Item 1. Business
Corporate History
The Company was organized August 26, 2010 (Date of Inception)
under the laws of the State of Nevada, as JA Energy. The Company was incorporated as a subsidiary of Reshoot Production Company,
a Nevada corporation. Reshoot Production Company was incorporated October 31, 2007, and, at the time of spin off was listed on
the Over the Counter Bulletin Board. In April of 2012 the Company removed the Shell Status. On November 21, 2016, the Company changed
its corporate name to UBI Blockchain Internet, LTD, and changed the state of incorporation from the State of Nevada to the State
of Delaware pursuant to a plan of conversion in connection with which the Company adopted a new certificate of incorporation under
the laws of the State of Delaware.
From August 2010 to May 2014 the Company was in the business
of designing a suite of modular, self-contained, fully automated, climate controlled units for distributed production of energy.
While some of these products were proven to be technologically viable, none were ever developed to the point where they were ready
for introduction to the marketplace.
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At a meeting of the Stockholders of the Company on
September 30, 2014 the Stockholders approved a resolution to urge the Board of Directors of the Company spin-off the Company’s
assets and liabilities into a wholly-owned subsidiary and for each shareholder of the Company to receive a pro-rata share ownership
of the spin-off company. Further, the spin-off subsidiary would operate as an independent entity separate from the Company with
new management operating the current core business of the Company for the benefit of the original stockholders. Additionally, the
effect of this action would allow the Company to explore new business opportunities without the burden of the liabilities currently
on the books.
On September 30, 2014, the Board of Directors passed
a resolution to form a new company called Peak Energy Holdings (Peak) with each shareholder in the Company receiving one share
of common of Peak for each share of common stock in the Company and one share of preferred stock of Peak for each share of preferred
share of the Company.
In November 9, 2014, JA Energy (the "Company")
entered into an Irrevocable Asset and Liability Exchange Agreement. The Agreement deals with the dividend spin-off of JA Energy's
wholly owned subsidiary, Peak Energy Holdings. At the JA Energy annual shareholder meeting, held on September 30, 2014, the shareholders
of the Company approved the transfer all of the assets and liabilities of the Parent into a wholly own subsidiary. The subsidiary
will have the same characteristics and number of authorized and issued shares as the Parent, whereby all Preferred and Common shareholders
in the Parent will receive a pro-rata stock dividend in the subsidiary that is equal to the number of shares they owned in the
Parent on a one-for-one (1:1) basis. The major shareholders of the Company, entered into a separate agreement with regards to the
dividend spin-off. They agreed to and put into effect the following points upon the dividend spin-off of the Peak Energy Holdings
from JA Energy:
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Mr. James Lusk [the largest debtor of JA Energy] transferred as of
March 31, 2014, all assets and liabilities from JA Energy to the Subsidiary to the extent legally assignable.
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Two of the major shareholder in JA Energy transferred all ownership
of their Preferred and Common stock held in the subsidiary to Mr. James Lusk.
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Mr. James Lusk transferred all of the common stock ownership he owned
and controlled in JA Energy to the major shareholders.
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Mr. James Lusk provided a notarized signed letter addressed to the
Company and auditor that he agreed to transfer as of March 31, 2014, all assets and liabilities from the Parent to the Subsidiary
to the extent legally assignable.
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JA Energy warranted that any new liabilities incurred on the books
of JA Energy after April 1, 2014 would not be transferred to the subsidiary.
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JA Energy represented and warranted that there were no liabilities,
actual or contingent, created in the subsidiary. Prior to the effective time of the transfer, the subsidiary would have no assets
nor liabilities.
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JA Energy warranted that since April 1, 2014, with the exception of
the Preferred voting shares, no other shares were issued, awarded or pledged to be issued. The number of common shares issued and
outstanding in JA Energy at March 31, 2014 were the same number of the shares issued at the date of transfer.
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Upon the completion of the transfer of assets and liabilities shares
were exchanged and the subsidiary was divested from JA Energy and now operates independent as a separate entity of JA Energy with
its own management;
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Mr. James Lusk took control of the Peak Energy Holdings, independent
of JA Energy.
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All Parties indemnified and held harmless the other Parties from and
against any and all losses, damages, liabilities, resulting or arising from these transactions
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The Agreement did not affect the other shareholders
in the Company who maintained their share ownership of JA Energy, and have pro-rata ownership in Peak Energy Holdings following
the dividend spin-off.
On January 20, 2016, the Company effected a 1-for-200
reverse stock split of its outstanding common stock, par value $0.001 per share (the "Reverse Stock Split"). As a result
of the Reverse Stock Split, each two hundred shares of the Company’s Common Stock issued and outstanding immediately prior
to the Reverse Stock Split were automatically combined into and became one share of common stock. No fractional shares were issued
as a result of the Reverse Stock Split and any stockholder who otherwise would have been entitled to receive fractional shares
received an additional share. Also, as a result of the Reverse Stock Split, the per share exercise price of, and the number of
shares of common stock underlying our warrants outstanding immediately prior to the Reverse Stock Split were automatically proportionally
adjusted based on the 1-for-200 split ratio in accordance with the terms of such warrants. Share and per-share amounts of the Company’s
common stock and warrants included herein have been adjusted to give effect to the Reverse Stock Split. The Reverse Stock Split
did not alter the par value of the Common Stock, $0.001 per share, or modify any voting rights or other terms of the common stock.
On September 15, 2016, the Company,
with the approval of the Board of Directors agreed to issue (issued October 3, 2016) 30,000,000 shares of unregistered restricted
Class A Common Stock, 6,000,000 shares of unregistered restricted Class B Voting Common Stock, which carries a voting weight equal
to ten (10) Common Shares and 40,000,000 shares of unregistered restricted Class C Common Stock to UBI Blockchain Internet, LTD
(“UBI"), a Hong Kong company, in exchange for $200,000. These shares were issued in reliance on the exemption under
Section 4(2) of the Securities Act of 1933, as amended (the "Act") and were issued under Regulation S to one (1) foreign
entity who attested it is an accredited investor who is not a citizen nor a resident of the USA.
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On September 26, 2016, pursuant to NRS
78.1955, the Board of Directors approved the filing of a Certificate of Designation with the Nevada Secretary of State to designate
Class A, B and C common shares, par value $0.001. Concurrently with the filing of this Certificate of Designation, all Common Stock
issued and outstanding shall become Class A Common Stock. Class B Common Stock carries a voting weight equal to ten (10) Common
Shares. The Class B shares can be converted into fully paid and non-assessable Common Shares, on a one-to-one basis, at the option
of the holder at any time upon written notice to the Company and its authorized transfer agent. Class C Common Stock has no voting
rights. Upon the conversion or other exchange of all outstanding shares of Class B Common Stock into or for shares of Class A Common
Stock, all shares of Class C Common Stock shall be automatically, without further action by any holder thereof, converted into
an identical number of fully paid and non-assessable shares of Class A Common Stock on the date fixed therefor by the Board of
Directors that is no less than sixty-one days and no more than one hundred and eighty days following such conversion or exchange.
Pursuant to the September 15, 2016 change in control agreement,
a representative of UBI paid into an attorney trust account $150,000 on September 14, 2016 and $67,500 on October 11, 2016, for
a total of $217,500. The $217,500 consisted of $200,000 for the newly issued shares of Class A, Class B Voting, and Class C Common
Stock and $17,500 for the payment of specific expenses.
On November 21, 2016, the Company reincorporated in Delaware
under the name UBI Blockchain Internet LTD. and increased the number of authorized shares from 75,000,000 to 200,000,000 shares
consisting of 130,000,000 authorized shares of Class A Common Stock, 6,000,000 authorized shares of Class B Common Stock and 64,000,000
authorized shares of Class C Common Stock.
As a result of the foregoing transaction, the Company
currently has no assets, minimal liabilities and no employees and is now considered a “Shell Company” under Securities
Act Rule 405 and Exchange Act Rule 12b-2. Under the acts a Shell Company is defined as a company, other than an asset-backed issuer,
with no or nominal operations; and no or nominal assets.
Item 1A. Risk Factors.
All parties and individuals reviewing this prospectus
and considering us as an investment should be aware of the financial risk involved. When deciding whether to invest or not, careful
review of the risk factors set forth herein and consideration of forward-looking statements contained in this annual report should
be adhered to. Prospective investors should be aware of the difficulties encountered as we face all the risks including competition,
and the need for additional working capital. If any of the following risks actually occur, our business, financial condition, results
of operations and prospects for growth would likely suffer. As a result, you could lose all or part of your investment.
You should read the following risk factors carefully
before purchasing our common stock.
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RISK FACTORS RELATING TO OUR FINANCIAL CONDITION
1. WE HAVE LIMITED HISTORICAL FINANCIAL INFORMATION
UPON WHICH YOU MAY EVALUATE OUR PERFORMANCE.
We have a limited operating history and we are subject
to all risks inherent in a developing business enterprise. Our likelihood of success must be considered in light of the problems,
expenses, difficulties, complications, and delays frequently encountered in connection with selling audio housing systems and the
competitive environment in which we operate. You should consider, among other factors, our prospects for success in light of the
risks and uncertainties encountered by companies that, like us, are in their early stages of research. We may not be able to successfully
address these risks and uncertainties or successfully implement our operating and acquisition strategies. If we fail to do so,
it could materially harm our business to the point of having to cease operations and could impair the value of our preferred and
common stock to the point that the investors may lose their entire investment. Even if we accomplish these objectives, we may not
be able to generate positive cash flows or profits that we anticipate in the future.
2. OUR AUDITORS HAVE MADE REFERENCE TO THE SUBSTANTIAL
DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCER. THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN.
Our financial statements included with this Annual
Report for the year ended August 31, 2016 have been prepared assuming that we will continue as a going concern. Our auditors have
made reference to the substantial doubt as to our ability to continue as a going concern in their audit report on our audited financial
statements for the year ended August 31, 2016. Because the Company has been issued an opinion by its auditors that substantial
doubt exists as to whether the Company can continue as a going concern, it may be more difficult for the Company to attract investors.
Since our auditors have raised a substantial doubt about our ability to continue as a going concern, this typically results greater
difficulty to obtain loans than businesses that do not have a qualified auditors opinion. Additionally, any loans we might obtain
may be on less advantageous terms. Our future is dependent upon our ability to obtain financing and upon future profitable operations
from our business. We plan to seek additional funds through private placements of our preferred and common stock. You may be investing
in a company that will not have the funds necessary to continue to deploy its business strategies. If we are not able to achieve
sufficient revenues or find financing to cover our expenses, then we likely will be forced to cease operations and investors will
likely lose their entire investment.
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3. WE MAY NOT BE ABLE TO ATTAIN PROFITABILITY WITHOUT
ADDITIONAL FUNDING, WHICH MAY BE UNAVAILABLE TO US.
We have prepared audited financial statements for the
year end for August 31, 2016. For the period from inception (August 26, 2010) through the year end for August 31, 2016, we experienced
an operating net loss of $ 4,554,259. Our ability to continue to operate as a going concern is fully dependent upon the Company
obtaining sufficient financing to continue its development and operational activities. The ability to achieve profitable operations
is in direct correlation to our ability to generate revenues or raise sufficient financing. It is important to note that even if
the appropriate financing is received, there is no guarantee that we will ever be able to operate profitably or derive any significant
revenues from its operation. If we run out of cash reserves, we would be forced to cease operations.
RISK FACTORS RELATING TO OUR COMPANY
4. SINCE WE HAVE JUST TRANSITIONED FROM A DEVELOPMENT
STAGE COMPANY TO A SHELL COMPANY AND CURRENTLY HAVE NO PLANS FOR FUTURE BUSINESSES, THERE ARE NO ASSURANCES THAT OUR THE COMPANY
WILL EVER BE SUCCESSFUL.
As of the date of this filing the Company has no assets,
minimal liabilities and no employees. It is the intention of management to keep current with financial reporting requirements and
explore various lines of businesses for the Company to enter. However, there can be no assurance that the Company will ever find
appropriate business to enter and furthermore, should management successfully identify such a business or businesses, there is
no assurance that we will successfully either enter those business or enter into a transaction with entities to allow us to enter
into those lines of business.
5. WE ARE IN A HIGHLY COMPETITIVE MARKET FOR A SMALL
NUMBER OF BUSINESS OPPORTUNITIES, THERE IS RISK THAT WE WOULD BE AN INSIGNIFICAN PARTICIPANT AMOUNG OTHER COMPANIES WITH LARGER
FINANCIAL RESOURCES.
The Company is and will continue to be an insignificant
participant in the business of seeking mergers with, joint ventures with and acquisitions of small private and public entities.
A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions
of companies that may be desirable target candidates for us.
Nearly all these entities have significantly greater
financial resources, technical expertise and managerial capabilities than we do and, consequently, we will be at a competitive
disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will
also compete in seeking merger or acquisition candidates with numerous other small public companies.
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6. THE ISSUANCE OF ADDITIONAL STOCK TO COMSUMMATE A
BUSINESS COMBINATION WILL REDUCE YOUR PERCENTAGE OF OWNERSHIP IN THE COMPANY, AND REDUCE THE VALUE OF YOUR SHARES.
Our primary plan of operation is based upon a business
combination with a private concern that, in all likelihood, would result in the issuance of our securities to the shareholders
of the private company. The issuance of previously authorized and unissued common stock would result in reduction in percentage
of shares owned by present and prospective shareholders of the Company and may result in a change in control or management.
7. THERE IS A RISK WE WILL NOT BE ABLE TO IDENTIFY
ANY SUITABLE BUSINESS COMBINATIONS.
We have no arrangement, agreement or understanding
with respect to engaging in a merger with, joint venture with or acquisition of, a private or public entity. No assurances can
be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination.
Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee
that we will be able to negotiate a business combination on favorable terms.
8. SINCE WE HAVE NOT CONDUCTED ANY MARKET REEARCH,
THERE IS A RISK THAT MERGER OR ACQUISITION OPPORTUNITIES DO NOT EXIT AT THE TIME.
We have neither conducted, nor have others made available
to us, results of market research indicating that market demand exists for the transactions we contemplate. Moreover, we do not
have, and do not plan to establish, a marketing organization. Even if demand is identified for a merger or acquisition, we cannot
assure you that we will be successful in completing a business combination.
9. THERE CAN BE NO ASSURANCE OF PROFITABILITY, EVEN
ONCE AN ACQUISITION HAS BEEN ACCOMPLISHED.
We have not established a specific length of operating
history or a specified level of earnings, assets, net worth or other criteria that we will require a target business opportunity
to have achieved. Accordingly, we may enter into a business combination with a business opportunity having no significant operating
history, losses, limited or no potential for earnings, limited assets, negative net worth or other characteristics that are indicative
of development stage companies.
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10. THE REQUIREMENT OF AUDITED FINANCIAL STATEMENTS
MAY DISQUALIFY POTENTIAL BUSINESS OPPORTUNITIES.
Management believes that any potential business opportunity
must provide audited financial statements for review for the protection of all parties to the business combination. One or more
attractive business opportunities may choose to forego the possibility of a business combination with us, rather than incur the
expenses associated with preparing audited financial statements.
11. IF OUR COMPANY IS NOT SUCCESSFUL, OUR STOCKHOLDERS
MAY LOSE THEIR ENTIRE INVESTMENT IN US.
As discussed in the Notes to Financial Statements included
in this Annual Report, we experienced a net loss of $13,079 for the year ending August 31, 2016. Our ability to continue as a going
concern is dependent upon our successfully identifying and engaging in a profitable line of business. We may not be successful
in addressing these issues.
12. OUR COMPANY MAY REQUIRE ADDITIONAL CAPITAL AND
IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.
We may require additional capital to finance our continued
existence. To the extent that our resources are insufficient to fund our future activities, we may need to raise additional funds
through public or private financing. However, additional funding, if needed, may not be available on terms attractive to us, or
at all. Our inability to raise capital when needed could have a material adverse effect on our business, operating results and
financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our
company by our current shareholders would be diluted.
13. IN THE FUTURE, WE WILL INCUR INCREMENTAL COSTS
AS A RESULT OF OPERATING AS A PUBLIC COMPANY, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME TO COMPLIANCE INITIATIVES.
As a fully reporting company, we will incur legal,
accounting and other expenses. Moreover, the Sarbanes- Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as well as new rules
subsequently implemented by the SEC, have imposed various new requirements on public companies, including requiring changes in
corporate governance practices. Our management will need to devote a substantial amount of time to these new compliance initiatives.
Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more
time-consuming and costly.
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The Sarbanes-Oxley Act also requires, among other things,
that we maintain effective internal controls for financial reporting and disclosure controls and procedures. We must perform system
and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered
public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by the Sarbanes-Oxley
Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our
internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Sarbanes-Oxley will require
that we incur substantial accounting expense and expend significant management efforts. Moreover, if we are not able to comply
with the requirements of Sarbanes-Oxley in a timely manner, or if we or our independent registered public accounting firm identifies
deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our
stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would
require additional financial and management resources.
14. THE NATURE OF OUR OPERATIONS ARE HIGHLY SPECULATIVE.
The success of our plan of operation will depend to
a great extent on the operations, financial condition and management of the identified business opportunity. While management intends
to seek business combination(s) with entities having established operating histories, we cannot assure you that we will be successful
in locating candidates meeting that criteria. In the event we complete a business combination, the success of our operations may
be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond our control.
15. THERE MAY BE A POSSIBLE INABILITY TO FIND SUITABLE
EMPLOYEES.
In order to implement our business plan, management
recognizes that additional staff will be required. No assurances can be given that we will be able to find suitable employees that
can support our needs or that these employees can be hired on favorable terms. We do not plan to hire any additional employees
until our cash flows can justify the expense.
RISKS RELATING TO OUR COMMON SHARES
16. WE MAY, IN THE FUTURE, ISSUE ADDITIONAL COMMON
SHARES, WHICH WOULD REDUCE INVESTORS' PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our Articles of Incorporation authorize the issuance
of 200,000,000 shares consisting of 130,000,000 authorized shares of Class A Common Stock, 6,000,000 authorized shares of Class
B Common Stock and 64,000,000 authorized shares of Class C Common Stock. The future issuance of common stock may result in substantial
dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in
the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may
have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market
for our common stock.
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17. ALTHOUGH OUR SHARES OF COMMON STOCK ARE QUOTED
ON THE OTC-QB, THEY ARE PENNY STOCKS.
The Securities Enforcement and Penny Stock Reform Act
of 1990 requires additional disclosures relating to the market for penny stocks in connection with trades in any stock defined
as a penny stock. SEC regulations generally define a penny stock to be an equity security that has a market or exercise price of
less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any
equity security issued by an issuer that has net tangible assets of at least $100,000, if that issuer has been in continuous operation
for three years.
Unless an exception is available, the regulations require
delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for
the penny stock, details of the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. The bid and offer quotations and broker-dealer and
salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and
must be given in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for securities
that become subject to the penny stock rules. Since our securities are highly likely to be subject to the penny stock rules, should
a public market ever develop, any market for our shares of common stock may not be liquid.
18. ALTHOUGH OUR STOCK IS LISTED ON THE OTC-BB, A TRADING
MARKET HAS NOT DEVELOPED, PURCHASERS OF OUR SECURITIES MAY HAVE DIFFICULTY SELLING THEIR SHARES.
There is currently no active trading market in our
securities and there are no assurances that a market may develop or, if developed, may not be sustained. If no market is ever developed
for our common stock, it will be difficult for you to sell any shares in our Company. In such a case, you may find that you are
unable to achieve any benefit from your investment or liquidate your shares without considerable delay, if at all.
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19. 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 intend to retain any future earnings to finance
the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable
future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There
is no assurance that stockholders will be able to sell shares when desired.
20. WE HAVE ISSUED SHARES OF PREFERRED STOCK
AND MAY IN THE FUTURE ISSUE ADDITIONAL PREFERRED STOCK THAT MAY ADVERSELY IMPACT YOUR RIGHTS AS HOLDERS OF OUR COMMON STOCK.
Our articles of incorporation authorize us to issue
up to 5,000,000 shares of preferred stock. Accordingly, our board of directors will have the authority to fix and determine the
relative rights and preferences of preferred shares, as well as the authority to issue such shares, without further stockholder
approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders
preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our
common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the
common stock. To the extent that we do issue such additional shares of preferred stock, your rights as holders of common stock
could be impaired thereby, including, without limitation, dilution of your ownership interests in us. In addition, shares of preferred
stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult,
which may not be in your interest as holders of common stock.
21. WE HAVE NEVER DECLARED DIVIDENDS ON OUR COMMON
STOCK AND DO NOT PLAN TO DO SO IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings to finance
the operation and expansion of its business and do not anticipate paying any cash dividends in the foreseeable future. As a result,
stockholders will need to sell shares of common stock in order to realize a return on their investment, if any. You should not
rely on an investment in our company if you require dividend income. The only possibility of any income to investors would come
from any rise in the market price of your stock, which is uncertain and unpredictable.
A holder of common stock will be entitled to receive
dividends only when, as, and if declared by the Board of Directors out of funds legally available therefore. We have never issued
dividends on our common stock. Our Board of Directors will determine future dividend policy based upon our results of operations,
financial condition, capital requirements, and other circumstances.
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22. WE ISSUE ADDITIONAL SHARES OF PREFERRED AND/OR
COMMON STOCK IN THE FUTURE.
Although our Board of Directors intends to utilize
its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any
future issuance of our common stock, the future issuance of additional shares of our preferred and common stock would cause immediate,
and potentially substantial, dilution to the net tangible book value of those shares of preferred and common stock that are issued
and outstanding immediately prior to such transaction. Any future decrease in the net tangible book value of our issued and outstanding
shares could have a material effect on the market value of the shares.
23. WE DO NOT HAVE INSURANCE AND, THEREFORE, LIABILITY
WE INCUR COULD HAVE SUBSTANTIAL IMPACT ON OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have limited capital and, therefore, we do not currently
have a policy of insurance against liabilities arising out of the negligence of our officer and director and/or arising from deficiencies
in any of our business operations. Even assuming we obtained insurance, there is no assurance that such insurance coverage would
be adequate to satisfy any potential claims made against us, our officers and directors, or our business operations or assets.
Any such liability which might arise could be substantial and would likely exceed our total assets. However, our Articles of Incorporation
and Bylaws provide for indemnification of officers and directors to the fullest extent permitted under Nevada law. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to directors, officer and controlling persons, it is
the opinion of the U. S. Securities and Exchange Commission that such indemnification is against public policy, as expressed in
the Act, and is therefore, unenforceable.
24. IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL
CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD AND AS A RESULT, INVESTORS MAY BE MISLED
AND LOSE CONFIDENCE IN OUR FINANCIAL REPORTING AND DISCLOSURES, AND THE PRICE OF OUR PREFERRED AND COMMON STOCK MAY BE NEGATIVELY
AFFECTED.
The Sarbanes-Oxley Act of 2002 requires that we report
annually on the effectiveness of our internal control over financial reporting. A "significant deficiency" means a deficiency
or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet
important enough to merit attention by those responsible for oversight of the Company's financial reporting. A "material weakness"
is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely
basis.
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As of August 31, 2016, management assessed the effectiveness
of our internal control over financial reporting based on the criteria for effective internal control over financial reporting.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards
of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of
independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent
with control objectives.
In addition, in connection with our on-going assessment
of the effectiveness of our internal control over financial reporting, we may discover "material weaknesses" in our internal
controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness
is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected.
Failure to provide effective internal controls may
cause investors to lose confidence in our financial reporting and may negatively affect the price of our preferred and common stock.
Moreover, effective internal controls are necessary to produce accurate, reliable financial reports and to prevent fraud. If we
have deficiencies in our internal controls over financial reporting, these deficiencies may negatively impact our business and
operations.