Item 1. Business
Corporate
Background
and
Business
Overview
Capstone Systems Inc. was incorporated in the State of Nevada on April 1, 2015 and established a fiscal year end of May 31. We are a development-stage company formed to sell kitchen sinks and kitchen cabinets in the USA. We do have revenues; we have minimal assets which consist of cash and our office building which we purchased in Slovenia. As of today, we have developed our business plan, and executed Sales Agreements with AQUACUBIC SANITARY WARE CO. LTD, Foshan Mingdeng Kitchen Cabinet Co., Ltd, Foshan Opaly Composite Materials Co., Ltd, FOSHAN SANI SANITARY WARE CO., LTD, Hangzhou Relux House Furnishing Co., Ltd, OPPEIN Home Group Inc, dated April 3-7, 2015, and purchased our own office building in Slovenia. We maintain our statutory registered agent's office at 525 Swallow Cv, Boulder City, NV 89005. Our business office is located at 242 Dolenjska cesta, Ljubljana, Slovenia, 1000. Our telephone number is (702)793-2212.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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provide an auditor attestation with respect to management's report on the effectiveness of our internal controls over financial reporting;
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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and
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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can 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. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $6,028 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Even if we no longer qualify for the exemptions for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.
We are a development stage company and have generated limited revenue to date. Our full business plan entails activities described in the Plan of Operation section below. Long term financing may be required to expand our business. The exact amount of funding will depend on the scale of our development and expansion.
Our cash balance is $4,294 as of May 31, 2017. We believe our cash balance is not sufficient to fund our operations for the next twelve months. In addition to revenues, we may utilize funds from Jure Perko, our Chairman and President, who has informally agreed to advance funds to allow us to pay for filing fees and professional fees. As of May 31, 2017, Mr. Perko had advanced $100 to us. Mr. Perko, however, has no formal commitment, arrangement or legal obligation to advance or loan funds to the company. Being a development stage company, we have a very limited operating history. After twelve months period we may need additional financing. We do not currently have any arrangements for additional financing. Our principal executive offices are located at 242 Dolenjska cesta, Ljubljana, Slovenia, 1000. Our phone number is (702)793-2212.
Our independent registered public accountant has issued a going concern opinion. This means that there is substantial doubt that we can continue as an on- going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have limited revenues and no substantial revenues are anticipated until we complete our initial business development. There is no assurance we will ever reach that stage.
If we need additional cash and cannot raise it, we will either have to suspend operations until we do raise the cash, or cease operations entirely.
Product
Overview
Sinks
are a bowl-shaped plumbing fixtures used for washing hands, for dishwashing or other purposes. Sinks generally have taps (faucets) that supply hot and cold water and may include a spray feature to be used for faster rinsing. They also include a drain to remove used water; this drain may itself include a strainer and/or shut-off device and an overflow-prevention device. Sinks may also have an integrated soap dispenser. The washstand was a bathroom sink made in the United States in the late 18th century. The washstands were small tables on which were placed a pitcher and a deep bowl, following the English tradition. Sometimes the table had a hole where the large bowl rested, which led to the making of dry sinks. From about 1820 to 1900 the dry sink evolved by the addition of a wooden cabinet with a trough built on the top, lined with zinc or lead. This is where the bowls or buckets for water were kept. Splashboards were sometimes added to the back wall, as well as shelves and drawers, the more elaborate designs usually placed in the kitchen. Sinks are made of many different materials. These include: ceramic, concrete, copper, enamel over steel or cast iron, glass, granite, marble, nickel, plastic, soapstone, stainless steel, stone, terrazzo and wood. Stainless steel is commonly used in kitchens and commercial applications because it represents a good trade-off between cost, usability, durability, and ease of cleaning. Most stainless steel sinks are made by drawing a sheet of stainless steel over a die. Some very deep sinks are fabricated by welding. Stainless steel sinks will not be damaged by hot or cold objects and resist damage from impacts. One disadvantage of stainless steel is that, being made of thin metal, they tend to be noisier than most other sink materials, although better sinks apply a heavy coating of vibration-damping material to the underside of the sink. Enamel over cast iron is a popular material for kitchen and bathroom sinks. Heavy and durable, these sinks can also be manufactured in a very wide range of shapes and colors. Like stainless steel, they are very resistant to hot or cold objects, but they can be damaged by sharp impacts and once the glass surface is breached, the underlying cast iron will often corrode, spalling off more of the glass. Aggressive cleaning will dull the surface, leading to more dirt accumulation. Enamel over steel is a similar-appearing but far less rugged and less cost-effective alternative. Solid ceramic sinks have many of the same characteristics as enamel over cast iron, but without the risk of surface damage leading to corrosion. Plastic sinks come in several basic forms: Inexpensive sinks are simply injection-molded thermoplastics. These are often deep, free-standing sinks used in laundry rooms. Subject to damage by hot or sharp objects, the principal virtue of these sinks is their low cost. High-end acrylic drop-in (lowered into the countertop) and under mount (attached from the bottom) sinks are becoming more popular, although they tend to be easily damaged by hard objects - like scouring a cast iron frying pan in the sink. Plastic sinks may also be made from the same materials used to form "solid surface" countertops. Inexpensive sinks are simply injection-molded thermoplastics. These are often deep, free-standing sinks used in laundry rooms. Subject to damage by hot or sharp objects, the principal virtue of these sinks is their low cost. High-end acrylic drop-in (lowered into the countertop) and under mount (attached from the bottom) sinks are becoming more popular, although they tend to be easily damaged by hard objects - like scouring a cast iron frying pan in the sink. Plastic sinks may also be made from the same materials used to form "solid surface" countertops. These sinks are durable, attractive, and can often be molded with an integrated countertop or joined to a separate countertop in a seamless fashion, leading to no sink-to-countertop joint or a very smooth sink-to- countertop joint that cannot trap dirt or germs. These sinks are subject to damage by hot objects but damaged areas can sometimes be sanded-down to expose undamaged material. Soapstone sinks were once common, but today tend to be used only in very-high-end applications or applications that must resist caustic chemicals that would damage more-conventional sinks. Wood sinks are from the early days of sinks and baths were made from natural teak with no additional finishing. Teak is chosen because of its natural waterproofing properties – it has been used for hundreds of years in the marine industry for this reason. Teak also has natural antiseptic properties, which is a bonus for its use in baths and sinks. Glass sinks: A current trend in bathroom design is the handmade glass sink (often referred to as a vessel sink) which has become fashionable for wealthy homeowners. Stone sinks have been used for ages. Some of the more popular stones used are: marble, travertine, onyx, granite, and soap stone on high end sinks. Glass, concrete, and terrazzo sinks are usually designed for their aesthetic appeal and can be obtained in a wide variety of unusual shapes and colors such as floral shapes. Concrete and terrazzo are occasionally also used in very-heavy- duty applications such as janitorial sinks.
Kitchen cabinets are the built-in furniture installed in many kitchens for storage of food, cooking equipment, and often silverware and dishes for table service. Appliances such as refrigerators, dishwashers, and ovens are often integrated into kitchen cabinetry. There are many options for cabinets available at present
Cabinets may be either face-frame or frameless in construction. Each option provides features and drawbacks. Most kitchen cabinets feature matching tops and bottoms and are available in different styles. Traditional cabinets are constructed using face frames which typically consist of narrow strips of hardwood framing the cabinet box opening. Cabinets were traditionally constructed with a separate face frame until the introduction of modern engineered wood such as particle board and medium-density fiberboard along with glues, hinges and fasteners required to join them. A face frame ensures squareness of the cabinet front. It also increases rigidity and provides a mounting point for hinges. Face-frames confer an appearance of strength and durability, and face-frame cabinets retain popularity in the U.S. An important distinction between modern (manufactured) and traditional custom-built face-frame cabinets relates to the catalog-selection of cabinet components entailed by mass production. Original custom face-frame cabinets accommodated multiple sections (cavities) in a single case. But stock (or semi-custom) face-frame cabinets are constructed individually and joined during installation.
Custom face-frame cabinets offer more efficient use of space because double width stiles can be avoided. They also provide far greater flexibility with regard to materials and design. Every aspect of custom cabinetry can be made to specifications, which makes it both the most desirable and the most expensive choice in the majority of kitchen installations. Framed cabinets have a center stile. Hinges are mounted to the outer cabinet.
Frameless (a.k.a. "full-access") cabinets utilize the side, top, and bottom panels to serve the same functions as do face-frames in traditional cabinets. In general, frameless cabinets provide better utilization of space than face-frame cabinets. A preference for frameless cabinet design developed in Europe in the 1950s and 1960s following the devastation of World War II. Frameless cabinets rely on updated manufacturing methods that permit the production of modern cabinet hardware (hinges and slides) and engineered wood products (for strength, dimensional tolerance, and stability). The intent of the frameless design is to achieve a more streamlined appearance and a more efficient use of space, with ergonomically designed moving components such as drawers, trays, and pull-out cabinets providing better access to interior components. A number of benefits stemming from frameless cabinet design have been successfully applied to face-frame cabinets, such as multiple drawers in base cabinets, full-overlay doors, and cup hinges. With the rise in popularity of European style frameless cabinetry, a significant proportion of the hardware used by U.S. cabinet manufacturers is imported from Europe and China.
Cabinets can be purchased from specialty retailers, kitchen remodelers, home centers, on-line retailers, and ready-to-assemble furniture manufacturers. Some installers offer a package deal from measurement, to construction, to installation. Cabinets are sometimes delivered in fully assembled form. Ready-to-assemble furniture cabinets are lower-in-cost and are delivered in a flat box.
Sales
and
Marketing
Strategy
We sell kitchen sinks and kitchen cabinets in the USA. We intend to enter into agreements with numerous wholesale companies and sell our product to their retail clients. In the wholesale distribution business, various business strategies are used to increase the popularity of the products. We plan to offer free small samples which may ignite prospective customers to buy our kitchen sinks and kitchen cabinets. Other marketing strategies will involve taking our products to various events, such as shows, fairs and home builder's events. We intend also design bright flyers, stickers and signs and place them on our products to draw attention of potential customers. We intend also to implement word of mouth advertising into our business model. We believe a huge marketing opportunity on the internet is spreading word of mouth, a form of free advertising. We believe the internet has provided the biggest medium to spread word of mouth and social networking sites have been the place where everyone has come together. These days, companies have the capabilities of increased speed at which the message comes across. Bloggers and journalists can post their thoughts and reviews of products, and then people in all corners of the world can read it immediately.
Competition
The level of competition in same industry is extremely high. Many of our established competitors have developed a brand following which would make our potential customers prefer their products over ours. Economies of scale would make it easier for our larger established competitors to negotiate price discounts with their suppliers of sinks and cabinets manufacturers which would leave us at a disadvantage. The principal competitive factors in our industry are pricing and quality of products. We will be in a market where we compete with many domestic and international companies offering similar same products. We will be in direct competition with them. Many large companies will be able to provide more favorable services to the potential customers. Many of these companies may have a greater, more established customer base than us. We will likely lose business to such companies. Also, many of these companies will be able to afford to offer better price for similar same product than us which may also cause us to lose business. We foresee to continue to face challenges from new market entrants. We may be unable to continue to compete effectively with these existing or new competitors, which could have a material adverse effect on our financial condition and results of operations. Capstone Systems Inc. has entered the market and has small market penetration to date.
Contracts
with
our
suppliers
We have executed a Sales Agreement with AQUACUBIC SANITARY WARE CO. LTD, Foshan Mingdeng Kitchen Cabinet Co., Ltd, Foshan Opaly Composite Materials Co., Ltd, FOSHAN SANI SANITARY WARE CO., LTD, Hangzhou Relux House Furnishing Co., Ltd, OPPEIN Home Group Inc, dated April 3-7, 2015. The material terms of the Contract are the following:
1.
RECITALS
a. Seller is a manufacturer of products and desires to sell to Buyer its product.
b. Buyer desires to buy these products and to perform all the provisions of this agreement.
2.
DURATION
The term of the agency created shall be 24 months beginning from the Date of agreement, unless sooner terminated.
3.
BUYER'S
BEST
EFFORTS
Buyer agrees to devote Buyer's whole time and best efforts to the business of Seller. Buyer shall employ salespersons to assist Buyer, on such terms and conditions as Seller may require, as set forth in this agreement.
4.
NONDISCLOSURE
OF
SELLER'S
AFFAIRS
Buyer agrees to keep confidential such information as Seller may from time to time impart to Buyer regarding Seller's business affairs and customers. Buyer will not, in whole or in part, now or at any time, disclose such information.
5.
CONTENTS
OF
ORDERS
a. All orders for Seller's product shall be taken on printed forms furnished by Seller, and all such orders shall be sent to Seller immediately after being signed by purchasers.
6.
ACCEPTANCE
OF
ORDERS
BY
SELLER
Orders taken by Buyer shall not be binding until accepted by Seller. Seller reserves the right to reject any order when, in the judgment of Seller, the product ordered may not be suitable to the business of the customer.
7.
BUYER'S
EXPENSES
All expenses for traveling, entertainment, office, clerical, office and equipment maintenance, and general selling expenses that may be incurred by Buyer in connection with this agreement will be borne wholly by Buyer.
8.
COMPLIANCE
WITH
LAWS
Buyer agrees, for the benefit of Buyer's employees, to comply in all respects with the workers' compensation laws of any state or states of which Buyer's territory may be a part, and to pay the premiums and other costs and expenses incident to such coverage.
9.
MODIFICATION
AND
TERMINATION
This agreement covers all agreements between Buyer and Seller relating to the Buyer for the handling of Seller's product.
10.
GOVERNING
LAW
The enforcement and interpretation of this agreement shall be governed by the laws of NV, USA The parties have executed this agreement the day and year first above written.
Remark: 1. Payment term: 30% T/T in advance + 70% balance after shipment or irrevocable L/C at sight; 2. Valid time: 30 days; 3. Mini. Qty.: 1*40' HQ. A copy of the Contract is filed as Exhibit 10 to our Registration Statement on Form S-1 (as amended).
Offices
Our business office is located at 242 Dolenjska cesta, Ljubljana, Slovenia, 1000. Our phone number is (702)793-2212.
Insurance
We do not maintain any insurance and do not intend to maintain insurance in the future. Because we do not have any insurance, if we are made a party of a products liability action, we may not have sufficient funds to defend the litigation. If that occurs a judgment could be rendered against us that could cause us to cease operations.
Employees
We are a development stage company and currently have no employees, other than our sole officer, Jure Perko.
Government
Regulation
We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to same industry and operation of any facility in any jurisdiction which we would conduct activities. We do not believe that regulation will have a material impact on the way we conduct our business.
Research
and
Development
Expenditures
We have not incurred any research expenditures since our incorporation.
Bankruptcy
or
Similar
Proceedings
There has been no bankruptcy, receivership or similar proceeding.
Reorganizations, Purchase or Sale of Assets
There have been no material reclassifications, mergers, consolidations, or purchase or sale of a significant amount of assets not in the ordinary course of business.
Patents,
Trademarks
and
Copyrights
We do not own, either legally or beneficially, any patents or trademarks. We do not intend at this time to protect our website with copyright laws. Beyond our trade name, we do not hold any other intellectual property.
Research
and
Development
Activities
and
Costs
We have not incurred any research and development costs to date.
Reports
to
Stockholders
We are required to file reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. You may obtain copies of these reports from the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10 A.M. to 3 P.M. or on the SEC's website, at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Item 1A. Risk Factors
WE
HAVE
A LIMITED HISTORY OF OPERATIONS AND ACCORDINGLY THERE IS NO TRACK RECORD THAT WOULD PROVIDE A BASIS FOR ASSESSING OUR ABILITY TO CONDUCT SUCCESSFUL COMMERCIAL ACTIVITIES. WE MAY NOT BE SUCCESSFUL IN CARRYING OUT OUR BUSINESS OBJECTIVES.
We were incorporated on April 1, 2015 and to date, have been involved primarily in organizational activities, closing first sale and purchasing our office building in Slovenia for $6,515. Accordingly we have short track record of successful business activities, strategic decision making by management, fund-raising ability, and other factors that would allow an investor to assess the likelihood that we will be successful as a development stage company which is engaging in the business of distributing kitchen sinks and kitchen cabinets in the USA. For the period from inception (April 1, 2015) to May 31, 2017, we had a net loss of $39,268. Development stage companies in businesses with low barriers to entry, such as ours, often fail to achieve or maintain successful operations, even in favorable market conditions. There is a substantial risk that we will not be successful in our business consulting activities, or if initially successful, in thereafter generating any operating revenues or in achieving profitable operations.
If we experience a shortage of funds we may utilize funds from Jure Perko, our sole officer and director, who has informally agreed to advance funds to allow us to pay for professional fees, including fees payable for compliance with the Securities and Exchange Commission reporting compliance and operating expenses. However, Mr. Perko has no formal commitment, arrangement or legal obligation to advance or loan funds to the company. We may need additional financing. We do not currently have any arrangements for additional financing.
OUR
INDEPENDENT
AUDITOR
HAS
ISSUED
A GOING CONCERN OPINION; OUR ABILITY TO CONTINUE IS DEPENDENT ON OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND OUR OPERATIONS COULD BE CURTAILED IF WE ARE UNABLE TO OBTAIN REQUIRED ADDITIONAL FUNDING WHEN NEEDED.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period April 1, 2015 (date of inception) through May 31, 2017 we had a net loss of $39,268. As of May 31, 2017, the Company has not emerged from the development stage. Our independent auditor has expressed substantial doubt about our ability to continue as a going concern. In view of these matters, recoverability of any asset amounts shown in the accompanying financial statements is dependent upon our ability to begin operations and to achieve a level of profitability.
WE
HAVE
LIMITED
BUSINESS,
SALES
AND
MARKETING EXPERIENCE
IN
OUR
INDUSTRY.
We currently have one customer and have generated limited revenues. While we have plans for marketing our business, there can be no assurance that such efforts will be successful. Mr. Perko has been working as the business owner at Domov Kabinet Ltd, a company that made and sold different types of cabinet products for homes, however he has no experience in international distribution and marketing of cabinet products. There can be no assurance that our proposed business will gain wide acceptance in its target market or that we will be able to effectively market our product. Additionally, we are a newly-formed, development stage company with short prior experience in our industry. We are entirely dependent on the services of our sole officer and director, Jure Perko, to build our customer base. Our company has no prior experience upon which it can rely in order to garner its first prospective customers to buy our kitchen sinks and kitchen cabinets. Prospective customers will be less likely to buy our product than a competitor's because we have no prior experience in our industry.
IF
WE
DO
NOT
ATTRACT
CUSTOMERS,
WE
WILL
NOT
MAKE
A PROFIT, WHICH ULTIMATELY WILL RESULT IN A CESSATION OF OPERATIONS.
We have identified and engaged our first customers but we cannot guarantee we will have other customers. Even if we obtain other customers, there is no guarantee that we will increase our current profit. If we cannot generate an increase in profit, we will have to suspend or cease operations. You are likely to lose your entire investment if we cannot sell our kitchen sinks and kitchen cabinets at prices which generate a profit.
COMPETITORS
WITH
MORE
RESOURCES
MAY
FORCE
US
OUT
OF
BUSINESS.
Many competitors with same products are significantly larger and have substantially greater financial, marketing and other resources and have achieved public recognition for their services. Competition by existing and future competitors could result in an inability to secure adequate consumer relationships sufficient enough to support Company endeavors. We cannot be assured that we will be able to compete successfully against present or future competitors or that the competitive pressure we may face will not force us to cease our operations.
Also, there are many various sized same companies in our line of business. Some of these competitors have established businesses with a substantial number of venues and valuable contacts. We will attempt to compete against these groups by offering unique products. We cannot assure you that such a business plan will be successful, or that competitors will not copy our business strategy.
BECAUSE
WE
ARE
SMALL
AND
DO
NOT
HAVE
MUCH
CAPITAL,
OUR
MARKETING
CAMPAIGN
MAY
NOT
BE
ENOUGH
TO
ATTRACT
SUFFICIENT
CLIENTS
TO
OPERATE PROFITABLY.
IF
WE
DO
NOT
INCREASE
OUR
PROFIT,
WE
WILL
SUSPEND
OR
CEASE
OPERATIONS.
Due to the fact we are small and do not have much capital, we must limit our marketing activities and may not be able to make our product known to potential customers. Because we will be limiting our marketing activities, we may not be able to attract enough customers to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.
CURRENT
MANAGEMENT'S
LACK
OF
EXPERIENCE
IN
AND
WITH
MARKETING
AND
SELLING
KITCHEN
SINKS
AND
KITCHEN
CABINETS
MEANS
THAT
IT
IS
DIFFICULT
TO
ASSESS,
OR
MAKE
JUDGMENTS
ABOUT,
OUR
POTENTIAL SUCCESS.
Jure Perko, our sole officer and director has no prior experience with US customers to distribute kitchen sinks and kitchen cabinets. With no direct training in the US market with marketing and sales, our sole officer and director may not be fully aware of many of the specific requirements related to marketing and selling kitchen sinks and kitchen cabinets. Consequently, our operations, earnings, and ultimate financial success could suffer irreparable harm due to our sole officer and director's future possible mistakes, lack of sophistication, judgment or experience in marketing and sales.
SINCE
A MAJORITY OF OUR SHARES OF COMMON STOCK ARE OWNED BY OUR SOLE OFFICER AND DIRECTOR, OUR OTHER STOCKHOLDERS MAY NOT BE ABLE TO INFLUENCE CONTROL OF THE COMPANY OR DECISION MAKING BY MANAGEMENT OF THE COMPANY, AND AS SUCH, OUR SOLE OFFICER AND DIRECTOR MAY HAVE A CONFLICT OF INTEREST WITH THE MINORITY SHAREHOLDERS AT SOME TIME IN THE FUTURE.
As of May 31, 2017, Jure Perko, our sole officer and director beneficially owned 79% of our issued and outstanding shares of common stock. The interests of Mr. Perko may not be, at all times, the same as that of our other shareholders. Mr. Perko is not simply a passive investor but is also an executive officer of the Company, and as such his interests as an executive may, at times be adverse to those of passive investors. Where those conflicts exist, our shareholders will be dependent upon our sole officer and director exercising, in a manner fair to all of our shareholders, his fiduciary duties as an officer and as member of the Company's board of directors. Also, our sole officer and director will have the ability to control the outcome of most corporate actions requiring shareholder approval, including the sale of all or substantially all of our assets and amendments to our Articles of Incorporation. This concentration of ownership may also have the effect of delaying, deferring or preventing a change of control of us, which may be disadvantageous to minority shareholders.
BECAUSE
OUR SOLE
OFFICER
AND
DIRECTOR
WILL
ONLY
BE
DEVOTING
LIMITED
TIME
TO
OUR
OPERATIONS,
OUR
OPERATIONS
MAY
BE
SPORADIC
WHICH
MAY
RESULT
IN
PERIODIC
INTERRUPTIONS
OR
SUSPENSIONS
OF
OPERATIONS.
THIS
ACTIVITY
COULD
PREVENT
US
FROM
ATTRACTING
ENOUGH
CUSTOMERS
AND
RESULT
IN
A LACK OF REVENUES WHICH MAY CAUSE US TO CEASE OPERATIONS.
Jure Perko, our sole officer and director will only be devoting limited time to our operations. He will be devoting approximately 20 hours a week to our operations. Because our sole office and director will only be devoting limited time to our operations, our operations may be sporadic and occur at times which are convenient to him. As a result, operations may be periodically interrupted or suspended which could result in a lack of revenues and a possible cessation of operations.
IT
WILL
BE
EXTREMELY
DIFFICULT
TO
ACQUIRE
JURISDICTION
AND
ENFORCE
LIABILITIES
AGAINST
OUR
SOLE
OFFICER
AND
DIRECTOR
AND
ASSETS OUTSIDE
THE
UNITED
STATES.
Substantially all of our assets, including our office building which we purchased on April 27, 2015, are currently located outside of the United States. Additionally, our sole officer and director resides outside of the United States, in Slovenia. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our sole officer and director or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our sole officer and director under Federal securities laws. Moreover, we have been advised that Slovenia does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States.
ANY ADDITIONAL FUNDING WE ARRANGE THROUGH THE SALE OF OUR COMMON STOCK WILL RESULT IN DILUTION TO EXISTING SHAREHOLDERS.
We must raise additional capital in order for our business plan to succeed. Our most likely source of additional capital will be through the sale of additional shares of common stock. Such stock issuances will cause stockholders' interests in our company to be diluted. Such dilution will negatively affect the value of an investor's shares.
OUR
SOLE
OFFICER
AND
DIRECTOR
HAS
NO
EXPERIENCE
MANAGING
A PUBLIC COMPANY WHICH IS REQUIRED TO ESTABLISH AND MAINTAIN DISCLOSURE CONTROL AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING.
We have never operated as a public company. Jure Perko, our sole officer and director has no experience managing a public company which is required to establish and maintain disclosure controls and procedures and internal control over financial reporting. As a result, we may not be able to operate successfully as a public company, even if our operations are successful. Mr. Perko has never been a promoter, controlling interest holder or had any direct or indirect relationship with any companies that have filed registration statements with the U.S. Securities and Exchange Commission. We plan to comply with all of the various rules and regulations, which are required for a public company that is reporting company with the Securities and Exchange Commission. However, if we cannot operate successfully as a public company, your investment may be materially adversely affected.
AS
AN
"EMERGING
GROWTH
COMPANY"
UNDER
THE
JOBS
ACT,
WE
ARE
PERMITTED
TO
RELY
ON
EXEMPTIONS
FROM
CERTAIN
DISCLOSURE
REQUIREMENTS
.
We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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provide an auditor attestation with respect to management's report on the effectiveness of our internal controls over financial reporting;
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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency"; and
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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive's compensation to median employee compensation.
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can 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. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $6,028 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Even if we no longer qualify for the exemptions for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.
Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
THE
TRADING IN OUR SHARES IS REGULATED BY THE SECURITIES AND EXCHANGE COMMISSION RULE 15G-9 WHICH ESTABLIHED THE DEFINITION OF A "PENNY STOCK."
Our shares are defined as a penny stock under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and rules of the Commission. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $2,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 ($300,000 jointly with spouse), or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the Commission. Consequently, the penny stock rules may make it difficult for you to resell any shares you may purchase, if at all.
WE
WILL
INCUR
ONGOING
COSTS
AND
EXPENSES
FOR
SEC
REPORTING
AND
COMPLIANCE. WITHOUT REVENUE
WE
MAY
NOT
BE
ABLE
TO
REMAIN
IN
COMPLIANCE,
MAKING
IT
DIFFICULT
FOR
INVESTORS
TO
SELL
THEIR
SHARES,
IF
AT
ALL.
We are required to file annual, quarterly and current reports, or other information with the SEC as provided by the Securities Exchange Act. Our shares are quoted on the OTC Electronic Bulletin Board. To be eligible for quotation, issuers must remain current in their filings with the SEC. In order for us to remain in compliance we will require future revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources. If we are unable to generate sufficient revenues to remain in compliance it may be difficult for you to resell any shares you may purchase, if at all.
WE
MAY
BE
EXPOSED
TO
POTENTIAL
RISKS
AND
SIGNIFICANT
EXPENSES
RESULTING
FROM
THE
REQUIREMENTS
UNDER
SECTION
404
OF
THE
SARBANES-OXLEY
ACT OF 2002.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, to include in our annual report our assessment of the effectiveness of our internal control over financial reporting. We expect to incur significant continuing costs, including accounting fees and staffing costs, in order to maintain compliance with the internal control requirements of the Sarbanes-Oxley Act of 2002. Development of our business will necessitate ongoing changes to our internal control systems, processes and information systems. If our business develops and grows, our current design for internal control over financial reporting will not be sufficient to enable management to determine that our internal controls are effective for any period, or on an ongoing basis. Accordingly, as we develop our business, such development and growth will necessitate changes to our internal control systems, processes and information systems, all of which will require additional costs and expenses.
In the future, if we fail to complete the annual Section 404 evaluation in a timely manner, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. However, as an "emerging growth company," as defined in the JOBS Act, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.