ITEM 1 DESCRIPTION OF BUSINESS
History and Background
Smartag
International, Inc., a Nevada corporation (“Smartag,” “Company,” “we,” “us,” or
“our”), was formed as Theca Corporation on March 24, 1999 in Colorado. On November 29, 2004, we merged
with Art4Love, Inc., a Delaware corporation, into Art4Love, Inc. a Nevada corporation. Art4love, Inc. attempted to sell
and lease art to companies and individuals from artists’ collections worldwide. On February 10, 2009, Art4Love
changed its name to Smartag International, Inc. when the Company was taken over and controlled by a Malaysian listed entity named
Smartag Solutions Berhad ( later knowned as SMTRACK Berhad) from 2009 until 30 March, 2016.
In
July 2015, Smartag entered into a Securities Purchase Agreement (the “
Purchase Agreement
”) with Essential
Beverage Corporation (“EBC”), a Nevada corporation, pursuant to which the Company purchased a 51% interest in EBC for
a total consideration of $399,709 and one million shares of the Company’s restricted common stock valued at $23,000. On March
31, 2016, the Company disposed of its interest in EBC to Lock Sen Yow, the Company’s chairman and director, for $50,000.
In
November 2015, Smartag signed an agreement with Bobby Tang Siu Ki and Yang Ye Cai, the co-owners and founders of Shenzhen Shen
Nan Shun Technology Co. Ltd (“SSNST”), a company based in Shenzhen, China which is involved in e-commerce trading on
e-Bay, Amazon and Alipay platforms. Using the expertise of SSNST, Smartag would develop the business of e-Commerce trading, procurement,
collection and distribution through a new joint venture company in Hong Kong called HongKong Vander Trade Limited (“Vander”).
On
January 1, 2016, the Company entered into a revenue sharing agreement with Vander as a collection and processing agent. The Company
charged 5% commission on all sales generated by Vander’s Ecommerce platform. Mr. Ki and Mr. Cai has significant ownership
in Vander.
On
January 29, 2016, Mr. Ki and Mr. Cai purchased 10,000,000 common shares directly from Smartag Solutions Bhd, the former parent
company of Smartag. Therefore, the 5% commission is classified as related party revenue in statement of operations. Management
has concluded that these entities should not be consolidated under ASC 810 Consolidations because the Company is not the primary
beneficiary of Vander and SSNST.
On
March 23, 2017, various related parties relieved the Company of loans totaling $1,227,457 in exchange for the issuance of 61,372,850
shares of the Company’s common stock.
Overview
The
Company plans to focus on new technologies, especially Fintech. The Company plans to add value on existing with established e-Commerce,
e-Wallet and remittance players. The Company plans to directly, wherever possible and feasible, add value with block chain traceability
to increase the overall efficiency and reduce logistics costs.
Our
mission is to rely on our relationships and add value with Fintech working with our track and trace supply chain solutions. Our
difference will be that all items found can be traced to the source of origin using block chain solutions which will safeguard
the interests of the stakeholders within the supply chain route but at the same time protecting the needs of the customers who
needs to know just what is safe, genuine and reliable.
Regulation
Government regulation
impacts key aspects of our business. In particular, we are subject to laws and regulations that affect the ecommerce industry in
many countries where we operate.
We are subject to laws
and regulations affecting our domestic and international operations in a number of areas, including consumer protection, data privacy
requirements, intellectual property ownership and infringement, prohibited items and stolen goods, resale of event tickets, tax,
anti-competition, export requirements, anti-corruption, labor, advertising, digital content, real estate, billing, ecommerce, promotions,
quality of services, telecommunications, mobile communications and media, environmental, and health and safety regulations, as
well as laws and regulations intended to combat money laundering and the financing of terrorist activities.
Compliance with these
laws, regulations, and similar requirements may be onerous and expensive, and variances and inconsistencies from jurisdiction to
jurisdiction may further increase the cost of compliance and doing business. Any such costs, which may rise in the future as a
result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our products
and services less attractive to our customers, delay the introduction of new products or services in one or more regions, or cause
us to change or limit our business practices. We have implemented policies and procedures designed to ensure compliance with applicable
laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations
or our policies and procedures.
It is not always clear
how laws and regulations governing matters relevant to our business, such as property ownership, copyrights, trademarks, and other
intellectual property issues, parallel imports and distribution controls, taxation, libel and defamation, and obscenity apply to
our businesses. Many of these laws were adopted prior to the advent of the Internet, mobile, and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and related technologies. Many of these laws, including
some of those that do reference the Internet are subject to interpretation by the courts on an ongoing basis and the resulting
uncertainty in the scope and application of these laws and regulations increases the risk that we will be subject to private claims
and governmental actions alleging violations of those laws and regulations.
As our activities,
the products and services we offer, and our geographical scope continue to expand, regulatory agencies or courts may claim or hold
that we or our users are subject to additional requirements (including licensure) or prohibited from conducting our business in
their jurisdiction, either generally or with respect to certain actions. Financial and political events have increased the level
of regulatory scrutiny on large companies, and regulatory agencies may view matters or interpret laws and regulations differently
than they have in the past and in a manner adverse to our businesses. Our success and increased visibility have driven some existing
businesses that perceive us to be a threat to their businesses to raise concerns about our business models to policymakers and
regulators. These businesses and their trade association groups employ significant resources in their efforts to shape the legal
and regulatory regimes in countries where we have significant operations. They may employ these resources in an effort to change
the legal and regulatory regimes in ways intended to reduce the effectiveness of our businesses and the ability of users to use
our products and services. These established businesses have raised concerns relating to pricing, parallel imports, professional
seller obligations, selective distribution networks, stolen goods, copyrights, trademarks and other intellectual property rights
and the liability of the provider of an Internet marketplace for the conduct of its users related to those and other issues. Any
changes to the legal or regulatory regimes in a manner that would increase our liability for third-party listings could negatively
impact our business.
Numerous U.S. states
and foreign jurisdictions, including the State of California, have regulations regarding “auctions” and the handling
of property by “secondhand dealers” or “pawnbrokers.” Several states and some foreign jurisdictions have
attempted to impose such regulations upon us or our users, and others may attempt to do so in the future. Attempted enforcement
of these laws against some of our users appears to be increasing and we could be required to change the way we or our users do
business in ways that increase costs or reduce revenues, such as forcing us to prohibit listings of certain items or restrict certain
listing formats in some locations. We could also be subject to fines or other penalties, and any of these outcomes could harm our
business.
Principal Executive Offices
Our principal
executive offices are currently located at 3651 Lindell Road Ste D269, Las Vegas, NV 89103. Our telephone number is +1-(702) 589-2176.
We believe our facilities are inadequate to meet our current and near-term needs for the next twelve months and we intend to lease
premises within the state of California or Nevada within this period.
Insurance
We do not currently
maintain property, business interruption and casualty insurance. We intend to obtain such insurance in accordance with customary
industry practices.
Employees
As of September
30, 2017, we had 2 full-time and 1 part-time consultants. Since inception, we have never had a work stoppage, and our employees
are not represented by labor unions. We consider our relationship with our employees to be positive.
The following important factors,
and the important factors described elsewhere in this report or in our other filings with the SEC, could affect (and in some cases
have affected) our results and could cause our results to be materially different from estimates or expectations. Other risks and
uncertainties may also affect our results or operations adversely. The following and these other risks could materially and adversely
affect our business, operations, results or financial condition.
An investment in the Company is highly
speculative in nature and involves an extremely high degree of risk.
We have a history of net losses and
will not achieve or maintain profitability.
We have a history of incurring losses
from operations. As of September 30, 2017, we had an accumulated deficit of approximately $3,121,469. We anticipate
that our existing cash and cash equivalents will be sufficient to fund our business needs in the near term. Our ability to continue
may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses in connection
with the launching of our business.
We depend
on key personnel to manage our business effectively, and, if we are unable to hire, retain or motivate qualified personnel, our
ability to design, develop, market and sell our systems could be harmed.
The loss of
the services of any of our key personnel may seriously harm our business, financial condition and results of operations. In addition,
the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly operations, finance,
accounting, sales and marketing personnel, may also seriously harm our business, financial condition and results of operations.
Our ability to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful
in the future.
We will
continue to incur the expenses of complying with public company reporting requirements.
We have an
obligation to continue to comply with the applicable reporting requirements of the Exchange Act which includes the filing with
the SEC of periodic reports, proxy statements and other documents relating to our business, financial conditions and other matters,
even though compliance with such reporting requirements is economically burdensome.
Our business is difficult to evaluate
because we have no recent operating history.
As the Company has minimal operating
history, revenue and assets, there is a risk that we will be unable to continue as a going concern. We have no significant assets
or financial resources except for the financial support from our holding company
Our
financial statements indicate conditions exist that raise substantial doubt as to whether we will continue as a going concern.
Our audited
financial statements for the year ended September 30, 2017 indicate conditions exist that raise substantial doubt as to whether
we will continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain financing to fund
the continued development of products and working capital requirements.
Substantial and increasingly intense
competition worldwide in ecommerce may harm our business.
The businesses and markets in which
we operate are intensely competitive. We currently and potentially compete with a wide variety of online and offline companies
providing goods and services to consumers and merchants. The Internet and mobile networks provide new, rapidly evolving and intensely
competitive channels for the sale of all types of goods and services. We compete in two-sided markets, and must attract both buyers
and sellers to use our platforms. Consumers who purchase or sell goods and services through us have more and more alternatives,
and merchants have more channels to reach consumers. We expect competition to continue to intensify. Online and offline businesses
increasingly are competing with each other and our competitors include a number of online and offline retailers with significant
resources, large user communities and well-established brands. Moreover, the barriers to entry into these channels can be low,
and businesses easily can launch online sites or mobile platforms and applications at nominal cost by using commercially available
software or partnering with any of a number of successful ecommerce companies. As we respond to changes in the competitive environment,
we may, from time to time, make pricing, service or marketing decisions or acquisitions that may be controversial with and lead
to dissatisfaction among sellers, which could reduce activity on our platform and harm our profitability.
We face increased competitive pressure
online and offline. In particular, the competitive norm for, and the expected level of service from, ecommerce and mobile commerce
has significantly increased, due to, among other factors, improved user experience, greater ease of buying goods, lower (or no)
shipping costs, faster shipping times and more favorable return policies. Also, certain platform businesses, such as Alibaba, Apple,
Google and Facebook, many of whom are larger than us or have greater capitalization, have a dominant and secure position in other
industries or certain significant markets, and offer other goods and services to consumers and merchants that we do not offer.
If we are unable to change our products, offerings and services in ways that reflect the changing demands of ecommerce and mobile
commerce marketplaces, particularly the higher growth of sales of fixed-price items and higher expected service levels (some of
which depend on services provided by sellers on our platforms), or compete effectively with and adapt to changes in larger platform
businesses, our business will suffer.
Competitors with other revenue sources
may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote
more resources to website, mobile platforms and applications and systems development than we can. Other competitors may offer or
continue to offer faster and/or free shipping, delivery on Sunday, same-day delivery, favorable return policies or other transaction-related
services which improve the user experience on their sites and which could be impractical or inefficient for our sellers to match.
Competitors may be able to innovate faster and more efficiently, and new technologies may increase the competitive pressures by
enabling competitors to offer more efficient or lower-cost services.
Some of our competitors control other
products and services that are important to our success, including credit card interchange, Internet search, and mobile operating
systems. Such competitors could manipulate pricing, availability, terms or operation of service related to their products and services
in a manner that impacts our competitive offerings. For example, Google, which operates a shopping platform service, has from time
to time made changes to its search algorithms that reduced the amount of search traffic directed to us from searches on Google.
If we are unable to use or adapt to operational changes in such services, we may face higher costs for such services, face integration
or technological barriers or lose customers, which could cause our business to suffer.
Consumers who might use our sites to
buy goods have a wide variety of alternatives, including traditional department, warehouse, boutique, discount and general merchandise
stores (as well as the online and mobile operations of these traditional retailers), online retailers and their related mobile
offerings, online and offline classified services and other shopping channels, such as offline and online home shopping networks.
In the United States, these include Amazon.com (which recently opened an experimental brick-and-mortar store in New York City and
continues to expand into new geographies and lines of business), Google, Wal-Mart, Target, Sears, Macy’s, JC Penney, Costco,
Office Depot, Staples, OfficeMax, Sam’s Club, Rakuten, Yahoo! Shopping, MSN, QVC and Home Shopping Network, among others.
In addition, consumers have a large number of online and offline channels focused on one or more of the categories of products
offered on our site.
Consumers also can turn to many companies
that offer a variety of services that provide other channels for buyers to find and buy items from sellers of all sizes, including
social media, online aggregation and classifieds platforms, such as craigslist, Oodle.com and a number of international websites
operated by Schibsted ASA or Naspers Limited. Consumers also can turn to shopping-comparison sites, such as Google Shopping. In
certain markets, our fixed-price listing and traditional auction-style listing formats increasingly are being challenged by other
formats, such as classifieds.
Consumers and merchants who might use
our sites to sell goods also have many alternatives, including general ecommerce sites, such as Amazon and Alibaba, and more specialized
sites, such as Etsy. Our international sites also compete for sellers with general and specialized ecommerce sites. Sellers may
also choose to sell their goods through other channels, such as classifieds platforms. Consumers and merchants also can create
and sell through their own sites, and may choose to purchase online advertising instead of using our services. In some countries,
there are online sites that have larger customer bases and greater brand recognition, as well as competitors that may have a better
understanding of local culture and commerce. We increasingly may compete with local competitors in developing countries that have
unique advantages, such as a greater ability to operate under local regulatory authorities.
Global and regional economic conditions
could harm our business.
Our operations and performance depend
significantly on global and regional economic conditions. Adverse economic conditions and events (including volatility or distress
in the equity and/or debt or credit markets) have in the past negatively impacted regional and global financial markets and will
likely continue to do so from time to time in the future. These events and conditions could have a negative and adverse impact
on companies and customers with which we do business or cause us to write down our assets or investments. In addition, financial
turmoil affecting the banking system or financial markets could cause additional consolidation of the financial services industry,
or significant financial service institution failures, new or incremental tightening in the credit markets, low liquidity, and
extreme volatility in fixed income, credit, currency, and equity markets. Adverse impacts to the companies and customers with which
we do business, the banking system, or financial markets could have a material adverse effect on our business, including a reduction
in the volume and prices of transactions on our commerce platforms.
Any factors that reduce cross-border
trade or make such trade more difficult could harm our business.
Cross-border trade is an important source
of products. Cross-border trade also represents our primary (or in some cases, only) presence in certain important markets, such
as China, and various other countries. In addition, our cross-border trade is also subject to, and may be impacted by, foreign
exchange rate fluctuations.
The interpretation and application of
specific national or regional laws, such as those related to intellectual property rights of authentic products, selective distribution
networks, and sellers in other countries listing items on the Internet, and the potential interpretation and application of laws
of multiple jurisdictions (e.g., the jurisdiction of the buyer, the seller, and/or the location of the item being sold) are often
extremely complicated in the context of cross-border trade. The interpretation and/or application of such laws could impose restrictions
on, or increase the costs of, purchasing, selling, shipping, or returning goods across national borders.
The shipping of goods across national
borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews, including duty-free
thresholds in various key markets, the interaction of national postal systems, and security related governmental processes at international
borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Any factors that
increase the costs of cross-border trade or restrict, delay, or make cross-border trade more difficult or impractical would lower
our revenues and profits and could harm our business.
Laws and regulations could harm our
business.
It is not always clear how laws and
regulations governing matters relevant to our business, such as property ownership, copyrights, trademarks, and other intellectual
property issues, parallel imports and distribution controls, taxation, libel and defamation, and obscenity apply to our businesses.
Many of these laws were adopted prior to the advent of the Internet, mobile, and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related technologies. Many of these laws, including some of those
that do reference the Internet are subject to interpretation by the courts on an ongoing basis and the resulting uncertainty in
the scope and application of these laws and regulations increases the risk that we will be subject to private claims and governmental
actions alleging violations of those laws and regulations.
As our activities, the products and
services we offer, and our geographical scope continue to expand, regulatory agencies or courts may claim or hold that we or our
users are subject to additional requirements (including licensure) or prohibited from conducting our business in their jurisdiction,
either generally or with respect to certain actions. Financial and political events have increased the level of regulatory scrutiny
on large companies, and regulatory agencies may view matters or interpret laws and regulations differently than they have in the
past and in a manner adverse to our businesses. Our success and increased visibility have driven some existing businesses that
perceive us to be a threat to their businesses to raise concerns about our business models to policymakers and regulators. These
businesses and their trade association groups employ significant resources in their efforts to shape the legal and regulatory regimes
in countries where we have significant operations. They may employ these resources in an effort to change the legal and regulatory
regimes in ways intended to reduce the effectiveness of our businesses and the ability of users to use our products and services. These
established businesses have raised concerns relating to pricing, parallel imports, professional seller obligations, selective distribution
networks, stolen goods, copyrights, trademarks and other intellectual property rights and the liability of the provider of an Internet
marketplace for the conduct of its users related to those and other issues. Any changes to the legal or regulatory regimes in a
manner that would increase our liability for third-party listings could negatively impact our business.
The volatility of our stock price
could adversely affect an investment in our common stock
The market
price of our common stock has been, and may continue to be, highly volatile. We believe that a variety of factors could cause the
price of our common stock to fluctuate, perhaps substantially, including:
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announcements and rumors of developments related to our business or the industry in which we compete,
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quarterly fluctuations in our actual or anticipated operating results and order levels,
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general conditions in the worldwide economy,
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acquisition announcements,
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new products or product enhancements by us or our competitors,
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developments in patents or other intellectual property rights and litigation,
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developments in our relationships with our customers and suppliers, and
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any significant acts of terrorism.
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In addition,
in recent years the stock market in general and the markets for shares of “high-tech” companies in particular, have
experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any
such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common
stock may decline.
Our information systems or those of
our outside vendors may be subject to disruption, delays or security incidents that could adversely impact our customers and operations
We rely on
our information systems and those of third parties for things such as processing customer orders, delivery of products, providing
services and support to our customers, billing and tracking our customers, hosting and managing customer data, and otherwise running
our business. Any disruption in our information systems and those of the third parties upon whom we rely could have a significant
impact on our business.
A security
incident in our own systems or the systems of our third party providers may compromise the confidentiality, integrity, or availability
of our own internal data, the availability of our products and websites designed to support our customers, or our customer data.
Unauthorized access to our proprietary business information or customer data may be obtained through break-ins, breach of our secure
network by an unauthorized party, employee theft or misuse, breach of the security of the networks of our third party providers,
or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security
controls by customers. While our products and services provide and support strong password controls, IP restriction and other security
mechanisms, the use of such mechanisms are controlled in many cases by our customers.
We may also
experience delays or interruptions caused by a number of factors, including access to the internet, the failure of our network
or software systems, or significant variability in visitor traffic on our product websites. It is also possible that hardware or
software failures or errors in our systems, or in those of our third party providers, could result in data loss or corruption or
cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. These
failures and interruptions could harm our reputation and cause us to lose customers.
Our global operations expose us to
risks and challenges associated with conducting business internationally, and our results of operations may be adversely affected by
our efforts to comply with U.S. laws which apply to international operations, such as the Foreign Corrupt Practices Act and US
export control laws, as well as the laws of other countries.
We operate
on a global basis with offices or activities in Asia, the Middle East, and North America. We face several risks inherent in conducting
business internationally, including compliance with international and U.S. laws and regulations that apply to our international
operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations,
import and trade restrictions, export control laws, U.S. laws such as export control laws and the FCPA, and similar laws in
other countries which also prohibit corrupt payments to governmental officials or certain payments or remunerations to customers.
Many of our products are subject to U.S. export law restrictions that limit the destinations and types of customers to which our
products may be sold, or require an export license in connection with sales outside the United States. Given the high level of
complexity of these laws, there is a risk that some provisions may be inadvertently breached, for example through fraudulent or
negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise.
Also, we may be held liable for actions taken by our local partners. Violations of these laws and regulations could result
in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such
violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage
our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our
operating results.
In addition,
we operate in many parts of the world that have experienced significant governmental corruption to some degree and, in certain
circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject to competitive
disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making
payments to government officials and others in positions of influence or through other methods that U.S. law and regulations prohibit
us from using. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties.
In addition
to the foregoing, engaging in international business inherently involves a number of other difficulties and risks, including:
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longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems,
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political and economic instability,
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potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers,
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difficulties and costs of staffing and managing foreign operations,
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difficulties protecting or procuring intellectual property rights, and
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fluctuations in foreign currency exchange rates.
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These factors
or any combination of these factors may adversely affect our revenue or our overall financial performance.
Unfavorable general economic
conditions in the United States could negatively impact our financial performance.
Unfavorable general economic
conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and consumer
demand for, our product in the United States. Under difficult economic conditions, consumers may seek to reduce discretionary spending
by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered by other companies.
Consumers may also cease purchasing bottled water and consume tap water. Lower consumer demand for our product in the United States
could reduce our profitability.
Adverse weather conditions
could reduce the demand for our products.
The sales of our products are
influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the
summer months may have a temporary effect on the demand for our product and contribute to lower sales, which could have an adverse
effect on our results of operations for such periods.
Changes in, or failure to
comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce
our net operating revenues.
The advertising, distribution,
labeling, production, safety, sale, and transportation in the United States of our product will be subject to: the Federal Food,
Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer protection laws; competition laws; federal,
state, and local workplace health and safety laws, such as the Occupational Safety and Health Act; various federal, state and local
environmental protection laws; and various other federal, state, and local statutes and regulations. Legal requirements also apply
in many jurisdictions in the United States requiring that deposits or certain ecotaxes or fees be charged for the sale, marketing,
and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other types of
statutes and regulations relating to beverage container deposits, recycling, ecotaxes and/or product stewardship also apply in
various jurisdictions in the United States. We anticipate that additional, similar legal requirements may be proposed or enacted
in the future at the local, state and federal levels in the United States. Changes to such laws and regulations could increase
our costs or reduce our net operating revenues.
In addition, failure to comply
with environmental, health or safety requirements and other applicable laws or regulations could result in the assessment of damages,
the imposition of penalties, suspension of production, changes to equipment or processes, or a cessation of operations at our or
our bottlers’ facilities, as well as damage to our image and reputation, all of which could harm our profitability.
Risks Related to Our Stock
Because our common stock is considered
a "penny stock" any investment in our common stock is considered to be a high-risk investment and is subject to restrictions
on marketability.
Our common stock is currently traded
on the OTC Markets and is considered a "penny stock." The OTC Markets are generally regarded as a less efficient trading
market than the NASDAQ Capital Market.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange
or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those
rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and
the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer
quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account
statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require
that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for
our common stock.
Since our common stock is subject to
the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations
on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock
in the secondary market. There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any
exchange, even if eligible.
We have additional securities available
for issuance, including preferred stock, which if issued could adversely affect the rights of the holders of our common stock.
Our articles of incorporation authorize
the issuance of 500,000,000 shares of common stock and 25,000,000 shares of preferred stock. The common stock and the
preferred stock can be issued by, and the terms of the preferred stock, including dividend rights, voting rights, liquidation preference
and conversion rights can generally be determined by, our board of directors without stockholder approval. Any issuance of preferred
stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends,
liquidation rights or voting powers. Accordingly, our stockholders will be dependent upon the judgment of our management in connection
with the future issuance and sale of shares of our common stock and preferred stock, in the event that buyers can be found therefore.
Any future issuances of common stock or preferred stock would further dilute the percentage ownership of our Company held by the
public stockholders.
We cannot assure you that our common
stock will be listed on NASDAQ or any other securities exchange.
We may seek the listing of our common
stock on NASDAQ or the American Stock Exchange. However, we cannot assure you that following such a transaction, we will be able
to meet the initial listing standards of either of those or any other stock exchange, or that we will be able to maintain a listing
of our common stock on either of those or any other stock exchange. Until our common stock is listed on the NASDAQ or another stock
exchange, we expect that our common stock would be eligible to trade on the OTC Markets where our stockholders may find it more
difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would
be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements
on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors.
Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity.
Authorization of preferred stock.
Our Certificate of Incorporation authorizes
the issuance of up to 25,000,000 shares of preferred stock with designations, rights and preferences determined from time to time
by its Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock
with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of
the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to
issue any shares of its authorized preferred stock, there can be no assurance that the Company will not do so in the future.
We are an emerging growth company
within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions from reporting requirements
that are available to emerging growth companies, our financial statements may not be comparable to companies that comply with public
company effective dates.
We are an emerging growth company
as defined in Section 2(a)(19) of the Securities Act. Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may
take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or
revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new
or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made
applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public
companies that comply with such new or revised accounting standards.