.
Also, we may be held liable for actions taken by our local partners. Violations of these laws and regulations could result
in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such
violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage
our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and
our operating results.
In
addition, we operate in many parts of the world that have experienced significant governmental corruption to some degree and,
in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject
to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment
by making payments to government officials and others in positions of influence or through other methods that U.S. law and regulations
prohibit us from using. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties.
In
addition to the foregoing, engaging in international business inherently involves a number of other difficulties and risks, including:
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longer
payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems,
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political
and economic instability,
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potentially
adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers,
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difficulties
and costs of staffing and managing foreign operations,
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difficulties
protecting or procuring intellectual property rights, and
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fluctuations
in foreign currency exchange rates.
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These
factors or any combination of these factors may adversely affect our revenue or our overall financial performance.
Unfavorable
general economic conditions in the United States could negatively impact our financial performance.
Unfavorable
general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability
of, and consumer demand for, our product in the United States. Under difficult economic conditions, consumers may seek to reduce
discretionary spending by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered
by other companies. Consumers may also cease purchasing bottled water and consume tap water. Lower consumer demand for our product
in the United States could reduce our profitability.
Adverse
weather conditions could reduce the demand for our products.
The
sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or
rainy weather during the summer months may have a temporary effect on the demand for our product and contribute to lower sales,
which could have an adverse effect on our results of operations for such periods.
Changes
in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our
costs or reduce our net operating revenues.
The
advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our product will be
subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer protection
laws; competition laws; federal, state, and local workplace health and safety laws, such as the Occupational Safety and Health
Act; various federal, state and local environmental protection laws; and various other federal, state, and local statutes and
regulations. Legal requirements also apply in many jurisdictions in the United States requiring that deposits or certain ecotaxes
or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers. The precise requirements imposed
by these measures vary. Other types of statutes and regulations relating to beverage container deposits, recycling, ecotaxes and/or
product stewardship also apply in various jurisdictions in the United States. We anticipate that additional, similar legal requirements
may be proposed or enacted in the future at the local, state and federal levels in the United States. Changes to such laws and
regulations could increase our costs or reduce our net operating revenues.
In
addition, failure to comply with environmental, health or safety requirements and other applicable laws or regulations could result
in the assessment of damages, the imposition of penalties, suspension of production, changes to equipment or processes, or a cessation
of operations at our or our bottlers’ facilities, as well as damage to our image and reputation, all of which could harm
our profitability.
Risks
Related to Our Stock
Because
our common stock is considered a "penny stock" any investment in our common stock is considered to be a high-risk investment
and is subject to restrictions on marketability.
Our
common stock is currently traded on the OTC Markets and is considered a "penny stock." The OTC Markets are generally
regarded as a less efficient trading market than the NASDAQ Capital Market.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which
specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer
also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any
salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those
rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for our common stock.
Since
our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be
adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock
and thus your ability to sell our common stock in the secondary market. There is no assurance our common stock will
be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.
We
have additional securities available for issuance, including preferred stock, which if issued could adversely affect the rights
of the holders of our common stock.
Our
articles of incorporation authorize the issuance of 500,000,000 shares of common stock and 25,000,000 shares of preferred stock. The
common stock and the preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting
rights, liquidation preference and conversion rights can generally be determined by, our board of directors without stockholder
approval. Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things,
establishing preferential dividends, liquidation rights or voting powers. Accordingly, our stockholders will be dependent upon
the judgment of our management in connection with the future issuance and sale of shares of our common stock and preferred stock,
in the event that buyers can be found, therefore. Any future issuances of common stock or preferred stock would further dilute
the percentage ownership of our Company held by the public stockholders.
We
cannot assure you that our common stock will be listed on NASDAQ or any other securities exchange.
We
may seek the listing of our common stock on NASDAQ or the American Stock Exchange. However, we cannot assure you that following
such a transaction, we will be able to meet the initial listing standards of either of those or any other stock exchange, or that
we will be able to maintain a listing of our common stock on either of those or any other stock exchange. Until our common stock
is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Markets
where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of
our common stock. In addition, we would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule,
imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established
customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock,
which may further affect its liquidity.
Authorization
of preferred stock.
Our
Certificate of Incorporation authorizes the issuance of up to 25,000,000 shares of preferred stock with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely
affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.
Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that the
Company will not do so in the future.
We
are an emerging growth company within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions
from reporting requirements that are available to emerging growth companies, our financial statements may not be comparable to
companies that comply with public company effective dates.
We
are an emerging growth company as defined in Section 2(a)(19) of the Securities Act. Pursuant to Section 107 of the Jumpstart
Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition
period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards
until such standards are made applicable to private companies. Accordingly, our financial statements may not be comparable to
the financial statements of public companies that comply with such new or revised accounting standards.