Some discussions in this Annual Report on Form 10-K contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and relate to future events or future financial performance. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this Form 10-K. Forward-looking statements are often identified by words such as "believe," "expect," "estimate," "anticipate," "intend," "project," "plans," "seek" and similar expressions or words which, by their nature, refer to future events. In some cases, you can also identify forward-looking statements by terminology such as "may," "will," "should," "plans," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology.
These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" below that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In addition, you are directed to factors discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section as well as those discussed elsewhere in this Form 10-K.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. However, readers should carefully review the risk factors set forth in other reports or documents the Company files from time to time with the Securities and Exchange Commission (the "SEC"), particularly the Company's Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
Corporate History
General
World Moto, Inc. was incorporated on March 24, 2008 in the State of Nevada under the name Net Profits Ten Inc. Our original purpose was to market and distribute user-friendly interactive yearbook software for the military. On November 8, 2012, we amended our Articles of Incorporation to increase our authorized shares of common stock from 100,000,000 to 500,000,000 and our board of directors approved a stock dividend of 180 shares of common stock of the Company for each share of common stock issued and outstanding. On November 12, 2012, we amended our Articles of Incorporation to change our name from "Net Profits Ten Inc." to "World Moto, Inc.", which name change became effective on November 15, 2012, upon approval from the Financial Industry Regulatory Authority ("FINRA"). Effective January 18, 2015, we amended our Articles of Incorporation to increase our authorized shares of common stock from 500,000,000 to 1,000,000,000. On April 9, 2015 we further amended our Articles of Incorporation to increase our authorized shares of common stock from 1,000,000,000 to 2,000,000,000 shares. On October 13, 2015, we filed a Certificate of Designation which set forth the rights, preferences and privileges for a new class of preferred stock of the Company, to be known as Series A Convertible Preferred Stock. We are authorized to issue up to 5,000,000 shares of Series A Convertible Preferred Stock. Holders of Series A Convertible Preferred Stock shall be entitled to the number of votes equal to 51% of the total number of votes entitled to be cast on any matters requiring a stockholder vote. The shares of Series A Convertible Preferred Stock are convertible at a one to one ratio into shares of common stock. On October 13, 2015, we issued 4,000,000 shares of Series A Convertible Preferred Stock to Paul Giles, our Chief Executive Officer, and 1,000,000 shares of Series A Convertible Preferred Stock to Chris Ziomkowski, our Chief Technical Officer, as compensation for services rendered to the Company. On November 16, 2015, we further amended our Articles of Incorporation to increase our authorized shares of common stock from 2,000,000,000 to 4,000,000,000 shares.
We were a shell company until the completion of the acquisition of the World Moto Assets described below, which was consummated on November 14, 2012.
On January 30, 2013, we established two wholly owned subsidiaries, World Moto Technologies, Inc. and World Moto Holdings, Inc. both of which were incorporated in the State of Nevada. These two subsidiaries were established, but have no operating activity to report to date. On February 4, 2013, World Moto Technologies Ltd. was organized under the laws of the Kingdom of Thailand. Its name was later changed to World Moto Co., Ltd. ("WM Co. Thailand"). WM Co. Thailand is owned in its entirety by World Moto, Inc., World Moto Technologies, Inc. and World Moto Holdings, Inc. and represents our operating entity for the purposes of research and development in the Southeast Asia region.
Organizational Chart
Acquisition of World Moto Assets
On September 1, 2012, we entered in an Asset Purchase Agreement ("Agreement") with World Moto (Thailand) Co., Ltd., a corporation established under the laws of the Kingdom of Thailand ("Old WM"), Chris Ziomkowski, the Chief Technical Officer of Old WM, and Paul Giles, the Chief Executive Officer of Old WM. The Agreement was consummated on November 14, 2012. Pursuant to the Agreement, we purchased from Old WM substantially all of the intellectual property and certain other specific intellectual property assets related to Old WM's initial product, the Moto-Meter (the "Assets"), which included three United States patent applications, the data related to the patent applications, certain software related to the operation of the Moto-Meter, and several URLs, trade-names and associated names related to the Moto-Meter and Old WM. As part of the transaction, Paul Giles and Chris Ziomkowski became the management of the Company immediately after the acquisition. The Assets did not include any plant and equipment, customer lists, suppliers or any other business and operational assets of Old WM, and we did not hire any employees of Old WM other than Paul Giles and Chris Ziomkowski. Old WM continues as a corporation, operating in Thailand. Moto-Meters are devices that provide metering of rides on motor scooters, motorcycles and similar types of transportation vehicles, and were initially developed by Old WM.
The consideration paid for the Assets was an aggregate of 224,597,666 shares of common stock, then representing 60% of the outstanding shares of our common stock immediately after closing, and the assumption specified outstanding debt in the amount of approximately $75,000, which was converted into 576,923 shares of common stock at the closing, at a conversion rate of $0.13.
At the same time as the acquisition of the Assets, Mr. Marlon Liam, our former sole director and officer, agreed to extinguish $52,183 in obligations owed to him by the Company for the issuance of 401,415 shares of common stock, at a conversion rate of $0.13.
The acquisition of the Assets was accounted for as a purchase of assets in accordance with Rule 11-01(d) of Regulation S-X and ASC 805-10-55-4. The Assets had a contract stated value of $100,000 based on several factors related to the shares issued as consideration, including the limited trading of the common stock, the restricted characterization of the securities with not less than a one year holding period before Rule 144 would apply, the absence of registration rights, and the determination of the value of the Assets by Old WM. No goodwill was recognized in the acquisition. No formal, independent valuation was obtained in connection with the purchase of the Assets. In accordance with Generally Accepted Accounting Principles, we valued the Assets at $0.
Business
We design, manufacture, market and sell Moto-Meter products and services, including the Moto-Meter and its related smartphone application, the Yes service and HailYes™ app, and Wheelies. We seek to address the need for fare metering and mobile commerce for motor scooters and motorcycle taxis. The use of these taxis is increasingly common in the developing world. Our planned products, however, will have increased functionalities over a standard fare meter commonly used in an enclosed taxicab.
We have begun to manufacture and market our principal product, the Moto-Meter, which provides moto-taxi fare metering and other communication capabilities. The Moto-Meter entered the production phase during the second quarter of 2015, and we began filling orders in October 2015. The Moto-Meter has the basic functions of a taximeter in an enclosed taxicab, but with additional characteristics that, over time, will permit mobile commerce, GPS tracking, advertising and other capabilities. In connection with our development of the Moto-Meter, we launched a smartphone application (the "App"), which connects directly to the Moto-Meter via a secure Bluetooth connection and can access real-time data from the Moto-Meter, giving customers the ability to view driver profiles and ratings before getting on a motorcycle taxi. As an element of mobile commerce, we have also introduced "Yes," a concierge service where persons can order products and have the products delivered to their address by motor scooter. The Yes service launched on March 9, 2015 in Bangkok, Thailand. We have also developed HailYes™, which is an integrated mobile platform that instantly connects consumers to transport and commerce services in a local community. On October 13, 2015, we announced the establishment of our HailYes™ licensee program, and subsequently entered license agreements with three licensees covering the areas of the greater Amsterdam metropolitan area in the Netherlands, Jambi City and Batam, Indonesia, and Kampala, Uganda. On November 16, 2015, we announced our launch of the iOS version of the HailYes™ app in Apple's App Store, beginning our process of actively marketing to consumers. In connection with the development and marketing of the HailYes™ app, we have suspended our planned expansion of our existing Yes delivery service into Malaysia and Cambodia at this time in order to avoid conflicting and overlapping marketing efforts. In addition to developing and marketing the Moto-Meter, the Yes service, and the HailYes™ app, we continue to focus on the development of our advertising product, Wheelies, which display static and streaming media on the wheels of motorcycles and automobiles. We have successfully completed a pre-production version of Wheelies, and have successfully completed testing. We currently use Wheelies in-house for advertising our other products, but we intend to build out sales to advertising agencies and large brands.
In many parts of the world, the taxicab, as it is known in developed economies, is being superseded by motor scooters and motorcycle taxis. The growth in the use of motor scooters and motorcycle taxis is particularly prevalent in the heavily populated, faster growing Asian, African, and South American cities. While meters are ubiquitous in taxicabs, we believe there are no similar devices for motor scooters and motorcycle taxis. Thus, moto-taxi fares are un-standardized and must be calculated by hand or agreed upon or "haggled" before, during or after a trip, often leading to failed negotiations and clashes between drivers and passengers. In response to this problem, the Moto-Meter was developed. We believe this device will do for moto-taxis what the taximeter did for taxicabs more than 100 years ago. We currently have plans for two Moto-Meter models, one with an LED screen and the other an LCD monitor.
We have entered the moto-meter market in Thailand, and we plan to expand to Indonesia and Vietnam, and then branch out to additional countries that have a high use of moto-taxis, including Brazil, countries throughout Africa, and other developing economies throughout the world. Moto-taxis are most common in economically developing and emerging growth countries. There also is increasing use of the moto-taxi in the developed world, such as in Paris and London, because of their convenience and speed. We plan on developing a distribution network of the Moto-Meter products through franchised dealers, resellers and brick and mortar storefronts in our selected markets. We have decided to utilize these types of vendors because aspects of the Moto-Meter include add-on products, and these vendors will be able to help with installation and provide explanations for use of such products.
In late 2012, we collaborated with the Bangkok Governor's Office to carry out trials of the Moto-Meter product, which were conducted to test both the hardware and software of the meter and to determine how quickly it could be deployed throughout the city. We have not entered into any formal agreement with the Bangkok Governor's Office. The trials were carried out along a prominent thoroughfare in the heart of the city and received praise from both drivers and passengers. Based on the trials, we believe that there will be strong demand once the Moto-Meter enters full production. According to the Thai Ministry of Transportation, it is estimated that there are over 200,000 motorcycle taxis in Bangkok and an estimated 700,000 motorcycle taxis across the country. Once the Moto-Meter is in widespread use, we plan to use Bangkok as a flagship city as sales and marketing efforts are ramped up to enter other cities and areas across Thailand, as well as other major markets around the world.
We have entered into discussions with the office of the mayor of Montes Clare, Brazil, to mandate the use of Moto-Meters on all moto-taxis within the city of Montes Claros. Montes Claros is considered the "motorcycle taxi capital" of northern Brazil and an ideal city to launch the Moto-Meter in Brazil. We believe that a regulatory mandate here will act as a springboard into the potentially larger markets of Brazil's other highly populated cities. Although no agreement has yet been entered into with respect to the use of the Moto-Meter in Montes Claros, we intend to follow up with the office of the mayor of Montes Clares regarding the launch of the Moto-Meter in Brazil after we have established a full production timeline for the device. We have signed letters of intent for the distribution of our flagship product, the Moto-Meter with qualified distributors in 7 countries. The distributors were selected for their ability to both sell and support our products as well as to protect our brand image in strategic markets. We are continuing discussions with several other distributors out of the hundreds of retail agents and operators that have contacted us to express their interest in the Moto-Meter and associated products. The letters of intent authorize the distributors to sell and support our flagship product, the Moto-Meter, as well as establish priority for Wheelies and our future products and services. However, there are no minimum purchase requirements under the letters of intent and no obligations on distributors to purchase any of our products.
In Africa, we established an office in Lagos, Nigeria. We have had previous discussions with HRH Oriteme Banigo (who is currently employed by UBA Plc), who informed us that certain government officials in Nigeria have expressed interest in the Moto-Meter. However, no formal agreements have been entered into with respect to the use of the Moto-Meter in Lagos. We have also established relationships with distributors in Africa who wish to incorporate the Moto-Meter into their proprietary solutions for transport and commerce throughout the continent. Establishing and maintaining a physical presence in Africa is essential for us as we enter the process of formalizing these discussions into a clear plan to introduce the Moto-Meter into Lagos and other cities across Africa. On November 4, 2013, we were awarded a patent on the Moto-Meter technology until 2033 in Nigeria, a country with more than 3 million motorcycle taxis. According to Reuters, there are "as many as one million motorcycle taxis in Lagos," a city of Nigeria, and estimates for the total number of motorcycle taxis in Nigeria exceed 3 million — a number that is equal to the total number of automobile taxis in the entire world.
In April 2016, we were awarded a patent on the Moto-Meter in 16 more countries throughout Africa, giving us coverage over an extensive area representing more than 50% of the continent by population. We intend to continue to expand our development and marketing efforts throughout Africa.
During the second half of 2015, we transitioned from a company of development into a company of production and sales. Over the next twelve months, we intend to make a concerted effort to promote the Moto-Meter™ and HailYes™ app in high value markets throughout the world. We intend to advance our sales strategies by streamlining our operations and directing the majority of our resources to increased marketing and sales.
Products
Moto-Meter
Our principal product currently is the Moto-Meter, which has been introduced and brought into production in Thailand. Our first product is a light emitting diode (LED) model and once a market is established for that product, we will market a liquid crystal display as a premium model. The LED model is a portable/universal meter that is compact and easily swapped among vehicles. It is rugged and designed to work with all vehicle classes. The meter provides starting rate, time, total fare and distance measures. The device will have event data recording, Global Positioning System (GPS) functionality and advertising capacity. The premium product has added features, such as television and video display capability. Mobile commerce will also be an early stage enhancement, which will allow for electronic payment of the fare and also purchasing other products and services.
The initial product, which is known as the Eagle, is waterproof, scratch resistant, made of high density plastic and similar in size to a modern GPS device; its dimensions are approximately 6" X 4" x 1". The Eagle model has a Universal Serial Bus (USB) style connector that plugs into a motorcycle or vehicle providing the meter with speed, distance, and sensor information while powering the unit. The device is capable of almost unlimited tariff options. Firmware upgrades and re-programmability are designed to be quick and simple. The life expectancy of the Eagle model is expected to be three to five years. The Eagle model will be sold with a one year warranty. The Eagle product will be sold as a kit, including the mount, installation kit, and cost of warranty.
The Moto-Meter is also designed to be tamper proof, with multiple independent, fully redundant tracking systems. These include a GPS and a completely self-contained inertial navigation system, in addition to the traditional speed sensors found on conventional taxi meters. Any one of the systems is enough to give an accurate record of the distance and waiting time by itself, but we believe all of them combined allow for an accuracy and reliability unsurpassed by other metering devices on the market today for similar uses.
An enhancement to the standard Moto-Meter includes a persistence of vision advertising capability that works either independently or in conjunction with the Moto-Meter display to provide graphics displayed on a rotating wheel at speeds as low as 11km/h. Three rows of RGB color model (one red, one green and one blue) LED's are controlled via an advanced graphics processor that can sense wheel position and rotation speed during normal operations.
The Moto-Meter also has an event data recorder, commonly known as a "black box." This is a first for motorcycles. The black box is a tiny unit that comes integrated with the Moto-Meter, or it can be sold separately as a safety device. This will allow monitoring location and rides, which can provide safety for riders and fleet tracking. The device automatically stores up to five years of trip data, which data are encrypted for security.
We believe that the Moto-Meter has many advantages as a product. First, the Moto-Meter provides a certainty to the fare which will overcome the problems faced by the customer and driver where the fare is often undefined and has to be negotiated or "haggled." These negotiations often result in misunderstandings and inconsistencies which annoy both the driver and the customer. Second, the Moto-Meter will help authorities regulate fares, which will give communities and regulatory agencies an easy and affordable method of standardizing moto-taxi fares and supporting overall consumer and community satisfaction. Therefore, we believe we will obtain support for our product in the markets we address from regulators as well as customers and drivers.
The primary disadvantage of the Moto-Meter when compared against its primary competition is the need to expend capital both for acquisition of the meter and for annual maintenance. However, we believe this is a minor inconvenience due to the increased efficiency that the Moto-Meter offers. When considering this drawback, it is also important to consider that the investment capital for the Moto-Meter can come from a variety of sources other than the driver or operator of the vehicle, such as governments, advertising agencies, charitable funds, or other organizations who are willing to fund the Moto-Meter in exchange for access to the usage data that our product offers. In fact, governments themselves may find that the tax receipts that could be generated by recording revenues from the Moto-Meter far outweigh the minor costs associated with purchase and maintenance. Also, in the event that no third party is available to subsidize the cost of the Moto-Meter and the entire acquisition cost falls to the owner or operator, we have plans to enlist the services of regional investment banks to help fund the initial capital outlays, as well as software provisions to disable the Moto-Meter if the owner or operator fails to meet the agreed upon repayment terms of the loan.
We plan on developing future products that complement the basic forms of Moto-Meters. These may include advertising, booking, delivery, electronic payment and similar products, devices and services, including the "App", the "Yes™" concierge capability and the "HailYes™" app (see below for more detailed descriptions). The basic Moto-Meter also provides event data recording and GPS positioning, which are valuable safety features.
We are now accepting and filling orders from qualified global distributors and fleet operators for the Moto Meter™. The Moto-Meter has entered the production phase, and we began filling orders in October 2015. The global opening of sales came after several months of rigorous testing on the streets of Bangkok and with select partners. We believe that the ongoing quality assurance process demonstrated that the Moto-Meter™ can withstand the extreme hazards that it will be subjected to in the field. We believe that the testing additionally demonstrated that not only is the ruggedized device capable of withstanding the physical assaults of daily operations, but that the user experience from both passengers and drivers meets the standards that the company has set in order to begin general sales of the product. A preproduction launch to motorcycle taxi-operators in Thailand afforded an opportunity to gauge public opinion about the Moto-Meter™, and we have generally received a positive response from people from all walks of life, including motorcycle taxi drivers, students, celebrities, officials and business people. We are currently actively pursuing our goal of certifying the Moto-Meter™ with two administrative authorities in preparation for advancing negotiations on regulatory mandates. Negotiations for legislation mandating the Moto-Meter™ will be pursued in parallel with the general sales process. We anticipate expanding sales of Moto-Meter™ to Indonesia, Cambodia, Brazil, and countries throughout Africa over the next 12 months.
In conjunction with the opening of sales for the Moto Meter, we launched a smartphone application (the "App"). The App connects directly to the Moto-Meter™ via a secure Bluetooth connection, and can access data from the meter in real-time, giving users the ability to view ratings and a profile of the driver before getting on the bike. During the ride, it provides continuous analysis on the fare and GPS location, augmenting the Moto-Meter's already significant anti-tampering security protocols, as well as transmitting the location to designated individuals or safety monitoring services. The application also has the ability to offer customized products and services to the users during the ride, with the purchase conveniently added to the fare. As credit card use is still limited in the demographic that usually engages motorcycle taxis for their daily mobility, this feature can often prevent a special trip to a convenience store to pay for the needed product.
The App also has the ability to offer per trip insurance to motorcycle taxi passengers for a nominal fee. In much of the developing world, the operators of such taxis are often uninsured or underinsured, and additional third party insurance can either augment the user's own insurance or provide benefits to those whose own policies may restrict coverage. While optional insurance is common in the case of long distance travel such as with airlines, the ability to offer pay per trip micro insurance for local driving is a unique feature not currently offered. We anticipate that this type of novel service, which requires both a regulated and trusted device on the motorcycle plus a trusted device of the purchaser, will be a strong driver of Moto-Meter™ sales.
We completed the verification build stage and pre-production phase with the Moto-Meter during the first half of 2015, and we began filling orders in October 2015. Entry into the production phase marks our transition from development to production. Additional engineering time generally shifts from product modifications to the continued development and refining of tooling and test fixtures necessary to guarantee the high quality required for mass manufacture. The verification build was completed in collaboration with Krystal Microsystems during September 2015, and we have begun discussions to plan the next production build subject to adequate funds.The estimated cost associated with the development and marketing of Moto-Meter during the next 12 months is $47,000. See page 16 of "Risk Factors" for further discussion of the risks related to our capital requirements.
Wheelies
We are also focused on the development of our advertising product, Wheelies. Wheelies display static and streaming media on the wheels of motorcycles and automobiles, providing a new mobile medium for advertising, broadcasting, self-expression and publishing. Our Wheelies product has gone through extensive testing and is now ready to be sold on a limited basis.
We successfully completed a pre-production version of Wheelies, and have successfully completed testing. DMC was tasked with outsourced production of Wheelies after concluding an extensive proof of concept phase that included demonstrations of its capabilities to meet our rigorous standards for manufacture of printed circuit boards, injection molded components, conformal sealing and assembly of WheeliesWe moved into limited production of Wheelies, which involves low volume production runs of tens to hundreds of units in order to refine the production yields, increase the efficiency, and decrease warranty and support costs of the manufacturing process. DMC will provide their experienced research and development team to assist in the design of the automated test and analysis fixtures and programs required to optimize this system. We currently use the Wheelies in-house for advertising of our other products, and we are looking to build out sales to advertising agencies and large brand companies. On October 14, 2015, we announced the crowdfunding launch of Wheelies. The Kickstarter campaign introduced Wheelies to motorbike enthusiasts both in the United States and around the world at discounted pre-order prices for a limited time. While the Kickstarter project ultimately failed to meet the minimum funding goals set by the Company, it generated significant discussions within the motorcycle community and we plan to reintroduce this product once we have completed plans for launching the Moto-Meter.
We believe the Wheelies technology has the potential to turn essentially any wheel in the world into a full color billboard or video screen. All digital content, including ads and videos, can be sequenced and triggered at a specific time, location, or manually under the command of an operator using gesture recognition and a wearable device. This gives Wheelies the ability to serve up highly targeted advertisements to different demographics.
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We believe that by combining certain aspects of social networking and modern LED displays, the Wheelies technology offers the ability for new generations of consumers to connect with members of their local community using methods similar to those used by online services today. Unlike locally targeted internet forums, Wheelies can spread an idea quickly and easily to every corner of a region without restricting the message to select individuals who actively seek information from a specific website.
The Wheelies product can be deployed independently or in conjunction with the Moto-Meter, Yes™ and HailYes™ products and services.
The estimated cost associated with the development and marketing of Wheelies during the next 12 months is $3,000.
Yes™ and HailYes™
We developed the Yes™ service further in 2015, mainly targeting developing countries where motorcycle use is more pervasive. Yes™ is a personal retail and delivery service superimposed on a mobile delivery infrastructure. A user may simply tap an app to obtain refreshments, toothpaste, diapers and other necessities, delivered anywhere in less than 20 minutes. We believe Yes™ will make brick and mortar commerce as convenient as the Internet.
Shopping on the internet has already reached unprecedented levels of convenience. However, increasing competition in the e-commerce space has driven success in this marketplace to the final front - last mile delivery. With advantages on price and assortment having reached the point of diminishing returns, we believe the new online battle is being fought over the efficiency of getting a product to the consumer as quickly as possible and at the lowest possible cost. New one hour delivery services such as eBay now leverage brick and mortar stores to provide rapid delivery. However, they are discovering that this is a different market than they are used to. According to Sucharita Mulpuru at Forrester Research, it is an "H.R. issue, not a tech issue." Successful companies in this arena are likely to be ones that can combine technology with the ability to mobilize huge armies of experienced human "valets" that possess a work ethic to go beyond a script and service the customer in an individual fashion.
Yes™ was conceived with this requirement in mind. We believe that we have the ability to access more than 20 million motorcycle taxi operators around the world, each having already been self-selected for their ability to provide exactly the qualities demanded by this profession. The preexisting nature of this human infrastructure means it can be accessed as necessary with minimal training during expansion into new geographical areas. Local commerce in much of the world is already facilitated by motorcycle taxis, so the drivers already understand the issues. Dr. Claudio Sopranzetti, a transportation expert from Harvard, describes their role as follows: "The drivers operate not only as transportation providers but also as messengers and personal assistants, paying bills and delivering commodities." Traditionally, however, these services have been offered individually, on an ad-hoc, undependable basis. We plan to develop Yes™ as the trusted brand for such services.
The Yes™ service was developed in-house. The Yes™ service went through substantial testing and was launched in Thailand on March 9, 2015.
During 2015, we also developed and launched HailYes™, which is an integrated mobile platform that instantly connects consumers to transport and commerce services in a local community. The HailYes™ app allows consumers to simply tap their smartphone to hail a ride, courier a package, or have refreshments delivered right to their doorstep in a matter of minutes. HailYes™ is freely available for download worldwide, allowing people to get a safe, affordable ride, or products and services delivered to their door by simply pressing a button on their phone.
We initially began marketing HailYes™ to drivers in Bangkok, although we have begun to see downloads and interest in other parts of the world. On October 13, 2015, we announced the establishment of our HailYes™ licensee program, which gives interested parties the opportunity to use and market the HailYes™ e-hailing platform in their locality and receive the benefits of tourists and businessmen who use HailYes™ in their territory. Within one month after launching the licensee program, we entered license agreements with three licensees covering the areas of the greater Amsterdam metropolitan area in the Netherlands, Jambi City and Batam, Indonesia, and Kampala, Uganda. We have begun the process of actively marketing the HailYes™ app to consumers in Thailand and in the service areas of our initial licensees, and we anticipate that the first licensees will begin commercial operations of HailYes™ in the coming months. On November 16, 2015, we announced our launch of the iOS version of the HailYes™ app in Apple's App Store, ramping up our process of actively marketing to consumers. The iOS version of the HailYes™ app is the last major component of the HailYes™ platform, which also includes the existing HailYes™ Android apps and the HailYes™ licensee program.
Over the next 12 months, we plan to continue to promote Yes™ and HailYes™ in high value markets around the world.
The estimated cost associated with the development and marketing of Yes™ and HailYes™ during the next 12 months is $35,000
Potential Revenue Lines and Distribution
Our principal source of revenues is expected to come from the sale of the Moto-Meter, Wheelies units, and related products that can be used in conjunction with the Moto-Meter. We may also derive revenues from advertising partnerships with Wheelies units. Additional revenue may come from advertising displayed on the Moto-Meters. Revenues are also expected to come from our Yes™ and HailYes™ mobile commerce application services. Additional revenues may be generated from the booking services, which would include door to door, delivery, messenger, vehicle collection, errands and emergency road services. We expect to generate additional revenues from all four of our product lines within the next 12 months, including from the following agreements:
Lucky Distributors, Ltd.
On December 19, 2012, we entered into a distribution agreement with Lucky Distributors, Ltd. ("Lucky"), a Thailand-based distribution company. Lucky has a regional network that currently provides parts and servicing for motorcycles and motor scooters. Lucky also is a preferred supplier for the Motorcycle Taxi Association of Thailand. Under the terms of the distribution agreement, Lucky has the non-exclusive rights to distribute, sell and service the Moto-Meter and Moto-Meter accessories throughout the country of Thailand and surrounding border markets. We believe Lucky's reputation and relationship with the moto taxi community will help to promote the Moto-Meter throughout Thailand.
The distribution agreement is for a term of five years and may be terminated (i) by either party upon a substantial breach of the agreement, (ii) by us if Lucky undergoes a change in control, or (iii) by us at any time after three years. The products will be sold at prices stated at FOB our offices in Thailand and will not include transportation costs, which will be borne by Lucky. Lucky will use its best efforts to promote the sale and distribution of the products and we will assist Lucky with any advertising campaigns to be conducted. We also agree to indemnify Lucky from any losses relating to allegations that the products infringe upon any patents, copyrights, or proprietary right. This agreement is not revenue producing as yet, and we expect it to be producing revenues by the fourth quarter of 2017.
Product Licensing Arrangements
Depending on the means of distribution and sale, there may be additional revenue opportunities from franchising and licensing of the Moto-Meter and its different capabilities. Additionally, we anticipate generating revenues from licensing our HailYes™ platform to licensees in various developing countries throughout the world.
Manufacturing and Suppliers
We subcontract manufacturing and believe that there are many manufacturers capable of providing and assembling the parts for the Moto-Meter, at a high quality level and efficient rate of production for prices that will work within the projected pricing of the Moto-Meter units. In the future, to assure adequate production and quality, we plan to manufacture the devices ourselves, either being fully responsible for the production or in conjunction with other contract manufacturers. While we believe there are many manufactures that can meet our requirements, we typically will work with only one or two at a time. Where useful, we plan to use just in time stock strategies for hardware, supplies and service parts to control margins and working capital requirements.
Certain of the components in our devices will be supplied by contract suppliers to our specifications while other components will be provided by generic manufacturers. We believe there are adequate providers in both categories of suppliers.
In January 2014, we contracted with DMC for production of our Wheelies LED display technology. DMC concluded an extensive proof of concept phase that included demonstrations of its capabilities to meet our rigorous standards for manufacture of printed circuit boards, injection molded components, conformal sealing and assembly of the Wheelies device. The successful completion of this phase and the subsequent agreement between the Company and DMC signified the beginning of the production stage of Wheelies.
Our collaboration with DMC allowed us to move immediately into limited production of the Wheelies device, which involves low volume production runs of tens to hundreds of units in order to refine the production yields, increase the efficiency, and decrease warranty and support costs of the manufacturing process. We are looking to build out sales to advertising agencies and large brand companies, and we plan to continue to expand production and sales over the next 12 months.
Regulations
Moto-Meter
We intend to market the Moto-Meter primarily into 4 countries over the next 12 months – Indonesia, Cambodia, Thailand and Brazil. We will rely primarily on our in-country distributors to apply for any licenses and certificates necessary in their specific regions, and we will support them with any results from testing laboratories and foreign compliance certificates.
Of these 4 regions, we believe that only Brazil has a specific metrology requirement which is governed by Brazil's National Institute of Metrology, Inmetro. We have completed the work to adapt the Moto-Meter electronics so that the product can pass all current and anticipated regulatory requirements of Inmetro, and we intend to submit the Moto-Meter for certification to Inmetro within the next 12 months. Although Thailand also has a metrology requirement for licensed metered taxis, motorcycle taxis are not considered licensed metered taxis and therefore no metrology requirement applies with regard to selling the Moto-Meter to motorcycle taxi operators in Thailand. Similarly, neither Indonesia nor Vietnam have a specific metrology requirement for motorcycle taxis. In these unregulated jurisdictions without a specific legal metrology requirement, we will certify the Moto-Meter to operate in accordance with the specifications described in the International Organization of Legal Metrology recommendation R-21. Since most of the world's taxi meter regulations are either heavily based on or directly copied from this standard it should provide a useful declaration for operating in countries that have not yet regulated the industry.
In addition to metrology approvals, the Moto-Meter uses a 2.4GHz wireless interface for communication and therefore may be subject to radio frequency approvals. Use of this technology in Thailand, Indonesia, Vietnam and Brazil, requires a certificate of compliance from that jurisdiction's authority on radio frequency. Our research indicates that in all of these jurisdictions an approval from either a Federal Communications Commission ("FCC") conformance body under the relevant statutes of part 15 or a CE mark will allow the certification of the device without further testing under each country's radio frequency laws simply by making a formal application to the specific authority. We are currently in the process of selecting a Telecommunications Certification Body ("TCB") to begin approval of the Moto-Meter under the relevant FCC Part 15 standards and signing a declaration of conformity to use the CE mark. Failure to obtain approval from a jurisdiction's authority on radio frequency will disallow the use of the Moto-Meter's wireless interface in that jurisdiction until such time as approval can be obtained or a waiver is granted in the specific jurisdiction targeted for sales. We are not currently aware of any requirement that we believe will result in a failure of the Moto-Meter to obtain an FCC Part 15 compliance certificate or sign a declaration of conformity for a CE mark.
Except for the requirements of an intentional transmitter in the 2.4 GHz spectrum, as an automotive product, the Moto-Meter is exempt from radiated emissions requirements under FCC Part 15.103. It is our understanding that Brazil, Thailand, Indonesia and Vietnam also recognize this exemption. Because of this, failure to obtain FCC certification will not result in a delay in sales, but may result in the inability of customers to use the wireless radio features of the device until approval can be obtained.
Wheelies
We intend to market Wheelies over the next 12 months primarily as an advertising platform in Thailand. The technology may require permits and waivers to be used on public streets in Thailand. In the event that Wheelies are used in a fixed, outdoor location, such as on a stage at the entrance to a building, the only governing regulation is the fees that must be paid to acquire an outdoor signage tax permit. Permits are issued on a nondiscriminatory basis by the governing municipal authority and taxes are based purely on the area of the display medium.
In the event Wheelies are used on public roads, they will be regulated by the Thailand Land Traffic Act of 1979 and associated ministerial regulations. Strict interpretation of these existing regulations limit any exterior vehicle lighting to headlamps, brake lights and turn signal indicators unless otherwise approved by the Department of Land Transport. In practice, however, we have observed that these rules are overly restrictive and not currently enforced. Vehicles with hundreds of variations of external lighting displays are common on the streets of Thailand. We do not currently intend on requesting a waiver from the Department of Land Transport before commencing advertising activities and therefore, it may be subject to penalties, such as fines, or even a prohibition on using the Wheelies technology on public streets until a waiver is obtained from the Department of Land Transport. Any of the foregoing results may have a material adverse effect on our Wheelies business in Thailand.
Yes ™ and HailYes™
Yes™ was launched in a 6 square kilometer area of the Wattana District in downtown Bangkok, Thailand on March 9, 2015. We began a campaign to establish Yes™ service points across the entire 1500 square kilometer region of Greater Bangkok, and intend to expand the coverage area to other areas of Bangkok in the coming months. Both e-commerce as well as messenger and delivery services are currently entirely unregulated in this region, and we are not aware of any legal or regulatory standards that would inhibit our ability to execute on our business plans related to this product.
In March 2016, the Thai government publically confirmed that all motorcycle taxi ride hailing services operating in Thailand, such as HailYes
™
, are required to operate using only licensed and registered motorcycle taxi drivers and that they must charge fares that are in line with existing government tariffs. We believe HailYes™ complies with all known regulations in Thailand
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Customers and Industry
We have engaged in direct sales of the Moto-Meter to 9 customers and have signed letters of intent with 7 Moto-Meter resellers around the world. Our initial plan is to engage other resellers who will then on-sell the Moto-Meters to the moto-taxi owners, which may be individuals or fleet owners. As we gain brand and product awareness, we expect to sell directly to the owners of moto-taxis, thus expanding the customer base to the primary user. We intend to establish and control pricing so that there is minimum price competition within our markets.
For advertisers, we believe Wheelies is a high impact medium for showcasing brands and businesses to new customers in locations of mass consumer exposure with the potential ability to target up to 400,000 people a day, per motorcycle. For retail buyers, we believe Wheelies is a personal medium of self-expression, and a fun way to share content, engage, collaborate and create entirely new experiences. We expect that retail buyers will eventually make up the largest portion of Wheelies users. Global sales of OEM motorcycle components and accessories represent a market worth approximately $50 billion annually.
The global advertising industry is worth nearly $500 billion annually, with outdoor display type advertising as one of the fastest growing segments of the advertising industry. We believe that the appeal to advertisers together with the additional revenue streams available to agents, operators and drivers will result in demand for our products.
Marketing
We are using several channels to market our products including social media, direct sales and trade shows. The overall goal of the advertising will be to strengthen brand and product recognition, which will also support product distribution and sales. We will seek to overcome the general low image and poor customer perception of taxi products currently pervasive in the taxi meter industry. We will attempt to stand apart in our corporate image and our product quality and placement.
We plan to use direct sales calls, presentations and appointments with regulatory agencies, associations, distributors, and operators of moto-taxi fleets to generate recognition and acceptance of our products. The use of public demonstrations to target users will also be deployed, which will be in conjunction with the cooperation of local municipal authorities. Once the Moto-Meter is established, we plan to promote our m-commerce services directly to the drivers, who might then start selling these services to their customers or the public.
We also plan to follow a course of marketing that deploys word of mouth, guerilla marketing and viral marketing using various social networks and similar marketing methods. Since the deployment of the Moto-Meter is frequently on an independently owned vehicle, we understand that the acceptance of the benefits of the Moto-Meter by the individual owner-drivers as well as the owners and drivers of fleet owned vehicles and public authorities is important in gaining acceptance and use. As the benefits of more certain fares and the value of the related services become known to the customers of moto-taxis, we believe that they will also drive sales preferring to use vehicles out-fitted with the Moto-Meter for its benefits of safety, certainty of fare, m-commerce and other services.
We plan to pay particular attention to the development of the Company's website and its Facebook page. As its representation on the Internet, these sites will increasingly be the first point of contact for potential customers in need of information. The primary website contains product information, detailed photos, purchase information and use information. In connection with our web presence, we will seek to maximize search engine optimization. This involves organically improving the quality and volume of traffic to a website through user searches on search engines such as Google and Yahoo.
Print media and brochures are also being used in conjunction with sales, including at trade shows. We plan to distribute printed media to operators, potential customers, channel partners, associations and government agencies. The focus of the print media will be to highlight our Company, location, benefits of the Moto-Meter and contact information for further details and ordering.
We plan to use trade shows, demonstration opportunities and similar venues to increase brand awareness and product understanding and recognition. These venues can also foster valuable business partnerships. One such trade show is the Taxicab, Limousine, and Paratransit Association. Generally, these trade shows are held on a regular annual basis and attract the important companies and users within the industry, which will provide a valuable venue for us to showcase the Company and our products.
We also will seek to establish industry partnerships to help market the Moto-Meter. We have signed letters of intent for the distribution of our flagship product, the Moto-Meter with qualified distributors in 7 countries. The distributors were selected for their ability to both sell and support our products as well as to protect our brand image in strategic markets. We are continuing discussions with several other distributors out of the hundreds of retail agents and operators that have contacted us to express their interest in the Moto-Meter and associated products. The letters of intent authorize the distributors to sell and support our flagship product, the Moto-Meter, as well as establish priority for Wheelies and future products and services of World Moto.
Over the next 12 months, we plan to make a concerted effort to promote the Moto-Meter™ and HailYes™ in high value markets around the world. Our active promotion will include a targeted social media campaign to reach end users and prospective customers, while the Company will continue to take advantage of other opportunities to raise awareness about our products and services.
Competition
Since the Moto-Meter can be used for any class of vehicles, we may compete with manufacturers of automobile taximeters. Although a simple automobile taxi-meter can be adapted for use with a motor scooter or motorcycle, the Moto-Meter products have many more functions, and we believe at a higher level of quality and security. We are currently unaware of any other company that has successfully developed a similar-type product to the Moto-Meter.
Notwithstanding the fact that we expect to be first to market in this industry, it is possible that other meter manufacturers may decide to address the moto-taxi market and develop products that will be able to compete with the Moto-Meter products. Such companies may have greater financial and engineering capabilities, which will make it more difficult for us to establish ourselves in various markets or offer substantial competition product offerings and pricing.
The business of manufacturing and selling taximeters, however, is a low-profile business. Overall, we believe that competition within the industry of taximeters and related products is low, with just a few brands monopolizing sales and all of which are oriented towards taxicabs. These brands include Cygnus Automotive (UK) and Centrodyne (US). We believe the taximeter industry is largely stagnant, lacking innovation, and is constrained by legacy products and methods of business. Current manufacturers have existing products that they are improving incrementally, but we believe they are most concerned about maintaining product lines and market share within the taxicab industry, and as a result not targeting the moto-taxi industry.
We also believe that we will be able to compete based on our intellectual property, some of which is subject to current patent applications in the United States. We plan to act to protect our intellectual property rights to safeguard our products and market share, and we plan to continue development of new proprietary products that will aid our competitive position. Our pricing strategy is currently geared to be competitive with products used in the taxicab industry, but as we ramp up our manufacturing and even take over manufacturing, we believe that we will be able to be even more price competitive.
Intellectual Property
We have filed for patent protection for our Moto-Meter technology (titled "Universal Vehicle Management System") in 61 countries throughout Asia, Africa, Europe and the Americas. These countries were carefully selected to cover the vast majority of the world's moto-taxi fleet and population. Nigeria was the first locality to complete its investigations and issue a patent. The patent was granted as filed, with no changes or office actions required on any of its 28 claims, and will remain in force until February 8, 2033. Subsequently, we were also granted a patent for the Moto-Meter in South Africa and Morocco, further expanding our intellectual property protection throughout Africa.
Additionally, Mexico has officially signaled its intention to issue the patent as filed, with no changes required on any of its 28 claims. On January 10, 2014, the Instituto Mexicano de la Propiedad Industrial (IMPI), or the Mexican Patent Office, issued an official communication informing us that our Moto-Meter patent had met all requirements for patentability and successfully overcome the formal examination stage for issuing a patent. The application is now awaiting publishing in the IMPI's Official Gazette, and the formal patent may be issued thereafter.
The Dominican Republic also granted our patent as filed, with no changes or office actions required on any of its 28 claims, which will remain in force until February 8th, 2031.
In March 2016, the African Intellectual Property Organization granted the Company a patent on the Moto-Meter that covers the following 16 additional countries until 2031: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Togo. The patent now covers approximately 40% of Africa.
In April 2016, the State Intellectual Property Office of the People's Republic of China granted out patent on the Moto-Meter. The patent was granted as filed, with no changes, and we have until July 4, 2016 to pay the applicable registration fee and annual fee to secure the registration of the patent.
The Moto-Meter patent now covers countries representing approximately two billion people, and approximately 40% of all motorcycle taxis in the world (equal to approximately 60 times the number of taxicabs in the United States).
The remaining countries are currently in the substantive evaluation period and are expected to complete their investigations within the next 2 to 3 years. Based on our success to date, and the original favorable review from the Patent Cooperation Treaty Examiner, we expect to ultimately be awarded a patent in every targeted jurisdiction.
Patent Applications Completed Substantive Evaluation and Awaiting Publication
Mexico – Patent No. 93533 (MX/2013/071677) - Universal Vehicle Management System
We have received patents in the following countries:
Nigeria- Patent No. 001031 (NG/C/2013/085) - Universal Vehicle Management System (Expires August 6, 2033)
The Dominican Republic (expires February 8th, 2031)
South Africa
Morocco
Benin
Burkina Faso
Cameroon
Central African Republic
Chad
Republic of the Congo
Equatorial Guinea
Gabon
Guinea
Guinea-Bissau
Ivory Coast
In addition to the patent protection that we seek, we also rely on the confidentiality of our operations, proprietary knowhow and trade secrets. We have implemented a program whereby all of our employees have signed non-disclosure agreements with respect to our intellectual property, which state that our employees' work is considered to be proprietary and owned by us. Where necessary, we will take steps to protect our intellectual property interests under the laws of the jurisdictions in which we operate and intend to operate. There can be no assurance that we will be able to enforce our rights if they are improperly taken by our employees or adopted by our competitors outside of sanctioned use and royalty agreements with us.
We have not registered any trademarks at this time and are relying on common law trademark protection. However, as our business develops, we plan to develop specific trademarks for our products and services and seek registration of those marks with government authorities for their protection.
In the fiscal year ended December 31, 2016, we spent $415,541 on research and development activities, in comparison to $415,541 in the fiscal year ended December 31, 2015. It is anticipated that for the 2016 fiscal year, we will devote approximately $45,000 to product development activities.
Employees
We have two executive employees: Paul Giles and Chris Ziomkowski. We currently have no employees at our WM Co. Thailand subsidiary to assist with product development and engineering.
Corporate Information
Our principal executive offices are located at: Sukhumvit13 No.19/125 Sukhumvit Suite,13 Floor, (Saengjan) Sukhumvit Rd, Klongtoey Nue,Wattana 10110 Bangkok. Our main telephone number is: (646) 840-8781 and our website is located at:
http://www.worldmoto.com/
.
You should carefully consider the risks described below together with all of the other information included in our public filings before making an investment decision with regard to our securities. The statements contained in or incorporated into this document that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following events described in these risk factors actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Because we have generated limited revenues which are not sufficient to cover our operating expenses and have incurred losses for the period from March 24, 2008 (inception) to December 31, 2015, there is an uncertainty about whether we will be able to continue as a going concern and, as a result, a possibility that shareholders may lose some or all of their investment in our Company.
We have generated negligible revenues for the fiscal years ended December 31, 2016 and 2015, and had a net loss of $1,339,880for 2016. We have a total accumulated deficit of $7,571,211 since inception. We anticipate generating losses for the foreseeable future. Therefore, we may be unable to continue operations in the future as a going concern. If financing is available, it may involve issuing securities senior to our common stock. In addition, in the event we do not raise additional capital from conventional sources, such as our existing investors or commercial banks, there is every likelihood that our growth will be restricted and we may be forced to scale back or curtail implementing our business plan. No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities, which adjustment may have to be made, should we be unable to continue as a going concern. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in the Company.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
In their report
dated August 11, 2017, our independent
auditors stated that our financial statements for the fiscal year ended December 31, 2016 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
Our operating results are difficult to predict, and we may experience significant fluctuations in our operating results.
Our operating results may fluctuate significantly. As a result, you may not be able to rely on period to period comparisons of our operating results as an indication of our future performance. Factors causing these fluctuations include, among others:
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our ability to maintain and increase sales to existing customers, attract new customers and satisfy our customers' demands;
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our ability to monetize our products;
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the price we charge for our products or changes in our pricing strategies or the pricing strategies of our competitors;
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timing and costs of marketing and promotional programs organized by us, including the extent to which we offer promotional discounts to our customers;
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technical difficulties in manufacturing or maintaining our products;
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the introduction by our competitors of new products and services;
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the effects of strategic alliances, potential acquisitions and other business combinations, and our ability to successfully and timely integrate them into our business;
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changes in government regulations with respect to the fare metering and m-commerce industry for motor scooters and motorcycle taxis and ; and
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economic and geopolitical conditions in Thailand and elsewhere.
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In addition, a significant percentage of our operating expenses are fixed in the short term. As a result, a delay in generating or recognizing revenue for any reason could result in substantial operating losses.
We will need a sizable amount of capital to implement our business plan and if we fail to raise additional capital, our ability to implement our business model and strategy could be compromised.
Our capital requirements are not insignificant. In order to implement our plan of operations for the next twelve (12) months, we estimate that our working capital needs will be substantial. Given our cash position of $3,454 as of December 31, 2016, management believes that our cash on hand and working capital are not sufficient to meet our current anticipated cash requirements through December 31, 2017. In order to execute on our business strategy, we will require at least $280,000 in additional working capital over the next 12 months, commensurate with the operational needs of our planned sales and marketing, public relations, development and distribution efforts.
We are not currently generating sufficient cash flow to fund our operations. There can be no assurance that we will be able to generate sufficient cash flows in the future which will be sufficient to fund our operations. We plan to seek additional equity capital in the very near future to fund our operations. There is no assurance that we will be able to obtain this financing, in the amounts required or on terms acceptable to us. If additional financing is obtained, we will most likely be selling additional equity securities with the consequence of dilution to our current shareholders. If financing is not obtained, then we may have to curtail or reduce our activities. Aside from the sale of debentures (discussed in further detail below), we have no current arrangements with respect to additional financing. There can be no assurance that any sources of additional financing will be available to us on acceptable terms, or at all.
Until we have developed and launched our products at commercial levels, there is uncertainty of market acceptance and the efficacy of the commercialization strategy.
While we have launched our products in the pre-production stage, we have not begun full production and sales at a commercial level, except for Moto-Meter (which recently completed the pre-production phase and entered the production phase), Wheelies (which has begun limited production), and HailYes (which currently has three licensees). Until we have consistent, proven sales, there is uncertainty regarding product acceptance in the intended markets and our ability to commercialize our products. As with any transformational product, there will be a time before customers embrace the produce and recognize its full value. If there are no, or only low levels of, product acceptance and sales, we may have to alter our business plan. As is typical of any new business concept, demand and market acceptance for newly introduced products and services is subject to great uncertainty. Achieving market acceptance will require us to undertake substantial marketing efforts and to make significant expenditures to create awareness of and demand for our products. We have limited marketing experience and limited financial, personnel and other resources to undertake extensive marketing activities. Our efforts will be subject to all of the risks associated with the commercialization of new products, including unanticipated delays, expenses, technical problems or difficulties and technological obsolescence due to changing technology and the evolution of industry standards. There can be no assurance that markets for our products will not be limited, or that our strategies will result in successful product commercialization or in initial or continued market acceptance for our products.
If we are unsuccessful in obtaining regulatory mandates or cooperation from local governments for the use of the Moto-Meter, that could have a material effect on our ability and timing of penetrating such local markets.
Although we are currently collaborating with the Bangkok (Thailand) Governor's office and we are in discussions with the office of the mayor of Montes Claros, Brazil and plan to enter into discussions with other local governments regarding a regulatory mandate for the use of the Moto-Meter within such areas, we have not entered into any formal agreements with such local governments, and we may ultimately be unsuccessful in obtaining the cooperation of such local governments in requiring the use of the Moto-Meter. If our efforts toward obtaining a regulatory mandate are unsuccessful, we will have to market the Moto-Meter in an unregulated environment and it may be more difficult to achieve expeditious market penetration which may result in higher marketing and distribution costs to us and delays in realizing material sales.
Our products may be subject to price sensitivity in certain markets, which may negatively impact our revenues and operating results.
Our products, such as the Moto-Meter and Wheelies, will be offered in developing market economies. As a result, the Moto-Meter may be considered expensive for the small operators of moto-taxis, many of which are individually owned. Therefore, we may have issues in being able to establish a market for the products and penetrating the market as we try to expand it. To achieve market penetration, we may have to produce a lower cost models or reduce the price of our product offerings, the latter of which would curtail our anticipated margins and may have an adverse effect on our ability to operate and expand our business.
We are uncertain of our ability to effectively implement and manage our growth strategy and any failure to effectively implement our business plan could adversely affect our business and financial results.
As part of our business plan, we are rolling out our Moto-Meter product first in Thailand, and then in other countries with developing economies, such as Indonesia, Vietnam, and Brazil. We also plan to expand our product offerings, including the sales of our Wheelies product. The success of our growth strategy will depend on brand management, competitive conditions, our ability to manage increased sales and distribution, and local law and cultural requirements. There is no assurance that we will be able to satisfy all the requirements of a successful product development and launch and then expansion into the markets for our products and there is no assurance that we will be able to sell our products in one of or all of Thailand, Indonesia, Vietnam, Brazil, or other countries. There can be no assurance that we will be able to find the qualified personnel to implement the business plan. There is also no assurance that our growth strategy will be successful or that our sales or net income will increase as a result of our strategy.
Our management and internal systems might be inadequate to handle our potential growth which may strain our financial resources.
Successful implementation of our business strategy will require us to develop our operations and effectively manage growth. Growth will place a significant strain on our management, financial, product design, marketing, distribution and other resources, which would cause us to face operational difficulties. To manage future growth, our management must build operational and financial systems and expand, train, retain and manage our employee base. Our management may not be able to manage our growth effectively in which case, our expansion would be halted or delayed and we may lose our opportunity to gain significant market share or the timing advantage with which we would otherwise gain significant market share. Any inability to manage growth effectively may harm our ability to implement and execute our current or any subsequent business plans.
Technical factors may limit product development resulting in decreased revenue and if we do not respond effectively and on a timely basis to rapid technological change, our business could suffer.
Although our research and development efforts relating to the technological aspects of the existing version of the Moto-Meter are completed, we are continually seeking to refine and improve capabilities and the components of the Moto-Meter and to develop additional related products and functionalities, such as the Wheelies product. Our success will depend upon products meeting targeted costs and performance standards and also will depend upon their timely introduction into the marketplace. There can be no assurance that development of additional versions and functions of our products will be successfully completed, that they will satisfactorily perform all of the functions for which they have been designed, that they will meet current price or performance objectives or that unanticipated technical or other problems will not occur which would result in increased costs or material delays in development or commercialization.
We will initially depend on third party suppliers and manufacturers and any failure to adequately establish agreements with suppliers and manufacturers will impede our growth.
Initially we will use outside providers to add in the development and implementation of aspects of our business plan, such as for research and development, design requirements and marketing. Additionally, we plan to purchase product components from various third-party suppliers and use third party manufacturers of our products. We believe that there are several readily available sources for research, design and marketing tasks and for parts and for manufacturing. While we will attempt to maintain alternative sources for our service providers, supplies and manufacturing, we are subject to the risk of price fluctuations, product availability, delivery delay and quality consistency. Failure by service providers, suppliers and manufacturers to supply us with the services or units on commercially reasonable terms, or at all, would have a material adverse effect on our Company in establishing brand recognition and market share, obtaining sales and generating revenues. Failure or delay in receiving necessary services and supplies or products by the Company would adversely affect our operations, and its ability in turn to deliver our products on a timely, consistent basis. The use of third party providers may also make our products more expensive or reduce our margins, therefore affecting our financial condition and results of operations.
Inability to protect our proprietary rights could damage our competitive position.
We have filed several United States and foreign patent applications covering certain aspects of the Moto-Meter and our Wheelies product. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford us, that any patent applications will result in issued patents, that our patents or future trademarks, if any, will be upheld if challenged or that competitors will not develop similar or superior methods or products outside the protection of any patent issued to us.
Although we believe that our current products, patent applications and trademarks do not and will not infringe patents, trademarks or violate proprietary rights of others, it is possible that our existing intellectual property may not be valid or that infringement of existing or future patents, trademarks or proprietary rights may occur. In the event our products infringe patents or proprietary rights of others, we may be required to modify the design of our products, change the name of our products or obtain a license. There can be no assurance that we will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon our Company. In addition, there can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. Moreover, if our products infringe patents, trademarks or proprietary rights of others, we could, under certain circumstances, become liable for damages, which also could have a material adverse effect on our Company.
We also rely on proprietary know-how and employ various methods to protect the source codes, concepts, ideas and documentation of our proprietary technology. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how or software codes, concepts, ideas and documentation. Although we have and expect to have confidentiality agreements with our employees and appropriate vendors, there can be no assurance that such arrangements will adequately protect our trade secrets.
Our products may be subject to government regulation which may increase our costs or limit our products.
Certain functions of the Moto-Meter system utilize radio frequency technology, which may be subject to regulation in the jurisdictions where we plan on marketing and selling the Moto-Meter. Failure to obtain approval will disallow the use of the Moto-Meter's wireless interface in that jurisdiction until such time as approval can be obtained or a waiver is granted from the relevant authority in the specific jurisdiction targeted for sales.
The Moto-Meter may also be subject to metrology regulation in the category of weights and measures assurance in certain jurisdictions, such as Brazil. To date, we have not begun the process towards metrology approvals in any jurisdiction. However, we intend to begin this process in select countries such as Brazil within the next 12 months subject to adequate funding. Failure to obtain approval in any specific region where metrology requirements exist would mean the Moto-Meter could not be sold in this market until it had been modified to meet the requirements.
There can be no assurance that, in the future, we will be able to obtain required licenses or that the relevant government authorities will not require us to comply with more stringent licensing requirements. Failure or delay in obtaining required licenses would have a material adverse effect on us. Amendments to existing statutes and regulations, adoption of new statutes and regulations and our product offerings in jurisdictions in addition to the United States, could require us to alter methods of operations at costs that could be substantial, which could have an adverse effect on us. There can be no assurance that we will be able, for financial or other reasons, to comply with applicable laws, regulations and licensing requirements.
In the event Wheelies are used on public roads, they will be regulated by the Thailand Land Traffic Act of 1979 and associated ministerial regulations. Strict interpretation of these existing regulations limits any exterior vehicle lighting to headlamps, brake lights and turn signal indicators unless otherwise approved by the Department of Land Transport. If we do not request a waiver from the Department of Land Transport before commencing advertising activities, we may be subject to penalties, such as fines, or even a prohibition on using the Wheelies technology on public streets until a waiver is obtained. Any such penalties or prohibition could have a material adverse impact on our Wheelies business in Thailand.
Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.
Our success is largely dependent on the personal efforts of our executive officers, Paul Giles and Chris Ziomkowski. Paul Giles and Chris Ziomkowski have written employment agreements with us. The loss of the services of these persons would have a material adverse effect on our business and prospects. Our success is also dependent upon our ability to hire and retain highly skilled financial, technical, marketing and other personnel to implement the various aspects of the business plan. There can be no assurance that we will be able to hire or retain such necessary personnel.
We do not have any key man insurance on either of Paul Giles or Chris Ziomkowski, and have no current intention to obtain such form of insurance.
Corporate insiders or their affiliates may be able to exercise significant control over matters requiring a vote of our shareholders and their interests may differ from the interests of our other shareholders.
Because Paul Giles and Chris Ziomkowski collectively own approximately 100% of the issued and outstanding shares of Series A preferred stock of our Company, they will be able to influence, if not control, the Company, elect all of our directors, increase the authorized capital, dissolve, merge, sell the assets of our Company and generally direct our affairs.
Risks Related to Doing Business Internationally
We are subject to market risk through our sales to international markets.
A portion of our sales are or will be derived from international markets. These operations are subject to risks that are inherent in operating in foreign countries, including the following:
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foreign countries could change regulations or impose currency restrictions and other restraints;
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changes in foreign currency exchange rates and hyperinflation or deflation in the foreign countries in which we operate;
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exchange controls;
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some countries impose burdensome tariffs and quotas;
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political changes and economic crises may lead to changes in the business environment in which we operate;
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international conflict, including terrorist acts, could significantly impact our financial condition and results of operations; and
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economic downturns, political instability and war or civil disturbances may disrupt distribution logistics or limit sales in individual markets.
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No assurance can be given that we will be able to continue selling our products in any of the foreign countries in which we currently or plan to do business. Any of the above-mentioned factors could detrimentally affect our sales, and impact our financial condition and results of operations.
Our international operations subject us to risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions specific to the countries or regions in which we operate, which could adversely affect our financial performance.
We currently conduct operations in Thailand, and plan on expanding our operations to additional international markets. Our future operating results in international markets could be negatively affected by a variety of factors, most of which are beyond our control. These factors include political conditions, including political instability, economic conditions, legal and regulatory constraints, trade policies, currency regulations, and other matters in any of the countries or regions in which we operate, now or in the future.
Moreover, the economies of some of the countries in which we currently have, or plan to have operations, have in the past suffered from high rates of inflation and currency devaluations, which, if they occurred again, could adversely affect our financial performance. Other factors which may impact our operations include foreign trade, monetary and fiscal policies both of the United States and of other countries, laws, regulations and other activities of foreign governments, agencies and similar organizations, and risks associated with having numerous officers located in countries which have historically been less stable than the United States. Additional risks inherent in our international operations generally include, among others, the costs and difficulties of managing international operations, adverse tax consequences and greater difficulty in enforcing intellectual property rights in countries other than the United States.
Political unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.
Political, social, business and economic conditions in Thailand may have a significant effect on our business. In March 2013, Thailand was assessed as a medium-high political risk by AON Political Risk, a risk management, insurance and consulting firm. Any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.
In September 2006, Thailand experienced a military coup that overturned the existing government, and in 2008, political unrest and demonstrations in Bangkok sparked a series of violent incidents that resulted in several deaths and numerous injuries. In April 2009, anti-government demonstrations in Bangkok caused severe traffic congestion and numerous injuries, and in March 2010, protestors again held demonstrations calling for new elections. These demonstrations in recent years in Bangkok and other parts of Thailand, which escalated in violence through May 2010, resulted in the country's worst political violence in nearly two decades with numerous deaths and injuries, as well as destruction of property. Certain hotels and businesses in Bangkok were closed for weeks as the protestors occupied Bangkok's commercial center, and governments around the world issued travel advisories urging their citizens to avoid non-essential travel to Bangkok.
Any succession crisis in the Kingdom of Thailand could cause new or increased instability and unrest. In the event that a violent coup were to occur or the current political unrest were to worsen, such activity could prevent shipments from entering or leaving the country and disrupt our ability to manufacture products in Thailand, and we could be forced to transfer our manufacturing activities to more stable, and potentially more costly, regions. Further, the Thai government recently raised the minimum wage standards for labor and could repeal certain promotional certificates that we have received or tax holidays for certain export and value added taxes that we enjoy, either preventing us from engaging in our current or anticipated activities or subjecting us to higher tax rates. Future political instability such as coups or demonstrations could harm our business, financial condition and operating results.
The fluctuation of foreign currency exchange rates could materially impact our financial results.
Since we plan to conduct a significant portion our operations in Thailand, our business is subject to foreign currency risks, including currency exchange rates fluctuations and difficulties in converting Thai baht into U.S. dollars. The exchange rates between the Thai baht and the U.S. dollar, Euro and other foreign currencies is affected by, among other things, changes in Thailand's political and economic conditions. In addition, appreciation or depreciation in the value of the Thai baht relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business, financial condition and results of operations.
Because our assets are located outside of the United States and some of our directors and officers reside outside of the United States, it may be difficult for investors to enforce their rights based on United States federal securities laws or any United States court judgments against us and our officers and directors.
Our operations and most of our assets, including cash and cash equivalents, are currently located in the Thailand. In addition, some of our current directors and officers reside outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States federal securities laws against us in the courts of either the United States or Thailand, and even if civil judgments are obtained in United States courts, to enforce such judgments in Thailand courts. Further, it is unclear if extradition treaties now in effect between the United States and Thailand would permit effective enforcement against us or our officers and directors of criminal penalties, under the United States federal securities laws or other United States laws.
Most of our cash and cash equivalents are currently held in Thai banks, which do not provide the same protections as U.S. banks.
Most of our cash and cash equivalents are currently held in Thai banks, which do not provide the same protections as U.S. banks. For instance, Thailand's Deposit Protection Agency Act, which was established to take effect on August 11, 2008, provides that depositors in Thai commercial banks will only be insured for
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1,000,000 THB (or $28,596 USD based on an exchange rate of 34.97 as of November 1, 2016) in each financial institution. If the recent political, social, business and economic conditions in Thailand were to result in the failure of the financial institutions that hold our cash and cash equivalents, we may lose a significant portion of our cash and cash equivalents to the extent such amounts exceed the protection provided by the Deposit Protection Agency Act. If such events were to occur, they could have a materially adverse effect on our business, financial condition and operating results.
Risks Relating to our Common Stock and our Status as a Public Company
The relative lack of public company experience of our management team may put us at a competitive disadvantage.
Our management team lacks public company experience and is generally unfamiliar with the requirements of the United States securities laws and U.S. Generally Accepted Accounting Principles, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. The individuals who now constitute our senior management team have never had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately responds to such increased legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our business.
Our Articles of Incorporation have granted the authorization to issue preferred stock in the discretion of the Board of Directors, and such preferred stock may have certain rights and privileges superior to those held by holders of our common stock.
Our Articles of Incorporation authorize the issuance of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the 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 our 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, which could have the effect of discouraging bids for the Company and, thereby, prevent stockholders from receiving the maximum value for their shares.
On October 13, 2015, we filed a Certificate of Designation which set forth the rights, preferences and privileges for a new class of preferred stock of the Company, to be known as Series A Convertible Preferred Stock. We are authorized to issue up to 5,000,000 shares of Series A Convertible Preferred Stock. Holders of Series A Convertible Preferred Stock shall be entitled to the number of votes equal to 51% of the total number of votes entitled to be cast on any matters requiring a stockholder vote. The shares of Series A Convertible Preferred Stock are convertible at a one to one ratio into shares of common stock. On October 13, 2015, we issued 4,000,000 shares of Series A Convertible Preferred Stock to Paul Giles, our Chief Executive Officer, and 1,000,000 shares of Series A Convertible Preferred Stock to Chris Ziomkowski, our Chief Technical Officer, as compensation for services rendered to the Company.
Our board of directors does not intend to declare or pay any dividends to our stockholders in the foreseeable future.
We have paid no cash dividends on the Company's common stock to date. Payment of dividends on the common stock is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements and financial condition, and other relevant factors. We do not currently intend to declare any dividends on our Common Stock in the foreseeable future.
A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
Our common stock is currently traded under the symbol "FARE," but currently with low volume, based on quotations on the OTCQB marketplace, operated by OTC Markets Group, Inc., meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or occasionally non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our stock until such time as we became more viable. Additionally, many brokerage firms may not be willing to effect transactions in the securities. As a consequence, there may be periods of several days or more when trading activity in our stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to the volatility of our common stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources.
Shareholders should also be aware that, according to SEC Release No. 34-29093, the market for "penny stock," such as our common stock, has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the future volatility of our share price.
We will be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.
As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management's assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Management believes that its internal controls and procedures are currently not effective to detect the inappropriate application of U.S. GAAP rules. Management realize there are deficiencies in the design or operation of our internal control that adversely affect our internal controls which management considers to be material weaknesses including those described below:
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We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
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ii)
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We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management's view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over our financial statements.
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iii)
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We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non- routine transactions, if any, on our internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.
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For the material weakness identified in (i), we plan to remediate this material weakness in the next twelve (12) months by considering the hiring one or two additional accounting personnel with the knowledge to design, implement and review internal controls. For the material weakness identified in (ii), we are in the process of identifying additional independent directors to serve on our board and an Audit Committee with an objective to have this process completed before the end of our fiscal year ending December 31, 2016. We will need to analyze the costs of such additional independent directors in accordance with current market and industry practices. For the material weakness identified in (iii), we plan to remediate this material weakness by working with our external auditor and legal counsel over the next 18 months to perform periodic entity level risk assessment. This may cost us in excess of US $150,000 per year.
Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal yearend. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management's assessment or conclude that our internal control over financial reporting is operating effectively.
Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations which may limit a shareholder's ability to buy and sell our stock.
Our stock is categorized as a "penny stock." The SEC has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $4.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which 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 salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these 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 level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority ("FINRA") has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
State securities laws may limit secondary trading, which may restrict the states in which you can sell our shares of common stock.
You may not be able to resell the shares of common stock held in the Company in a state unless and until the shares of our common stock are qualified for secondary trading under the applicable securities laws of such state, or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in registering or qualifying our common stock for secondary trading, or identifying an available exemption for secondary trading in our common stock in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, our common stock in any particular state, the shares of common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the market for the common stock will be limited which could drive down the market price of our common stock and reduce the liquidity of the shares of our common stock and limit a stockholder's ability to resell shares of our common stock at all or at current market prices, which could increase a stockholder's risk of losing some or all of his investment.
Shares of our common stock that have not been registered under the Securities Act of 1933, as amended, regardless of whether such shares are restricted or unrestricted, are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a "shell company." In addition, any shares of our common stock that are held by affiliates, including any received in a registered offering, will be subject to the resale restrictions of Rule 144(i).
Pursuant to Rule 144 of the Securities Act of 1933, as amended ("Rule 144"), a "shell company" is defined as a company that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets. As such, we were a "shell company" pursuant to Rule 144 prior to the acquisition of the Assets, and as such, sales of our securities pursuant to Rule 144 are not able to be made until a period of at least twelve months has elapsed from the date that our Current Report on Form 8-K was filed with the Commission reflecting the Company's status as a non- "shell company." Therefore, any restricted securities we sell in the future or issue to consultants or employees, in consideration for services rendered or for any other purpose will have no liquidity until and unless such securities are registered with the Commission and/or until a year after the date of the filing of our Current Report on Form 8-K and we have otherwise complied with the other requirements of Rule 144. As a result, it may be harder for us to fund our operations and pay our consultants with our securities instead of cash. Furthermore, it will be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with the Commission, which could cause us to expend additional resources in the future. Our previous status as a "shell company" could prevent us from raising additional funds, engaging consultants, and using our securities to pay for any acquisitions (although none are currently planned), which could cause the value of our securities, if any, to decline in value or become worthless. Lastly, any shares held by affiliates, including shares received in any registered offering, will be subject to the resale restrictions of Rule 144(i).
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to our company and shareholders for damages for breach of fiduciary duty as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
We are obligated to provide anti-dilution protection to certain investors, and such anti-dilution protections may make it more difficult and expensive for us to raise additional capital in the future and may result in further dilution to current shareholders.
We have issued debentures (the "Debentures") to certain investors which provide that the conversion price of such debentures will adjust to the lowest price per share at which additional shares (with certain exceptions) are issued or deemed to be issued (a "full-ratchet" adjustment). Because these anti-dilution provisions will have the effect of lowering the price at which shares of our common stock are issued upon conversion of the Debentures, if we are unable to raise additional capital at an effective price per share that is higher than the exercise price of these Debentures, these provisions may make it more difficult and more expensive to raise capital in the future. The additional shares we would have to issue or potentially issue could cause dilution to our then current shareholders and may have an adverse impact on our stock price. The potential dilutive effect of such a financing could deter potential future investors from investing in our Company. If we are unable to raise capital because of such anti-dilution provisions, it may have a material adverse impact on our business and ability to grow.