PART
I
ITEM
1. DESCRIPTION OF BUSINESS Back to Table of Contents
Some
of the statements contained in this annual report on Form 10-K of Ecomat Inc. (hereinafter the “Company”, “We”
or the “Registrant”) discuss future expectations, contain projections of our plan of operation or financial condition
or state other forward-looking information. In this annual report, forward-looking statements are generally identified by the
words such as “anticipate”, “plan”, “believe”, “expect”, “estimate”,
and the like. Forward-looking statements involve future risks and uncertainties, there are factors that could cause actual results
or plans to differ materially from those expressed or implied. These statements are subject to known and unknown risks, uncertainties,
and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous assumptions. A reader, whether investing in the Company’s
securities or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this
Registration Statement. Important factors that may cause actual results to differ from projections include, for example:
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the
success or failure of Management’s efforts to implement the Registrant’s plan of operation;
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the
ability of the Registrant to fund its operating expenses;
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the
ability of the Registrant to compete with other companies that have a similar plan of operation;
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the
effect of changing economic conditions impacting our plan of operation;
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the
ability of the Registrant to meet the other risks as may be described in future filings with the SEC.
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General
Background of the Registrant
Ecomat
Inc. (the “Company” or “Ecomat”) is a Nevada corporation that was formed to develop the Ecomat concept
- an environmentally sound solution to the current standard dry cleaning method that utilizes percloroethylene, which has been
shown to have various toxic effects. The Company was incorporated on December 14, 1995 pursuant to the laws of the State of Delaware.
On
February 9, 2007, the Company completed its change in domicile to Nevada.
On
March 26, 1999, the Company filed a petition under Chapter 7 for liquidation of the Company’s business. As a result of which
all of our properties were transferred to a United States Trustee and the Company terminated all of its business operations. The
Bankruptcy Trustee has disposed of all of the assets.
In
May 18, 2006, the Trustee for the Company and Park Avenue Group, Inc. entered into a contract that was subject to Bankruptcy Court
approval for the sale of certain asset free and clear of all liens, claims and encumbrances, the asset being comprised of the
corporate shell of the debtor, Ecomat Inc. (the “Asset”). On June 14, 2006, the Bankruptcy Court granted an order
approving the contract and finding that Park Avenue Group is a good faith purchaser within the meaning of 11 USC Section 363(m)
of the Bankruptcy Code.
In
connection with the Order of the U.S. Bankruptcy Court, the Court authorized (i) that the existing officers and directors of Ecomat
Inc. will be deemed removed from office and their official capacity terminated; (ii) that all common share conversion rights of
any kind, including, but not limited to, warrants, options, convertible bonds, other convertible debt instruments, and convertible
preferred stock shall be canceled and extinguished; and (iii) Park Avenue Group, Inc. shall be authorized to appoint a new board
of directors of Ecomat.
On
June 15, 2006 and as a result of the Bankruptcy Court Order, Park Avenue Group appointed Ivo Heiden to the board of directors
of the Registrant and to serve as its sole executive officer (the “Management”). Mr. Heiden has no ongoing relationship
with such entity.
Business
Objectives of the Company
Since
the Chapter 7 proceedings, the Registrant had no business operations. Management has determined to direct its efforts and limited
resources to pursue potential new business opportunities. The Registrant does not intend to limit itself to a particular industry
and has not established any particular criteria upon which it shall consider a business opportunity.
The
Registrant’s common stock is subject to quotation on the OTC Pink Sheets under the symbol ECMT. There is currently only
a limited trading market in the Registrant’s shares nor do we believe that any active trading market has existed for the
last 3 years. There can be no assurance that there will be an active trading market for our securities following the effective
date of this registration statement under the Exchange Act. In the event that an active trading market commences, there can be
no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors,
or whether any trading market will be sustained.
Management
would have substantial flexibility in identifying and selecting a prospective new business opportunity. The Registrant is dependent
on the judgment of its Management in connection with this process. In evaluating a prospective business opportunity, we would
consider, among other factors, the following:
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costs
associated with pursuing a new business opportunity;
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growth
potential of the new business opportunity;
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experiences,
skills and availability of additional personnel necessary to pursue a potential new business opportunity;
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necessary
capital requirements;
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the
competitive position of the new business opportunity;
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stage
of business development;
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the
market acceptance of the potential products and services;
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proprietary
features and degree of intellectual property; and
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the
regulatory environment that may be applicable to any prospective business opportunity.
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The
foregoing criteria are not intended to be exhaustive and there may be other criteria that Management may deem relevant. In connection
with an evaluation of a prospective or potential business opportunity, Management may be expected to conduct a due diligence review.
The
time and costs required to pursue new business opportunities, which includes negotiating and documenting relevant agreements and
preparing requisite documents for filing pursuant to applicable securities laws, can not be ascertained with any degree of certainty.
Management
intends to devote such time as it deems necessary to carry out the Registrant’s affairs. The exact length of time required
for the pursuit of any new potential business opportunities is uncertain. No assurance can be made that we will be successful
in our efforts. We cannot project the amount of time that our Management will actually devote to the Registrant’s plan of
operation.
The
Registrant intends to conduct its activities so as to avoid being classified as an “Investment Company” under the
Investment Company Act of 1940, and therefore avoid application of the costly and restrictive registration and other provisions
of the Investment Company Act of 1940 and the regulations promulgated thereunder.
Registrant
is a Blank Check Company
At
present, the Registrant is a development stage company with no revenues, no assets and no specific business plan or purpose. The
Registrant’s business plan is to seek new business opportunities or to engage in a merger or acquisition with an unidentified
company. As a result, the Registrant is a “blank check company” and, as a result, any offerings of the Registrant’s
securities under the Securities Act of 1933, as amended (the “Securities Act”) must comply with Rule 419 promulgated
by the Securities and Exchange Commission (the “SEC”) under the Act. The Registrant’s Common Stock is a “penny
stock,” as defined in Rule 3a51-1 promulgated by the SEC under the Securities Exchange Act of 1934 (the “Exchange
Act”). The Penny Stock rules require a broker-dealer, prior to a transaction in penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document that provides information about Penny Stocks and the nature and level
of risks in the penny stock market.
The
broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each Penny Stock
held in the customer’s account. In addition, the Penny Stock rules require that the broker-dealer, not otherwise exempt
from such rules, must make a special written determination that the Penny Stock is suitable for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the Penny Stock rules. So long as the common stock of the
Registrant is subject to the Penny Stock rules, it may be more difficult to sell the Registrant’s common stock.
We
are a Shell Company as defined in Rule 405 promulgated by the SEC under the Securities Act. A Shell Company is one that has no
or nominal operations and either: (i) no or nominal assets; or (ii) assets consisting primarily of cash or cash equivalents. As
a Shell Company, we are restricted in our use of Registrations on Form S-8 under the Securities Act; the lack of availability
of the use of Rule 144 by security holders; and the lack of liquidity in our stock.
Form
S-8
Shell
companies are prohibited from using Form S-8 to register securities under the Securities Act. If a company ceases to be a Shell
Company, it may use Form S-8 sixty calendar days, provided it has filed all reports and other materials required to be filed under
the Exchange Act during the preceding 12 months (or for such shorter period that it has been required to file such reports and
materials after the company files “Form 10 information,” which is information that a company would be required to
file in a registration statement on Form 10 if it were registering a class of securities under Section 12 of the Exchange Act.
This information would normally be reported on a current report on Form 8-K reporting the completion of a transaction that caused
the company to cease being a Shell Company.
Unavailability
of Rule 144 for Resale
Rule
144(i) “Unavailability to Securities of Issuers With No or Nominal Operations and No or Nominal Non-Cash Assets” provides
that Rule 144 is not available for the resale of securities initially issued by an issuer that is a Shell Company. We have identified
our company as a Shell Company and, therefore, the holders of our securities may not rely on Rule 144 to have the restriction
removed from their securities without registration or until the company is no longer identified as a Shell Company.
As
a result of our classification as a Shell Company, our investors are not allowed to rely on the “safe harbor” provisions
of Rule 144, promulgated pursuant to the Securities Act, so as not to be considered underwriters in connection with the sale of
our securities until one year from the date that we cease to be a Shell Company. This will likely make it more difficult for us
to attract additional capital through subsequent unregistered offerings because purchasers of securities in such unregistered
offerings will not be able to resell their securities in reliance on Rule 144, a safe harbor on which holders of restricted securities
usually rely to resell securities.
Very
Limited Liquidity of our Common Stock
Our
common stock trades from time to time on the OTC Pink Sheet Market but there is no active market maker in our common stock. As
a result, there is only limited liquidity in our common stock. We plan to seek quotation of our common stock on the OTCQB Market.
In order for our common stock to become subject to quotation on the OTCQB Market, we must obtain a market maker to file an application
with the Financial Industry Regulatory Authority (FINRA) on our behalf pursuant to Rule 15c2-11 under the Exchange Act. If we
fail to continue to comply with the listing requirements of the OTCQB Market, the price of our common stock and the ability of
our stockholders to to access the capital markets could be negatively impacted. We cannot provide any assurance that we will be
able to continue to satisfy the requirements of the OTCQB Markets’ for continued quotation.
We
will be deemed a blank check company under Rule 419 of the Securities Act
The
provisions of Rule 419 apply to registration statements filed under the Securities Act by a blank check company, such as the Company.
Rule 419 requires that a blank check company filing a registration statement deposit the securities being offered and proceeds
of the offering into an escrow or trust account pending the execution of an agreement for an acquisition or merger.
In
addition, an issuer is required to file a post-effective amendment to the registration statement upon the execution of an agreement
for such acquisition or merger. The rule provides procedures for the release of the offering funds in conjunction with the post
effective acquisition or merger. The obligations to file post-effective amendments are in addition to the obligations to file
Forms 8-K to report for both the entry into a material definitive (non-ordinary course of business) agreement and the completion
of the transaction. Rule 419 applies to both primary and re-sale or secondary offerings.
Within
five (5) days of filing a post-effective amendment setting forth the proposed terms of an acquisition, the Company must notify
each investor whose shares are in escrow. Each investor then has no fewer than 20 and no greater than 45 business days to notify
the Company in writing if they elect to remain an investor. A failure to reply indicates that the person has elected to not remain
an investor. As all investors are allotted this second opportunity to determine to remain an investor, acquisition agreements
should be conditioned upon enough funds remaining in escrow to close the transaction.
Effecting
a business combination
Prospective
investors in the Company’s common stock will not have an opportunity to evaluate the specific merits or risks of any of
the one or more business combinations that we may undertake A business combination may involve the acquisition of, or merger with,
a company which needs to raise substantial additional capital by means of being a publicly trading company, while avoiding what
it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense,
loss of voting control and compliance with various Federal and state securities laws. A business combination may involve a company
which may be financially unstable or in its early stages of development or growth.
The
Registrant has not identified a target business or target industry
The
Company’s effort in identifying a prospective target business will not be limited to a particular industry and the Company
may ultimately acquire a business in any industry Management deems appropriate. To date, the Company has not selected any target
business on which to concentrate our search for a business combination. While the Company intends to focus on target businesses
in the United States, it is not limited to U.S. entities and may consummate a business combination with a target business outside
of the United States. Accordingly, there is no basis for investors in the Company’s common stock to evaluate the possible
merits or risks of the target business or the particular industry in which we may ultimately operate. To the extent we effect
a business combination with a financially unstable company or an entity in its early stage of development or growth, including
entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations
of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that we effect a business
combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently unascertainable
risks of that industry. An extremely high level of risk frequently characterizes many industries which experience rapid growth.
In addition, although the Company’s Management will endeavor to evaluate the risks inherent in a particular industry or
target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Sources
of target businesses
Our
Management anticipates that target business candidates will be brought to our attention from various unaffiliated sources, including
securities broker-dealers, investment bankers, venture capitalists, bankers and other members of the financial community, who
may present solicited or unsolicited proposals. Our Management may also bring to our attention target business candidates. While
we do not presently anticipate engaging the services of professional firms that specialize in business acquisitions on any formal
basis, we may engage these firms in the future, in which event we may pay a finder’s fee or other compensation in connection
with a business combination. In no event, however, will we pay Management any finder’s fee or other compensation for services
rendered to us prior to or in connection with the consummation of a business combination.
Selection
of a target business and structuring of a business combination
Management
owns 78.58% of the issued and outstanding shares of common stock and will have broad flexibility in identifying and selecting
a prospective target business. In evaluating a prospective target business, our Management will consider, among other factors,
the following:
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financial
condition and results of operation of the target company;
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growth
potential;
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experience
and skill of Management and availability of additional personnel;
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capital
requirements;
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competitive
position;
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stage
of development of the products, processes or services;
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degree
of current or potential market acceptance of the products, processes or services;
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proprietary
features and degree of intellectual property or other protection of the products, processes or services;
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regulatory
environment of the industry; and
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costs
associated with effecting the business combination.
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These
criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be
based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our Management in effecting
a business combination consistent with our business objective. In evaluating a prospective target business, we will conduct a
due diligence review which will encompass, among other things, meetings with incumbent Management and inspection of facilities,
as well as review of financial and other information which will be made available to us.
We
will endeavor to structure a business combination so as to achieve the most favorable tax treatment to us, the target business
and both companies’ stockholders. However, there can be no assurance that the Internal Revenue Service or applicable state
tax authorities will necessarily agree with the tax treatment of any business combination we consummate.
The
time and costs required to select and evaluate a target business and to structure and complete the business combination cannot
presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of
a prospective target business with which a business combination is not ultimately completed will result in a loss to us.
Probable
lack of business diversification
While
we may seek to effect business combinations with more than one target business, it is more probable that we will only have the
ability to effect a single business combination, if at all. Accordingly, the prospects for our success may be entirely dependent
upon the future performance of a single business. Unlike other entities which may have the resources to complete several business
combinations with entities operating in multiple industries or multiple areas of a single industry, it is probable that we will
lack the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating
a business combination with only a single entity, our lack of diversification may:
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subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact
upon the particular industry in which we may operate subsequent to a business combination, and
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result in our dependency upon the development or market acceptance of a single or limited number of products, processes or services.
Limited
ability to evaluate the target business’ Management
Although
we intend to closely scrutinize the Management of a prospective target business when evaluating the desirability of effecting
a business combination, we cannot assure you that our assessment of the target business’ Management will prove to be correct.
In addition, we cannot assure you that the future Management will have the necessary skills, qualifications or abilities to manage
a public company intending to embark on a program of business development. Furthermore, the future role of our director, if any,
in the target business cannot presently be stated with any certainty.
While
it is possible that our director will remain associated in some capacity with us following a business combination, it is unlikely
that he will devote his full efforts to our affairs subsequent to a business combination. Moreover, we cannot assure you that
our director will have significant experience or knowledge relating to the operations of the particular target business.
Following
a business combination, we may seek to recruit additional managers to supplement the incumbent Management of the target business.
We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite
skills, knowledge or experience necessary to enhance the incumbent Management.
Our
auditors have expressed substantial doubt about our ability to continue as a going concern
Our
audited financial statements for the years ended June 30, 2019 and 2018, were prepared using the assumption that we will continue
our operations as a going concern. Our independent accountants in their audit report have expressed substantial doubt about our
ability to continue as a going concern. Our operations are dependent on our ability to raise sufficient capital or complete business
combination as a result of which we become profitable. Our financial statements do not include any adjustments that may result
from the outcome of this uncertainty. There is not enough cash on hand to fund our administrative expenses and operating expenses
for the next twelve months. Therefore, we may be unable to continue operations in the future as a going concern. If we cannot
continue as a viable entity, our stockholders may lose some or all of their investment in the Company’s shares of common
stock.
Competition
In
identifying, evaluating and selecting a target business, we expect to encounter intense competition from other entities having
a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and
effecting business combinations, either directly or through affiliates. Many if not virtually most of these competitors possess
far greater financial, human and other resources compared to our resources. While we believe that there are numerous potential
target businesses that we may identify, our ability to compete in acquiring certain of the more desirable target businesses will
be limited by our limited financial and human resources. Our inherent competitive limitations are expected by Management to give
others an advantage in pursuing the acquisition of a target business that we may identify and seek to pursue. Further, any of
these limitations may place us at a competitive disadvantage in successfully negotiating a business combination. Our Management
believes, however, that our status as a reporting public entity with potential access to the United States public equity markets
may give us a competitive advantage over certain privately-held entities having a similar business objective in acquiring a desirable
target business with growth potential on favorable terms.
If
we succeed in effecting a business combination, there will be, in all likelihood, intense competition from existing competitors
of the business we acquire. In particular, certain industries which experience rapid growth frequently attract an increasingly
larger number of competitors, including those with far greater financial, marketing, technical and other resources than the initial
competitors in the industry in which we seek to operate. The degree of competition characterizing the industry of any prospective
target business cannot presently be ascertained. We cannot assure you that, subsequent to a business combination, we will have
the resources to compete effectively, especially to the extent that the target business is in a high-growth industry.
Employees
Mr.
Heiden, our CEO and CFO, is our sole executive officer. Mr. Heiden is not obligated to devote any specific number of hours per
week and, in fact, intends to devote only as much time as he deems reasonably necessary to administer the Company’s affairs
until such time as a business combination is consummated. The amount of time he will devote in any time period will vary based
on the availability of suitable target businesses to investigate. We do not intend to have any full-time employees prior to the
consummation of a business combination.
Conflicts
of Interest
The
Company’s Management is not required to commit its full time to the Company’s affairs. As a result, pursuing new business
opportunities may require a longer period of time than if Management would devote full time to the Company’s affairs. Management
is not precluded from serving as an officer or director of any other entity that is engaged in business activities similar to
those of the Registrant. Management has not identified and is not currently negotiating a new business opportunity for us. In
the future, Management may become associated or affiliated with entities engaged in business activities similar to those we intend
to conduct. In such event, Management may have conflicts of interest in determining to which entity a particular business opportunity
should be presented. In the event that the Company’s Management has multiple business affiliations, our Management may have
legal obligations to present certain business opportunities to multiple entities. In the event that a conflict of interest shall
arise, Management will consider factors such as reporting status, availability of audited financial statements, current capitalization
and the laws of jurisdictions. If several business opportunities or operating entities approach Management with respect to a business
combination, Management will consider the foregoing factors as well as the preferences of the Management of the operating company.
However, Management will act in what it believes will be in the best interests of the shareholders of the Registrant. The Registrant
shall not enter into a transaction with a target business that is affiliated with Management.
ITEM
1A. RISK FACTORS RELATED TO OUR BUSINESS Back to Table of Contents
Forward-Looking
Statements
This
annual report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, the market in which we operate, our beliefs and our Management’s assumptions.
In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words
such as “expects”, “anticipates”, “targets”, “goals”, “projects”,
“intends”, “plans”, “believes”, “seeks”, “estimates”, variations of
such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict or assess. Therefore,
actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements.
Any
investment in our shares of common stock involves a high degree of risk. You should carefully consider the following information
about these risks, together with the other information contained in this annual report before you decide to invest in our common
stock. Each of the following risks may materially and adversely affect our business objective, plan of operation and financial
condition. These risks may cause the market price of our common stock to decline, which may cause you to lose all or a part of
the money you invested in our common stock. We provide the following cautionary discussion of risks, uncertainties and possible
inaccurate assumptions relevant to our business plan. In addition to other information included in this annual report, the following
factors should be considered in evaluating the Company’s business and future prospects.
The
Company has a limited operating history and very limited resources.
Since
emerging from bankruptcy, the Company’s operations have been limited to seeking a potential business combination and has
had no revenues from operations. Investors will have no basis upon which to evaluate the Company’s ability to achieve the
Company’s business objective, which is to effect a merger, capital stock exchange and/or acquire an operating business.
The Company will not generate any revenues until, at the earliest, after the consummation of a business combination or acquiring
an operating business.
Our
auditors have expressed substantial doubt about our ability to continue as a going concern.
As
of June 30, 2019, we had no cash and cash equivalents and an accumulated deficit of $208,775. Our audited financial statements
for the years ended June 30, 2019 and 2018, were prepared using the assumption that we will continue our operations as a going
concern. Our independent accountants in their audit report have expressed substantial doubt about our ability to continue as a
going concern. Our operations are dependent on our ability to raise sufficient capital or complete business combination as a result
of which we become profitable. Our financial statements do not include any adjustments that may result from the outcome of this
uncertainty.
There
is not enough cash on hand to fund our administrative expenses and operating expenses for the next twelve months. Therefore, we
may be unable to continue operations in the future as a going concern. If we cannot continue as a viable entity, our stockholders
may lose some or all of their investment in the Company’s shares of common stock.
Since
the Company has not yet selected a particular target industry or target business with which to complete a business combination,
the Company is unable to ascertain the merits or risks associated with any particular business or industry.
Since
the Company has not yet identified a particular industry or prospective target business, there is no basis for investors to evaluate
the possible merits or risks of the target business which the Company may ultimately acquire. If the Company completes a business
combination with a financially unstable company or an entity in its development stage, the Company may be affected by numerous
risks inherent in the operations of those entities. Although the Company’s Management intends to evaluate the risks inherent
in a particular industry or target business, the Company cannot assure you that it will properly ascertain or assess all of the
significant risk factors. There can be no assurance that any prospective business combination will benefit shareholders or prove
to be more favorable to shareholders than any other investment that may be made by shareholders and investors.
Unspecified
and unascertainable risks
There
is no basis for shareholders to evaluate the possible merits or risks of potential business combination. To the extent that the
Company effects a business combination with a financially unstable operating company or an entity that is in its early stage of
development or growth, the Company will become subject to numerous risks. If the Company effects a business combination with an
entity in a high-risk industry, the Company will become subject to the currently unascertainable risks of that industry. Although
Management will endeavor to evaluate the risks inherent in a particular business or industry, there can be no assurance that Management
will properly ascertain or assess all such risks that the Company perceived at the time of the consummation of a business combination.
It
is likely that the Company’s current sole officer and director will resign upon consummation of a business combination and
the Company will have only limited ability to evaluate the Management of the target business.
The
Company’s ability to successfully effect a business combination will be dependent upon the efforts of the Company’s
Management. The future role of Management in the target business cannot presently be ascertained. Although it is possible that
Management may remain associated with the target business following a business combination, it is likely that the Management of
the target business will remain in place. Although the Company intends to closely scrutinize the management of a target business
in connection with evaluating the desirability of effecting a business combination, the Company cannot assure you that the Company’s
assessment of Management will prove to be correct.
Dependence
on key personnel
The
Company is dependent upon the continued services of Management. To the extent that his services become unavailable, the Company
will be required to obtain other qualified personnel and there can be no assurance that it will be able to recruit qualified persons
upon acceptable terms.
The
Company’s sole officer and director may allocate his time to other businesses activities, thereby causing conflicts of interest
as to how much time to devote to the Company’s affairs. This could have a negative impact on the Company’s ability
to consummate a business combination in a timely manner, if at all.
The
Company’s officer and director is not required to commit his full time to the Company’s affairs, which may result
in a conflict of interest in allocating his time between the Company’s business and other businesses. The Company does not
intend to have any full time employees prior to the consummation of a business combination. Management of the Company is engaged
in other business endeavors and is not obligated to contribute any specific number of his hours per week to the Company’s
affairs. Mr. Heiden owes fiduciary duty to Baltic Capital Corp. of which he is the sole officer and director.
If
Management’s other business affairs require him to devote more time to such affairs, it could limit his ability to devote
time to the Company’s affairs and could have a negative impact on the Company’s ability to consummate a business combination.
Furthermore, we do not have an employment agreement with Mr. Heiden. Mr. Heiden has no formal obligation or commitment to provide
any particular amount of time to the Company’s affairs.
The
Company may be unable to obtain additional financing, if and when required, to complete a business combination or to fund the
operations and growth of the business combination target, which could compel the Company to restructure a potential business combination
transaction or to entirely abandon a particular business combination.
The
Company has not yet identified any prospective target business. If we require funds for a particular business combination, because
of the size of the business combination or otherwise, we will be required to seek additional financing, which may or may not be
available a terms and conditions satisfactory to the Company, if at all. To the extent that additional financing proves to be
unavailable when and if needed to consummate a particular business combination, we would be compelled to restructure the transaction
or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate
a business combination, we may require additional financing to fund the operations or growth of the target business. The failure
to secure additional financing could have a material adverse effect on the continued development or growth of the target business.
The Company’s officer, director or stockholders are not required to provide any financing to us in connection with or after
a business combination.
It
is probable that the Company will only be able to enter into one business combination, which will cause us to be solely dependent
on such single business and a limited number of products or services.
It
is probable that the Company will enter into a business combination with a single operating business. Accordingly, the prospects
for the Company’s success may be:
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solely dependent upon the performance of a single operating
business, or
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dependent upon the development or market acceptance
of a single or limited number of products or services.
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In
this case, the Company will not be able to diversify the Company’s operations or benefit from the possible spreading of
risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in
different industries or different areas of a single industry.
The
Company has limited resources and there is significant competition for business combination opportunities. Therefore, the Company
may not be able to enter into or consummate an attractive business combination.
The
Company expects to encounter intense competition from other entities having a business objective similar to the Company’s,
including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities
are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and other resources than the Company does and the Company’s financial
resources are limited when contrasted with those of many of these competitors. While the Company believes that there are numerous
potential target businesses that it could acquire, the Company’s ability to compete in acquiring certain sizable target
businesses will be limited by the Company’s limited financial resources and the fact that the Company will use its common
stock to acquire an operating business. This inherent competitive limitation gives others an advantage in pursuing the acquisition
of certain target businesses.
The
Company may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations
and growth of the target business, which could compel the Company to restructure a potential business transaction or abandon a
particular business combination.
We
may be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms,
if at all. If additional financing proves to be unavailable, we would be compelled to restructure the transaction or abandon that
particular business combination and seek an alternative target business. In addition, if we consummate a business combination,
we may require additional financing to fund the operations or growth of the target business. The failure to secure additional
financing could have a material adverse effect on the continued development or growth of the target business.
Financing
requirements to fund operations associated with reporting obligations under the Exchange Act.
The
Company has no revenues and is dependent upon the willingness of the Company’s Management to fund the costs associated with
the reporting obligations under the Exchange Act, other administrative costs associated with the Company’s corporate existence
and expenses related to the Company’s business objective. The Company is not likely to generate any revenues until the consummation
of a business combination, at the earliest. The Company believes that it will have available sufficient financial resources available
from its Management to continue to pay accounting and other professional fees and other miscellaneous expenses that may be required
until the Company commences business operations following a business combination.
We
are dependent upon interim funding provided by Management or an affiliated party to pay professional fees and expenses. Our Management
has provided funding, without formal agreement, as has been required to pay for accounting fees and other administrative expenses
of the Company.
The
Company does not currently engage in any business activities that provide cash flow. The costs of investigating and analyzing
potential business combination candidates and preparing and filing Exchange Act reports for what may be an unlimited period of
time will be paid by our sole officer and director, or an affiliated party notwithstanding the fact that there is no written agreement
to pay such costs. The Company intends to repay these advances when it has the cash resources to do so.
Based
on Mr. Heiden’s resource commitment to fund our operations, we believe that we will be able to continue as a going concern
until such time as we conclude a business combination. During the next 12 months we anticipate incurring costs related to:
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filing
of Exchange Act reports.
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franchise
fees, registered agent fees and accounting fees, and
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investigating,
analyzing and consummating an acquisition or business combination.
|
We
estimate that these costs will range from five to ten thousand dollars per year, and that we will be able to meet these costs
as necessary through loans/advances from Management or affiliated parties until we enter into a business combination.
The
Company’s sole officer and director has a 78.58% equity interest in the Company and thus is in a position to influence certain
actions requiring stockholder vote.
Management
has no present intention to call for an annual meeting of stockholders to elect new directors prior to the consummation of a business
combination. As a result, our current director will continue in office at least until the consummation of the business combination.
If there is an annual meeting of stockholders for any reason, the Company’s Management has broad discretion regarding proposals
submitted to a vote by shareholders as a consequence of Management’s significant equity interest. Accordingly, the Company’s
Management will continue to exert substantial control at least until the consummation of a business combination.
Broad
discretion of Management
Any
person who invests in the Company’s common stock will do so without an opportunity to evaluate the specific merits or risks
of any prospective business combination. As a result, investors will be entirely dependent on the broad discretion and judgment
of Management in connection with the selection of a prospective business combination. There can be no assurance that determinations
made by the Company’s Management will permit us to achieve the Company’s business objectives.
Reporting
requirements may delay or preclude a business combination
Pursuant
to the requirements of Section 13 of the Exchange Act, the Company is required to provide certain information about significant
acquisitions and other material events. The Company will continue to be required to file quarterly reports on Form 10-Q and annual
reports on Form 10-K, which annual report must contain the Company’s audited financial statements. As a reporting company
under the Exchange Act, following any business combination, we will be required to file a report on Form 8-K, which report contains
audited financial statements of the acquired entity. These audited financial statements must be filed with the SEC within 5 days
following the closing of a business combination. While obtaining audited financial statements is typically the responsibility
of the acquired company, it is possible that a potential target company may be a non-reporting company with unaudited financial
statements. The time and costs that may be incurred by some potential target companies to prepare such audited financial statements
may significantly delay or may even preclude consummation of an otherwise desirable business combination. Acquisition prospects
that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition because we are
subject to the reporting requirements of the Exchange Act.
If
the Company is deemed to be an investment company, the Company may be required to institute burdensome compliance requirements
and the Company’s activities may be restricted, which may make it difficult for the Company to enter into a business combination.
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restrictions
on the nature of the Company’s investments; and
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restrictions
on the issuance of securities, which may make it difficult for us to complete a business combination.
|
In
addition, we may have imposed upon us burdensome requirements, including:
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registration
as an investment company;
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adoption
of a specific form of corporate structure; and
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reporting,
record keeping, voting, proxy and disclosure requirements and other rules and regulations.
|
The
Company does not believe that its anticipated principal activities will subject it to the Investment Company Act of 1940.
The
Company may be deemed to have no “Independent Director”, actions taken and expenses incurred by our officer and director
on behalf of the Company will generally not be subject to “Independent Review”.
Our
director owns shares of our common stock and, although no compensation will be paid to him for services rendered prior to or in
connection with a business combination, he may receive reimbursement for out-of-pocket expenses incurred by him in connection
with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on
suitable business combinations. There is no limit on the amount of these out-of-pocket expenses and there will be no review of
the reasonableness of the expenses by anyone other than our board of director, which consist of one director who may seek reimbursement.
If our director will not be deemed “independent,” he will generally not have the benefit of independent director examining
the propriety of expenses incurred on our behalf and subject to reimbursement. Although the Company believes that all actions
taken by our director on the Company’s behalf will be in the Company’s best interests, the Company cannot assure the
investor that this will actually be the case. If actions are taken, or expenses are incurred that are actually not in the Company’s
best interests, it could have a material adverse effect on our business and plan of operation and the price of our stock held
by the public stockholders.
General
Economic Risks.
The
Company’s current and future business objectives and plan of operation are likely dependent, in large part, on the state
of the general economy. Adverse changes in economic conditions may adversely affect the Company’s business objective and
plan of operation. These conditions and other factors beyond the Company’s control include also, but are not limited to
regulatory changes.
Risks
Related to Our Common Stock
The
Company’s shares of common stock are traded from time to time on the OTC Pink Sheet Market.
Our
common stock trades from time to time on the OTC Pink Sheet Market. As a result, there is only limited liquidity in our common
stock. We plan to seek quotation of our common stock on the OTCQB Market. Quotation of the Company’s securities on the OTCQB
market limits the liquidity and price of the Company’s common stock more than if the Company’s shares of common stock
were listed on the Nasdaq Stock Market or a national exchange. In order for our common stock to become subject to quotation on
the OTCQB Market, we must obtain a market maker to file an application with the Financial Industry Regulatory Authority (FINRA)
on our behalf pursuant to Rule 15c2-11 under the Exchange Act. If we fail to continue to comply with the listing requirements
of the OTCQB Market, the price of our common stock and the ability of our stockholders to to access the capital markets could
be negatively impacted. We cannot provide any assurance that we will be able to continue to satisfy the requirements of the OTCQB
Markets’ for continued quotation. There can be no assurance that there will be a liquid trading market for the Company’s
common stock following a business combination. In the event that a liquid trading market commences, there can be no assurance
as to the market price of the Company’s shares of common stock, whether any trading market will provide liquidity to investors,
or whether any trading market will be sustained.
Our
common stock is subject to the Penny Stock Rules of the SEC and the trading market in our common stock is limited, which makes
transactions in our stock cumbersome and may reduce the value of an investment in our common stock.
The
Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for
the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule
15g-9 require:
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that
a broker or dealer approve a person’s account for transactions in penny stocks; and
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the
broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of
the penny stock to be purchased.
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In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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obtain
financial information and investment experience objectives of the person; and
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make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability determination; and
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that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
State
blue sky registration; potential limitations on resale of the Company’s common stock
The
holders of the Company’s shares of common stock registered under the Exchange Act and those persons who desire to purchase
them in any trading market that may develop in the future, should be aware that there may be state blue-sky law restrictions upon
the ability of investors to resell the Company’s securities. Accordingly, investors should consider the secondary market
for the Registrant’s securities to be a limited one.
It
is the intention of the Registrant’s Management following the consummation of a business combination to seek coverage and
publication of information regarding the Registrant in an accepted publication manual which permits a manual exemption. The manual
exemption permits a security to be distributed in a particular state without being registered if the Registrant issuing the security
has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to
be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer’s
balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent
fiscal year of operations. Furthermore, the manual exemption is a non-issuer exemption restricted to secondary trading transactions,
making it unavailable for issuers selling newly issued securities.
Most
of the accepted manuals are those published by Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment
Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare
that they “recognize securities manuals” but do not specify the recognized manuals. The following states do not have
any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana,
Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Rule
144 Related Risks
The
SEC adopted amendments to Rule 144 which became effective on February 15, 2008. These Rule 144 amendments apply to securities
acquired both before and after that date. Generally, under the Rule 144 amendments, a person who has beneficially owned restricted
shares for at least six months would be entitled to sell their securities provided that: (i) such person is not deemed to have
been an affiliate at the time of, or at any time during the three months preceding, a sale; (ii) we are subject to and are current
in the Exchange Act periodic reporting requirements for at least 90 days before the sale; and (iii) if the sale occurs prior to
satisfaction of a one-year holding period, provided current information is available at the time of sale.
Persons
who have beneficially owned restricted shares for at least six months but who are affiliates at the time of, or at any time during
the three months preceding a sale, would be subject to additional restrictions, by which such person would be entitled to sell
within any three-month period only a number of securities that does not exceed the greater of either of the following: (i) 1%
of the total number of securities of the same class then outstanding; or (ii) the average weekly trading volume of such securities
during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; provided, in each case,
that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales
by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
These
Rule 144 related risks are subject to further restrictions in the event that the Exchange Act reporting company is deemed to be
a Shell Company, such as the Registrant.
Restrictions
on the Reliance of Rule 144 by Shell Companies or Former Shell Companies
Historically,
the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies
that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments
discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business
combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided
an important exception to this prohibition, however, if the following conditions are met:
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The issuer of the securities that was formerly a shell company has ceased to be a shell company;
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The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports
on Form 8-K; and
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At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting
its status as an entity that is not a shell company.
As
a result, it is likely that pursuant to Rule 144, stockholders who receive our restricted securities in a business combination
will not be able to sell our shares without registration until one year after we have completed our initial business combination.
Rule
145 Related Risk
Under
the new amendments, affiliates of a target company who receive registered shares in a Rule 145 business combination transaction,
and who do not become affiliates of the acquirer, will be able to immediately resell the securities received by them into the
public markets without registration (except for affiliates of a shell company as discussed in the following section). However,
those persons who are affiliates of the acquirer, and those who become affiliates of the acquirer after the acquisition, will
still be subject to the Rule 144 resale conditions generally applicable to affiliates, including the adequate current public information
requirement, volume limitations, manner-of-sale requirements for equity securities, and, if applicable, a Form 144 filing.
Application
of Rule 145 to Shell Companies
Public
resale of securities acquired by affiliates of acquirers and target companies in business combination transactions involving shell
companies will continue to be subject to restrictions imposed by Rule 145. If the business combination transaction is not registered
under the Securities Act, then the affiliates must look to Rule 144 to resell their securities (with the additional Rule 144 conditions
applicable to shell company securities). If the business combination transaction is registered under the Securities Act, then
affiliates of the acquirer and target company may resell the securities acquired in the transaction, subject to the following
conditions:
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The issuer must meet all of the conditions applicable to shell companies under Rule 144;
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After 90 days from the date of the acquisition, the affiliates may resell their securities subject to Rule 144’s
volume limitations, adequate current public information requirement, and manner-of-sale requirements;
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After six months from the date of the acquisition, selling security-holders who are not affiliates of the acquirer may resell
their securities subject only to the adequate current public information requirement of Rule 144; and
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After one year from the date of the acquisition, selling security-holders who are not affiliates or the acquirer may resell their
securities without restriction.
Application
of Rule 419 to Shell Companies
The
provisions of Rule 419 apply to registration statements filed under the Securities Act of 1933, as amended, by a blank check company.
Rule 419 requires that a blank check company filing such registration statement deposit the securities being offered and proceeds
of the offering into an escrow or trust account pending the execution of an agreement for an acquisition or merger.
In
addition, the registrant is required to file a post-effective amendment to the registration statement upon the execution of an
agreement for such acquisition or merger. The rule provides procedures for the release of the offering funds in conjunction with
the post effective acquisition or merger. The obligations to file post-effective amendments are in addition to the obligations
to file Forms 8-K to report for both the entry into a material non-ordinary course agreement and the completion of the transaction.
Rule 419 applies to both primary and re-sale or secondary offerings.
Within
five (5) days of filing a post-effective amendment setting forth the proposed terms of an acquisition, the Company must notify
each investor whose shares are in escrow. Each investor then has no fewer than 20 and no greater than 45 business days to notify
the Company in writing if they elect to remain an investor. A failure to reply indicates that the person has elected to not remain
an investor. As all investors are allotted this second opportunity to determine to remain an investor, acquisition agreements
should be conditioned upon enough funds remaining in escrow to close the transaction.
You
May Not Be Entitled to Protections Normally Afforded to Investors of Bank Check Companies.
If
the net proceeds of an offering under the Securities Act of 1933 is used to complete an initial business combination with a target
business that has not been identified, and we will have net tangible assets in excess of $5,000,001 upon the successful consummation
of this offering and will file a Current Report on Form 8-K, including an audited balance sheet demonstrating this fact, we are
exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors
will not be afforded the benefits or protections of those rules which would, for example, completely restrict the transferability
of our securities, require us to complete our initial business combination within 18 months of the effective date of the initial
registration statement and restrict the use of interest earned on the funds held in the trust account.
Investors
will then not be entitled to protections normally offered to investors in Rule 419 blank check offerings.
Possible
Issuance of Additional Securities.
Our
Articles of Incorporation authorize the issuance of 74,000,000 shares of common stock, par value $0.0001. As of June 30, 2019,
we had 16,836,750 shares issued and outstanding. We may be expected to issue additional shares in connection with our pursuit
of new business opportunities and new business operations. To the extent that additional shares of common stock are issued, our
shareholders would experience dilution of their respective ownership interests. If we issue shares of common stock in connection
with our intent to pursue new business opportunities, a change in control of the Registrant may be expected to occur. The issuance
of additional shares of common stock may adversely affect the market price of our common stock, in the event that an active trading
market commences.
Dividends
unlikely
The
Company does not expect to pay dividends for the foreseeable future because it has no revenues or cash resources. The payment
of dividends will be contingent upon the Company’s future revenues and earnings, if any, capital requirements and overall
financial conditions. The payment of any future dividends will be within the discretion of the Company’s board of directors
as then constituted. It is the Company’s expectation that future Management following a business combination will determine
to retain any earnings for use in its business operations and accordingly, the Company does not anticipate declaring any dividends
in the foreseeable future.
ITEM
1B. UNRESOLVED STAFF COMMENTS Back to Table of Contents
Not
applicable.
ITEM
2. DESCRIPTION OF PROPERTIES Back to Table of Contents
The
Registrant’s corporate office is located at 2275 Huntington Drive, Suite 851, San Marino, CA 91108, which space is provided
to us on a rent-free basis. The Registrant believes that the office facilities are sufficient for the foreseeable future and this
arrangement will remain until we find a new business opportunity.
ITEM
3. LEGAL PROCEEDING Back to Table of Contents
None.
ITEM
4. MINE SAFETY DISCLOSURES Back to Table of Contents
None.