EMPO Empowered Products Inc (CE)

ITEM 1A.            RISK FACTORS

Any investment in our common stock involves a high degree of risk. Potential investors should carefully consider the material risks described below and all of the information contained in this Form 10-K before deciding whether to purchase any of our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. Our common stock is quoted on the OTCQB under the symbol “EMPO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. The trading price could decline due to any of these risks, and an investor may lose all or part of his or her investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report.

Our independent registered public accounting firm has expressed doubt as to our ability to continue as a going concern.

As of December 31, 2012, we had cash and cash equivalents of approximately $117,000 and an accumulated deficit of approximately $3.8 million. For the year ended December 31, 2012, we generated negative cash flows from operating activities of approximately $590,000. These conditions raise substantial doubt about our ability to continue as a going concern. While we have managed to generate revenues since our inception, we believe that additional debt and equity financing will be required to support our operations and to fund our planned growth. We cannot assure you that we will be able to obtain additional financing on terms favorable or acceptable to us, if at all. If we are unable to obtain adequate financing, we could be forced to abandon our expansion plans, which would negatively affect our ability to compete in the marketplace and adversely affect our financial condition and ability to continue as a going concern.

Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2012 regarding uncertainty over our ability to continue as a going concern. The inclusion of the going concern statement by our auditors may adversely affect our stock price and our ability to raise needed capital or enter into advantageous contractual relationships with third parties which could hinder our ability to remain a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

If the outside contractors we currently use for bulk production of our lubricant and lotion products and production of our nutritional supplements fail to produce product in the volumes and quality that we require on a timely basis, we may be unable to meet demand for our products and may lose potential revenues.

We currently contract with specially equipped contractors to handle the large-scale mixing of the formulation components in our lubricant and lotion products. We also obtain our nutritional supplements from a third-party manufacturer. These external contractor relationships entail added costs and potential disruption to our finished goods schedule. These third-party contractors may encounter difficulties in production, including problems with quality control, quality assurance testing, shortages of qualified personnel, and compliance with federal, state and or other governmental regulations. Our contractors may not be able to expand capacity or to produce additional product requirements for us in the event that demand for our products increases. There can be no assurance that our contractors will be able to continue purchasing raw materials for our products from current suppliers or any other supplier on terms similar to current terms or at all. If these contractors were to encounter any of these difficulties, or experience any interruption in the availability of certain ingredients or significant increases in the prices paid for such materials, our ability to fulfill orders on a timely basis to our customers would be jeopardized. In the future, we intend to add the necessary industrial level mixing equipment to our current bottling facility to mix our own lubricant and lotion products, however, we cannot assure you when and if we will begin to mix such products in-house.

If we do not manage product inventory in an effective and efficient manner, our profitability could be adversely affected.

Many factors affect the efficient use and planning of product inventory, such as effectiveness of predicting demand, effectiveness of preparing manufacturing to meet demand, efficiently meeting product mix and product demand requirements and product expiration. We may be unable to manage our inventory efficiently, keep inventory within expected budget goals, or keep sufficient product on hand to meet demand. If we fail to manage inventory effectively, we may end up with unsold inventory that is past its expiration date and can no longer be sold. We periodically evaluate the composition of inventory and estimate an allowance to reduce inventory for slow moving, obsolete or damaged inventory. In 2012, we concluded that some of our nutritional supplement product inventory may expire prior to its expected sale and accrued an allowance related to such inventory. In addition, if we fail to anticipate demand for our products accurately, we may be required to record charges for idle plant capacity. In 2012 we recorded a $63,000 charge related to idle capacity. We cannot provide you with assurance that we will be able to manage our inventory effectively to avoid future similar charges and allowances in the future. Our failure to manage inventory effectively may lead to increased costs and adversely affect our results of operations.

Developing and increasing awareness of our brand is crucial to increasing our customer base and our revenues.

We believe that increasing awareness of our PINK® and GUN OIL® brands will be critical to expanding our customer base and our revenues, especially as we expand our line of product offerings. If we fail to advertise and market our products effectively, we may not succeed in maintaining or increasing awareness of our brands and we may lose customers and our revenues will decline. The delivery of quality products to our customers is also of utmost importance to maintaining and enhancing the reputation of our brand. If our customers do not perceive our products to be of high quality, demand for our products will decline, which could lead to a decline in revenues and an adverse effect on our financial condition.

Our new sales strategy of selling our products directly to retailers and our new marketing focus toward end consumers might not be successful and may decrease sales to our wholesale customers.

A component of our overall plan to increase sales, through greater inventory capacity and new product genres, includes selling products directly to retailers and direct marketing to the end retail consumers of our products. In 2012, we began selling our lubricant products directly to retailers and in December 2011, we began selling our complete product line directly to consumers through our online Wellness Store Prior to then, we had not sold any of our products directly to end consumers. We cannot assure you that this new sales and marketing strategy will be successful. As a result of our new sales and marketing strategies, our traditional wholesale and distributor customers may decrease purchases from us, which could lead to reduced sales and revenues from that particular revenue stream. In addition, in implementing our new strategy to sell our products to end consumers, we intend to employ various methods to drive and direct consumer traffic to our retail store, such as issuing coupons redeemable at our retail store. These methods may cause tension with our wholesaler and retailer customers that want to control such consumer traffic and cause such customers to retaliate by decreasing their purchase orders with us, which could have a material adverse effect on our business, financial condition, liquidity and operating results.

Our plan to implement new sales and marketing strategies to reduce sales and marketing related costs may not be successful.

Our sales and marketing strategies, which have predominantly focused on trade conventions and extensive travel to onsite visits to wholesale account customers, must become more efficient to increase profit margins.  We implemented a new sales and marketing strategy to increase sales and lower our costs per new account added and per order attained by using mass-contact methods such as, direct mail and online order solicitation from our customer contact management program on our proprietary server. These marketing and sales strategies apply to both of our product lines, personal lubricants and herbal supplements. For our lubricant product line only, we have embarked on a campaign to expand our presence in the large retail chain sector. This has been done through retail chain store industry shows and the establishment of a broker network for communicating with retail chain store buyers. We cannot assure you that these new sales and marketing methods will result in increased sales or decreased costs.

If we are unsuccessful in developing an online marketing strategy for our products, our sales may decline and cause an adverse effect on our results of operations.

Over recent years, we have observed a gradual decline in the number of onsite adult product stores in the U.S. and within our active wholesale customer database. Although many of these adult trade retail outlets have transformed into online sales venues, we have had to continually update and convert our marketing materials from point-of-purchase displays to online promotional graphics in HTML format. Our marketing strength for our lubricant and lotion products has traditionally been physical, point-of-purchase displays where consumers can physically see and hold our unique product packaging. It is uncertain whether our new online marketing strategy for such products will be as successful as our physical marketing displays. Our failure to implement a successful online marketing strategy may lead to fewer sales of such products and an adverse effect on our results of operations.

Governmental regulation of Internet-based commerce and the collection and use of personal information may adversely affect the growth of our business or hinder our marketing efforts. 

Any new law or regulation, or the application or interpretation of existing laws, regarding Internet-based commerce may decrease the growth in the use of the Internet-based commerce or our online Wellness Store. Governmental regulation of Internet-based commerce continues to evolve in areas such as taxation, privacy, data protection, copyrights, patents, mobile communications and the provision of online payment services. We expect there will be an increasing number of laws and regulations implemented that govern Internet-based commerce, both in the United States and abroad. Unfavorable changes to regulations in these areas could harm our business.

The FTC has regulations regarding the collection and use of personal identifying information obtained from individuals when accessing websites, with particular emphasis on access by minors. In addition, other governmental authorities have regulations governing the collection and use of personal information that may be obtained from customers or visitors to websites. These regulations include requirements that procedures be established to disclose and notify users of our websites of our privacy and security policies, obtain consent from users for collection and use of personal information and provide users with the ability to access, correct or delete personal information stored by us. In addition, the FTC and other governmental authorities have made inquiries and begun investigations of companies’ practices with respect to their users’ personal information collection and dissemination practices to confirm these are consistent with stated privacy policies and to determine whether precautions are taken to secure consumer’s personal information. The FTC and certain state agencies also have made inquiries, and, in a number of situations, brought actions against companies to enforce the privacy policies of these companies, including policies relating to security of consumers' personal information. If we become a party to a similar investigation or become the subject of the FTC’s regulatory and enforcement efforts or those of other governmental bodies, our ability to collect demographic and personal information from users may be adversely affected, which could harm our marketing efforts.

A deterioration in trade relations between U.S. and China could negatively impact our inventory production capacity.

The majority of components for our personal lubricant product line, including bottles, caps and labels, are purchased from manufacturers based in China. Any deterioration in relations between the U.S. and China could adversely affect our ability to continue obtaining such components from our current Chinese suppliers or cause delays in obtaining shipments from such suppliers. Delays in obtaining such items could cause delays in fulfilling orders which could negatively affect our reputation and business. While there are alternative domestic sources for the components that we currently buy from China, obtaining components from domestic suppliers could increase costs and negatively affect our results of operations.

Our entry into the South American markets continues to be difficult which could negatively impact our expansion plans.

We have been attempting to gain initial shelf space for our lubricant products in South America for the past several years without success. The requirements to attain import licenses, such as the "anavisa" program in Brazil, continue to change without clear explanation. We have yet to execute an active distribution agreement with any wholesaler with access to the South American market for our lubricant products . Our failure to access the South American market could slow our current expansion plans. We are currently pursuing a distributor relationship in the Free-Trade Zone in Colon, Republic of Panama in order to sell our lubricant products throughout Central and South America, however, at this time we do not know the level or extent of interest in our product line among Panama-based distributors. We cannot assure you that we will be successful in executing an agreement with a distributor in Panama or in any country in South America for the sale and distribution of our lubricant products. Our failure to successfully expand sales of our lubricant products into the South American market could hinder our growth plans and business operations.

We intend to increase sales by expanding sales of our products to new international markets. We could incur substantial costs in connection with such expansion and may not be successful in expanding into new markets, which could materially adversely affect our growth and business operations.

We intend to expand sales of our products to new international markets in which we will become subject to different political, cultural, regulatory, economic, legal and operational risks. We may need to comply with the need to overcome regulatory and legal barriers in order to sell our products in such jurisdictions and we cannot assure you that we will be able to overcome such barriers. We may incur substantial costs in attempting to expand sales of our products to new international markets or in ensuring that are products are compliant with regulations in such areas, which could negatively affect our results of operations. We cannot assure you that consumers in such new markets will accept or purchase our products or that expanding into these new markets will generate significant revenues.

If the growth rate of the nutritional supplement industry slows, sales of our nutritional supplements could decrease and have a negative impact on our business.

The nutritional supplement industry has been steadily growing over the past few years. Any negative news regarding nutritional supplements, including reported medical problems associated with ingredients in our products or used in other nutritional supplements, could negatively impact demand for our nutritional supplement products. A decrease in demand for our products would negatively affect our sales growth.

Impediments to global shipping lanes can delay crucial deliveries and negatively impact our business, financial condition and results of operations.

Both our receipt of product packaging components and our shipment of finished goods depend heavily on ship cargo container delivery. Threats of dock workers’ strikes highlight our potential vulnerability to shipping interruption. Any shipment delays in obtaining our product packaging or shipping our finished products to our customers could negatively impact our business, financial condition and results of operations.

Our planned website upgrades require extensive programming time and may not be completed within our anticipated timeline, which may negatively impact our expansion plans and results of operations.

While we have successfully launched our retail website, The Wellness Store, where consumers can purchase our full line of products, we are still in the process of developing an interactive sales and service website through which our wholesale customers can place orders, pay outstanding account balances and request all forms of customer service. We expect to have all online programming upgrades for our wholesale site functioning during 2013. Our failure to launch our wholesale website when anticipated may negatively impact our expansion plans and results of operations.

Our Las Vegas logistical center can be impacted by foul weather which can disrupt our operations.

Our product bottling and order fulfillment shipping operations can be interrupted by abnormal weather conditions in the high desert environment of Las Vegas, Nevada.  In the past, a rare snow storm caused enough roof damage to one of our warehouse facilities to temporary halt personnel and machinery functioning inside.  The occurrence of any future abnormal weather conditions could cause damage to our facility and possibly cause us to have to stop or delay operations again.  Although we have insurance to cover damage to our facilities, we may incur expenses relating to such damages, which could have a material adverse effect on our business and results of operations.

We may need to increase production space, machinery and personnel in order to implement our current plan to expand production capacity.

We currently plan to triple our production capacity and increase the scope of our product lines under our two trademarked logos, which required us to lease additional operational space for our logistical center in Las Vegas, Nevada. We purchased additional equipment in 2011 at a cost of approximately $98,000 that has increased the production capacity of our existing bottling line for our lubricant products and allows us to package our nutritional supplement in blister packs in-house. Costs related to obtaining additional equipment to increase and expand our production capacities and increasing our workforce to accompany our increased production may negatively impact our results of operations. Any future needs for additional space, equipment and personnel required to meet our anticipated growth may increase costs and adversely affect our results of operations.

The adult nature of our products may prevent some companies from doing business with us.

Some companies we seek to provide products and services to us may be concerned that associating with our company due to the adult nature of our products may prevent them from doing business with us. These companies may be reluctant to enter into or continue business relationships with us. We cannot assure you that we will be able to maintain our existing business relationships with the companies that currently provide services and products to us. We could be forced to enter into business arrangements on terms less favorable to us than we might otherwise obtain, which could lead to higher costs. If we are unable to maintain our existing business relationships or enter into business relationships with other product and service providers in the future, our business, financial condition and results of operations may be materially adversely affected.

We may not be successful in attracting new consumer groups for our new nutritional supplement product line.

The retail consumers of our current topical gels, lotions and oils products are predominately onsite and online customers of adult products stores, independent and chain drugstores and women’s accessory boutiques. The success of our new lines of nutritional supplements will depend upon attracting a consumer following from customers of onsite and online grocery stores and wellness product merchants. The appeal of our new nutritional supplement products and the recognition of our trademarked logos by these new consumer groups could be less than we currently anticipate.  Our failure to attract new consumers for these products may result in increased costs and cause a material adverse effect on our results of operations.

The success of our new line of nutritional supplements depends on retailer and consumer acceptance of such products.

The nutritional supplement market is highly fragmented and competitive. The success of our new line of supplement products will depend on our ability to market our new products successfully. Market acceptance of such products by retailers and consumers is critical to the success of our new product line. We cannot assure you that consumers and retailers will purchase our products or that demand will increase for such products. Our failure to convince retailers to carry our products and/or consumers to purchase our products may negatively impact our results of operations.

Our current management has no experience in developing and selling nutritional supplements.

From March 2002 through December 2011, the core of our sales revenues has been derived from our line of topically applied gels, lotions and interactive lubricants. Our current management has drawn on this specific product-scope experience in launching products in the nutritional supplement category. No member of our management team has previously been involved in the nutritional supplements industry. We cannot assure you that the sales and marketing strategies employed by our current management and sales staff that have been successful for our traditional product lines will be as effective for our sale of products in these new categories. Any failure to convince consumers to purchase our new nutritional supplements could have a material adverse effect on our business and future prospects.

Our current trademark protections might not translate over to our new nutritional supplement products categories.

Our current trademarks cover our product line in category 25 for topical applications in 30 countries under the PINK® and GUN OIL® logos. Our product line expansion into nutritional supplements will qualify under new product categories for trademark protection. We have not yet determined the need and cost for additional trademark registrations for new products under our current logos that may be needed. We plan on expanding our trademark protection in foreign jurisdictions as the host governments approve our supplements for import and our in-country sales justify the process and expenditure. The increased costs associated with any new needed trademark registrations would negatively affect our results of operations.

If we are unable to protect our trademarks, we may not be able to compete as effectively and our business and financial prospects may be harmed.

We believe that our trademarks, in particular PINK® and GUN OIL®, are crucial to our success, growth potential and competitiveness. Our products are currently sold under these trademarks in over 30 countries. There is no assurance that there will not be any infringement of our brand name or other registered trademarks. Should any such infringement occur, our reputation and business may be adversely affected. We may also incur significant expenses and substantial amounts of time and effort to enforce our trademark rights in the future. Such diversion of our resources may adversely affect our existing business and future expansion plans.

We cannot guarantee the protection of our trademark rights and if infringement of trademarks occurs, including counterfeiting of our products, our reputation and business may be adversely affected.

Should any such infringement and/or counterfeiting occur, our reputation and business may be adversely affected. We may also incur significant expenses and substantial amounts of time and effort to enforce our trademark rights in the future. Such diversion of our resources may adversely affect our existing business and future expansion plans.

If we are subject to intellectual property litigation, we could incur significant costs and liabilities which could disrupt our business and negatively affect our financial condition and results of operations.

We may be subject to claims of infringement or other violations of intellectual property rights. Whether or not such a claim is valid, receipt of these notices could result in significant costs and diversion of the attention of management from our business operations. To the extent that any claim brought against us is successful, we may have to pay monetary damages or discontinue sales of any of our products that are found to be in violation of another party’s rights, which could result in a material adverse effect on our financial condition and results of operations.

Our inexperience in dealing with the Food & Drug Administration (the “FDA”) may harm our ability to offer nutritional supplement products.

Our product expansion into nutritional supplements requires expert guidance with respect to FDA rules and procedures. During a previous labeling application with the FDA to obtain 510(k) certification for one of our products, we spent over three years and $300,000 for a selected expert to guide us through the approval process, but no tangible result or decision was obtained. We are no longer pursuing 510(k) certification, as it is not required for our current product line and production facilities. We have sought the assistance of an expert in FDA regulations in connection with the introduction of our nutritional supplements to assist us with compliance with FDA and other regulations related to our sale of such products. Obtaining advice and guidance from experts with respect to FDA and other governmental rules and regulations may result in increased costs, which may adversely affect our results of operations.

If we fail to comply with regulations governing the labeling of our products, then our business and operating results may be harmed.

Our products, including our nutritional supplements, are subject to rigorous FDA and other regulatory requirements regarding the types of therapeutic claims we can make regarding our products. If we fail to comply with these regulations, we could be subjected to claims, financial penalties, product recalls or relabeling requirements, which could have a negative effect on our sales and results of operations.

We may be subject to product liability claims from our products, which could result in costly litigation, harm to our reputation, and a material adverse effect on our business and results of operations.

The development and sale of our topical lubrication and nutritional supplement products exposes us to the risk of damages from product liability or other consumer claims. Such claims may arise despite our quality controls, proper testing and instruction for use of our products. In addition, our nutritional supplement products, which are not subject to pre-market regulatory approval in the U.S., may contain ingredients that cause adverse reactions in people that ingest such supplements. As a marketer and seller of nutritional supplements, we may be subject to various product liability claims, including claims that our supplements contain contaminants or do not include adequate warnings regarding side effects and interactions with other substances. If a product liability claim is brought against us, regardless of merit or eventual outcome, or a recall of one of our products is required, such claim or recall may result in breaches of contracts with our customers, decreased demand for our products, costly litigation, additional product recalls, loss of revenue, and the inability to commercialize some products.  Any product liability claims related to our products would harm our reputation, which could cause a decrease in sales of our products and negative effect on our business operations. Although we have obtained product liability insurance as well as certificates of insurance from our suppliers of lubricant and herbal supplements that name us as an additional insured, we may not be able to obtain sufficient amounts from our insurance policies to cover a product liability claim. Any reduction in revenues or substantial costs related to product liability claims would materially adversely affect our business and results of operations.

We will be subject to competition from numerous companies, including a number of multi-national companies that have significantly greater financial and other resources .

The sexual wellness and nutritional supplement industries are highly competitive and very fragmented. With no significant barriers to enter these markets, we believe that competition in these industries will intensify. We compete with hundreds of large and small companies, including large multi-national companies in the topical lubricant and gel market, such as Johnson & Johnson, the maker the most recognized personal lubricant product, K-Y Jelly, and numerous other multi-national manufacturers. Most of our competitors market products that are well known and trusted by the consumer marketplace. Since many of our competitors have significantly greater financial and other resources than we do, our competitors have the ability to spend more aggressively on advertising and marketing, spend more on product development and testing, and have more flexibility than we do to respond to changing business and economic conditions and changes in preferences for sexual wellness products and nutritional supplements. Any delays in our development or release of new products in response to changing customer preferences could materially adversely affect our operating results and financial condition. Our existing competitors and future potential competitors may develop or market products that will be more accepted in the marketplace than our products. Competition in the sexual wellness business is based on product price, quality of the products, promotional activities, advertising, new product introductions, name recognition, and other factors. It is difficult for us to predict how we will be able to effectively compete with our competitors’ actions in these areas. We cannot assure you that we will have the resources to compete successfully with our competitors.

The implementation of new regulations governing the marketing and sale of nutritional supplements could harm our business.

There has been an increasing movement in the U.S. and other jurisdictions to increase the regulation of dietary supplements, which could impose additional restrictions or requirements on the marketing and sale of such products.  For example, in the U.S., there has been a push to increase the FDA’s regulatory authority of nutritional supplements. Our business could be harmed if more restrictive legislation is successfully introduced and adopted in the future.  Currently, our nutritional supplement products are not subject to pre-market FDA approval. If regulations are adopted to require pre-market approval supplements or ingredients, our sale and release of new nutritional supplements cold be delayed or inhibited. The adoption of similar laws in other countries in which we intend to expand sales of our nutritional supplements could also harm our business. The FTC approved revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) in December 2009. The Guides state that advertisements that feature a consumer and his or her atypical experience with a product must clearly disclose the results that consumers generally can expect with such product. In addition, the Guides require disclosure of any material connections between an endorser and the company whose products he or she is endorsing. If we fail to comply with the Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our marketing strategy.

Our or our third-party manufacturers’ failure to comply with good manufacturing practices could harm our business operations.

All manufacturers and suppliers of nutritional supplements must comply with applicable current good manufacturing practice, or cGMP, regulations for the manufacture of our nutritional supplement products, which are enforced by the FDA through its facilities inspection program. The FDA may conduct inspections of our third party manufacturers to assure they are in compliance with such regulations. These cGMP requirements include quality control, quality assurance and the maintenance of records and documentation, among other items. Our manufacturers may be unable to comply with these cGMP requirements and with other regulatory requirements. A failure to comply with these requirements may result in fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, warning or untitled letters, import or export bans or restrictions, and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing or sale of our products. If the safety of any products supplied to us is compromised due to a third party manufacturer’s failure to adhere to applicable laws or for other reasons, we may not be able to successfully sell our products. We cannot assure you that our third-party manufacturers will continue to reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with applicable laws and regulations, including cGMP requirements.

Failure to protect against security breaches and inappropriate use by Internet users could adversely affect our company.

We collect and retain a large amount of internal and customer data, including credit card numbers and other personally identifiable information of our customers, as well as personally identifiable information about our employees. The security of this data may potentially be breached due to a number of risks, including cyber-attack, system failure, human error, computer virus, or unauthorized or fraudulent use by customers or company employees. Any failure on our part to effectively prevent security breaches could significantly harm our business, reputation and results of operations and could expose us to lawsuits by state and federal consumer protection agencies, by governmental authorities in the jurisdictions in which we operate, and by consumers. Anyone who is able to circumvent our security measures could misappropriate proprietary information, including customer credit card and personal data, cause interruptions in our operations or damage our brand and reputation.  Such breach of our security measures could involve the disclosure of personally identifiable information and could expose us to a material risk of litigation, liability or governmental enforcement proceedings. We cannot assure you that our systems are completely secure from security breaches or sabotage. We may be required to incur significant additional costs to protect against security breaches or to alleviate problems caused by such breaches. Any well-publicized compromise of our security or the security of any other Internet provider could deter people from using our online Wellness Store to purchase our products, which could adversely affect our sales and results of operations.

Computer viruses may cause delays or other service interruptions, which may materially adversely affect our ability to operate our business and result in damage to our reputation. If a computer virus affecting the Internet in general is highly publicized or particularly damaging, our customers may not use the Internet or may be prevented from using the Internet to access our Wellness Store, which would have an adverse effect on sales of our products. The inadvertent transmission of computer viruses could also expose us to a material risk of loss or litigation and possible liability.  The Company may be required to expend capital and resources to protect against or alleviate system failures or disruptions, which could negatively affect our results of operations.

Credit card and debit card fraud and other fraud could adversely affect our business.

Our consumer customers typically pay for their online orders through our Wellness Site with debit or credit cards. Our revenues and gross margins could decrease if we experienced significant credit card and debit card fraud. Failure to adequately detect and avoid fraudulent credit card and debit card transactions could cause us to lose our ability to accept credit cards or debit cards as forms of payment and/or result in charge-backs of the fraudulently charged amounts and/or significantly decrease revenues. Furthermore, widespread credit card and debit card fraud may lessen our customers’ willingness to purchase products through our online Wellness Store, which could materially adversely affect our sales, financial condition and results of operations.

We may need additional capital to implement our current business strategy, which may not be available to us.

We currently depend on net revenues and borrowings under our line of credit to meet our short-term cash requirements.  In order to grow revenues, sustain profitability and remain a going concern, we will need additional capital.  Obtaining additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment.  The inclusion by our independent registered accounting firm of a going concern statement in its report on our financial statements as of and for the year ended December 31, 2012 may make it more difficult for us to raise additional capital. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us.  We cannot assure you that we will be able to obtain any additional financing.  If we are unable to obtain the financing needed to implement our business strategy, we may have to delay, modify or abandon some of our expansion plans. This could slow our growth, negatively affect our ability to compete in the marketplace and adversely affect our financial condition.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.

We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

We may not be able to extend or renew our current revolving credit facility with Wells Fargo Bank on terms reasonably acceptable to us, if at all.

We have generally financed our operations through contributions from our majority stockholder, sales of equity securities, and borrowings under a line of credit with Wells Fargo Bank.  Our revolving line of credit with Wells Fargo Bank provides for borrowings of up to $500,000.  Our President and Chief Executive Officer, Scott Fraser, personally guarantees our borrowings under the line of credit. If the bank upon renewal of the line of credit were to continue to insist on a personal guarantee from Mr. Fraser to renew the line of credit and Mr. Fraser is unwilling or unable to provide such guarantee, we may not be able to renew our line of credit. If we are unable to renew our line of credit with Wells Fargo Bank and cannot locate additional financing sources to replace such line of credit, our cash flow could be adversely affected.

We rely heavily on the founder of EP Nevada, Scott Fraser, our current President and Chief Executive Officer.  The loss of his services would have a material adverse effect upon the Company and its business and prospects.

Our success depends, to a significant extent, upon the continued services of Scott Fraser, who is the founder of EP Nevada and our current President and Chief Executive Officer. Mr. Fraser is not subject to any agreement that prevents him from soliciting our existing customers or disclosing information deemed confidential to us, we do not have any agreement with Mr. Fraser or any key employees that would prohibit them from joining our competitors or forming competing companies. If Mr. Fraser or any key employee resigns to join a competitor or form a competing company, the loss of such personnel, together with the loss of any customers or potential customers due to such executive’s departure, could materially and adversely affect our business and results of operations.

Our failure to effectively manage growth could harm our business .

We have rapidly and significantly expanded our operations since our inception and will endeavor to further expand our operations in the future with our current plans to triple our output capacity at our bottling facility.  Any additional significant growth in the market for our products or our entry into new markets may require and expansion of our employee base for managerial, operational, financial, sales and marketing and other purposes.  During any growth phase, we may face problems related to our operational and financial systems and controls, including quality control and customer service capacities.  We would also need to continue to expand, train and manage our employee base.  Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the development of new products, to increase our output capacity and to hire additional employees.  For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls.  Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability.  We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

Our business and results of operations may be negatively impacted by general economic and financial market conditions and such conditions may exacerbate the other risks that affect our business.

The global economy is currently struggling to recover from a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, continued high unemployment, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further deterioration in the global economy, the global financial markets and consumer confidence. Although we believe we have adequate liquidity and capital resources to fund our operations internally, in light of current market conditions, our inability to access the capital markets on favorable terms, or at all, may adversely affect our financial performance. Current market conditions could impair our ability to raise additional capital when needed for our operations and planned expansion. The inability to obtain adequate financing from debt or capital sources could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.

We may pursue future growth through strategic acquisitions and alliances which may not yield anticipated benefits and may adversely affect our operating results, financial condition and existing business.

We may seek to grow in the future through strategic acquisitions in order to complement and expand our business. The success of our acquisition strategy will depend on, among other things:

If we are not successful in integrating acquired businesses and completing acquisitions in the future, we may be required to reevaluate our acquisition strategy. We also may incur substantial expenses and devote significant management time and resources in seeking to complete acquisitions. Acquired businesses may fail to meet our performance expectations. If we do not achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or analysts may not perceive the same benefits of the acquisition as we do. If these risks materialize, our stock price could be materially adversely affected.

In April of 2012, we adopted the 2012 Omnibus Incentive Plan under which we may grant securities to compensate employees and other service providers, which could result in share-based compensation expenses and, therefore, reduce net income.

In April of 2012, we adopted the 2012 Omnibus Incentive Plan under which we may grant equity awards to qualified employees, directors and service providers. Under current accounting rules, we will be required to recognize share-based compensation as a compensation expense in our statement of operations, based on the fair value of equity awards on the date of the grant, and recognize the compensation expense over the period in which the recipient is required to provide service in exchange for the equity award. We have not made any such grants in the past, and accordingly our results of operations have not contained any share-based compensation charges. The additional expenses associated with share-based compensation may reduce the attractiveness of issuing equity awards under an equity incentive plan that we may adopt in the future. If we grant equity compensation to attract and retain key personnel, the expenses associated with share-based compensation may adversely affect our net income. However, if we do not grant equity compensation, we may not be able to attract and retain key personnel or be forced to expend cash or other compensation instead. Furthermore, the issuance of equity awards would dilute the stockholders’ ownership interests in our company.

Our charter documents may have anti-takeover effects that could prevent a change in control, which may cause our stock price to decline.

Our articles of incorporation or our bylaws could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 5,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

Our articles of incorporation and bylaws also contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. In particular, the articles of incorporation and bylaws, as applicable, among other things:

These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with its Board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.

RISKS RELATED TO OUR CAPITAL STRUCTURE

There is no liquid market for our common stock, and there is no assurance of an established public trading market, which would adversely affect the ability of our investors to sell their securities in the public market.

Our common stock is quoted on the OTCQB under the symbol “EMPO” and the trading volume has been low. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock.  FINRA has enacted changes that limit quotations on the OTCQB to securities of issuers that are current in their reports filed with the SEC. The OTCQB is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASDAQ Global Market and NYSE MKT. Quotes for stocks included on the OTCQB are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market and NYSE MKT. Therefore, prices for securities traded solely on the OTCQB may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original purchase price or at any price. We cannot predict how actively our shares will trade on the OTCQB or whether the price of our shares in the public market will reflect our financial performance.

The market price and trading volume of shares of our common stock may be volatile.

Our common stock is quoted on the OTCQB under the symbol “EMPO”. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock. The market price of our common stock could fluctuate significantly for many reasons, including reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by our competitors regarding their own performance, as well as general economic and industry conditions. For example, to the extent that other companies within our industry experience declines in their share price, our share price may decline as well. Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the price of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in any particular quarter, including vulnerability of our business to a general economic downturn; changes in the laws that affect our products or operations; competition; compensation related expenses; application of accounting standards; and our ability to obtain and maintain all necessary government certifications and/or licenses to conduct our business. In addition, when the market price of a company’s shares drops significantly, shareholders could institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.

The former shareholder of EP Nevada, Scott Fraser, may be eligible to sell all or some of our shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended (“Rule 144”), subject to certain limitations.  Under Rule 144, an affiliate stockholder who has satisfied the required holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale.  As of March 29, 2013, 1% of our issued and outstanding shares of common stock was approximately 623,889 shares.  Non-affiliate stockholders are not subject to volume limitations.  Any substantial sale of common stock pursuant to Rule 144, or pursuant to any registration statement declared effective by the SEC, may have an adverse effect on the market price of our common stock by creating an excessive supply.

Members of our management team have significant influence over us.

Mr. Fraser, our President, Chief Executive Officer and Chairman of the Board, owns approximately 64.1% of our outstanding common stock.  Mr. Fraser has a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions.  Mr. Fraser may also have the power to prevent or cause a change in control.  In addition, without the consent of Mr. Fraser, we could be prevented from entering into transactions that could be beneficial to us.  The interests of Mr. Fraser may differ from the interests of our other stockholders.

We are not subject to certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 and without voluntary compliance with such provisions, our stockholders will not receive the benefits and protections they were enacted to provide.

Since our common stock is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance requirements established by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002. These include rules relating to independent directors, and independent director nomination, audit and compensation committees.  Unless we voluntarily elect to comply with those obligations, investors in our shares will not have the protections offered by those corporate governance provisions. As of the date of this report, we have not elected to comply with any regulations that do not apply to us. We currently have a board of directors that consists of two members, neither of which are considered independent pursuant to the rules of the NYSE, NYSE MKT or NASDAQ. While we may make an application to have our securities listed for trading on a national securities exchange, which would require us to comply with those obligations, we cannot assure that we will do so or that such application will be approved.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective complex, and require significant documentation, testing and possible remediation to meet the detailed standards.

We identified material weaknesses in our internal control over financial reporting as of December 31, 2012, as disclosed in “Item 9A. Controls and Procedures”  and concluded that our internal control over financial reporting was ineffective as of December 31, 2012. We determined that we had material weaknesses due to (a) ineffective procedures and controls over reserves and allowances, (b) inadequate segregation of duties, (c) inadequate reporting processes in relation to the consolidation of our subsidiary’s financial information, (d) an inadequate number of independent board members and lack of an independent audit committee, and (e) an insufficient complement of personnel with appropriate levels of knowledge and experience. Due to the actual and potential errors on financial statement balances and disclosures, management has concluded that these deficiencies in internal controls over the period-end financial close and reporting processes constituted material weaknesses in internal control over financial reporting.

Management has retained an outside, independent financial consultant to review all financial data, as well as help us prepare our financial reports, in order to mitigate this weakness. This will create a position whereby certain aspects of the operations will become more segregated, which is consistent with our control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. We also plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2013.

We may not be able to achieve the benefits we expect to result from the Merger.

On June 30, 2011, we entered into a Merger Agreement with Acquisition Sub, Name Change Merger Sub, and EP Nevada, pursuant to which EP Nevada merged with and into Acquisition Sub with EP Nevada continuing as the surviving entity (the “Merger”).  Upon the closing of the Merger, we exchanged each outstanding share of EP Nevada common stock for 4 shares of our common stock.  As a result of the Merger, EP Nevada became our wholly-owned subsidiary and our operations became that of EP Nevada.

We may not realize the benefits that we hope to receive as a result of the Merger, which include:

There can be no assurance that any of the anticipated benefits of the Merger will be realized with respect to our business operations.  In addition, the attention and effort devoted to achieving the benefits of the Merger and attending to the obligations of being a public company, such as reporting requirements and securities regulations, could significantly divert management’s attention from other important issues, which could materially and adversely affect our operating results or stock price in the future.

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance efforts.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company pursuant to the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC. Our management and other personnel devote a substantial amount of time and resources in complying with these requirements. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors and board committees or as executive officers and more expensive for us to obtain director and officer liability insurance.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. For example, on January 30, 2009, the SEC adopted rules requiring companies to provide their financial statements in interactive data format using the eXtensible Business Reporting Language, or XBRL. We began complying with these rules in 2011. In 2012, we began complying with the rules for detailed footnote tagging. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

Our common stock, which is currently quoted for trading on the OTCQB may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our common stock may be a “penny stock” if it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million.

The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth.  As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income.  Capital appreciation, if any, of our shares may be investors’ sole source of gain for the foreseeable future.  Moreover, investors may not be able to resell their shares of our common stock at or above the price they paid for them.