ITEM 1. BUSINESS
Corporate Background and General Business Overview
Our Company was incorporated in the State of Nevada on July 8, 2014 to engage in the development and operation of a business engaged in the distribution of glass craft products produced in China. We are a development stage company and also considered an Emerging Growth Company. Our fiscal year end is July 31st. We have an office located at 3A, 171-173 Lockhard Road, Kingswell Commercial Tower, Wanchai, Hong Kong. On Our President and CEO, Chi Ming Tso, oversees the implementation of the business strategy and is responsible for the development of new initiatives and future expansion of the Companys operations.
Since inception, we have had limited operating activities. Our principal business activities from inception to recently were in the sale of glass craft products. We had supply agreements with three large and well-established suppliers and distributors of glass craft products in China. The term of these agreement began in 2014 and expired in 2018.
Currently, we are in the early stage of development of our new business plan in which we act as an international agent through our wholly owned subsidiary for a Chinese environmental company to market its environmental technologies, equipment and products and to develop projects utilizing its environmental technologies, equipment and products in worldwide markets. As well, we would seek for acquisition by the Chinese environmental company environmental technologies and equipment or technology and equipment integration methodologies.
On April 9, 2019 the Company entered into a Share Exchange Agreement with MoralArrival Environmental and Blockchain Technology Services Limited ("MoralArrival"), a British Virgin Islands company and the shareholder of MoralArrival. Under the terms of that Share Exchange Agreement, the Company agreed to exchange 300,000 shares of its common stock for all the outstanding shares of common stock of MoralArrival. As a result of this transaction, MoralArrival would become a wholly owned subsidiary of the Company. MoralArrival is a recently formed startup company with nominal assets and no history of operations. MoralArrival is in the business of acting as an international agent for a Chinese environmental company, Hengshui Jingzhen Environmental Technology Company Limited of Hebei, China (Hengshui). Hengshui supplies environmental treatment systems and products. It is a comprehensive environmental protection enterprise with technology integrating hazardous waste collection, disposal and utilization. It uses modern technology to efficiently treat hazardous waste and turn waste into energy regeneration.
On April 10, 2019 the Company sold its shares of its wholly owned subsidiary, Real Capital Limited (Real Capital), for a nominal consideration of One US Dollar (US$1.00). The Company acquired Real Capital on May 8, 2018 with the aim of developing new business opportunities. Real Capital has had no sales revenue for the past few years and a net assets value of minus Forty Two Thousand, One Hundred and Sixty Hong Kong Dollars (HK$42,160) as at January 31, 2019.
Our plan of operations over the next 12-month period is to continue to develop and grow our current business activities. We are also continuously looking for other business opportunities.
On July 17, 2019 the Company received the approval from Finra to do a 1:10 forward split of its shares. Prior to the 1:10 forward split, the Company had 6,104,999 shares of common stock issued and outstanding, and after the 1:10 forward split the Company had 61,049,990 shares of common stock issued and outstanding.
As at July 31, 2019 the Company had 61,049,990 shares of common stock issued and outstanding.
From the Companys inception on July 8, 2014 to the fiscal year ended July 31, 2019, the Company had $223,910 in revenues and a net loss of $512,258. From the Companys inception on July 8, 2014 to the fiscal year ended July 31, 2018, the Company had $223,910 in revenues and a net loss of $136,266.
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Our independent registered public accountant has issued an audit opinion for our Company which includes a statement expressing substantial doubt as to our ability to continue as a going concern (see Financial Statements).
The Company qualifies as an emerging growth company as defined in the Jumpstart our Business Startups Act (the JOBS Act). We intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As well, our election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until they apply to private companies. Therefore, as a result of our election, our financial statements may not be comparable to companies that comply with public company effective dates.
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.
Compliance with Government Regulation
We are required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to our business activities. We do not believe that government regulation will have a material impact on the way we conduct our business.
We do not believe that any existing or probable government regulation on our business, including any applicable export or import regulation or control imposed by China or USA in which we plan to distribute glass craft products will have a material impact on the way we conduct our business.
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Patents, Trademarks and Copyrights
We do not own, either legally or beneficially, any patents or trademarks. 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. We have plans to undertake certain research and development activities during the next 12 months related to the development of our website.
Facilities
We do not own any physical property. Currently, we are renting a shared office space located at 3A, Kingswell Commercial Tower, 171-173 Lockhard Road, Wanchai, Hong Kong.
Chi Ming Tso (our director, President and CEO), works on Company business from our office in Hong Kong. This location serves as our primary office for planning and implementing our business plan. Management believes the current premises arrangement is sufficient for its needs for at least the next 12 months.
Employees and Employment Agreements
We have no employees as of the date of this report. Our CEO works as a consultant and devotes as much time as necessary for him to manage the affairs of the Company. As our business and operations increase, we will hire full time management and administrative support personnel.
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 SECs 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 SECs 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.
We will also make these reports available on our website once our website is completed and launched.
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Jobs Act
Because we generated less than $1 billion in total annual gross revenues during our most recently completed fiscal year, we qualify as an emerging growth company under the Jumpstart Our Business Startups (JOBS) Act.
We will lose our emerging growth company status on the earliest occurrence of any of the following events:
1. on the last day of any fiscal year in which we earn at least $1 billion in total annual gross revenues, which amount is adjusted for inflation every five years;
2. on the last day of the fiscal year of the issuer following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement;
3. on the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
4. the date on which such issuer is deemed to be a large accelerated filer, as defined in section 240.12b2 of title 17, Code of Federal Regulations, or any successor thereto.
A large accelerated filer is an issuer that, at the end of its fiscal year, meets the following conditions:
1. it has an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $700 million or more as of the last business day of the issuer's most recently completed second fiscal quarter;
2. It has been subject to the requirements of section 13(a) or 15(d) of the Act for a period of at least twelve calendar months; and
3. It has filed at least one annual report pursuant to section 13(a) or 15(d) of the Act.
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As an emerging growth company, exemptions from the following provisions are available to us:
1. Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires auditor attestation of internal controls;
2. Section 14A(a) and (b) of the Securities Exchange Act of 1934, which require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation;
3. Section 14(i) of the Exchange Act (which has not yet been implemented), which requires companies to disclose the relationship between executive compensation actually paid and the financial performance of the company;
4. Section 953(b)(1) of the Dodd-Frank Act (which has not yet been implemented), which requires companies to disclose the ratio between the annual total compensation of the CEO and the median of the annual total compensation of all employees of the companies; and
5. The requirement to provide certain other executive compensation disclosure under Item 402 of Regulation S-K. Instead, an emerging growth company must only comply with the more limited provisions of Item 402 applicable to smaller reporting companies, regardless of the issuers size.
Pursuant to Section 107 of the JOBS Act, an emerging growth company may choose to forgo such exemption and instead comply with the requirements that apply to an issuer that is not an emerging growth company.
We have elected to maintain our status as an emerging growth company and take advantage of the JOBS Act provisions.
Smaller Reporting Company
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY - THE JOBS ACT
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We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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A requirement to have only two years of audited financial statements and only two years of related MD&A;
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Exemption from the auditor attestation requirement in the assessment of the emerging growth companys internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002;
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Reduced disclosure about the emerging growth companys executive compensation arrangements; and
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No non-binding advisory votes on executive compensation or golden parachute arrangements.
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We may take advantage of the reduced reporting requirements applicable to smaller reporting companies even if we no longer qualify as an "emerging growth company."
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 of 1933, as amended (the Securities Act) for complying with new or revised accounting standards. We have elected to use the extended transition period provided above and therefore our financial statements may not be comparable to companies that comply with public company effective dates.
We could 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 annual gross revenues exceed $1 billion, (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 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.
ITEM 1A. RISK FACTORS
Our common shares are considered speculative. Prospective investors should consider carefully the risk factors set out below.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this annual report before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
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Risks Relating to our Business
Because our independent registered public accountants have issued a going concern opinion, there is substantial uncertainty that we will continue operations, in which case you could lose your investment.
Our independent registered public accountants have issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business for the next twelve months. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business. As such we may have to cease operations and you could lose your investment.
We have a very limited operating history and we anticipate that we will incur net losses from our operations for the foreseeable future.
We were incorporated on July 8, 2014 and have limited operations. We have realized some revenues to date. Our business plan is still under development and, combined with our limited operating history, this can make an evaluation of our future success or failure very difficult. Our financial statements as at July 31, 2019 show an accumulated deficit of $512,258, we anticipate that we will incur net losses from our operations for the foreseeable future. This will happen because there are substantial costs and expenses associated with the development, marketing and distribution of our products. We may fail to generate revenues in the future. If we cannot attract a significant number of purchasers, we will not be able to generate any significant revenues or income. Failure to generate revenues will cause us to go out of business because we will not have the money to pay our ongoing expenses.
In particular, additional capital may be required in the event that:
a. the actual expenditures required to be made are at or above the higher range of our estimated expenditures;
b. we incur unexpected costs in completing the development of our business or encounter any unexpected difficulties;
c. we incur delays and additional expenses related to the distribution or procurement of our products; or
d. we are unable to create a substantial market for our products; or we incur any significant unanticipated expenses.
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The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plans and achieve a profitable level of operations.
If we are unable to attain the necessary revenue levels to continue implement our business plan we will not have the money to pay our ongoing expenses and we may go out of business.
We have generated some small revenue from our business in the past. We do not foresee that we will be able to generate larger revenues in the near future. Therefore, we may need to raise significant, additional funds for the future development of our business and to respond to unanticipated requirements or expenses.
Our ability to successfully market our products and to eventually distribute and generate operating revenues also depends on our ability to obtain the necessary financing to implement our business plan. Given that we have a very limited operating history and small revenues, we may not be able to achieve this goal, and we may go out of business. We may need to issue additional equity securities in the future to raise the necessary funds. We do not currently have any arrangements for additional financing, and we can provide no assurance to investors we will be able to find such financing if further funding is required. Obtaining additional financing would be subject to a number of factors, including investor acceptance of our products and our business model. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of the original stockholders. Obtaining loans will increase our liabilities and future cash commitments, and there can be no assurance that we will even have sufficient funds to repay our future indebtedness or that we will not default on our future debts if we are able to even obtain loans.
There can be no assurance that capital will be available to us to meet our future funding needs or, if the capital is available, that it will be on terms acceptable to us. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be forced to scale back or cease operations, which might result in the loss of some or all of your investment in our common stock.
The market for treatment of hazardous waste is fragmented and competitive and we may not be able to compete successfully with our existing competitors or new entrants into the markets we serve.
The market for treatment of hazardous waste is fragmented and competitive. Our competition varies by technologies, customer requirements and geographic market. We compete with various national and international technology companies. Many of our competitors have greater financial resources and may be able to withstand the competition in the market more effectively than we can. We also expect to continue to face competition 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.
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We depend on our suppliers for our business to operate.
We are and will continue to be for the foreseeable future, substantially dependent on our technology suppliers to provide us their environmental treatment systems and products. We do not have our own manufacturing or research facilities to produce or develop our products. We are and will continue to be for the foreseeable future, entirely dependent on third parties to supply technologies and products we need to operate our business. We can make no assurance that we will be able to maintain these third-party relationships or establish additional relationships as necessary to support growth and profitability of our business on economically viable terms. As independent companies, our suppliers make their own business decisions. Such suppliers may choose not to do business with us for a variety of reasons, including competition, brand identity, product standards and concerns regarding our economic viability. In addition, their financial condition could also be adversely affected by conditions beyond our control and our business could suffer. We will face risks associated with any suppliers failure to adhere to quality control and service guidelines we establish or failure to ensure an adequate and timely supply of product to our potential and future customers. Any of these factors could negatively affect our business and financial performance. If we are unable to obtain and maintain a source of supply for our products, our business will be materially and adversely affected.
Because we will purchase and distribute our products to and from overseas locations, a disruption in the delivery of exported products may have a greater effect on us than on our competitors.
We will export our products from China. Because we export our products and deliver them directly to our customers, we believe that disruptions in shipping deliveries may have a greater effect on us than on competitors who manufacture and/or warehouse products in Europe and North America. Deliveries of our products may be disrupted through factors such as:
a. raw material shortages, work stoppages, strikes and political unrest;
b. fuel price increases;
c. problems with ocean shipping, including work stoppages and shipping and container shortages;
d. increased inspections of import shipments or other factors causing delays in shipments; and
e. economic crises, international disputes and wars.
Some of our competitors warehouse products they import from overseas, which allows them to continue delivering their products for the near term, despite overseas shipping disruptions. If our competitors are able to deliver products when we cannot, our reputation may be damaged, and we may lose customers to our competitors.
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Price competition could negatively affect our gross margins.
Price competition could negatively affect our operating results. To respond to competitive pricing pressures, we may have to offer our products at lower prices in order to retain or gain market share and customers. If our competitors offer discounts on products in the future, we will need to lower prices to match the competition, which could adversely affect our gross margins and operating results.
We depend completely on one director to manage the affairs of the Company, the loss of whom would materially and adversely affect our company.
We currently depend primarily on Mr. Tso for all of our operations. The loss of the service of Mr. Tso would have a substantial negative effect on our company. There is intense competition for skilled personnel and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. The loss of Mr. Tsos services could prevent us from completing the development of our business. In the event of the loss of his services, no assurance can be given that we will be able to obtain the services of an adequate replacement.
We do not have any employment agreements or maintain key person life insurance policies on our officers and directors. We do not anticipate acquiring key man insurance for any officers and directors in the foreseeable future.
We have limited business, sales and marketing experience in our industry.
While we have plans for marketing and sales, there can be no assurance that such efforts will be successful. There can be no assurance that our glass craft products will gain wide acceptance in its target market or that we will be able to effectively market our product.
Our officers and directors are also engaged in other activities and may not devote sufficient time to our affairs, which may affect our ability to conduct operations and generate revenues.
We have not formulated a plan to resolve any possible conflict of interest with our officers and directors other business activities. Because we rely primarily on our officers and directors to maintain our business contacts and to promote our products, their limited devotion of time and attention to our business may hurt the operation of our business.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which will require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs will negatively affect our ability to earn a profit.
We are required to file periodic reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. In order to comply with such requirements, our independent registered public accountants have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our independent registered public accountants and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit.
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Because our headquarters and assets are located outside the U.S., investors may experience difficulties in attempting to affect service of process and to enforce judgments based upon U.S. federal securities laws against the Company and its non-U.S. resident officer and director.
While we are organized under the laws of State of Nevada, our headquarters and assets are located outside the United States, in Hong Kong. Consequently, it may be difficult for investors to affect service of process on our officers and directors and to enforce in the United States judgments obtained in United States courts against the Company and its officers and directors based on the civil liability provisions of the United States securities laws. Since the majority our assets will be located outside U.S. it may be difficult or impossible for U.S. investors to collect a judgment against us. As well, any judgment obtained in the United States against us is likely not enforceable in Hong Kong.
As an Emerging Growth Company under the Jumpstart Our Business Startups Act (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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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 CEOs 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 will remain an emerging growth company for up to five full fiscal years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31, or if our annual revenues exceed $1 billion, we would cease to be an emerging growth company the following fiscal year, or if we issue more than $1 billion in non-convertible debt in a three-year period, we would cease to be an emerging growth company immediately.
We will elect to take advantage of the extended transition period for complying with new or revised accounting standards under section 102(b)(1)
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This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election our financial statements may not be comparable to companies that comply with public company effective dates.
Risks Associated with our Common Stock
Our shares of common stock are listed for trading on the OTC Bulletin Board, the trading price may fluctuate significantly, and stockholders may have difficulty reselling their shares.
Our common stock has been listed for trading on the Over-the-Counter Bulletin Board. The extremely small numbers of holders sharply limits liquidity of the shares, and there is a volatility associated with Bulletin Board securities in general and the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: (i) disappointing results from our discovery or development efforts; (ii) failure to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions in securities analysts estimates or changes in general market conditions; (v) technological innovations by competitors or in competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects; and (viii) general economic trends. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.
Broker-dealers may be discouraged from effecting transactions in our shares because they are considered penny stocks and are subject to the penny stock rules.
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). 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. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customers 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 purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for stock that becomes subject to those penny stock rules. Our common stock is subject to the penny stock rules, and shareholders may have difficulty in selling their shares.
Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future. Investors that need to rely on dividend income should not invest in our common stock, as any income would only come from any rise in the market price of our common stock, which is uncertain and unpredictable. Investors that require liquidity should also not invest in our common stock. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no established trading market, and should one develop, it will likely be volatile and subject to minimal trading volumes.
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Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and may experience further dilution.
We are authorized to issue up to 500,000,000 shares of common stock. At present, there are 61,049,990 issued and outstanding shares of common stock. Our Board of Directors has the authority to cause us to issue additional shares of common stock without consent of any of our stockholders. Consequently, our stockholders may experience more dilution in their ownership of our Company in the future, which could have an adverse effect on the trading market for our shares of common stock.
Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of the company.
Though not now, we may be or in the future we may become subject to Nevadas control share law. A corporation is subject to Nevadas control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a controlling interest which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such stockholders shares.
Nevadas control share law may have the effect of discouraging takeovers of the corporation. In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and interested stockholders for three years after the interested stockholder first becomes an interested stockholder, unless the corporations board of directors approves the combination in advance. For purposes of Nevada law, an interested stockholder is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term business combination is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporations assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevadas business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our board of directors.
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