Form 1-A KOLABORATION VENTURES
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E-mail1-A LIVE 0001885563 XXXXXXXX true Kolaboration Ventures Corporation WY 2021 0001885563 2833 87-2163635 173 0 183 Main Street Rio Vista CA 94571 480-225-1167 Charles Wesley Other 175448.00 0.00 141086.00 12325841.00 34785147.00 15093913.00 10378627.00 29355522.00 5429625.00 34785147.00 38251470.00 22906296.00 373109.00 666773.00 0.00 0.00 Armanino LLP Common Shares 407494700 000000000 NA Series A Preferred Shares 30000 000000000 NA NA 0 000000000 NA true true Tier2 Audited Debt Y N N Y Y N 20000000 407494700 1.2500 25000000.00 0.00 0.00 0.00 25000000.00 Dalmore Group 250000.00 Armanino LLP 725000.00 Weintraub Law Group 110000.00 136352 24750000.00 Dalmore Group's commission is 1% of gross offering proceeds; stated fee assumes maximum offering amount sold true AL AK AZ AR CA CO CT DE FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY DC PR Kolaboration Ventures Corporation Common Stock 407494700 0 See Prior Sales Chart in Part II Offering Circular 4(a)(2) for common stock
An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.
Preliminary Offering Circular Subject To Completion
Dated January 31, 2022
KOLABORATION VENTURES CORPORATION
183 Main Street, Rio Vista, California 94571
(480-225-1167)
KolaborationVentures.com
Offering:
20,000,000 Common Shares at $1.25 per Share
Maximum Offering: Up to $25,000,000.00 USD1
Minimum Subscription Amount per Investor: $1,000 or 800 Shares
Preliminary Offering Circular Date: January 31, 2022
Kolaboration Ventures Corporation (“KVC”, the “Corporation,” “we,” “us,” and “our”) is offering up to 20,000,000 shares of Common Shares (“Shares” or “Stock”), for $1.25 per Share (the “Offering”), for gross proceeds to the Corporation of up to $25,000,000.00, before deduction of Offering expenses, assuming all Shares are sold. For more information regarding the securities being offered, see the section entitled “Securities Being Offered” on page 67 for further details.
Kolaboration Ventures Corporation is a Wyoming Corporation formed on August 11, 2021, for the purpose of organizing its various business activities under a parent corporation. The reorganization included its predecessor entity, KVC, LLC as well as several partially-owned companies engaged in cannabis operations or real estate ventures related to the Corporation’s cannabis operations. The reorganization was effective as of October 1, 2021. For further details, see the “Roll-up Transaction” on page 42.
We expect to commence the Offering on the date on which the Offering Statement of which this Offering Circular is a part (this “Offering Circular”) is qualified by the Securities and Exchange Commission (“SEC”) and will terminate one year thereafter or once all offered securities are sold, whichever occurs first (“Termination Date”). Notwithstanding the foregoing, the Corporation may extend the Offering by an additional 90 days or terminate the Offering at any time.
All of the Shares are being offered (the “Offered Shares”) on a “best efforts” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings. Subscriptions will be deposited into escrow and held by Equiniti Trust Company as the escrow agent in this Offering. We will withdraw funds from escrow at our discretion and hold multiple closings of subscriptions until the 20,000,000 Shares (the “Maximum Offering”) are sold or until we decide to terminate the Offering. The minimum subscription that investors may make for the Offering is 800 Shares for $1,000.00. Subscriptions may be made by either wire transfer or ACH deposits. The transactions contemplated hereby will be completed electronically through the software provided by Dealmaker.Tech, see Dealmaker.Tech Agreement, Exhibit 1A-1B.
The Corporation has engaged The Dalmore Group (CRD# 136352), 525 Green Place, Woodmere, New York 11598, as broker-dealer of record, but not for underwriting of private placement services, for this Offering. For further details, see Broker-Dealer Services Agreement, Exhibit 1A-1A.
1 Unless otherwise specifically noted, all references to “dollars” or “$” are being expressed in United States Dollars (“USD”) in this Offering Circular.
This Offering is being made pursuant to Tier 2 of Regulation A following the Offering Circular disclosure format, and is being made on a “best efforts” basis.
| Title of Each Class To be registered | Price to Public | Underwriting Discount and Commissions(1) | Proceeds to Corporation(2) | Proceeds to Other Persons | ||||||||||||
Common Stock Offered by KVC Price Per Share | $ | 1.25 | $ | 0.0125 | $ | 1.2375 | -0- | |||||||||
Minimum Investment (800 Shares) | $ | 1,000 | $ | 10.00 | $ | 990.00 | -0- | |||||||||
Maximum Offering (20,000,000 Shares) | $ | 25,000,000 | $ | 250,000 | $ | 24,750,000 | -0- | |||||||||
Note:
(1)
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The Corporations has not engaged any placement agent or underwriter in connection with this offering. To the extent that it does, the Corporation will file a supplement to the Offering Statement of which this Offering Circular is a part. The Corporation has engaged Dalmore Group, LLC, member FINRA/SIPC (“Dalmore”), to perform administrative and technology related functions in connection with this offering, but not for underwriting or placement agent services. This includes the one percent (1%) commission on gross Offering proceeds but does not include the consulting fee of $20,000, and the one-time set-up fee of $5,000 payable by the Corporation to Dalmore. See “Plan of Distribution and Selling Security Holders” for details. | |
| (2) | The Corporation is offering up to $25,000,000.00 in Common Shares. If all 20,000,000 Shares are sold, the actual proceeds raised by the Corporation will be $24,750,000. |
The Corporation has authorized a total of One Billion (1,000,000,000) of Common Shares with par value of $0.0001 per share. Holders of Common Shares shall not be entitled to any voting rights except for the right to vote for two (2) directors to the Corporation Board of Directors. Holders of Common Shares shall be entitled to receive as and when declared by the directors, dividends in cash or property of the Corporation. For a complete description of the rights and restrictions attached to the Common Shares, see the “Securities Being Offered” section of this Offering Circular, and the Corporation’s Amended and Restated Articles of Incorporation, attached as Exhibit 1A-2A.
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Prior to this Offering, there has been no public market for our Common Shares. The Corporation expects to have our Common Shares initially quoted for trading on the OTCQX Market or the OTCQB Market. There is no assurance that the Common Shares will ever be quoted on the OTC, see “Plan of Distribution” on page 37 of this Offering Circular.
We are offering our Offered Shares in this Offering based upon a valuation of our Corporation and its subsidiaries of approximately Five Hundred Million Dollars ($500,000,000) prior to this Offering. The $1.25 per share Offering Price of the Common Stock has been arbitrarily determined by the management of KVC and is not based on book value, assets, earnings or any other recognizable standard of value.
The shares of Common Stock are being offered directly by the Corporation and its management on a “best efforts” basis. No commissions or other compensation will be paid to Corporation management with respect to sales initiated by them.
On November 30, 2021, the Corporation engaged Dalmore, a registered broker/dealer, as its managing broker-dealer of record (the “BD”). The BD may engage one or more selling agents or selected dealers. However, under the terms of its engagement agreement with the Corporation, neither the BD nor any selling agent shall have any marketing or sales obligations other than to process subscriptions forwarded to the BD by the Corporation or its management. The BD is not purchasing any of the shares of Common Stock being offered by the Corporation in the Offering and is not required to sell any specific number or dollar amount of such shares in the Offering. Under the terms of its engagement agreement with Dalmore, the Corporation has agreed to pay a commission and fee equal to one percent (1%) of all gross proceeds received by the Corporation in the Offering, as well as a consulting fee of $20,000 upon the issuance of a No Objection Letter and a one-time set up fee of $5,000. Dalmore shall be indemnified by the Corporation with respect to the Offering and the disclosures made by the Corporation in its Form 1-A and related Offering Circular.
The Corporation has not authorized anyone to provide purchasers with information different from that contained or incorporated by reference in this Offering Circular. An investment in the securities of the Corporation is highly speculative and involves significant risks that should be carefully considered by prospective investors before purchasing such securities. The risks outlined in this Offering Circular should be carefully reviewed and considered by prospective investors in connection with an investment in such securities. See “Risk Factors” beginning on page 12 for further details. Potential investors are advised to consult their own legal counsel and other professional advisers in order to assess income tax, legal and other aspects of this investment.
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“SEC”) DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS CONCERNING THE CORPORATION OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE ABLE TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT AND THAT THEY (OR THEIR PURCHASER REPRESENTATIVES) ARE FAMILIAR WITH AND UNDERSTAND THE TERMS AND RISKS OF THIS OFFERING. THE CONTENTS OF THIS OFFERING CIRCULAR ARE NOT TO BE CONSTRUED AS LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT HIS OR HER OWN ATTORNEY, ACCOUNTANT OR BUSINESS ADVISOR AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING THIS INVESTMENT. ALL FINAL DECISIONS IN RESPECT TO SALES OF SECURITIES WILL BE MADE BY THE CORPORATION, WHICH RESERVES THE RIGHT TO REVOKE THE OFFER AND TO REFUSE TO SELL TO ANY PROSPECTIVE INVESTOR.
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NO PERSONS, EXCEPT THE CORPORATION OR ITS AGENTS AND SUCH REGISTERED BROKER-DEALERS AS THE CORPORATION HAS ELECTED TO UTILIZE, HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING CIRCULAR AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE THE IMPLICATION THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SUBSEQUENT TO THE DATE HEREOF.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS OFFERING CIRCULAR, OR OF ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE CORPORATION OR ANY OF ITS EMPLOYEES, AGENTS OR AFFILIATES, AS INVESTMENT, LEGAL, FINANCIAL OR TAX ADVICE.
BEFORE INVESTING IN THIS OFFERING, PLEASE REVIEW ALL DOCUMENTS CAREFULLY, ASK ANY QUESTIONS OF THE CORPORATION’S MANAGEMENT THAT YOU WOULD LIKE ANSWERED AND EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH HIS OR HER OWN PROFESSIONAL TAX, LEGAL AND INVESTMENT ADVISORS TO ASCERTAIN THE MERITS AND RISKS OF INVESTING IN THE SECURITIES DESCRIBED IN THIS OFFERING CIRCULAR PRIOR TO SUBSCRIBING TO SECURITIES OF THE CORPORATION.
SUBSCRIBER AGREES TO INDEMNIFY AND HOLD HARMLESS THE CORPORATION AND ITS RESPECTIVE OFFICERS, DIRECTORS AND AFFILIATES, AND EACH OTHER PERSON, IF ANY, WHO CONTROLS THE CORPORATION WITHIN THE MEANING OF SECTION 15 OF THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) AGAINST ALL LOSSES THAT EACH MAY INCUR (INDIVIDUALLY AND/OR COLLECTIVELY, JOINTLY AND SEVERALLY) BY REASON OF (I) THE FAILURE OF THE SUBSCRIBER TO FULFILL ANY OF THE TERMS OR CONDITIONS OF THE SUBSCRIPTION AGREEMENT, (II) ANY BREACH OF OR INACCURACY IN ANY OF THE REPRESENTATIONS, WARRANTIES AND/OR COVENANTS MADE BY THE SUBSCRIBER IN CONNECTION WITH THE SUBSCRIPTION AGREEMENT, (III) THE DISPOSITION OF SUBORDINATE VOTING SHARES BY THE SUBSCRIBER, CONTRARY TO SUCH REPRESENTATIONS, WARRANTIES AND/OR COVENANTS AND/OR (IV) ANY ACTION, SUIT OR PROCEEDING BASED UPON THE FACT THAT SAID REPRESENTATIONS, WARRANTIES AND/OR COVENANTS WERE INACCURATE OR MISLEADING OR OTHERWISE CAUSE FOR OBTAINING RESCISSION, DAMAGES OR REDRESS FROM THE CORPORATION.
THE SUBSCRIPTION AGREEMENT FOR THESE SHARES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN. THE EXCLUSIVE VENUE FOR ANY LEGAL ACTION UNDER THIS AGREEMENT WILL BE IN THE PROPER FORUM IN THE STATE OF CALIFORNIA. THIS DOES NOT APPLY TO CLAIMS BROUGHT TO ENFORCE ANY DUTY OR LIABILITY CREATED BY THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, OR THE RULES AND REGULATIONS THEREUNDER.
NASAA UNIFORM LEGEND
FOR RESIDENTS OF ALL STATES: THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY THAT A LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE CONSTRUED TO fMEAN AN OFFER OR SALE MAY BE MADE IN A PARTICULAR STATE. IF YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU ARE HEREBY ADVISED TO CONTACT THE CORPORATION. THE SECURITIES DESCRIBED IN THIS OFFERING CIRCULAR HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAWS (COMMONLY CALLED “BLUE SKY LAWS”).
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IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
NOTICE TO FOREIGN INVESTORS
IF THE PURCHASER LIVES OUTSIDE THE UNITED STATES, IT IS THE PURCHASER’S RESPONSIBILITY TO FULLY OBSERVE THE LAWS OF ANY RELEVANT TERRITORY OR JURISDICTION OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY PURCHASE OF THE SECURITIES, INCLUDING OBTAINING REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER REQUIRED LEGAL OR OTHER FORMALITIES. THE CORPORATION RESERVES THE RIGHT TO DENY THE PURCHASE OF THE SECURITIES BY ANY FOREIGN PURCHASER.
IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR
Unless the context otherwise requires, any references in this Offering Circular to the “Corporation” or “KVC” refer to Kolaboration Ventures Corporation and its subsidiaries.
We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. Please carefully read the information in this Offering Circular and any accompanying Offering Circular supplements, which we refer to collectively as the “Offering Circular.” You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date or as of the respective dates of any documents or other information incorporated herein by reference, regardless of the time of its delivery or of any sale or delivery of our securities. The Corporation’s business, financial condition, results of operations, and prospects may have changed since that date. Neither the delivery of this Offering Circular nor any sale nor delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities laws.
You should read this Offering Circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC (collectively referred to as the “Offering Statement”). The Offering Statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov.
Unless otherwise indicated, data contained in this Offering Circular concerning the business of the Corporation are based on information from various public sources. Although we believe that these data are generally reliable, such information is inherently imprecise, and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned not to give undue weight to such data, estimates or expectations.
Statements contained herein as to the content of any agreements or other documents are summaries and, therefore, are necessarily selective and incomplete and are qualified in their entirety by the actual agreements or other documents. The Corporation will provide the opportunity to ask questions of and receive answers from the Corporation’s management concerning terms and conditions of the Offering, the Corporation or any other relevant matters and any additional reasonable information to any prospective investor prior to the consummation of the sale of the Shares. This Offering Circular do not purport to contain all of the information that may be required to evaluate the Offering and any recipient hereof should conduct its own independent analysis. The statements of the Corporation contained herein are based on information believed to be reliable. No warranty can be made as to the accuracy of such information or that circumstances have not changed since the date of this Offering Circular. The Corporation does not expect to update or otherwise revise its Form 1-A, Offering Circular or other materials supplied herewith. The delivery of the Form 1-A and Offering Circular at any time does not imply that the information contained herein is correct as of any time subsequent to the date of this Offering Circular. This Offering Circular is submitted in connection with the Offering described herein and may not be reproduced or used for any other purpose.
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MARKET RESEARCH AND PUBLIC DATA
This Offering Circular also contains or references certain market, industry and peer group data which is based upon information from independent industry publications, market research, analyst reports and surveys and other publicly available sources. Although the Corporation believes these sources to be generally reliable, such information is subject to interpretation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other inherent limitations and uncertainties. Neither the Corporation nor the agents have independently verified any of the data from third party sources referred to in this Offering Circular and accordingly, the accuracy and completeness of such data is not guaranteed. In addition, projections, assumptions and estimates of the Corporation’s future performance or the future performance of the industry and markets in which the Corporation operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Offering Circular under “Risk Factors” and “Forward-Looking Statements”.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Offering Circular contains forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”). Such forward-looking statements relate to the Corporation’s current expectations and views of future events or future performance. All statements other than statements of historical fact may be forward-looking statements. The forward- looking statements are contained principally in the sections entitled “Summary Information”, “Description of the Business”, “Management’s Discussion and Analysis” and “Risk Factors”.
In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “might”, “will”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “indicate”, “seek”, “believe”, “predict” or “likely”, or the negative of these terms, or other similar expressions intended to identify forward-looking statements. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation has based these forward-looking statements on its current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:
| (1) | the Corporation’s expectations regarding its consolidated revenue, expenses and operations; |
| (2) | the Corporation’s anticipated cash needs, its needs for additional financing, and changes to its dividend policies; |
| (3) | the legalization and regulatory control of cannabis for recreational use in the United States and elsewhere including federal, state and municipal regulations pertaining thereto and the related timing thereof and the Corporation’s intention and ability to participate in such market; |
| (4) | the use of proceeds from this Offering; |
| (5) | the preparation and filing of this Offering Circular; |
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| (6) | the impact of competition on the Corporation; |
| (7) | the intentions of the board of directors of the Corporation (the “Board of Directors”) with respect to future acquisitions and the ability of the Corporation to successfully identify targets for acquisition and assimilate any acquired operations into the Corporation or its subsidiaries; |
| (8) | the sufficiency of cash flows and working capital to achieve the Corporation’s stated business objective upon completion of certain acquisitions; and |
| (9) | the Corporation’s ability to market successfully to customers. |
Certain of the forward-looking statements and forward-looking information and other information contained in this Offering Circular concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunities and market share, are based on estimates prepared by the Corporation using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Corporation believes to be reasonable. While the Corporation is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks and uncertainties that are subject to change based on various factors and the Corporation has not independently verified such third-party information. See “Market Research and Public Data” above.
Forward-looking statements are based on certain assumptions and analyses made by the Corporation in light of the experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, and are subject to risks and uncertainties. Although we believe that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and we cannot assure that actual results will be consistent with these forward-looking statements. Given these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Whether actual results, performance or achievements will conform to the Corporation’s expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including those listed under “Risk Factors”.
If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements prove incorrect, actual results might vary materially from those anticipated in those forward-looking statements, which could have a material adverse effect on the business, financial condition and results of operations of the Corporation.
Information contained in forward-looking statements in this document is provided as of the date of this Offering Circular, and the Corporation and its agents disclaim any obligation to update any forward-looking statements, whether as a result of new information or future events or results, except to the extent required by applicable securities laws. Accordingly, potential investors should not place undue reliance on forward-looking statements or the information contained in those statements.
We are offering our Common Shares pursuant to the rules of the SEC mandated under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The offering rules are often referred to as “Regulation A+”. We are relying upon Tier 2 of Regulation A+, which allows us to offer securities of up to Seventy-Five Million ($75,000,000) in a 12-month period.
Accordingly, we are required to publicly file annual, semiannual, and current event reports with the SEC.
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TABLE OF CONTENTS
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The following is a summary of the principal features of this Offering Circular and should be read together with the more detailed information and financial data and statements contained elsewhere in this Offering Circular. Prospective investors should carefully consider, among other things, the matters discussed under “Risk Factors” beginning on page 12.
| The Issuer: | Kolaboration Ventures Corporation (“KVC”) is a Wyoming corporation formed on August 11, 2021, for the purpose of organizing its various business activities under a parent corporation. KVC is a roll-up of the following entities: Kolaboration Ventures, LLC, Rio Vista Farms, LLC, Contra Costa Farms, LLC, Kolaboration Vallejo, LLC and Kolaboration Concord, LLC, all of which are engaged cannabis operations or real estate ventures relating to the companies’ cannabis operations in California. The reorganization was effective as of October 1, 2021. See “Description of the Business” for an organizational chart depicting the rollup. The Corporation’s principal office is located at 183 Main Street, Rio Vista, CA 94571. | |
| Business of Issuer: | The Corporation is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development and distribution. KVC and its subsidiaries are working to expand in California both through organic growth and acquisitions while building a respected portfolio of top shelf bands. Wholly-owned, licensed and/or distributed brands within KVC’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms. The Corporation has made, and plans to make in the future, strategic business relationships and investments in operations, branding, cultivation, processing and licensing in key markets. See “Description of the Business”. | |
| Shares Being Offered: | A maximum of 20,000,000 shares of KVC Common Shares, $0.0001 par value per share (“Common Stock” or “Common Shares”) at an offering price of $1.25 per share, for total maximum gross proceeds to the Corporation of $25,000,000. See “Description of Securities being Offered” on page 67 below. |
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| Proposed Listing: | Although we expect to have our shares of Common Stock quoted on the OTCQX Market or the OTCQB Market, there is no assurance that the shares of Common Stock will ever be quoted on the OTC. To be quoted on the OTC, a market maker must apply with the Financial Industry Regulatory Authority (“FINRA”) to make a market in our Common Stock. As of the date of this Supplement, we have engaged in discussions with a FINRA market maker regarding participation in a future trading market for our securities; and have made filings with FINRA. However, we have not, as yet received final FINRA approval. | |
| We may continue to offer our Common Stock under this Offering Circular until the Termination Date. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of exchange trading of such shares on the OTCQX or OTCQB Market. | ||
| There can be no assurance that the KVC Common Stock sold in this Offering will be quoted on the OTC Market. See “Risk Factors” starting on page 12 of this Offering Circular. | ||
| Use of Proceeds: | If we sell all of the 20,000,000 Common Shares being offered, our net proceeds after offering expenses (estimated $250,000) will be approximately $24,750,000. We will use these proceeds for: support of existing operations in the State of California; reduction of outstanding liabilities; acquisition of additional properties for cultivation expansion, processing, and provisioning centers; developing additional strategic partnerships; obtaining additional licenses; research and development, working capital, and general corporate purposes. For further detail, see the “Use of Proceeds to Issuer” section on page 41.
While the Corporation currently intends to use the net proceeds from this Offering for the purposes set out herein, it will have discretion in the actual application of the net proceeds, and may elect to use the net proceeds differently than as described herein, if the Corporation believes it is in its best interests to do so. | |
| Transfer Agent and Registrar: | Equiniti Trust Company, as transfer agent. For further detail on the securities being offered, see “Securities Being Offered” on page 67. | |
| Restrictions on Resale: | These securities may be subject to certain restrictions on transferability and resale, and may only be transferred or resold as permitted under the Securities Act and applicable state securities laws, pursuant to registration or an exemption therefrom. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time, see “Securities Being Offered” on page 67. | |
| Voting Rights and Voting Power: | Holders of Common Shares are not entitled to notice of nor are they entitled to attend any meeting of the shareholders of the Corporation, except a meeting at which two (2) directors are to be elected by vote of the holders of Common Shares. At each such meeting, holders of Common Shares are entitled to one vote in respect of each Common Share held. Except with respect to the right to vote for the election of two (2) directors to the Board of Directors, holders of Common Shares do not have any voting rights. |
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As of the date of this Offering Circular, there are currently 407,494,700 Common Shares issued and outstanding. Currently, Charles Wesley, director and Chief Financial Officer, controls 19.14% of the outstanding Common Shares, Andrew Wesley, Vice President of Partner Development and a director, controls 19.27% of the outstanding Common Shares and Martin Wesley, President and a director, controls 20.08% of the outstanding Common Shares. Andrew and Martin Wesley are both sons of Charles Wesley and are the founders of the Corporation (the “Founders”). Together, our Founders control a total of 58.49% of the outstanding Common Shares. In addition, our Founders own all of the issued and outstanding Series A Preferred Shares of the Corporation. The Preferred Shares have exclusive voting control over matters entitled to stockholder vote except with respect to the election of two (2) directors to our Board of Directors. See Security Ownership of Management and Certain Securityholders for further details. Assuming this current Offering is fully subscribed, there will be 427,494,700 Common Shares, on an as-converted basis. Our Founders would therefore control 55.75% of the outstanding Common Shares. | ||
| Summary Financial Information: | The following table sets forth selected financial information for the periods indicated. The selected financial information for the fiscal years ended December 31, 2019 and December 31, 2020 have been derived from the Corporation’s audited financial statements and accompanying notes, in each case prepared in accordance with United States Generally Accepted Accounting Principals (“US GAAP”) and presented elsewhere in this Offering Circular. | |
The selected financial information should be read in conjunction with the Corporation’s management’s discussion and analysis (the “MD&A”) for the fiscal years ended December 31, 2019 and December 31, 2020 and the nine month period ended September 30, 2021 and the financial statements and accompanying notes contained elsewhere in this Offering Circular. The selected financial information set out below may not be indicative of the Corporation’s future performance. See “Description of the Business – Summary of Financial Information” on page F-2, and “Management’s Discussion and Analysis” on page 51. |
| For The Years Ended | 2020 Incr (Decr) from 2019 | |||||||||||||||
| December 31, 2020 | December 31, 2019 | $ Change | % Change | |||||||||||||
| Revenue | $ | 42,905,128 | $ | 8,362,603 | $ | 34,542,525 | 413 | % | ||||||||
| Cost of Goods Sold | 26,238,892 | 4,366,931 | 21,871,961 | 501 | % | |||||||||||
| Cost of Goods Sold - Depreciation | 147,050 | 93,870 | 53,180 | 57 | % | |||||||||||
| Gross Profit | 16,519,186 | 3,901,802 | 12,617,384 | 323 | % | |||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and Marketing | 1,368,972 | 405,938 | 963,034 | 237 | % | |||||||||||
| General and Administrative | 8,877,948 | 2,239,926 | 6,638,022 | 296 | % | |||||||||||
| Depreciation and Amortization | 264,262 | 42,217 | 222,045 | 526 | % | |||||||||||
| Total Operating Expense | 10,511,182 | 2,688,081 | 7,823,101 | 291 | % | |||||||||||
| Income from Operations | 6,008,004 | 1,213,721 | 4,794,283 | 395 | % | |||||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest Expense | (610,469 | ) | (223,411 | ) | 387,058 | 173 | % | |||||||||
| Other Expense | (181,250 | ) | - | 181,250 | -- | |||||||||||
| Total Other Expense | (791,719 | ) | (223,411 | ) | 568,308 | 254 | % | |||||||||
| Net Income | $ | 5,216,285 | $ | 990,310 | 4,225,975 | 427 | % | |||||||||
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| Risk Factors: | An investment in the securities of the Corporation is speculative and involves a high degree of risk due to the nature of the business of the Corporation. This investment involves risks, uncertainties and other factors, many of which are beyond the control of the Corporation that could influence actual results of the investment. The Corporation cannot assure you that it will successfully address any or all of these risks. Readers should carefully consider the information set out under “Risk Factors” and the other information in this Offering Circular. |
NO INFORMATION CONTAINED HEREIN, NOR IN ANY PRIOR, CONTEMPORANEOUS OR SUBSEQUENT COMMUNICATION SHOULD BE CONSTRUED BY A PROSPECTIVE INVESTOR AS LEGAL OR TAX ADVICE. WE ARE NOT PROVIDING ANY TAX ADVICE AS TO THE ACQUISITION, HOLDING OR DISPOSITION OF THE SECURITIES OFFERED HEREIN. IN MAKING AN INVESTMENT DECISION, INVESTORS ARE STRONGLY ENCOURAGED TO CONSULT THEIR OWN TAX ADVISOR TO DETERMINE THE U.S. FEDERAL, STATE AND ANY APPLICABLE FOREIGN TAX CONSEQUENCES RELATING TO THEIR INVESTMENT IN OUR SECURITIES. THIS WRITTEN COMMUNICATION IS NOT INTENDED TO BE “WRITTEN ADVICE”, AS DEFINED IN CIRCULAR 230 PUBLISHED BY THE U.S. TREASURY DEPARTMENT
In addition to the other information provided in this Offering Circular, you should carefully consider the following risk factors in evaluating our business and before purchasing any of our Common Shares. All material risks identified by the Corporation are discussed in this section.
We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider the risks discussed in this section. Some of the most significant challenges and risks include the following:
●the effect of the volatility of the market price and liquidity risks of the Common Shares;
●the effect of the voting control exercised by our Founders who are the sole holders of our Series A Preferred Shares;
●our ability to attract and maintain key personnel;
●our ability to continue to open new dispensaries and cultivation facilities as anticipated;
●the illegality of cannabis under federal law;
●our ability to comply with state and federal regulations;
●the uncertainty regarding enforcement of cannabis laws;
●the effect of restricted access to banking and other financial services;
●the effect of constraints on marketing and risks related to our products;
●the effect of unfavorable tax treatment for cannabis businesses;
●the effect of security risks;
●the effect of infringement or misappropriation claims by third parties;
●our ability to comply with potential future FDA regulations;
●our ability to enforce our contracts;
●the effect of unfavorable publicity or consumer perception;
●the effect of risks related to material acquisitions, dispositions and other strategic transactions;
●the effect of agricultural and environmental risks;
●the effect of risks related to information technology systems;
●the effect of product liability claims and other litigation to which we may be subjected;
●the effect of risks related to the results of future clinical research;
●the effect of intense competition in the industry;
●the effect of adverse changes in the wholesale and retail prices;
●the effect of outbreaks of pandemic diseases, fear of such outbreaks or economic disturbances due to such outbreaks, particularly the impact of the COVID-19 illness; and
●the effect of general economic risks, such as the unemployment level, interest rates and inflation, and challenging global economic conditions.
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Before you invest in our Common Shares, you should carefully consider all the information in this Offering Circular.
Risks related to Our Business and Industry
Cannabis is illegal under United States federal law.
In the United States, or the U.S., cannabis is largely regulated at the state level. Each state in which we operate (or are currently proposing to operate) authorizes, as applicable, adult-use cannabis production and distribution by licensed or registered entities, and numerous other states have legalized cannabis in some form. However, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal, and any such acts are criminalized under the Controlled Substances Act, as amended, which we refer to as the CSA. Cannabis is a Schedule I controlled substance under the CSA, and is thereby deemed to have a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision. The concepts of “retail cannabis” and “adult-use cannabis” do not exist under U.S. federal law. Although we believe that our business activities are compliant with applicable state and local laws in the United States, strict compliance with state and local cannabis laws would not provide a defense to any federal proceeding which may be brought against us. Any such proceedings may result in a material adverse effect on us. We derive 100% of our revenues from the cannabis industry. The enforcement of applicable U.S. federal laws poses a significant risk to us.
Violations of any United States federal laws and regulations could result in significant fines, penalties, administrative sanctions, or settlements arising from civil proceedings conducted by either the United States federal government or private citizens. We may also be subject to criminal charges under the CSA, and if convicted could face a variety of penalties including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. Any of these penalties could have a material adverse effect on our reputation and ability to conduct our business, our holding (directly or indirectly) of adult-use cannabis licenses in the United States, our financial position, operating results, profitability or liquidity or the market price of our publicly-traded shares. In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation, settlement or trial of any such proceedings or charges, and such time or resources could be substantial.
The regulation of cannabis in the United States is uncertain.
Our activities are subject to regulation by various state and local governmental authorities. Our business objectives are contingent upon, in part, compliance with regulatory requirements enacted by these governmental authorities and obtaining all regulatory approvals necessary for the sale of our products in the jurisdictions in which we operate. Any delays in obtaining or failure to obtain necessary regulatory approvals would significantly delay our development of markets and products, which could have a material adverse effect on our business, results of operations and financial condition. Furthermore, although we believe that our operations are currently carried out in accordance with all applicable state and local rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner that could limit or curtail our ability to distribute or produce cannabis. Amendments to current laws and regulations governing the importation, distribution, transportation and/or production of cannabis, or more stringent implementation thereof could have a substantial adverse impact on us.
The cannabis industry is relatively new.
We are operating in a relatively new industry and market. In addition to being subject to general business risks, we must continue to build brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance and compliance with regulations. There is no assurance that the cannabis industry and the market for adult-use cannabis will continue to exist and grow as currently anticipated or function and evolve in a manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets could have a material adverse effect on our business, financial condition and results of operations.
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We face risks due to industry immaturity or limited comparable, competitive or established industry best practices.
As a relatively new industry, there are not many established operators in the adult use cannabis industries whose business models we can follow or build upon. Similarly, there is no or limited information about comparable companies available for potential investors to review in making a decision about whether to invest in us.
Shareholders and investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies, like us, that are in their early stages. For example, unanticipated expenses and problems or technical difficulties may occur, which may result in material delays in the operation of our business. We may fail to successfully address these risks and uncertainties or successfully implement our operating 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 the Common Shares to the extent that investors may lose their entire investments.
Our ability to grow our adult-use cannabis product offerings and dispensary services may be limited.
As we introduce or expand our adult-use cannabis product offerings and dispensary services, we may incur losses or otherwise fail to enter certain markets successfully. Our expansion into new markets may place us in competitive and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility that returns on those investments will not be achieved for several years, if at all. In attempting to establish new product offerings or dispensary services, we may incur significant expenses and face various other challenges, such as expanding our work force and management personnel to cover these markets and complying with complicated cannabis regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these product offerings and dispensary services to consumers, and failure to do so would compromise our ability to successfully expand these additional revenue streams.
We may acquire other companies or technologies.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the cannabis industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. In addition, we may not realize the expected benefits from completed acquisitions. The risks we face in connection with acquisition include:
| ● | diversion of management time and focus from operating our business to addressing acquisition integration challenges; | |
| ● | coordination of research and development and sales and marketing functions; | |
| ● | retention of employees from the acquired corporation; | |
| ● | cultural challenges associated with integrating employees from the acquired corporation into our organization; | |
| ● | integration of the acquired Corporation’s accounting, management information, human resources, and other administrative systems; | |
| ● | the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies; | |
| ● | potential write-offs of intangible assets or other assets acquired in transactions that may have an adverse effect on our operating results in a given period; | |
| ● | liability for activities of the acquired corporation before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and | |
| ● | litigation or other claims in connection with the acquired corporation, including claims from terminated employees, consumers, former stockholders, or other third parties. |
Our failure to address these risks or other problems encountered in connection with any future acquisitions or investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.
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We may issue additional Common Shares in connection with such transactions, which would dilute our other shareholders’ interests in us. The presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could have a material adverse effect on our business, results of operations, prospects and financial condition. A strategic transaction may result in a significant change in the nature of our business, operations and strategy. In addition, we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our operations.
If we cannot manage our growth, it could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Our inability to successfully manage our growth may have a material adverse effect on our business, financial condition, results of operations or prospects.
Anti-Money Laundering Laws in the United States may limit access to funds from banks and other financial institutions.
In February 2014, the Financial Crimes Enforcement Network, or FinCEN, bureau of the United States Treasury Department issued guidance (which is not law) with respect to financial institutions providing banking services to cannabis businesses, including rigorous due diligence expectations and reporting requirements. While the guidance advised prosecutors not to focus their enforcement efforts on banks and other financial institutions that serve cannabis-related businesses, so long as they meet certain conditions, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the United States Department of Justice, or DOJ, FinCEN or other federal regulators. Because of this and the fact that the guidance may be amended or revoked at any time, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, we may have limited or no access to banking or other financial services in the United States and may have to operate our United States business on an all-cash basis. If we are unable or limited in our ability to open or maintain bank accounts, obtain other banking services or accept credit card and debit card payments, it may be difficult for us to operate and conduct our business as planned. Although, we are actively pursuing alternatives that ensure our operations will continue to be compliant with the FinCEN guidance (including requirements related to disclosures about cash management and U.S. federal tax reporting), we may not be able to meet all applicable requirements.
We are also subject to a variety of laws and regulations in the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.
In the event that any of our operations or related activities in the United States were found to be in violation of money laundering legislation or otherwise, those transactions could be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions.
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Potential regulation by the FDA could have a material adverse effect on our business, financial condition and results of operations.
Should the United States federal government legalize cannabis, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations, including good manufacturing practices related to the growth, cultivation, harvesting and processing of cannabis. In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions. If we are unable to comply with the regulations or registration as prescribed by the FDA, it may have an adverse effect on our business, operating results, and financial condition.
We expect to incur significant ongoing costs and obligations related to our investment in infrastructure, growth, regulatory compliance and operations
We expect to incur significant ongoing costs and obligations related to our investment in infrastructure and growth and for regulatory compliance, which could have a material adverse impact on our results of operations, financial condition and cash flows. In addition, future changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increase our compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition. Our efforts to grow our business may be more costly than expected, and we may not be able to increase our revenue enough to offset these higher operating expenses. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays, and other unknown events. If we are unable to achieve and sustain profitability, the market price of our securities may significantly decrease.
The COVID-19 pandemic could adversely affect our business, financial condition and results of operations.
The global outbreak of the novel strain of the coronavirus known as COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments or their impact on our financial results and condition. In response to the medical community’s successful development of vaccines designed to immunize against and minimize the effects of COVID-19, along with the widespread availability of such treatments, the United States initially experienced a significant decrease in the spread and rate of infections of COVID-19. However, the recent development of related viruses including the Delta and Omicron variants, are continuing to have a significant adverse impact on the economic recovery of the U.S. A renewed spread of COVID-19, the Delta variant, Omicron variant or any related virus for which effective treatments have yet to be developed may result in a material adverse effect on local, state, federal and global economies.
Our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the continuing COVID-19 pandemic. The risk of a pandemic, or public perception of such a risk, could cause customers to avoid public places, including retail properties, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our products. These risks could also adversely affect our customers’ financial condition, resulting in reduced spending for the products we sell. Moreover, any epidemic, pandemic, outbreak or other public health crisis, including COVID-19, could cause our employees to avoid our properties, which could adversely affect our ability to adequately staff and manage our businesses. “Shelter-in-place” or other such orders by governmental entities could also disrupt our operations if employees who cannot perform their responsibilities from home are not able to report to work. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our stores or other facilities. Historically, our adult use dispensaries in California have been considered essential services and therefore have been allowed to remain operational.
The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent its further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition, growth strategies and results of operations.
We may not be able to locate and obtain the rights to operate at preferred locations.
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In California, the local municipality has authority to choose where any cannabis establishment will be located. These authorized areas are frequently removed from other retail operations. Because the cannabis industry remains illegal under U.S. federal law, the disadvantaged tax status of businesses deriving their income from cannabis, and the reluctance of the banking industry to support cannabis businesses, it may be difficult for us to locate and obtain the rights to operate at various preferred locations. Property owners may violate their mortgages by leasing to us, and those property owners that are willing to allow use of their facilities may require payment of above fair market value rents to reflect the scarcity of such locations and the risks and costs of providing such facilities.
As a cannabis business, we are subject to certain tax provisions that have a material adverse effect on our business, financial condition and results of operations.
Under Section 280E of the U.S. Internal Revenue Code of 1986, as amended, or the IRC, “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” This provision has been applied by the United States Internal Revenue Service, or the IRS, to cannabis operations, prohibiting them from deducting expenses directly associated with cannabis businesses. Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations than on sales operations. Section 280E and related IRS enforcement activity has had a significant impact on the operations of cannabis companies. As a result, an otherwise profitable business may, in fact, operate at a loss, after taking into account its United States income tax expenses.
Fraudulent cannabis-related securities activity may adversely affect the ability of legitimate cannabis businesses to attract future investors.
In 2014, both the SEC and FINRA issued alerts to investors regarding potential fraud in securities related to cannabis-related companies. Additionally, the North American Securities Administrators Association (“NASAA”) and various state securities regulators have issued similar alerts and have taken enforcement actions against issuers of fraudulent cannabis-related securities. While the Corporation intends to comply with all laws and regulations applicable to its operations, including its securities offering, it is possible that the Corporation will come under additional security by the SEC, FINRA, state securities administrators, or other regulators, due to its status as a cannabis-related business.
We may not have access to United States bankruptcy protections available to non-cannabis businesses.
Because cannabis is a Schedule I controlled substance under the CSA, many courts have denied cannabis businesses federal bankruptcy protections, making it difficult for lenders to be made whole on their investments in the cannabis industry in the event of a bankruptcy. If we were to experience a bankruptcy, there is no guarantee that United States federal bankruptcy protections would be available to us, which would have a material adverse effect on us and may make it more difficult for us to obtain debt financing.
We are a holding corporation and our ability to pay dividends or make other distributions to shareholders may be limited.
Kolaboration Ventures Corporation is a holding corporation and essentially all of its assets are the capital stock of its subsidiaries. We currently conduct substantially all of our business through our wholly-owned subsidiaries which generate substantially all of our revenues. Consequently, our cash flows and ability to complete current or desirable future growth opportunities are dependent on the earnings of our subsidiaries and the distribution of those earnings to KVC. The ability of our subsidiaries to pay dividends and other distributions will depend on those subsidiaries’ operating results and will be subject to applicable laws and regulations that require that solvency and capital standards be maintained by a subsidiary company and contractual restrictions contained in the instruments governing any current or future indebtedness of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of our subsidiaries, holders of indebtedness and trade creditors of that subsidiary may be entitled to payment of their claims from that subsidiary’s assets before we or our shareholders would be entitled to any payment or residual assets.
There is doubt regarding our ability to enforce contracts.
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It is a fundamental principle of law that a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal at a federal level in the United States, judges in multiple states have on a number of occasions refused to enforce contracts for the repayment of money when the loan was used in connection with activities that violate U.S. federal law, even if there is no violation of state law. There remains doubt and uncertainty that we will be able to legally enforce our contracts. If we are unable to realize the benefits of or otherwise enforce the contracts into which we enter, it could have a material adverse effect on our business, financial condition and results of operations.
We face increasing competition that may materially and adversely affect our business, financial condition and results of operations.
We face competition from companies that may have greater capitalization, access to public equity markets, more experienced management or more maturity as a business. The vast majority of both manufacturing and retail competitors in the cannabis market consists of localized businesses (those doing business in a single state), although there are a few multistate operators with which we compete directly. Aside from this direct competition, out-of-state operators that are capitalized well enough to enter markets through acquisitive growth are also part of the competitive landscape. Similarly, as we execute our growth strategy, operators in our future state markets will inevitably become direct competitors. We are likely to continue to face increasing and intense competition from these companies. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.
If the number of users of adult-use cannabis in the United States increases, the demand for products will increase. Consequently, we expect that competition will become more intense as current and future competitors begin to offer an increasing number of diversified products to respond to such increased demand. To remain competitive, we will require a continued investment in research and development, marketing, sales and client support. We may not have sufficient resources to maintain sufficient levels of investment in research and development, marketing, sales and client support efforts to remain competitive, which could materially and adversely affect our business, financial condition and results of operations.
The cannabis industry is undergoing rapid growth and substantial change, which has resulted in an increase in competitors, consolidation and the formation of strategic relationships. Acquisitions or other consolidating transactions could harm us in a number of ways, including losing customers, revenue and market share, or forcing us to expend greater resources to meet new or additional competitive threats, all of which could harm our operating results. As competitors enter the market and become increasingly sophisticated, competition in our industry may intensify and place downward pressure on retail prices for our products and services, which could negatively impact our profitability.
We may not be able to accurately forecast our operating results and plan our operations due to uncertainties in the cannabis industry.
Because U.S. federal and state laws prevent widespread participation in and otherwise hinder market research in the adult-use cannabis industry, the third-party market data available to us is limited and unreliable. Accordingly, we must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the cannabis industry. Our market research and projections of estimated total retail sales, demographics, demand, and similar consumer research, are based on assumptions from limited and unreliable market data, and generally represent the personal opinions of our management team. A failure in the demand for our products to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, results of operations, financial condition or prospects.
We are subject to risks related to growing an agricultural product.
Our business involves the growing of cannabis, an agricultural product. Such business is subject to the risks inherent in the agricultural business, such as losses due to infestation by insects or plant diseases and similar agricultural risks. Although much of our growing is expected to be completed indoors, there can be no assurance that natural elements will not have a material adverse effect on our future production.
We may not be able to adequately protect our intellectual property.
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As long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance under the CSA, the benefit of certain federal laws and protections that may be available to most businesses, such as federal trademark and patent protection, may not be available to us. As a result, our intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, we can provide no assurance that we will ever obtain any protection for our intellectual property, whether on a federal, state or local level.
Our property is subject to risk of civil asset forfeiture.
Because the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry that is either used in the course of conducting or comprises the proceeds of a cannabis business could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal process, it could become subject to forfeiture.
We face inherent risks of liability claims related to the use of our products.
As a distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products cause or are alleged to have caused significant loss or injury. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us, whether or not successful, could result in materially increased costs, adversely affect our reputation with our clients and consumers generally, and have a material adverse effect on our results of operations and financial condition.
We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which we become involved be determined against us, such a decision could adversely affect our ability to continue operating and the market price for the Common Shares. Even if we achieve a successful result in any litigation in which we are involved, the costs of litigation and redirection of our management’s time and attention could have an adverse effect on our results of operations and financial condition.
Product recalls could result in a material and adverse impact on our business, financial condition and results of operations.
Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although we have detailed procedures in place for testing our products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of our significant brands were subject to recall, the image of that brand and our corporation generally could be harmed. Any recall could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention and potential legal fees and other expenses.
We could be subject to criminal prosecution or civil liabilities under RICO.
The Racketeer Influenced Corrupt Organizations Act (“RICO”) criminalizes the use of any profits from certain defined “racketeering” activities in interstate commerce. While intended to provide an additional cause of action against organized crime, due to the fact that cannabis is illegal under U.S. federal law, the production and sale of cannabis qualifies cannabis related businesses as “racketeering” as defined by RICO. As such, all officers, managers and owners in a cannabis related business could be subject to criminal prosecution under RICO, which carries substantial criminal penalties.
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RICO can create civil liability as well: persons harmed in their business or property by actions which would constitute racketeering under RICO often have a civil cause of action against such “racketeers,” and can claim triple their amount of estimated damages in attendant court proceedings. KVC or its subsidiaries, as well as its officers, managers and owners could all be subject to civil claims under RICO.
We are subject to security risks related to our products as well as our information and technology systems.
Given the nature of our product and its limited legal availability, we are at significant risk of theft at our facilities. A security breach at one of our facilities could expose us to additional liability and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches and may deter potential patients from choosing our products.
In addition, we collect and store personal information about our customers and we are responsible for protecting that information from privacy breaches. We store certain personally identifiable information and other confidential information of our customers on our systems and applications. Though we maintain robust, proprietary security protocols, we may experience attempts by third parties to obtain unauthorized access to the personally identifiable information and other confidential information of our customers. This information could also be otherwise exposed through human error or malfeasance. The unauthorized access or compromise of this personally identifiable information and other confidential information could have a material adverse impact on our business, financial condition and results of operations.
A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse effect on our business, financial condition and results of operations.
Our operations depend and will depend, in part, on how well we protect our networks, equipment, information technology, or IT, systems and software against damage from a number of threats, including, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend and will continue to depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as preemptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.
We may have increased labor costs based on union activity.
Labor unions are working to organize workforces in the cannabis industry in general. Currently, there is no labor organization that has been recognized as a representative of our employees. However, it is possible that certain retail and/or manufacturing locations will be organized in the future, which could lead to work stoppages or increased labor costs and adversely affect our business, profitability and our ability to reinvest into the growth of our business. We cannot predict how stable our relationships with U.S. labor organizations would be or whether we would be able to meet any unions’ requirements without impacting our financial condition. Labor unions may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our union relationships could delay the production and sale of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.
We face risks related to our products.
We have committed and expect to continue committing significant resources and capital to develop and market existing products and new products and services. These products are relatively untested in the marketplace, and we cannot assure shareholders and investors that we will achieve market acceptance for these products, or other new products and services that we may offer in the future. Moreover, these and other new products and services may be subject to significant competition with offerings by new and existing competitors in the industry. In addition, new products and services may pose a variety of challenges and require us to attract additional qualified employees. The failure to successfully develop, manage and market these new products and services could seriously harm our business, prospects, revenue, results of operation and financial condition.
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We may be at a higher risk of IRS audit.
Based on anecdotal information, we believe there is a greater likelihood that the Internal Revenue Service will audit the tax returns of cannabis-related businesses. Any such audit of our tax returns could result in our being required to pay additional tax, interest and penalties, as well as incremental accounting and legal expenses, which could be material.
The Corporation is not subject to Sarbanes-Oxley regulations and lack the financial controls and safeguards required of public companies.
The Corporation does not have the internal infrastructure necessary, and is not required, to complete an attestation about the Corporation’s financial controls that would be required under the Sarbanes-Oxley Act of 2002. There can be no assurances that there are no significant deficiencies or material weaknesses in the quality of the Corporation’s financial controls.
Material weakness in the Corporation’s internal controls could reduce the market’s confidence in our financial statements and affect the value of the Corporation’s Shares.
Effective internal controls are necessary for the Corporation to provide reliable financial reports and to help prevent fraud. During the course of our financial statement audit and review, we found certain deficiencies in internal controls. Some of those found are significant and are a material weakness, as follows: (1) there was not adequate support for some accounting records; (2) some accounting records were not reconciled on a timely basis; (3) the Corporation implemented new business software with no formal implementation process; (4) the Corporation does not have proper segregation of duties; and (5) the Corporation did not have sufficient controls related to consolidations and disclosures. Those responsible for governance for the Corporation have been apprised of these deficiencies and are in the process of correcting them.
Although the Corporation will undertake a number of procedures and will implement a number of safeguards, in each case, in order to help ensure the reliability of its financial reports, including those imposed on the Corporation under U.S. securities laws, the Corporation cannot be certain that such measures will ensure that the Corporation will maintain adequate control over financial processes and reporting. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Corporation’s results of operations or cause it to fail to meet its reporting obligations. If the Corporation or its auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in the Corporation’s consolidated financial statements and materially adversely affect the value of our Shares.
We are highly dependent on certain key personnel.
We depend on key managerial personnel, including Charles Wesley, our Chairman and Chief Financial Officer, Andrew Wesley, our Vice President of Partner Development and Martin Wesley, our President, for our continued success, and our anticipated growth may require additional expertise and the addition of new qualified personnel. Qualified individuals within the cannabis industry are in high demand and we may incur significant costs to attract and retain qualified management personnel, or be unable to attract or retain personnel necessary to operate or expand our business. The loss of the services of existing personnel or our failure to recruit additional key managerial personnel in a timely manner, or at all, could harm our business development programs and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues, and could have a material adverse effect on our business, financial condition and results of operations.
Our significant indebtedness may adversely affect our business, financial condition and financial results.
Our ability to make certain payments or advances will be subject to applicable laws and contractual restrictions in the instruments governing our indebtedness, including mortgage financing. The contractual restrictions in the instruments governing such notes include restrictive covenants that limit our discretion with respect to certain business matters. These covenants place restrictions on, among other things, our ability to create liens or other encumbrances, to pay distributions or make certain other payments, and to sell or otherwise dispose of certain assets. A failure to comply with such obligations could result in a default, which, if not cured or waived, could permit acceleration of the relevant indebtedness. Our significant indebtedness could have important consequences, including: (i) our ability to obtain additional financing for working capital, capital expenditures, or acquisitions may be limited; and (ii) all or part of our cash flow from operations may be dedicated to the payment of the principal of and interest on our indebtedness, thereby reducing funds available for operations. These factors may adversely affect our cash flow. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially and adversely affect our business, results of operations, and financial condition.
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We may be unable to obtain adequate insurance coverage.
We have obtained insurance coverage with respect to workers’ compensation, general liability, directors’ and officers’ liability, fire and other similar policies customarily obtained for businesses to the extent commercially appropriate; however, because we are engaged in and operate within the cannabis industry, there are exclusions and additional difficulties and complexities associated with our insurance coverage that could cause us to suffer uninsured losses, which could adversely affect our business, results of operations, and profitability. There is no assurance that we will be able to obtain insurance coverage at a reasonable cost or fully utilize such insurance coverage, if necessary.
We rely on key utility services.
Our business is dependent on a number of key inputs and their related costs, including raw materials and supplies related to our growing operations, as well as electricity, water and other local utilities. Our cannabis growing operations consume and will continue to consume considerable energy, which makes us vulnerable to rising energy costs. Accordingly, rising or volatile energy costs may, in the future, adversely impact our business and our ability to operate profitably. Additionally, any significant interruption or negative change in the availability or economics of the supply chain for our key inputs could materially impact our business, financial condition and operating results. If we are unable to secure required supplies and services on satisfactory terms, it could have a materially adverse impact on our business, financial condition and operating results.
Risks Related to this Offering and our Common Shares
We do not intend to pay dividends on our Common Shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares.
We have never declared or paid any cash dividend on our Common Shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings, if materialized, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our Common Shares will depend upon any future appreciation in their value. Our Common Shares may not appreciate in the short term or long term or even maintain the price at which said Common Shares were purchased. A holding of our Common Shares is speculative and involves a high degree of risk and should be undertaken only by holders whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. Holding our Common Shares is appropriate only for holders who have the capacity to absorb a loss of some or all of their holdings.
Our voting control will be concentrated.
Martin Wesley, a founder, director and our President, Charles Wesley, a founder, director and our Chairman and Chief Financial Officer and Andrew Wesley, a founder, director and our Vice President of Partner Development (each of the foregoing a “Founder” and collectively our “Founders”) have the ability to exercise significant voting power with respect to our outstanding shares because of the Series A Preferred Shares each of these Founders owns and controls as well as the number of Common Shares each of these individuals holds. Our Series A Preferred Shares have exclusive voting rights over all matters entitled to a vote of the Corporation’s stockholders and the right to elect all directors to the Board of Directors except for two (2) directors to be elected by holders of the Common Shares. Holders of our Common Shares are not entitled to any voting rights except the right to vote for two (2) directors to our Board of Directors. Martin Wesley, Charles Wesley and Andrew Wesley are directors on our board of directors and there are no other outside or independent directors on our board. Charles Wesley is the father of Martin and Andrew Wesley. In addition to their ownership of all of the outstanding Series A Preferred Shares, Martin Wesley owns approximately 20.08% of the outstanding Common Shares, Charles Wesley owns approximately 19.14% of the outstanding Common Shares and Andrew Wesley owns approximately 19.27% of the outstanding Common Shares.
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As a result, Martin Wesley, Charles Wesley and Andrew Wesley have the ability to exercise significant voting power on decisions that require stockholder approval, including the election and removal of directors and significant corporate transactions. This ability to exercise significant voting power could delay, defer or prevent a change of control, arrangement or merger or sale of all or substantially all of our assets that our other stockholders may support, which in turn could have a material adverse effect on the market price of our Common Shares. Conversely, this concentrated control could allow the holders of the Series A Preferred Shares to consummate such a transaction that our other stockholders do not support
Our capital structure and voting control may cause unpredictability in the price of our Common Shares.
Given the concentration of voting control that is held by our founders and directors, this capital structure and voting control could result in a lower trading price for, or greater fluctuations in, the trading price of our shares of Common Shares, adverse publicity or other adverse consequences.
If you purchase our Common Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.
If you purchase Common Shares in this offering, you will incur immediate and substantial dilution of $1.18 per share after giving effect to the sale by us of 20,000,000 Common Shares offered in this offering at the offering price of $1.25 per share. See the section titled “Dilution” appearing elsewhere in this Offering Circular for a more detailed description of the dilution to new investors in the offering.
The market price for the Common Shares may be volatile, which may affect the price at which you could sell the Common Shares.
The market price for securities of cannabis companies generally is likely to be volatile. In addition, the market price for the Common Shares has been and may be subject to wide fluctuations in response to numerous factors beyond our control, including, but not limited to:
●actual or anticipated fluctuations in our quarterly results of operations;
●recommendations by securities research analysts;
●changes in the economic performance or market valuations of companies in the industry in which we operate;
●addition or departure of our executive officers and other key personnel;
●release or expiration of transfer restrictions on outstanding Common Shares;
●sales or perceived sales of additional Common Shares;
●operating and financial performance that varies from the expectations of management, securities analysts and investors;
●regulatory changes affecting our industry generally and our business and operations both domestically and abroad, or legislative or regulatory decisions to halt adult-use cannabis programs;
●announcements of developments and other material events by us or our competitors;
●fluctuations in the costs of vital production materials and services;
●changes in global financial markets and global economies and general market conditions, such as interest rates and pharmaceutical product price volatility;
●significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
●operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; and
●news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.
Financial markets have at times historically experienced significant price and volume fluctuations that: (i) have particularly affected the market prices of equity securities of companies, and (ii) have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares from time to time may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that may result in impairment losses to us. Further fluctuations in price and volume of equity securities may occur in the future. If increased levels of volatility and market turmoil continue, our operations could be adversely impacted, and the trading price of the Common Shares may be materially adversely affected.
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We may face liquidity risks.
There is currently no public market for these Common Shares and there can be no assurance that a liquid, public market will develop. This may affect the pricing of the Shares in the secondary market, the transparency and availability of trading prices, the liquidity of the Shares and the extent of issuer regulation. In the absence of an active trading market for the Shares, investors may have difficulty selling their Shares. The Corporation cannot predict the prices at which the Common Shares will trade.
Anti-takeover provisions in our certificate of incorporation, amended and restated articles of incorporation and bylaws could discourage a takeover.
Our certificate of incorporation, amended and restated articles of incorporation and bylaws, as adopted in connection with this offering, will contain provisions that might enable our management to resist a takeover. These provisions include:
●authorizing the issuance of “blank check” preferred stock that could be issued by our Board to increase the number of outstanding shares and thwart a takeover attempt;
●advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a stockholder’s notice;
●the dual-class structure of our common and preferred shares, which gives our founders significant influence over all matters requiring stockholder approval, including the election of directors, amendments to our charter documents and significant corporate transactions, such as a merger or other sale of our Corporation or its assets;
●a requirement that the authorized number of directors may be changed only by resolution of the Board;
●allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, except as otherwise required by law;
●limiting the persons that can call special meetings of our stockholders to our Board, the president, the secretary or a majority of the authorized number of directors.
These provisions might discourage, delay or prevent a change in control of our Corporation or a change in our Board or management. The existence of these provisions could adversely affect the voting power of holders of Common Shares and limit the price that investors might be willing to pay in the future for Common Shares. See “Description of Capital Stock.”
We may issue shares of preferred stock in the future, which could make it difficult for another Corporation to acquire us or could otherwise adversely affect holders of our Common Shares, which could depress the price of our Common Shares.
Our amended and restated articles of incorporation authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. We have already issued 30,000 shares of Series A Preferred Shares to our founders and the Series A Preferred Shares have exclusive voting rights except for the right to elect two (2) directors to our Board of Directors which is permitted to the holders of Common Shares. We may issue more Series A Preferred Shares in the future or we may issue a new series of preferred stock with different preferences, limitation and relative rights. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our Common Shares at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Common Shares.
Risks related to owning Common Shares
Our three founders have control over all stockholder decisions because they control all of the Series A Preferred Shares which has nearly exclusive voting power. The Common Shares issued in this offering will not dilute our co-founders’ voting control because the Common Shares have extremely limited voting rights that allows only for the election of two (2) directors to our Board of Directors and no vote on any other matter subject to vote of the stockholders.
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As a result of the Series A Preferred Shares that they hold, Charles Wesley, Martin Wesley and Andrew Wesley, each own 10,000 Series A Preferred Shares and the Founders collectively own a total of 30,000 Series A Preferred Shares which represents control of all of the outstanding voting stock since the Series A Preferred Shares have full voting power according to our amended and restated articles of incorporation and bylaws. Our Common Shares only have voting rights to elect two (2) directors to our Board of Directors but do not have the right to vote for any other matter subject to stockholder voting.
As a result, our Founders and potentially either one of them alone, have the ability to control the outcome of all matters submitted to our stockholders for approval, including the election, removal, and replacement of directors and any merger, consolidation, or sale of all or substantially all of our assets. If any Founder’s employment with us is terminated, they will continue to have the ability to exercise the same significant voting power and potentially control the outcome of all matters submitted to our stockholders for approval. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support. Conversely, this concentrated control could allow our Founders to consummate such a transaction that our other stockholders do not support. In addition, our Founders may make long-term strategic investment decisions and take risks that may not be successful and may seriously harm our business.
As our President, Martin Wesley, has control over our day-to-day management and the implementation of major strategic investments of our Corporation, subject to authorization and oversight by our board of directors. As board members and officers, Charles Wesley and Andrew Wesley, owe a fiduciary duty to our stockholders and must act in good faith in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, even controlling stockholders, our Founders are entitled to vote their shares, and shares over which they have voting control, in their own interests, which may not always be in the interests of our stockholders generally. For a description of the rights of our Founders and the Common Shares and Series A Preferred Shares, see “Description of Capital Stock.”
Additional issuances of Common Shares may result in further dilution and could have anti-takeover effects.
We may issue additional equity or convertible debt securities in the future, which may dilute an existing shareholder’s holdings. Our articles permit the issuance of up to One Billion (1,000,000,000) Common Shares and existing shareholders will have no pre-emptive rights in connection with such further issuances. Our board of directors has discretion to determine the price and the terms of further issuances. The ability of our board of directors to issue additional Common Shares could also have anti-takeover effects. Moreover, we may issue convertible debt securities in the future and to the extent holders of our options, warrants or other convertible securities convert or exercise their securities and sell Common Shares they receive, the trading price of the Common Shares may decrease due to the additional amount of Common Shares available in the market. We cannot predict the size or nature of future issuances or the effect that future issuances and sales of Common Shares will have on the market price of the Common Shares. Issuances of a substantial number of additional Common Shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the Common Shares. With any additional issuance of Common Shares, our investors will suffer dilution to their voting power and economic interest.
Sales of substantial amounts of Common Shares by our existing shareholders in the public market may have an adverse effect on the market price of the Common Shares.
Sales of a substantial number of Common Shares in the public market could occur at any time. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, or the availability of such securities for sale, could adversely affect the prevailing market prices for the Common Shares. As of January 21, 2022, we had an aggregate of 407,494,700 Common Shares outstanding. A decline in the market prices of the Common Shares could impair our ability to raise additional capital through the sale of securities should it desire to do so.
The Determination of the Offering Price of the Common Shares may not reflect the value of the Corporation
The $1.25 per share Offering Price of the Common Stock has been arbitrarily determined by the Corporation and is not based on book value, assets, earnings or any other recognizable standard of value. No assurance can be given that our Common Stock, or any portion thereof, could be sold for the Offering Price or for any amount. If profitable results are not achieved from our operations, of which there can be no assurance, the value of the Common Stock sold pursuant to this Offering could fall below the Offering Price and the Common Stock could become worthless.
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There is no trading market for our Common Shares and even if the Common Shares are available on a future trading market, there may not be sufficient liquidity in such markets for our Common Shares.
There is no current trading market for our Common Shares and there is no assurance or guarantee that the Common Shares will eventually be traded on a market. Even if the Common Shares are quoted on an over-the-counter (“OTC”) market or listed on an exchange, the liquidity of any such market for the shares of our Common Shares will depend on a number of factors, including:
| ● | the number of shareholders; |
| ● | our operating performance and financial condition; |
| ● | the market for similar securities; |
| ● | the extent of coverage by securities or industry analysts; and |
| ● | the interest of securities dealers in making a market in the shares. |
The market price for the Common Shares is likely to continue to be volatile.
The market price for the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which will be beyond our control, including, but not limited to, the following: (i) actual or anticipated fluctuations in our quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of companies in the cannabis industry; (iv) additions or departures of our executive officers and other key personnel; (v) release or expiration of transfer restrictions on our issued and outstanding shares; (vi) regulatory changes affecting the cannabis industry generally and our business and operations; (vii) announcements by us and our competitors of developments and other material events; (viii) fluctuations in the costs of vital production materials and services; (ix) changes in global financial markets and global economies and general market conditions, such as interest rates and pharmaceutical product price volatility; (x) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; (xi) operating and share price performance of other companies that investors deem comparable to us or from a lack of market comparable companies; (xii) false or negative reports issued by individuals or companies who have taken aggressive short sale positions; and (xiii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.
Financial markets have experienced significant price and volume fluctuations that have affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of those companies. Accordingly, the market price of the Common Shares may decline even if our operating results, underlying asset values or prospects have not changed.
These factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted, and the trading price of the Common Shares could be materially adversely affected.
We will be subject to penny stock regulations and restrictions and you may have difficulty selling these Common Shares.
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Shares are considered “penny stocks”, and we are subject to Rule 15g-9 under the Exchange Act (or the “Penny Stock Rule”). This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
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For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
We do not anticipate that our Shares will qualify for exemption from the Penny Stock Rule. In any event, even if our Shares were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell these Common Shares.
In addition to the Penny Stock Rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must take certain steps to ensure that the investment is in the best interest of that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker- dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy these Shares, which may limit your ability to buy and sell these Shares and have an adverse effect on the market for these Shares.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Shares less attractive to investors.
For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Shares less attractive because we will rely on these exemptions. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our Common Shares that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the effectiveness date of the Corporation’s Regulation A+ Offering Circular.
Regulatory Overview
Below is a discussion of the federal and state-level U.S. regulatory regimes in those jurisdictions where we are currently directly involved, through our subsidiaries, in the cannabis industry. KVC, through its subsidiaries, is engaged in the manufacture, possession, sale or distribution of cannabis in the adult-use cannabis marketplace in the State of California. KVC is also engaged in cannabis cultivation, processing and retailing in the State of California.
Federal and State Regulation of Cannabis in the United States
The United States federal government regulates drugs in large part through the Controlled Substances Act, or CSA. Marijuana, which is a form of cannabis, is classified as a Schedule I controlled substance. As a Schedule I controlled substance, the federal Drug Enforcement Agency, or DEA, considers marijuana to have a high potential for abuse; no currently accepted medical use in treatment in the United States; and a lack of accepted safety for use of the drug under medical supervision. According to the U.S. federal government, cannabis having a concentration of tetrahydrocannabinol, or THC, greater than 0.3% is marijuana. Cannabis with a THC content below 0.3% is classified as hemp. The scheduling of marijuana as a Schedule I controlled substance is inconsistent with what we believe to be widely accepted medical uses for marijuana by physicians, researchers, patients, and others.
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Cannabis is largely regulated at the state level in the United States. State laws regulating cannabis are in conflict with the CSA, which makes cannabis use and possession federally illegal. Although certain states and territories of the United States authorize medical or adult-use cannabis production and distribution by licensed or registered entities (see table below for state-by-state analysis), under United States federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal. Although our activities are compliant with the applicable state and local laws in the state where we maintain such licenses (California), strict compliance with state and local laws with respect to cannabis may neither absolve us of liability under United States federal law nor provide a defense to any federal criminal action that may be brought against us.
| Legal Status | Medicinal | Decriminalized | ||
| Alabama | Mixed | Yes | ||
| Alaska | Fully Legal | Yes | ||
| Arizona | Fully Legal | Yes | ||
| Arkansas | Mixed | Yes | ||
| California | Fully Legal | Yes | ||
| Colorado | Fully Legal | Yes | ||
| Connecticut | Fully Legal | Yes | ||
| Delaware | Mixed | Yes | ||
| District of Columbia | Fully Legal | Yes | ||
| Florida | Mixed | Yes | ||
| Georgia | Mixed | CBD Oil Only | ||
| Hawaii | Mixed | Yes | ||
| Idaho | Fully Illegal | No | ||
| Illinois | Fully Legal | Yes | ||
| Indiana | Mixed | CBD Oil Only | ||
| Iowa | Mixed | CBD Oil Only | ||
| Kansas | Fully Illegal | No | ||
| Kentucky | Mixed | CBD Oil Only | ||
| Louisiana | Mixed | Yes | ||
| Maine | Fully Legal | Yes | ||
| Maryland | Mixed | Yes | ||
| Massachusetts | Fully Legal | Yes | ||
| Michigan | Fully Legal | Yes | ||
| Minnesota | Mixed | Yes | ||
| Mississippi | Mixed | Yes | ||
| Missouri | Mixed | Yes | ||
| Montana | Fully Legal | Yes | ||
| Nebraska | Fully Illegal | No | ||
| Nevada | Fully Legal | Yes | ||
| New Hampshire | Mixed | Yes | ||
| New Jersey | Fully Legal | Yes | ||
| New Mexico | Fully Legal | Yes | ||
| New York | Fully Legal | Yes | ||
| North Carolina | Fully Illegal | No | ||
| North Dakota | Mixed | Yes | ||
| Ohio | Mixed | Yes | ||
| Oklahoma | Mixed | Yes | ||
| Oregon | Fully Legal | Yes | ||
| Pennsylvania | Mixed | Yes | ||
| Rhode Island | Mixed | Yes | ||
| South Carolina | Fully Illegal | No | ||
| South Dakota | Mixed* | Yes | ||
| Tennessee | Mixed | CBD Oil Only | ||
| Texas | Mixed | CBD Oil Only | ||
| Utah | Mixed | Yes | ||
| Vermont | Fully Legal | Yes | ||
| Virginia | Fully Legal | Yes | ||
| Washington | Fully Legal | Yes | ||
| West Virginia | Mixed | Yes | ||
| Wisconsin | Mixed | CBD Oil Only | ||
| Wyoming | Fully Illegal | No |
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Source: https://disa.com/map-of-marijuana-legality-by-state (December 2021)
In 2013, as more and more states began to legalize medical and/or adult-use cannabis, the federal government attempted to provide clarity on the incongruity between federal law and these state-legal regulatory frameworks. Until 2018, the federal government provided guidance to federal agencies and banking institutions through a series of Department of Justice (“DOJ”) memoranda. The most notable of this guidance came in the form of a memorandum issued by former U.S. Deputy Attorney General James Cole on August 29, 2013, which we refer to as the Cole Memorandum.
The Cole Memorandum offered guidance to federal agencies on how to prioritize civil enforcement, criminal investigations and prosecutions regarding cannabis in all states and quickly set a standard for cannabis-related businesses to comply with. The Cole Memorandum put forth eight prosecution priorities:
| 1. | Preventing the distribution of cannabis to minors; | |
| 2. | Preventing revenue from the sale of cannabis from going to criminal enterprises, gangs and cartels; | |
| 3. | Preventing the diversion of cannabis from states where it is legal under state law in some form to other states; | |
| 4. | Preventing the state-authorized cannabis activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; | |
| 5. | Preventing violence and the use of firearms in the cultivation and distribution of cannabis; | |
| 6. | Preventing drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use; | |
| 7. | Preventing the growing of cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and | |
| 8. | Preventing cannabis possession or use on federal property. |
On January 4, 2018, former United States Attorney General Jeff Sessions rescinded the Cole Memorandum by issuing a new memorandum to all United States Attorneys, which we refer to as the Sessions Memo. Rather than establishing national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain cannabis activity was legal under state law, the Sessions Memo simply rescinded the Cole Memorandum and instructed that “[i]n deciding which marijuana activities to prosecute... with the [DOJ’s] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions.” Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.
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On January 21, 2021, Joseph R. Biden, Jr. was sworn in as President of the United States. President Biden’s nomination for Attorney General, Merrick Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive cannabis enforcement policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of cannabis, either medically or otherwise.
Nonetheless, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), and the President approves such amendment, there is a risk that federal authorities may enforce current U.S. federal law. Currently, in the absence of uniform federal guidance, as had been established by the Cole memorandum, enforcement priorities are determined by respective United States Attorneys.
As an industry best practice, despite the rescission of the Cole Memorandum, we abide by the following standard operating policies and procedures, which are designed to ensure compliance with the guidance provided by the Cole Memorandum:
| 1. | Continuously monitor our operations for compliance with all licensing requirements as established by the applicable state, county, municipality, town, township, borough, and other political/administrative divisions; |
| 2. | Ensure that our cannabis related activities adhere to the scope of the licensing obtained (for example: in the states where cannabis is permitted only for adult-use, the products are only sold to individuals who meet the requisite age requirements); |
| 3. | Implement policies and procedures to prevent the distribution of our cannabis products to minors; |
| 4. | Implement policies and procedures in place to avoid the distribution of the proceeds from our operations to criminal enterprises, gangs or cartels; |
| 5. | Implement an inventory tracking system and necessary procedures to reliably track inventory and prevent the diversion of cannabis or cannabis products into those states where cannabis is not permitted by state law, or across any state lines in general; |
| 6. | Monitor the operations at our facilities so that our state-authorized cannabis business activity is not used as a cover or pretense for trafficking of other illegal drugs or engaging in any other illegal activity; and |
| 7. | Implement quality controls so that our products comply with applicable regulations and contain necessary disclaimers about the contents of the products to avoid adverse public health consequences from cannabis use and discourage impaired driving. |
In addition, we frequently conduct background checks to confirm that the principals and management of our operating subsidiaries are of good character and have not been involved with other illegal drugs, engaged in illegal activity or activities involving violence, or the use of firearms in the cultivation, manufacturing or distribution of cannabis. We also conduct ongoing reviews of the activities of our cannabis businesses, the premises on which they operate and the policies and procedures that are related to the possession of cannabis or cannabis products outside of the licensed premises.
Moreover, in recent years, certain temporary federal legislative enactments that protect the medical cannabis and hemp industries have also been in effect. For instance, certain cannabis businesses receive a measure of protection from federal prosecution by operation of temporary appropriations measures that have been enacted into law as amendments (or “riders”) to federal spending bills passed by Congress and signed by both Presidents Obama and Trump. For instance, in the Appropriations Act of 2015, Congress included a budget “rider” that prohibits DOJ from expending any funds to enforce any law that interferes with a state’s implementation of its own medical cannabis laws. The rider is known as the “Rohrabacher-Farr” Amendment after its original lead sponsors. Originally, a Republican-controlled House and Democratic-controlled Senate passed the Rohrabacher-Farr Amendment. The bill was a bipartisan appropriations measure that looks to prohibit the DOJ from spending federally allocated funds to interfere with state-level medical cannabis operations. Subsequently, the amendment has been included in multiple budgets passed by a Republican-controlled Congress. While the Rohrabacher-Farr Amendment has been included in successive appropriations legislation or resolutions since 2015, its inclusion or non-inclusion is subject to political change.
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The Rohrabacher-Farr Amendment was extended most recently in the Omnibus Appropriations Act of 2021, which funds the agencies of the federal government through September 30, 2021. Notably, Rohrabacher-Farr has applied only to medical cannabis programs and has not provided the same protections to enforcement against adult-use activities. On December 3, 2021, the amendment was renewed through a pair of stopgap spending bills, with the most recent extension effective through February 18, 2022. If the Rohrabacher-Farr Amendment is no longer in effect, the risk of federal enforcement and override of state marijuana laws would increase.
United States Border Entry
The United States Customs and Border Protection, or CBP, enforces the laws of the United States as they pertain to lawful travel and trade into and out of the U.S. Crossing the border while in violation of the CSA and other related United States federal laws may result in denied admission, seizures, fines, and apprehension. CBP officers administer determine the admissibility of travelers who are non-U.S. citizens into the United States pursuant to the United States Immigration and Nationality Act. An investment in our Subordinate Voting Shares, if it became known to CBP, could have an impact on a non-U.S. citizen’s admissibility into the United States and could lead to a lifetime ban on admission.
Because cannabis remains illegal under United States federal law, those investing in Canadian companies with operations in the United States cannabis industry could face detention, denial of entry, or lifetime bans from the United States for their business associations with United States cannabis businesses. Entry happens at the sole discretion of CBP officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a non-US citizen or foreign national. The government of Canada has started warning travelers that previous use of cannabis, or any substance prohibited by United States federal laws, could mean denial of entry to the United States. Business or financial involvement in the cannabis industry in the United States could also be reason enough for CBP to deny entry. On September 21, 2018, CBP released a statement outlining its current position with respect to enforcement of the laws of the United States. It stated that Canada’s legalization of cannabis will not change CBP enforcement of United States laws regarding controlled substances and because cannabis continues to be a controlled substance under United States law, working in or facilitating the proliferation of the legal cannabis industry in U.S. states where it is deemed legal may affect admissibility to the United States. As a result, CBP has affirmed that, employees, directors, officers, managers and investors of companies involved in business activities related to cannabis in the United States, who are not United States citizens, face the risk of being barred from entry into the United States.
Anti-Money Laundering Laws and Access to Banking
The Corporation is subject to a variety of laws and regulations in the United States that involve anti-money laundering, financial recordkeeping and the proceeds of crime, including the Currency and Foreign Transactions Reporting Act of 1970 (referred to herein as the “Bank Secrecy Act”), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.
Additionally, under United States federal law, it may potentially be a violation of federal anti-money laundering statutes for financial institutions to take any proceeds from the sale of any Schedule I controlled substance. For example, banks and other financial institutions could potentially be prosecuted and convicted of aiding and abetting money laundering under the Bank Secrecy Act for providing services to cannabis businesses. Therefore, under the Bank Secrecy Act, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other financial service could be charged with money laundering or conspiracy.
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While there has been no change in U.S. federal banking laws to accommodate businesses in the large and increasing number of U.S. states that have legalized medical or adult-use cannabis, FinCEN, in 2014, issued guidance, or the FinCEN Guidance, to prosecutors of money laundering and other financial crimes. The FinCEN Guidance is viewed as advising prosecutors not to focus their enforcement efforts on banks and other financial institutions that serve cannabis-related businesses so long as that cannabis-related business activities are legal in their state and none of the federal enforcement priorities referenced in the Cole Memorandum are being violated (such as keeping cannabis out of the hands of organized crime). Importantly, the FinCEN Guidance also clarifies how financial institutions can provide financial services to cannabis-related businesses consistent with their Bank Secrecy Act obligations, including through enhanced customer due diligence, but makes it clear that they are doing so at their own risk. The customer due diligence steps typically include:
| 1. | Verifying with the appropriate state authorities whether the business is duly licensed and registered; |
| 2. | Reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its cannabis-related business; |
| 3. | Requesting available information about the business and related parties from state licensing and enforcement authorities; |
| 4. | Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus adult-use customers); |
| 5. | Ongoing monitoring of publicly available sources for adverse information about the business and related parties; |
| 6. | Ongoing monitoring for suspicious activity, including for any of the red flags described in the FinCEN Guidance; and |
| 7. | Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. |
With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.
While the FinCEN Guidance decreased some risk for banks and financial institutions considering servicing the cannabis industry, in practice it has not increased banks’ willingness to provide services to cannabis-related businesses. This is because current U.S. federal law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence (i.e. enhanced due diligence) on each cannabis-related business they accept as a customer.
Those commercial banks and/or credit unions that have agreed to work with cannabis businesses are typically limiting those accounts to small percentages of their total deposits to avoid creating liquidity and concentration risk. Since, theoretically, the federal government could change the banking laws as it relates to cannabis-related businesses at any time and without notice, these banks and credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis-related businesses in a single day, while also keeping sufficient liquid capital on hand to service their other customers. Because many banks and credit unions that are providing banking services to cannabis-related businesses are smaller institutions, applicable concentration limits may also impose limits in the aggregate amounts of loans that might be provided to the industry. Those commercial banks and credit unions that do have customers in the cannabis industry can charge cannabis businesses high fees to cover the added cost of ensuring compliance with the FinCEN Guidance.
Unlike the Cole Memorandum, however, the FinCEN Guidance has not been rescinded, but FinCEN has stated that it views the FinCEN Guidance to include compliance with the requirements of the rescinded Cole Memorandum. Secretary of the Treasury, Janet Yellen, has not made any public statements with regards to how the Treasury Department plans to treat cannabis-related businesses.
As an industry best practice and consistent with its standard operating procedures, KVC adheres to all customer due diligence steps in the FinCEN Guidance and any additional requirements imposed by those financial institutions it utilizes. However, in the event that any of our operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of anti-money laundering legislation or otherwise, such transactions could be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize our ability to declare or pay dividends or effect other distributions.
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In the United States, the “SAFE Banking Act” was adopted by the U.S. House of Representatives, which would grant banks and certain financial institutions immunity from federal criminal prosecution for servicing cannabis-related businesses if the underlying cannabis business follows state law. The SAFE Banking Act was reintroduced in the United States House of Representatives. On March 23, 2021, the bill was reintroduced in the United States Senate as well. While there is strong support in the public and within Congress for the SAFE Banking Act, there can be no assurance that it will be passed as presently proposed or at all. In both Canada and the United States, transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions. While there is strong support in the public and within Congress for the SAFE Banking Act and similar legislation, there can be no assurance that it will be passed as presently proposed or at all. In both Canada and the United States, transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions.
Tax Concerns
An additional challenge for cannabis-related businesses is that the provisions of IRC Section 280E are being applied by the IRS to businesses operating in the adult-use cannabis industry. IRC Section 280E prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be. Furthermore, although the IRS issued a clarification allowing the deduction of cost of goods sold, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted.
Regulation of the Cannabis Market in California
In 1996, California was the first state to legalize medical cannabis through Proposition 215, the Compassionate Use Act of 1996. This provided an affirmative defense for defendants charged with the use, possession and cultivation of medical cannabis by patients with a physician recommendation for treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which cannabis provides relief. In 2003, Senate Bill 420 was signed into law, decriminalizing the use, possession, and collective cultivation of medical cannabis, and establishing an optional identification card system for medical cannabis patients.
In September 2015, the California legislature passed three bills collectively known as the “Medical Marijuana Regulation and Safety Act,” or MCRSA. The MCRSA established a licensing and regulatory framework for medical marijuana businesses in California. The system created testing laboratories, and distributors. Edible infused product manufacturers would require either volatile solvent or non-volatile solvent manufacturing licenses depending on their specific extraction methodology. Multiple agencies would oversee different aspects of the program and businesses would require a state license and local approval to operate. However, in November 2016, voters in California overwhelmingly passed Proposition 64, the “Adult Use of Marijuana Act,” or AUMA, creating an adult-use marijuana program for adult-use 21 years of age or older. In June 2017, the California State Legislature passed Senate Bill No. 94, known as Medicinal and Adult-Use Marijuana Regulation and Safety Act, or MAUCRSA, which amalgamated MCRSA and AUMA to provide a set of regulations to govern the medical and adult-use licensing regime for marijuana businesses in the State of California. MAUCRSA went into effect on January 1, 2018. The three primary licensing agencies that regulate marijuana at the state level are the Bureau of Cannabis Control, or BCC, California Department of Food and Agriculture, or CDFA, and the California Department of Public Health, or CDPH.
One of the central features of MAUCRSA is known as “local control.” In order to legally operate a cannabis business in California, an operator must have both a local and state license. This requires license-holders to operate in cities or counties with cannabis licensing programs. Cities and counties in California are allowed to determine the number of licenses they will issue to cannabis operators, or, alternatively, can choose to ban cannabis licenses.
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California License Categories/ Types (the “California License”)
Once an operator obtains local approval, the operator must obtain state licenses before conducting any commercial cannabis activity. There are multiple license categories that cover all commercial activity. Categories include: (1) cultivation/nurseries, (2) testing laboratories, (3) distributors/transporters, (4) retailers, (5) microbusinesses, (6) event organizers, and (7) manufacturers. Categories of licenses are further broken down into subtypes. For example, there are multiple types of cultivation licenses available depending upon the size of the cultivation operation and whether the operation is indoors/outdoors or uses mixed lighting. Different manufacturing licenses are available depending upon whether volatile or nonvolatile solvents are used. Retail licenses are available depending upon whether the retailer operates from a store-front or a non-store front.
California Agencies Regulating the Commercial Cannabis Industry
The CDFA oversees nurseries and cultivators; the CDPH oversees manufacturers, and the BCC oversees distributors, retailers, delivery services, and testing laboratories. Operators must apply to one or more of these agencies for their licenses, and each agency has released regulations specific to the operation of the types of businesses they oversee. The BCC has a number of regulations that apply to all licensees, but the CDFA and CDPH regulations only apply to the licensees in their charge.
The Cannabis Supply Chain in California
In California, depending on a local government’s own cannabis ordinances, plants may be cultivated outdoors, using mixed-light methods, or fully indoors. Cultivators must initially acquire seeds, clones, teens, or other immature plants from nurseries.
The cultivation, processing, and movement of cannabis within the state is tracked by the METRC system, into which all licensees are required to input their track and trace data (either manually or using another software that automatically uploads to METRC). Immature plants are assigned a Unique Identifier number, or UID, and this number follows the flowers and biomass resulting from that plant through the supply chain, all the way to the consumer. Each licensee in the supply chain is required to meticulously log any processing, packaging, and sales associated with that UID.
When cannabis plants mature and complete their life cycle, they are harvested cured, and trimmed, in preparation of being sold to distributors or manufacturers. Cultivators have two main products: flowers, or “buds,” and the biomass, or “trim,” which is typically removed from the mature flowers. Trim is commonly sold to manufacturers for further processing into cannabis extracts. Buds may also be sold to manufacturers, or to distributors for sale to retailers. The cultivator may package and label its cannabis flowers or may sell flower in bulk and the distributor may package and label the flower.
Manufactured cannabis goods may be sold from a manufacturer to a distributor but must be provided to distributors in their final packaging. Distributors may not package manufactured cannabis goods. Certain tax rates apply to the cannabis flower and biomass, which are assessed per ounce of product sold. The California State excise tax is paid by the cultivator to the distributor, or alternatively the manufacturer, and it is the distributor that has the responsibility of tendering the excise taxes to the State of California.
Cannabis in California may only be transported by licensed distributors. Some cultivators and manufacturers have their own distribution licenses, and others contract with third party distributors. Distributors may or may not take possession of the cannabis and cannabis products. This has evolved in such a way that, similar to the alcohol distribution model, retailers are choosing from a portfolio of products carried by the distributors they work with. Brands are doing some direct marketing to retailers, but many brands target their marketing to distributors.
Distributors are the point in the supply chain where final quality assurance testing is performed on products before they go to a retailer. Retailers may not accept product without an accompanying certificate of analysis, or “COA”. Distributors must hold product to be tested on their premises in “quarantine” and arrange for an employee of a licensed testing laboratory to come to their premises and obtain samples from any and all goods proposed to be shipped to a retailer. Cannabis and cannabis products are issued either a “pass” or “fail” by the testing laboratory. Under some circumstances, the BCC’s regulations allow for failing product to be “remediated” or to be re-labeled to more accurately reflect the COA.
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See “Description of Business - KVC Licensing” for a description of the licenses held by the operating companies owned by KVC.
Retail Compliance in California
California requires that certain warnings, images, and content information be printed on all cannabis packaging. BCC regulations also include certain requirements about tamper-evident and child-resistant packaging. Distributors and retailers are responsible for confirming that products are properly labeled and packaged before they are sold to a customer.
Consumers aged 21 and up may purchase cannabis in California from a dispensary with an “adult-use” license. Some localities still only allow medicinal dispensaries. Consumers aged 18 and up with a valid physician’s recommendation may purchase cannabis from a medicinal-only dispensary or an adult-use dispensary. Consumers without valid physician’s recommendations may not purchase cannabis from a medicinal-only dispensary. All cannabis businesses are prohibited from hiring employees under the age of 21.
Security Requirements
Each local government in California has its own security requirements for cannabis businesses, which usually include comprehensive video surveillance, intrusion detection and alarms, and limited access areas in the dispensary. The State also has similar security requirements, including that there be limited-access areas where only employees and other authorized individuals may enter. All Licensee employees must wear employee badges. The limited access areas must be locked with “commercial-grade, nonresidential door locks on all points of entry and exit to the licensed premises.”
Each licensed premises must have a digital video surveillance system that can “effectively and clearly” record images of the area under surveillance. Cameras must be in a location that allows the camera to clearly record activity occurring within 20 feet of all points of entry and exit on the licensed premises. The regulations list specific areas which must be under surveillance, including places where cannabis goods are weighed, packed, stored, loaded, and unloaded, security rooms, and entrances and exits to the premises. Retailers must record point of sale areas on the video surveillance system.
Licensed retailers must hire security personnel to provide on-site security services for the licensed retail premises during hours of operation. All security personnel must be licensed by the Bureau of Security and Investigative Services.
California also has extensive record-keeping and track and trace requirements for all licensees.
Inspections
All licensees are subject to annual and random inspections of their premises. Cultivators may be inspected by the California Department of Fish and Wildlife, the California Regional Water Quality Control Boards, and the California Department of Food and Agriculture. Manufacturers are subject to inspection by the California Department of Public Health, and Retailers, Distributors, Testing Laboratories, and Delivery services are subject to inspection by the Bureau of Cannabis Control. Inspections can result in notices to correct, or notices of violation, fines, or other disciplinary action by the inspecting agency.
Retail taxes in California
Retailers generally must pay the excise tax to final distributors when they make wholesale purchases. These distributors then remit the retail excise taxes to the California Department of Tax Fee Administration, or CDTFA, which administers State cannabis taxes. Retailers must make these payments before they sell the products to consumers, so the tax is based directly on the wholesale price (the price that retailers pay to distributors) rather than the retail price (the price that consumers pay to retailers). The CDTFA sets the tax based on its estimate of the average ratio of the average ratio of retail prices to wholesale prices—commonly known as a ‘markup’. CDTFA’s current markup estimate (as of January 1, 2020) is 80%. Due to the 15% statutory tax rate and the 80% markup estimate, the current effective tax rate on wholesale gross receipts is 27%.
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In addition, the State taxes, cities and counties throughout California apply their own approaches to taxing cannabis. These approaches fall into three broad categories. First, many local governments impose the same tax rate on all cannabis businesses regardless of type. Second, many local governments impose higher tax rates on retailers than other types of cannabis businesses. Third, a few local governments license cannabis businesses but do not levy taxes specifically on cannabis. The California Legislative Analyst’s Office estimates that the average cumulative local tax rate over the whole supply chain is roughly equivalent to a 14% tax on retail sales.
Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing shareholders.
As of September 30, 2021, the net tangible book value of our shares of common stock was $5,429,625 or approximately $ $0.0133 per share based upon 407,494,700 (adjusted for subsequent forward stock split) number of Common Shares outstanding. Upon completion of this Offering, the net tangible book value of the 427,494,700 Common Shares to be outstanding (assuming the Maximum Offering sold) will be $30,429,625 or approximately $0.07. The net tangible book value of the shares held by our existing shareholders will be increased by $0.06 per share without any additional investment on their part. You will incur an immediate dilution of $1.18 per share. After completion of this Offering, purchasers of Common Shares in the Offering will collectively own approximately 4.68% of the total number of Common Shares then outstanding shares for which the purchasers will have made cash investments in the aggregate of $20,000,000 or $1.25 per share. Our existing shareholders will own approximately 95.32% of the total number of Common Shares then outstanding, for which they will not have made additional capital contributions resulting in dilution to new investors of approximately 94.3% assuming the Maximum Offering amount is sold. These calculations further do not include the costs associated with this Offering, and such expenses will cause further dilution. The Corporation estimates the offering expenses will be approximately $250,000.
The following table compares the differences of your investment in our Common Shares with the investment of our existing shareholders. Following is a table detailing dilution as of September 30, 2021, to investors if 100%, 75%, or 50%, of the Offering is sold.
| 100% of Offered Shares are Sold | 75% of Offered Shares are Sold | 50% of Offered Shares are Sold | ||||||||||
| Offering Price | $ | 1.25 | $ | 1.25 | $ | 1.25 | ||||||
| Outstanding Common Shares | 407,494,700 | 407,494,700 | 407,494,700 | |||||||||
| Net Tangible Book Value at 9/30/2021 | 5,429,625 | 5,429,625 | 5,662,371 | |||||||||
| Net Tangible Book Value per Share | $ | 0.0133 | $ | 0.0133 | $ | 0.0139 | ||||||
| Common Shares Sold | 20,000,000 | 15,000,000 | 10,000,000 | |||||||||
| Net Tangible Book Value After Giving Effect to the Offering | 30,429,625 | 24,179,625 | 18,162,371 | |||||||||
| Post-Offering Common Shares Outstanding | 427,494,700 | 422,494,700 | 417,494,700 | |||||||||
| Post-Offering Net Tangible Book Value Per Share | $ | 0.07 | $ | 0.06 | $ | 0.04 | ||||||
| Increase in Net Tangible Book Value Per Share Attributable to Cash Payments Made by New Investors | $ | 0.06 | $ | 0.04 | $ | 0.03 | ||||||
| Per Share Dilution to New Investors | $ | 1.18 | $ | 1.19 | $ | 1.21 | ||||||
| Percent Dilution to New Investors | 94.3 | % | 95.4 | % | 96.5 | % | ||||||
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PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS
All of our shares of Common Stock are being offered on a “best efforts” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings. We intend to continue selling our shares of Common Stock up as late as the Termination Date and intend to hold additional closings of the balance of the maximum 20,000,000 Offered Shares. Equiniti Trust Company of Mendota Heights, MN will serve as the escrow agent in this Offering. The minimum subscription that investors may make for the Offering Share is 800 shares or $1,000. Subscriptions may be made by either wire transfer or ACH deposits. Subscriptions will be processed through the portal managed by Dealmaker.Tech.
The shares of Common Stock are being offered directly by the Corporation and its management on a “best efforts” basis. No commissions or other compensation will be paid to Corporation management with respect to sales initiated by them.
Dalmore Agreement
The Corporation has engaged Dalmore Group, LLC (“Dalmore”), a broker-dealer registered with the Commission and a member of FINRA, to act as the broker-dealer of record for this Offering, but not for underwriting or placement agent services. As compensation, the Corporation has agreed to pay Dalmore a commission equal to 1% of the amount raised in the Offering to support the Offering on all invested funds after the issuance of a No Objection Letter by FINRA. In addition, the Corporation has paid Dalmore a one-time advance set up fee of $5,000 to cover reasonable out-of-pocket accountable expenses actually anticipated to be incurred by Dalmore, such as, among other things, preparing the FINRA filing. Dalmore will refund any fee related to the advance to the extent it is not used, incurred or provided to the Corporation. In addition, the Corporation will pay a one-time $20,000 consulting fee that will be due immediately after FINRA issues a No Objection Letter.
Dealmaker Agreement
The Corporation has entered into an agreement with Dealmaker under which Dealmaker will provide web hosting on its platform and related services, including “bad actor” background checks. The Corporation has also entered into an escrow agreement with Equiniti Trust Company under which Equiniti will hold in escrow all proceeds of this Offering. However, there is no minimum offering amount and we will be able to hold multiple closings and withdraw funds from escrow from time to time until the Maximum Offering amount is sold or the Offering is terminated.
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Prior to this Offering, there was no public market for our Common Stock. We expect to have our shares of Common Stock quoted for trading on the OTCQX Market or the OTCQB Market. There is no assurance that the shares of Common Stock will ever be quoted on the OTC. To be quoted on the OTC, a market maker must apply with the Financial Industry Regulatory Authority (“FINRA”) to make a market in our Common Stock. As of the date of this Offering Circular, we have engaged in discussions with a FINRA market maker regarding participation in a future trading market for our securities; and have made filings with FINRA. However, we have not, as yet received final FINRA approval. For further information, see “Plan of Distribution –Trading Market and Proposed Exchange Listing” below.
Exchange Listing or Quotation
We will initially apply to list our Common Stock for quotation on the OTC Markets’ OTCQX or OTCQB. We may continue to offer our Common Stock under this Offering Circular until as late as one year from the qualification date of this Offering. As a result, you may experience a delay between the closing of your purchase of shares of our Common Stock and the commencement of such shares being quoted on the OTCQX or OTCQB.
There can be no assurance that the KVC Common Stock sold in this Offering will be quoted on the OTC Market. See “Risk Factors” on page 12 of this Offering Circular.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) and, as such, may elect to comply with certain reduced reporting requirements for this Offering Circular and future filings after this Offering.
The Common Shares, are being offered pursuant to Regulation A of Section 3(b) of the Securities, as amended, for Tier 2 offerings, by the management of the Corporation on a “best-efforts” basis directly to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our sole discretion to accept less than the minimum individual investment. We have no minimum capitalization requirement, and we may use the proceeds from this Offering immediately following our acceptance of the corresponding Subscription Agreements towards our business strategy including potential acquisitions, payoff of our outstanding liabilities, expansion of our cultivation facilities offering expenses (which include legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering), working capital, general corporate purposes, and other uses, as more specifically set forth in the “Use of Proceeds to Issuer” section of this Offering Circular, on page 41. There is no arrangement for the return of funds to investors if all of the Shares offered are not sold in the Offering.
This Offering will expire on the first to occur of (a) the sale of all 20,000,000 Shares offered hereby; (b) the expiration of 365 days from the date of this Offering Circular unless extended in its sole discretion by the Corporation; or (c) when our Board of Directors elects in its sole discretion to terminate the Offering.
Generally speaking, Rule 3a4-1 under the Exchange Act provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer’s securities. The Corporation’s directors and officers will not register as broker-dealers under Section 15 of the Exchange Act in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker-dealer. The conditions are that:
| ● | the person is not statutorily disqualified, as that term is defined in Section 3(a)(39) of the Securities Act, at the time of his or her participation; and |
| ● | the person is not at the time of their participation an associated person of a broker-dealer; and |
| ● | the person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that he or she (i) primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (ii) is not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (iii) does not participate in selling and offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1 of the Exchange Act. |
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The Corporation’s officers and directors are not statutorily disqualified, are not being compensated, and are not associated with a broker-dealer. They are and will continue to hold their positions as officers or directors following the completion of the offering and have not been during the past 12 months and are currently not brokers or dealers or associated with brokers or dealers. They have not nor will they participate in the sale of securities of any issuer more than once every 12 months.
This Offering will commence on the qualification of this Offering Circular, as determined by the Securities and Exchange Commission and continue for a period of 365 days unless the maximum amount of the Offering is raised prior to that period ending. The Corporation may extend the Offering for an additional time period unless the Offering is completed or otherwise terminated by the Corporation. Funds received from investors will be counted towards the Offering only if the form of payment clears the banking system and represents immediately available funds held by the Corporation prior to the termination of the subscription period, or prior to the termination of the extended subscription period if extended by the Corporation, or as otherwise set out herein.
Should any fundamental change occur regarding the status of this Offering or other matters concerning the Corporation, we will file an amendment to this Offering Circular disclosing such matters.
Investment Limitations
Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than ten percent (10%) of the greater of your annual income or net worth (please see below on how to calculate your net worth). Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
Because this is a Tier 2, Regulation A offering, most investors must comply with the ten percent (10%) limitation on investment in the Offering. The only investor in this Offering exempt from this limitation is an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act (an “Accredited Investor”). If you meet one of the following tests you should qualify as an Accredited Investor:
| (i) | You are a natural person who has had individual income in excess of $200,000 in each of the two (2) most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year; | |
| (ii) | You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase Shares (please see below on how to calculate your net worth); | |
| (iii) | You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer; | |
| (iv) | You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares, with total assets in excess of $1,100,000; | |
| (v) | You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”), or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940; | |
| (vi) | You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor; |
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| (vii) | You are a trust with total assets in excess of $1,100,000, your purchase of Shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Offered Shares; or | |
| (viii) | You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $1,100,000. |
Offering Period and Expiration Date
This Offering will start on or immediately prior to the date on which the SEC initially qualifies this Offering Statement (the “Qualification Date”) and will terminate on the Termination Date (the “Offering Period”).
Procedures for Subscribing
If you decide to subscribe for Common Shares in this Offering, you should:
| 1. | Electronically receive, review, execute and deliver to us a subscription agreement pursuant to the procedures required by Dealmaker.Tech; and | |
| 2. | Deliver funds directly by either wire transfer or ACH deposits to the escrow agent, Equiniti Trust Company pursuant to the instructions set forth in the subscription agreement and the procedures required for electronic processing by Dealmaker.Tech. |
Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity to review this Offering Circular.
Right to Reject Subscriptions
After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to our designated account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.
Acceptance of Subscriptions
Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.
Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed ten percent (10%) of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed ten percent (10%) of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
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NOTE: For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary if the fiduciary directly or indirectly provides funds for the purchase of the Offered Shares.
In order to purchase our Common Stock shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Corporation’s satisfaction, that he is either an accredited investor or is in compliance with the ten percent (10%) of net worth or annual income limitation on investment in this Offering.
Selling Security Holders
No securities are being sold for the account of security holders; all net proceeds of this offering will go to the Corporation.
The Use of Proceeds is an estimate based on the Corporation’s current business plan. The Corporation may find it necessary or advisable to reallocate portions of the net proceeds reserved for one category to another, or to add additional categories, and the Corporation will have broad discretion in doing so. The Corporation does not intend to use proceeds from this Offering to compensate or otherwise make payments to officers or directors of the Corporation or any of its affiliates. Because the Offering is a “best efforts” offering, the Corporation may close the Offering without sufficient funds for all the intended purposes set out below or even to cover the costs of the Offering.
We estimate that the net proceeds to us from the sale of the maximum amount of Shares offered hereby will be approximately $24,750,000 after the deduction of approximately $250,000 for offering expenses. The following table illustrates the Corporation’s current intentions for the use of the net proceeds of the Offering depending on the total amount of proceeds received by the Corporation on the sale of 25%, 50%, 75% and 100% of the Shares offered hereby, over an approximate 12-month period.
Capital Sources and Uses
| Gross Proceeds | 25% | 50% | 75% | 100% | ||||||||||||
| Expansion of Cultivation Facilities | $ | 1,237,500 | $ | 2,475,000 | $ | 3,712,500 | $ | 4,950,000 | ||||||||
| Federal Tax Liability (2019/2020; 2021)(1) | $ | 1,485,000 | $ | 2,970,000 | $ | 4,455,000 | $ | 5,940,000 | ||||||||
| Reduction of Liabilities | $ | 495,000 | $ | 990,000 | $ | 1,485,000 | $ | 1,980,000 | ||||||||
| Acquisitions and General Corporate Purposes | $ | 2,970,000 | $ | 5,940,000 | $ | 8,910,000 | $ | 11,880,000 | ||||||||
| TOTALS: | $ | 6,187,500 | $ | 12,375,000 | $ | 18,562,500 | $ | 24,750,000 |
| (1) | Through 2020 and the first nine months through September 30, 2021, the Company was an LLC; so, any tax exposure for those periods would be assessed to the LLC Members. However, if the Members are assessed additional federal taxes for these periods, the Corporation intends to fund this obligation on behalf of the LLC Members. |
The Corporation’s plan of operations for the next few years includes providing continued support of its KVC-affiliated entities which includes: including funding of federal income tax liability (due to the Corporation’s operation as a cannabis business, it is unable to deduct operating expenses which results in increased federal income tax liability), building out operations their cultivation facilities, developing and optimizing production of their products; acquiring additional facilities in the State of California for the purpose of cultivation, processing and retail; identifying additional partnership opportunities; expanding the KVC brand through various licensing and partnership arrangements; developing new product; identifying additional cannabis markets in the State and securing the necessary licenses and permits; and developing, executing and monitoring marketing strategies designed to support and further KVC’s mission and values.
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The amounts set forth above are our current estimates for such development activities, and we cannot be certain that actual costs will not vary from these estimates. The Corporation’s management has significant flexibility and broad discretion in applying the net proceeds received in this Offering and making short-term interest-bearing investments of the proceeds for capital preservation purposes. The Corporation cannot assure you that its assumptions, expected costs and expenses and estimates will prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional debt and/or equity funding, which may not be available on favorable terms, or at all. See “Risk Factors” for more information regarding the risks associated with an investment in our securities.
Pending the Corporation’s use of the net proceeds from this Offering, it may invest the net proceeds in a variety of capital preservation investments, including without limitation short-term, investment grade, interest-bearing instruments and United States government securities and including investments in related parties. The Corporation may also use a portion of the net proceeds for the investment in strategic partnerships and possibly the acquisition of complementary businesses, products or technologies.
Although it is difficult to predict future liquidity requirements, the Corporation believes that the net proceeds from this Offering, if fully subscribed, together with our existing cash and cash equivalents will fund our operations into the second quarter of 2024. See “Risk Factors”.
The Corporation has not declared dividends on any of its shares in the past and does not intend to pay any in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Board of Directors and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of dividends, and any other factors that the Board of Directors deems relevant.
Kolaboration Ventures Corporation (KVC) is a Wyoming Corporation formed on August 11, 2021, for the purpose of organizing the various business activities under a parent corporation. KVC is a rollup of the following entities: Kolaboration Ventures, LLC; Rio Vista Farms, LLC; Contra Costa Farms, LLC; Kolaboration Vallejo, LLC; and Kolaboration Concord, LLC. The members of these entities exchanged their membership interests in each respective entity for KVC Common Stock. The reorganization was effective as of October 1, 2021 (the “Roll-up Transaction”).
KVC is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development and distribution. KVC and its subsidiaries are working to expand in California through both organic growth and acquisitions while building a respected portfolio of top shelf brands. Wholly-owned, licensed and/or distributed brands within KVC’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms.
Description of Companies Acquired by KVC in the Roll-up Transaction:
Rio Vista Farms, LLC (“RVF”) was the first business to be formed by Charles Wesley, Andrew Wesley and Martin Wesley (the “Founders”). A California limited liability company, RVF was formed on July 14, 2017. RVF is a California Type 12 Microbusiness operating at 11 Richard Brann Drive in Rio Vista CA. From July 2017 to June 2018, the Founders (1) developed a business and project plan, (2) secured seed capital financing, (3) purchased the 1.24-acre parcel of land from the City of Rio Vista, (4) secured the use permit from the City, (5) managed the engineering, permitting and erection of the Phase I facility (8,480sf), (6) secured the state cannabis license, and (7) opened for business on June 6, 2018. The Phase I operation cultivated, packaged, sold wholesale and sold retail through its on-site dispensary. During the period March 2019 through October 2019, RVF added Phase II to its facility (8,960 square feet). This expansion enabled RVF to maximize its Type 12 License, which limits plants in Flower to 10,000 square feet. Until its reorganization under KVC, RVF was majority owned and controlled by our Founders, Martin, Charles and Andrew Wesley.
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Contra Costa Farms, LLC (“CCF”) was the second business to be formed by our Founders. A California limited liability company, CCF was formed on October 12, 2018, and operates as CoCo Farms. The idea of CCF was first suggested by officials from the nearby City of Antioch, who had recently passed a cannabis ordinance. They observed our Rio Vista operation autonomously and then announced that they wanted the same company presence as our Rio Vista operation to be the face of cannabis in Antioch. They connected us with a broker who located and closed on a 9-acre parcel in the industrial area of Antioch. We then proceeded through the same process used for RVF to open our Antioch Type 12 cannabis business on December 24, 2019. CCF now does light manufacturing, wholesale sales and retail sales through its 2,000 square feet dispensary. In November 2020, CCF added a processing license, which permits it to trim the flower of other cultivators, including RVF. At this time, CCF conducts manufacturing, wholesale and retail from a 5,000 square feet building, and processing from a 2,000 square feet building. Until the reorganization, CCF was majority owned and controlled by the Founders.
Kolaboration Vallejo, LLC (“KVL”) was the third business formed by our Founders. A California limited liability company, KVL was formed on June 11, 2020, and operates as V-Town Farms. Vallejo, together with its surrounding communities, is a large market which already has 11 dispensaries. However, they are all small with very marginal commitments to serving retail customers. The City of Vallejo is not issuing new cannabis use permits. To get a cannabis use permit, an operator would have to purchase an existing one from an existing operator. The plan, which we executed, was to (1) identify and reach an agreement with an existing operator, (2) identify and secure a facility that would enable a large-footprint dispensary, (3) with the existing operator, go through the steps to update its use permit to a “7200” use permit, (4) secure the necessary permits for tenant improvements, (5) secure planning commission and city council approval, (6) transfer the use permit from the existing operator to KVL, (7) secure the state license and (8) open for business; which we did on July 30, 2021. KVL operates with a Type 12 cannabis license in a 21,000sf facility. The 21,000 square feet is only a portion of the real property that KVL is leasing with an option to purchase. Altogether, the parcel has 5.1 acres and 65,000 square feet of commercial space. In the 21,000 square feet premise, KVL performs light manufacturing, packages, sells wholesale and sells retail through its 9,000 square feet dispensary. Until the reorganization, KVL was majority owned and controlled by CCF; which was majority owned and controlled by the Founders.
Kolaboration Concord, LLC (“KCL”) was the fourth business formed by our Founders. A California limited liability company, KCL was formed on October 5, 2020. The City of Concord had just passed a cannabis ordinance and was permitting a limited number of retail storefronts; which storefronts would be awarded through a competitive bid process. During the period October through April 2021, KCL (1) identified and secured a facility large enough to hold a large footprint dispensary and sufficient parking for the anticipated traffic and (2) competed for one of the storefronts and was selected at the March 23, 2021city council meeting. Since the award, KCL has been working with the city to secure the use permit, secure site & design review sign-offs, draft the development agreement with the city and then secure the permits for tenant improvements. The dispensary is now expected to open on or about May 1, 2022. We are leasing this 19,183 square feet facility with an option to purchase it. When open, KCL will perform light manufacturing, wholesale sales, and retail sales within the 6,532 square feet dispensary area. Until the reorganization, KCL was 99% controlled by CCF; which was 75% controlled by the Founders.
Kola Center Management, LLC (“KCM”) was formed on October 12, 2020 by our Founders. KCM is not a cannabis business. It was formed solely to serve as the property management company for the eight commercial locations located on the parcel in Vallejo where KVL operates, other than the location occupied by KVL. Four of the seven units are currently unoccupied. When funds become available, KCM intends to refurbish these four units and then start and operate non-cannabis businesses complementary to V-Town Farms. There are currently three non-cannabis tenants; all of whom are remitting lease payments monthly.
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In the fall of 2020, the Founders acquired a 50% interest in two failing dispensaries; one in Del Rey Oaks, California and one in Salinas, California. Together, they are called DRO Legacy, Inc. The Founders also acquired a 50% interest in the real property in which the Del Rey Oaks dispensary operates; Portola Drive LLC. Both dispensaries were rebranded (Del Rey Farms and Valley Farms), and both facilities were updated with the “look and feel” of Rio Vista Farms and CoCo Farms. Product selection was expanded and prices were reduced to produce the same compelling shopping experience found at Rio Vista Farms and CoCo Farms. CCF, which is now 100% owned by KVC, owns 50% of DRO Legacy Inc. and 50% of Portola Drive LLC. DRO Legacy, Inc., holds a dispensary license and a distribution license.
In December of 2020, DRO Legacy, Inc., (in which we own a 50% interest through our ownership of Contra Costa Farms, LLC) acquired a 100% interest in Emerald Skyway, LLC which operates licensed dispensaries in California.
An organization chart depicting all of the above is set forth below:
Description of Business
Principal Products and Services: the KVC Vertical Approach
KVC, together with Pacific Reserve (See “Pacific Reserve Acquisition” on page 48), cultivates indoor and in light-assisted greenhouse, processes and manufactures cannabis products in California in the form of proprietary strain genetics, pre-rolls, infused pre-rolls, flower, infused flower, and numerous formats of extracts and concentrates.
The KVC cultivation teams grows using organic farming practices. The Corporation’s farms are located in Salinas in Monterey County, and in Rio Vista, in Solano County, California. Our teams cultivate with a level of care and consideration delivering clean, fresh and potent cannabis that is then processed and packaged in various formats, meeting consumer price points up and down the retail shelf, which we believe is very important for customer retention.
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The result of this effort and attention is what KVC believes are high quality cannabis products being sold competitive price, which is very important for customer retention. Our mission is to scale our vertically-integrated cannabis platform to deliver cannabis products at scale to consumers at affordable price points through small and large format dispensaries across California.
Our cannabis platform is comprised of in-house brands and products, that are grown, processed, manufactured and sold by us at our retail outlets and over 250 third party retailers across California.
Kolaboration Ventures’ Cultivation and Production Facilities
Kolaboration Ventures Corporation’s (KVC) cannabis cultivation operations currently operate out of two facilities. Rio Vista Farms located in Rio Vista, California is an indoor cultivation operation and is situated on a 1.24-acre piece of land owned by the Corporation. Our second cultivation operation is across two sites in Salinas, California and is a light-assisted greenhouse operation.
At Rio Vista Farms we cultivate craft exotic indoor flowers which are packaged in various formats for our owned and operated retail shelves and 3rd party dispensary shelves. This facility has approximately 10,000 square feet of flower, a vegetative nursery, and other operations that are part of its Micro Business license. In total, the activities done at this facility are retail, cultivation, manufacturing and distribution. Rio Vista Farms produces roughly 200 pounds a month of indoor “jarrable” flower for retail. Additionally, biomass/small buds generate additional products such as pre-rolls, concentrates and other packaged goods for retail.
At Pacific Reserve, our Salinas operations, we cultivate craft exotic light assisted flowers which are packaged in various formats for our owned and operated retail shelves and 3rd party dispensary shelves. These facilities have approximately 254,000 square feet of permitted greenhouses and a 5,000 square foot building for processing. Additionally, 480,000 square feet of greenhouse is permitted with 90,000 square feet to have construction completed. These operations are coupled with an 8,000 square foot and a 3,500 square foot building for processing. These facilities include cultivation, nursery and processing as well as distribution.
Pacific Reserve produces 400 pounds per month of AAA light assisted jarrable flower (will increase to 800lbs a month in second half of 2022 along with complimentary by-products such as pre-rolls, concentrates and other packaged goods).. Additionally, Pacific Reserve’s nursery produces over 144,000 mature clones per year for sale at dispensaries across the State.
Both cultivation operations have a bank of genetics for all trends and customer requests. The ability to pivot on cultivation to maintain desirability and sell through is crucial to ongoing sales. Lastly, both operations have cannabis processing teams “trim teams” to ensure that the product is manicured and presents well in jars, bags or other packaging.
KVC has already secured the use permits from the City of Antioch to develop four Type 3A cultivation facilities and a cultivation addition to the existing Type 12 facility. Altogether, this represents 98,000 square feet of flower canopy. By comparison, RVF is only 10,000 square feet of flower canopy. This facility does face a challenge to ensure that will have sufficient electric power. On two occasions, we applied for this power with Pacific Gas & Electric. but each time, the process has been stalled. Since then, we have researched the use of natural gas to power electric generators as a viable alternative.
What Makes Kolaboration Ventures Different:
Two Things: Our Dispensary Model and Our Supply Chain:
Dispensary Model - Large format (2,000 square to 9,000 square feet of retail floor space) with a large selection of Tier 1 products and pricing that compels our customers to return. New customer traffic is generated with billboards in the vicinity of the dispensary.
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Supply Chain - Our suppliers value our ability to accept large deliveries. To reciprocate, they agree to improved pricing and market exclusivity for us. As an example, a product on our shelf in Antioch may not be sold to another dispensary in Contra Costa County.
Our scale in the retail space and our roots in cultivation, positions KVC as the largest vertically integrated cannabis company in California. The Founders of KVC have grown KVC at a performance to equity ratio of 11-to-1 based on paid-in capital of $6,200,000 and unaudited 2021 revenue of $68,000,000 (when aggregated with Pacific Reserve). The performance to equity ratio of 11-to-1 is strongly competitive with other public cannabis companies.
Principal Markets and Method of Distribution
Kolaboration Ventures has developed and continues to develop vertically integrated operations.
KVC draws on the experience of its leadership team in marketing, data and return on ad spend to develop a unique approach to marketing and 3rd party brand partners. As an example, we do not use any of the platforms that supported the illegal market even after Proposition 64 passed. Rather, we lean heavily on outdoor, newsprint and digital methods to engage our customers and stay top-of-mind.
We keep our product selection unique in every market we operate in. Most of the products we sell simply cannot be purchased within a 20- mile radius of our shops which provides us and our customers an advantage.
We focus on the following areas of performance:
| 1. | Quality cannabis products at a competitive price. |
| a. | Ole’4 Fingers | |
| b. | Fat Boys Farm | |
| c. | Pacific Reserve | |
| d. | Rio Vista Farms | |
| e. | Farms Brand | |
| f. | Atoms infused flower | |
| g. | Triple Threat infused pre-rolls |
| 2. | Friendly and informative customer interactions at every retail location. |
| a. | Every customer gets their own budtender to help every guest through their experience. | |
| b. | The “new” cannabis consumer can find other shops intimidating or simply cold. This impedes creating a lasting relationship or earning a repeat customer. |
| 3. | Fun. |
| a. | We are heavily involved with over a dozen charities and actively involved in all of our communities. | |
| b. | We actively engage our customers before, during and after each visit. |
| 4. | Customizing the retail experience: |
| a. | It is truly an experience when a customer enters our doors. It begins with security, safety and completes with guests’ questions answered, and the guest leaving with a smile on their face. | |
| b. | Our loyalty program which spans all of our retail locations has proven valuable to customer retention, and referrals. |
KVC believes that as the cannabis industry matures in California, vertical integration will be critical to generate the scale necessary to create efficiencies up and down the supply chain from things as small as packaging costs, materials, automation, and sheer horse power as well as leadership to make informed decisions and act quickly on them.
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KVC’s Intellectual Property
| Trademarks | |
| Coco Farms (long logo) | |
| Serial number: 90346227 | |
| Filing date: November 27, 2020 | |
| Mark code: (3) Design plus word | |
| Status: Live | |
| Coco Farms (stacked logo) | |
| Serial number: 90346225 | |
| Filing date: November 27, 2020 | |
| Mark code: (3) Design plus word | |
| Status: Live | |
| Coco Farms | |
| Serial number: 90346223 | |
| Filing date: November 27, 2020 | |
| Mark code: (4) standard character mark | |
| Status: Live | |
| Copyrights: None. | |
| Tradenames | |
| Coco Farms | |
| V-Town Farms |
Miscellaneous
IP:
Enjoycocofarms.com vtownfarms.com RioVistaFarms.com ole4.com FatBoys.Farm Blueskittlez.com ChileVerdeStrain.com Darksidecherrypie.com Deathstarcherrypie.com GMO-Strain.com Greasemonkeystrain.com J1strain.com Krashberry.com |
La-kush.com Le-pew.com Mimosapunch.com Mochistrain.com Moreoz.com Orangefrootypebbles.com Peanutbudderandjelly.com Peanutbutterbreath.com Snobatter.com Sundaedriverstrain.com Watermelonrancher.com WeddingCrasherBud.com |
KVC Licensing
KVC currently possesses seven provisional State cannabis licenses, obtained between June 2018 and July 2021 (“Provisionals”):
| Agency | License # | Date Issued | Expires | Corporation | DBA | |||||
| DCC | C12-0000068-LIC | 5/18/18 | 06/13/22 | Rio Vista Farms LLC | Rio Vista Farms | |||||
| DCC | C12-0000279-LIC | 12/02/19 | 12/01/22 | Contra Costa Farms LLC | CoCo Farms | |||||
| CDFA | CCL20-0002314 | 11/16/20 | 11/16/22 | Contra Costa Farms LLC | Contra Costa Farms | |||||
| DCC | C10-0000782-LIC | 2/08/21 | 02/08/22 | DRO Legacy Inc | Del Rey Farms | |||||
| DCC | C10-0000843-LIC | 07/20/21 | 07/20/22 | Emerald Skyway | Valley Farms | |||||
| DCC | C12-0000373-LIC | 07/26/21 | 07/06/22 | Kolaboration Vallejo LLC | V-Town Farms |
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| DCC | Type 12 Coming | March 2022 | March 2023 | Kolaboration Concord LLC | CoCo Farms | |||||
| DCC | C11-0001330-LIC | 5/20/21 | 5/20/22 | DRO Legacy Inc | Del Rey Farms |
Legend:
DCC is the Department of Cannabis Control and issues retail, micro-business and distribution Licenses.
CDFA is the California Department of Food and Agriculture and issues all cultivation and processing Licenses.
C12 is a Microbusiness License permitting up to 10,000 square feet of flower under lights, distribution, retail and non-volatile manufacturing.
C10 is a Dispensary License, only.
C11 is a Distribution License, only.
CCL20 is a Processing License, which permits the trimming of bulk flower from any cultivator.
All of the above Licenses are “Provisional” and will expire in one year from date of issue. Extensions are applied for within 60 days of each license’s expiration and consist of providing updates and the payment of fees. At any time, a Provisional License may be replaced with an Annual License, which also expire in one year. Annual Licenses provide more standing for the License holder in the event of an adverse Agency action. Before the end of 2022, we intend to move all Licenses to Annual Licenses.
Recent Developments
The Pacific Reserve Acquisition
KVC executed a merger agreement and plan of reorganization effective January 4, 2022 (the “Merger Agreement”) with PRH Acquisition Corporation, FFF Acquisition Corporation and PRN Acquisition Corporation (collectively “Buyer Subsidiaries”), Pacific Reserve Nursery, Inc, Fuji Fire Flowers, LLC and PR Brands LLC (collectively “Pacific Reserve”) and Brook Eagle, Andy D’Amico and William Tomlinson (collectively the “Controlling Shareholder”) in which KVC agreed to acquire all of the outstanding shares of Pacific Reserve in exchange for 60,800,000 shares of Common Stock of KVC valued at one dollar and twenty-five cents ($1.25) per share, subject to certain closing conditions listed in the Merger Agreement. Upon consummation of the merger, Buyer Subsidiaries will cease to exist, and the Pacific Reserve entities will be wholly owned subsidiaries of KVC. The transaction is expected to close within the next 12 months. Pacific Reserve cultivates, packages and distributes cannabis wholesale in Salinas California. Separately, the owners of Pacific Reserve also owned a cannabis dispensary in Santa Cruz called Herbal Cruz. A fifty percent (50%) interest in this dispensary was purchased with 72,000 Common Shares of KVC (post-stock split this amount is 1,440,000 shares of Common Stock) pursuant to the Agreement for Sale and Purchase dated September 1, 2021 and the remaining fifty percent (50%”) was purchased as part of the Merger Agreement.
Concurrently with the execution of the Merger Agreement, KVC executed a Shareholder Voting Agreement (the “Voting Agreement”) with Charles Wesley, Andrew Wesley and Martin Wesley (each a “KVC Shareholder” and collectively the “KVC Shareholders”) and the Controlling Shareholder, pursuant to which the KVC Shareholders agreed to vote their Common Stock in a manner that will result in the election of two (2) individuals designated by the Controlling Shareholder as directors of KVC. Upon an equity financing of KVC, the number of board members that the Controlling Shareholder may designate will be reduced to one (1) individual. The Voting Agreement automatically terminates upon (a) a Liquidity Event or Change of Control; (b) a dissolution event, whether voluntary or involuntary, (c) two (2) years from the date of execution or (d) at any time the KVC Shareholders collectively own 50% or less of the voting stock of KVC. A Liquidity Event includes an offering of KVC Common Stock under Regulation A. Therefore, we expect the Voting Agreement to terminate upon qualification of this Offering Statement by the Securities and Exchange Commission.
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Receivables Financing
In April, June, November and December of 2021, the Corporation secured financing from Austin Business Finance, LLC., in the amount of approximately $4,890,000 with an interest rate of 4% with payments weekly for one year from the date of each note, the notes are secured with the receivables of the Corporation.
HTP Group, Inc. Asset Purchase
On September 15, 2020, Kolaboration Vallejo LLC (dba V-Town Farms) executed a purchase agreement with HTP Group, Inc., for acquisition of its cannabis use permit in the city of Vallejo. The agreement closed in July 2021 when the use permit was issued and the conditions to closing were satisfied. The purchase price was $6,500,000 payable $1,000,000 upon execution of the agreement and the balance ($5,500,000) payable over 18 months. The acquisition of this license was necessary to be able to open and operate and get a state cannabis license for V-Town Farms.
Industry Competition
The Corporation operates and will continue to operate in a highly dynamic market that is characterized by a growing number of new market entrants competing in the same product categories as the Corporation. As such, there is considerable competition in the marketplace.
The industry is also entering a period of significant consolidation, creating larger companies that may have increased geographic scope and other economies of scale. Increased competition by larger, better-financed competitors with geographic or other structural advantages could materially and adversely affect the business, financial condition and results of operations of the Corporation. See “Risk Factors”.
To remain competitive, the Corporation will require a continued level of investment in research and development, marketing, sales and client support. The Corporation may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Corporation. See “Risk Factors”.
The Corporation’s ability to become and remain competitive in the market will depend upon, among other things:
| - | The level of competition in the cannabis industry; |
| - | The Corporation’s ability to identify, acquire and integrate strategic acquisitions and partnerships; |
| - | The Corporation’s ability to obtain new licenses as cannabis is legalized at the state level; |
| - | The Corporation’s ability to achieve brand loyalty; |
| - | The Corporation’s ability to offer new products and to extend existing brands and products into new markets; |
| - | The Corporation’s ability to remain competitive in its product pricing; and |
| - | The Corporation’s ability to leverage its vertically-integrated business model to increase profitability. |
Employees
As at the date of this Offering Circular, the Corporation has 173 full-time and no part-time employees. Additionally, the Corporation engages independent contractors from time-to-time who have gone, or will go, through the requisite background checks.
Bankruptcies, Receiverships or Similar Proceedings
Neither the Corporation nor any of its subsidiaries have filed for bankruptcy or are subject to any receiverships or similar proceedings.
Legal Proceedings
The Corporation is subject to various pending and threatened litigation from time to time in the ordinary course of business. Although all litigation involves some degree of uncertainty, in the opinion of management, liabilities, if any, arising from such litigation or threat thereof are not expected to have a material adverse effect on the Corporation. Please refer to the footnotes to our financial statements in Part F/S of this Offering Circular for more information concerning pending legal proceedings.
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Recent Consolidations, Mergers and Acquisitions
See “Description of Roll-up Transaction” on page 42 of this Offering Circular.
Ability to Access Public and Private Capital
The Corporation has historically, and continues to have, access to private capital in the United States in order to support its continuing operations. The Corporation expects that all capital requirements will be adequately met through future public or private equity financings in the United States. However, the Corporation’s business is subject to all of the risks associated with having material involvement in the cultivation and distribution of cannabis in the United States. As such, there is a risk that conventional private or public offerings of securities or conventional bank financing will not be available to the Corporation in the future. See “Risk Factors” on page 12.
The following table summarizes pertinent details of properties owned or rented by the Corporation and its subsidiaries, as of the date of this Offering Circular:
| Company | City | Description | Purchase Price/Valuation | Notes | ||||
| Rio Vista Farms LLC | Rio Vista | 11 Richard Brann Drive Rio Vista CA 94571 APN 0178-023-014 17,440sf on 1.24 acres Business Park |
$3.2 Million
|
November 2019 Appraisal
Purchased the parcel from the City of Rio Vista in October 2017. | ||||
21 Richard Brann Drive Additional .5 acre lot next store APN 0178-023-013 |
$250,000 | Purchase Price - October 2019 | ||||||
Contra Costa Farms LLC “CoCo Farms” |
Antioch | 3400 Wilbur Ave. Antioch CA 94509 APN 051-051-021 9.24 acres in an Industrial area 5,000sf building 2,400sf building |
$3.2 Million | November 2019 Purchase Price | ||||
Kolaboration Vallejo LLC “V-Town Farms” |
Vallejo | Shopping Center - Vallejo CA 94589
5184 Sonoma Blvd. 56,925sf building on 4.285 acres APN 0067-150-300
|
$7 Million
|
Lease with Option to Purchase $67,000 per month for five years. Renewable for three five-year periods.
| ||||
5182 Sonoma Blvd. 6,165sf building on .867 acres APN 0067-150-290 |
$1.25 Million
|
May exercise Option after two years. . |
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| Company | City | Description | Purchase Price/Valuation | Notes | ||||
Kolaboration Concord LLC “CoCo Farms” |
Concord | 2366 Stanwell Circle Concord CA 94520 28,780sf on 1.06 acres APN 112-252-021 APN 112-252-022 APN 112-252.006 All parcels are contiguous. Business Park |
$4.1 Million | Lease with Option to Purchase at Market Value $35,000 per month for five years. Renewable for three five-year periods.
May exercise at the end of year two. | ||||
DRO Legacy Inc. “Del Rey Farms” |
Del Rey Oaks | 800 Portola Drive Del Rey Oaks CA 93940 6,267sf on .24 acres APN 012-471-015 Commercial area |
$3.5 Million | December 2020 Purchase Price Owned by the sister company, Portola Drive LLC. | ||||
DRO Legacy Inc. “Valley Farms” |
Salinas | 1610 Moffett Street Salinas CA 93905 5,866sf Industrial Park |
N/A | $9,268 per month for five years. No option to purchase. Three five-year renewal periods. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
KOLABORATION VENTURES CORPORATION
This management’s discussion and analysis (“MD&A”) contains information about the financial condition and results of operations of Kolaboration Ventures LLC (“KV LLC” or the “Company”) for the years ended December 31, 2020 and 2019 and the nine-month interim period of 2021. This MD&A is supplemental to, and should be read in conjunction with, the Company’s audited consolidated financial statements for the years ended December 31, 2020 and 2019, and the notes thereto, attached as Part F/S to the Offering Circular. KV LLC’s financial statements are prepared in accordance with United States Generally Accepted Accounting Principals (“US GAAP”). Financial information presented in this MD&A is presented in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.
Note: From its inception in 2017 through September 30, 2021, the Company’s subsidiaries were consolidated as Kolaboration Ventures LLC because the operating subsidiaries were all Member-owned limited liability companies. On October 1, 2021, four of the Member-owned subsidiaries converted all of the Member interests in the LLCs to Common Shares in Kolaboration Ventures Corporation. See “Description of the Roll-up Transaction”. This explains why the results of operations through September 30, 2021, are referred to as Kolaboration Ventures LLC while this filing is for Kolaboration Ventures Corporation. Effectively, they are the same Company. The terms “Company” or “KVC” used herein refer to both KV LLC and KVC.
Forward-Looking Statements
Some of the information contained in this MD&A that is not historical fact constitutes forward-looking information within the meaning of applicable U.S. securities laws. This forward-looking information is based on management’s reasonable assumptions and beliefs in light of the information currently available and are made as of the date of this MD&A. However, KVC does not undertake to update any such forward looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in the US. Actual results and the timing of events may differ materially from those anticipated in the forward-looking information as a result of various factors, including those described herein and in “Risk Factors” and elsewhere in the prospectus.
KVC cautions that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect our results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. See “Caution Regarding Forward-looking Statements” and “Risk Factors” elsewhere in the prospectus for a discussion of the uncertainties, risks and assumptions associated with these statements.
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Overview
KVC was incorporated in Wyoming and registered in California on August 11, 2021. KVC is the parent of a collection of subsidiaries, all of which were organized under it on October 1, 2021. A brief recap of subsidiary history is presented below:
| ● | Rio Vista Farms LLC (“RVF”) was organized on July 14, 2017, and commenced operations on June 6, 2018. | |
| ● | Contra Costa Farms LLC (“CCF”) was organized on October 12, 2018, and commenced operation on December 24, 2019. It does business as CoCo Farms. | |
| ● | Kolaboration Vallejo LLC (“KVL”) was organized on June 11, 2020, and commenced operations on July 30, 2021. It does business as V-Town Farms. | |
| ● | A 50% and controlling interest in Emerald Skyway LLC was purchased in December 2020 and it now does business as Valley Farms. | |
| ● | DRO Legacy Inc. (“DRO”) was organized in October 2020, and commenced operations in December 2020. It does business as Del Rey Farms. KVC owns 50% and a controlling interest in DRO. | |
| ● | Portola Drive LLC (“PDL”) was also organized in October 2020 to own the real property used by DRO. KVC owns a 50% interest in PDL. | |
| ● | Kola Center Management (“KCM”) was organized on October 12, 2020, and commenced operations in December 2020. | |
| ● | Kolaboration Concord LLC (“KCL”) was organized on October 5, 2020, and is expected to commence operation in April 2022. It will also do business as CoCo Farms. |
The consolidated financial statements for KV LLC for 2019 include…
| ● | 12 months of RVF operations; | |
| ● | 12 months of project and startup expenditures for CCF; | |
| ● | 8 days of operations for CCF; |
The consolidated financials for KV LLC for 2020 include…
| ● | 12 months of operations for RVF; | |
| ● | 12 months of operations for CCF; | |
| ● | 6 months of project and startup expenditures for KVL; | |
| ● | 6 months of project and startup expenditures for KCL. |
Factors Affecting Our Performance
KVC’s performance and future success depends on a number of factors. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below.
Regulation
KVC is subject to the local and state laws in the jurisdictions in which it operates. KVC holds all required licenses for the production and distribution of its products in the jurisdictions in which it operates and continuously monitors changes in laws, codes and regulations.
Product Innovation and Consumer Trends
KVC’s business is subject to changing consumer trends and preferences, which is dependent, in part, on continued consumer interest in new products. The success of new product offerings, depends upon a number of factors, including KVC’s ability to (i) accurately anticipate customer needs; (ii) develop new products that meet these needs;
(iii) successfully commercialize new products; (iv) price products competitively; (v) produce and deliver products in sufficient volumes and on a timely basis; and (vi) differentiate product offerings from those of competitors.
Competition and Competitive Conditions
The Company’s focus on the California market has provided it with a first-mover advantage, having built a scalable infrastructure in cultivation, manufacturing and distribution. The Company is able to successfully compete with the general markets in terms of pricing, single-state operators, and multistate operators. The Company’s acquisition and growth strategies have positioned the Company as a market leading cannabis company in the state despite California’s notoriously high barriers to entry stemming from compliance regulations, high-cost infrastructure, high state and local tax rates, and limited municipalities that permit cannabis commercial activities (approximately 70% of municipalities ban cannabis commercial activities). The Company has built its brands on providing trusted, quality cannabis to consumers. Company brands are a good value for cannabis consumers. Product quality, performance, new product innovation and development, packaging, and consumer price/value are important differentiating factors required to win market share, all of which are areas the Company has been focused on leading since inception. California has a diverse cannabis marketplace, with no company inordinately controlling or influencing the market.
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Results of Operations for 2019 and 2020 (Audited)
The following table sets forth selected consolidated financial information derived from our audited consolidated financial statements for the years ended December 31, 2020 and 2019, and the accompanying notes thereto, prepared in accordance with US GAAP. The selected financial information below may not be indicative of KVC’s future performance.
Comparison of the years ended December 31, 2020 and December 31, 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and December 31, 2019.
Kolaboration Ventures Corporation
Income Statement for 2019 and 2020
| For The Years Ended | 2020 Incr (Decr) from 2019 | |||||||||||||||
December 31, 2020 | December 31, 2019 | $ Change | % Change | |||||||||||||
| Revenue | $ | 42,905,128 | $ | 8,362,603 | $ | 34,542,525 | 413 | % | ||||||||
| Cost of Goods Sold | 26,238,892 | 4,366,931 | 21,871,961 | 501 | % | |||||||||||
| Cost of Goods Sold - Depreciation | 147,050 | 93,870 | 53,180 | 57 | % | |||||||||||
| Gross Profit | 16,519,186 | 3,901,802 | 12,617,384 | 323 | % | |||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and Marketing | 1,368,972 | 405,938 | 963,034 | 237 | % | |||||||||||
| General and Administrative | 8,877,948 | 2,239,926 | 6,638,022 | 296 | % | |||||||||||
| Depreciation and Amortization | 264,262 | 42,217 | 222,045 | 526 | % | |||||||||||
| Total Operating Expense | 10,511,182 | 2,688,081 | 7,823,101 | 291 | % | |||||||||||
| Income from Operations | 6,008,004 | 1,213,721 | 4,794,283 | 395 | % | |||||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest Expense | (610,469 | ) | (223,411 | ) | 387,058 | 173 | % | |||||||||
| Other Expense | (181,250 | ) | - | 181,250 | - | |||||||||||
| Total Other Expense | (791,719 | ) | (223,411 | ) | 568,308 | 254 | % | |||||||||
| Net Income | $ | 5,216,285 | $ | 990,310 | 4,225,975 | 427 | % | |||||||||
Revenue
The year-over-year increase in revenue was driven by the commencement of operations at CCF (dba CoCo Farms) in Antioch on December 24, 2019. Within the first 90 days, the dispensary was collecting $100,000 per day, which is equivalent to $75,000 per day in revenue. As CCF continued to ramp up, more and more of the RVF production moved from 3rd party distributors and dispensaries to CCF. As a result, an increasing share of RVF wholesale revenue became intercompany revenue.
Cost of Goods Sold
Likewise, the year-over-year increase in the cost of goods was driven by the opening and ramp-up of CCF. At the same time, the cost of goods at both RVF and CCF benefitted from the improved pricing received from 3rd party vendors. Buying power and volume produced lower unit costs.
Gross Profit Margin Percent
Gross profit margin percent for the year ended December 31, 2020 was 38.5% compared to 46.7% for 2019. Incentivized pricing to capture more of the market adversely impacted revenue by 10% and caused the decrease in gross margin. These promotions are mostly continuing and are justified by the reliable stream of customers delivered on a daily basis.
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Sales and Marketing
Sales and marketing expenses are primarily comprised of Advertising in the form of billboards and print. The Company has invested significant resources toward generating product awareness and capturing consumer mind share. It is the dominant cannabis presence on East Bay Area billboards. In 2020, the Company launched the quarterly “Rolling Paper”, which was inserted into 250,000 Sunday papers in the Company’s markets.
General and Administrative
The year-over-year increase in G&A expenses is primarily due to the opening of CCF on December 24, 2019. Operating expenses are chiefly comprised of payroll-related expenses, security, and business insurances. These are all very predictable expenses. Rent is not a significant component because both companies own their respective real estate. Administrative staff (accounting and human resources) grew modestly to keep up with the increased transaction volumes.
Interest Expense
The properties owned by both RVF and CCF are mortgaged. The increase from 2019 to 2020 is the result of the acquisition and financing of the CCF property and the use of merchant cash advances to fund project expenditures.
Other Expense
Other Expense in 2020 was chiefly due to a theft of $55,000 from the CCF cash vault and the write-off of $138,000 of merchandise assets. This loss was partially offset by the extinguishment of $27,000 of debt.
Net Income
The year-over-year increase in Net Income is primarily due to the opening of CCF. But cultivation and packaging improvements at RVF also contributed to this improvement.
Liquidity and Capital Resources
Our primary need for liquidity is to fund the growth of the Company. Through 2020, the three principal sources of liquidity have been earnings, investor equity mortgages and merchant cash advances. Our ability to fund our operations and to make planned capital expenditures depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. Our approach to investor equity is to raise it as we need it. To-date, this has been both affordable and effective.
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Results of Operations for the Nine Months Ended September 30, 2021 (Unaudited)
The following table summarizes our results of operations for the nine months ended September 30, 2021 and September 30, 2020.
Kolaboration Ventures Corporation
Nine Months of 2020 and 2021
| For The Nine Months Ended | 2021 Incr (Decr) from 2020 | |||||||||||||||
September 30, 2021 | September 30, 2020 | $ Change | % Change | |||||||||||||
| Revenue | $ | 38,251,470 | $ | 31,115,927 | $ | 7,135,543 | 23 | % | ||||||||
| Cost of Goods Sold | 22,906,296 | 16,650,914 | 6,255,382 | 38 | % | |||||||||||
| Cost of Goods Sold - Depreciation | 122,546 | 110,288 | 12,258 | - | ||||||||||||
| Gross Profit | 15,222,628 | 14,354,725 | ||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and Marketing | 1,669,823 | 1,025,382 | 644,441 | 63 | % | |||||||||||
| General and Administrative | 11,203,936 | 6,010,353 | 5,193,583 | 86 | % | |||||||||||
| Depreciation and Amortization | 373,109 | 180,652 | 192,457 | 107 | % | |||||||||||
| Total Operating Expense | 13,246,868 | 7,216,387 | 6,030,481 | 84 | % | |||||||||||
| Income from Operations | 1,975,760 | 7,138,338 | (5,162,578 | ) | -72 | % | ||||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest Expense | (1,411,828 | ) | (444,607 | ) | 967,221 | 218 | % | |||||||||
| Other Expense | (252,790 | ) | (54,701 | ) | 198,089 | 362 | % | |||||||||
| Total Other Expense | (1,664,618 | ) | (499,308 | ) | 1,165,310 | 233 | % | |||||||||
| Net Income | 311,142 | 6,639,030 | (6,327,888 | ) | -95 | % | ||||||||||
| Net (Income) Loss Attributable to Noncontrolling Interest | (355,631 | ) | - | 355,631 | - | |||||||||||
| Net Loss Attributable to Kolaboration Ventures LLC | $ | 666,773 | $ | 6,639,030 | (5,972,257 | ) | -90 | % | ||||||||
Revenue
Calendar (and fiscal) 2021 has been a difficult year for California cannabis. Since January, state-wide sales are down 30% (based on conversations with large distributors). While KVC revenue has increased 23%, revenues from stores that were operating in 2020 are down 20%. Every store mirrors what is happening state-wide. Our objective is to maintain customer traffic to the extent possible. Mostly, this has been successful. Traffic is down about 10% and average order value is down 10%. The combination is a 20% drop in sales.
DRO Legacy Inc. (dba Del Rey Farms) was formed in late 2020 and Emerald Skyway LLC (dba Valley Farms) was acquired in late 2020. Both began to ramp up in 2021. Each dispensary is now producing about $10,000 per day in collections.
Kolaboration Vallejo LLC (dba V-Town Farms) opened on July 30th. This is a mega dispensary with a retail floor of 9,000sf and parking for 250 cars. Based on its location on a heavily-trafficked thoroughfare, the store was expected to ramp up and outperform CoCo Farms. This has not happened. The store is producing $31,000 per day in collections, which is only 20% of Plan and only 30% of CoCo Farms current daily volume.
RVF wholesale sales to 3rd parties has dropped significantly because its production is now mostly allocated to its sister stores CoCo Farms, V-Town Farms, Del Rey Farms and Valley Farms. As a result, a substantial portion of RVF wholesale revenue is now intercompany revenue.
Gross Profit Margin Percent
Gross profit margin percent has deteriorated from 2020. At all stores, promotions are used extensively to maintain customer traffic. At RVF, a mid-year change in cultivation strategy proved to be counter-productive and resulted in a $1 Million loss in cultivation yield. This revealed itself in significantly unfavorable manufacturing variances for a four-month period until the strategy was abandoned and the operation fully recovered. These variances impact Cost of Goods Sold.
Sales and Marketing
The 63% increase from 2020 includes the following: (1) Billboard spending was increased approximately 50% and (2) An increase of spending for the rolling paper of approximately $105,000 and (3) An increase in in-house creative and digital work when work performed by an outside agency was brought in-house to improve the quality and timeliness of deliverables. Three marketing associates were hired.
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General and Administrative
The 86% increase from 2020 includes the following: (1) Human resources added two assistants to manage the increasing number of employees; (2) Accounting staff was increased to manage the additional store transactions and to support the audit and the plan for a public offering; (3) A treasurer was added to manage the increasing number of bank accounts and cash safes; (4) increased project, insurance, security and rent expense associated with the opening of V-Town Farms, Valley Farms and Del Rey Farms
Interest Expense
Interest Expense has increased 218% as a result of a significant reliance on merchant cash advances to fund the V-Town development and start-up.
Other Expense
The increase of $198,089 is primarily due to (1) $75,000 of legacy settlements and penalties associated with the purchase of the operations which became DRO Legacy Inc. and (2) the write-off of $136,000 merchandise assets with offsets of approximately $13,000 of other income.
Net Income
Through September 30, 2021, the Company produced a Net Profit of $666,773. The $5.2 Million of Operating Income produced by Rio Vista Farms and Contra Costa Farms was mostly offset by the following: (1) Increased interest expense of $967,000 (2) Corporate development expense of $940,000 and (3) KVL and KCL project and startup expenses of $2.5 Million. Corporate development expense includes expenses associated with the corporate reorganization, the PCAOB audit and the public offering.
Liquidity and Capital Resources
In September 2019, RVF replaced a $500,000 interest-only construction loan with a $1,000,000 mortgage. The mortgage amortizes monthly and carries a 12.9% rate of interest. In October 2019, CCF purchased its real estate with a $3.2 Million mortgage from the seller. This mortgage also amortizes monthly and carries an 8% rate of interest.
During 2020, $2.3 Million of equity was raised for the development and startup of KVL. Like RVF and CCF, these funds were provided by friends and family. The approach used was the same approach used for RVF (a $940,000 raise) and CCF (a $1.8 Million raise).
2021 has been a difficult year to maintain liquidity. We have stretched payments to most of our suppliers. Subsequent to the nine months ended September 30, 2021, one of the Founders sold a portion of his shares in KVC at a deep discount and loaned the proceeds of $1.4 Million to the Company interest-free and payable when funds become available. $600.000 in additional equity was raised. In total, $6.4 Million in cash advances were taken through November 2021. The outstanding balance at the end of November was $3.3 Million. These advances are described in more detail in the foot-notes to our financial statements.
Management was confident that V-Town would significantly improve liquidity once it opened. This did not happen. To support the expected volume, the Company over-staffed and over-invested in inventory. By the end of September, it was clear that course corrections were required. Excess inventory was moved to other locations to reduce new purchases at those locations. Under-performing staff were released. The security detail was reduced. More recently, additional under-performing staff were released, and staffing has now been right-sized to the current store volume.
At CoCo Farms, staffing was also reduced during the fourth quarter to match current store volume.
More recently, at all stores, pricing of 3rd party products was increased to improve gross margin. Even with these increases, the price/value offered is substantially better than that at competitor stores.
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Transactions Between Related Parties
Notes payable – related parties consisted of the following as of December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | |||||||
| Note Payable to Charles Wesley, interest rate of 0%. | $ | 80,000 | $ | 80,000 | ||||
| Note Payable to Andrew Wesley, interest rate of 0%. | 77,500 | 77,500 | ||||||
| Note Payable to Martin Wesley, interest rate of 0%. | 77,500 | 77,500 | ||||||
| Note Payable to Emory Epperson, interest rate of 20% . | - | 10,000 | ||||||
| Note Payable to Charles Wesley, interest rate of 0%. | - | 47,000 | ||||||
| Note Payable to Steven Smith, interest rate of 20%. | - | 149,740 | ||||||
Changes in or Adoption of Accounting Practices
Footnote 2 in our consolidated financial statements presents a summary and discussion of the company’s significant accounting policies. During 2020, some new accounting standards were adopted; however, their adoption resulted in no material change to the financial statements.
Critical Accounting Estimates
The preparation of financial statements requires us to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We have applied significant estimates and assumptions related to the following:
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closings of businesses and shelter in place orders. In response, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes significant provisions to provide relief and assistance to affected organizations. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and shelter in place orders and the ultimate impact of the CARES Act and other governmental initiatives. Certain accounting judgments and estimates performed by us require consideration of forecasted financial information in the context of the information reasonably available and the unknown future impact of the COVID-19 pandemic could result in a material adverse impact to the consolidated financial statements in future periods.
Business combination
In a business combination, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair values. One of the most significant areas of judgment and estimation relates to the determination of the fair value of these assets and liabilities, including the fair value of contingent consideration, if applicable. If any intangible assets are identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent external valuation expert may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. These valuations are linked closely to the assumptions made by our management regarding the future performance of the assets concerned and any changes in the discount rate applied.
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Inventory
Inventory is valued at the lower of cost and net realizable value. We determine net realizable value which is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. We estimate the net realizable value of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by market-driven changes that may reduce future selling prices. A change to these assumptions could impact our inventory valuation and impact gross profit.
Cultivated, manufactured and packages products are assigned costs based on a Standard Cost Accounting system which contains assumptions about process cycle times, labor content, overhead costs and the like. If the processes over-performs, then the favorability is posted as a favorable manufacturing variance to COGS.on the statement of profit and loss. If under-performed, then an unfavorable variance is posted to COGS.
Revenue Recognition
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The adoption did not result in any change to revenue recognition for any of its revenue streams. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principal, the Company applies a five-step process.
| 1. | Identification of a contract or contracts with a customer; | |
| 2. | Identification of performance obligation(s) in the contract; | |
| 3. | Determination of the transaction price; | |
| 4. | Allocation of the transaction price to the performance obligations in the contract; and | |
| 5. | Recognition of revenue when, or as, the performance obligation is satisfied. |
Contracts with customers are at the point of sale and, while they often include the transfer of multiple products to a customer, they do not require future obligations. The Company generally considers each transaction as a separate performance obligation. Products are generally sold without a right of return, except for the extremely rare instance of a significant product defect identified upon delivery, which is not considered a separate performance obligation.
The Company allocates the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. The Company uses judgment in determining the SSP for products. The Company typically determines an SSP range for its products which are reassessed on a periodic basis or when facts and circumstances change. For all performance obligations (multiple products), the Company is able to determine SSP based on observable prices of products sold separately in comparable circumstances to similar customers.
In certain instances, the Company may provide incentives and discounts. The discounts are generally applied to promotional products. The discounts are determinable and fixed at the inception of the contract and accounted for as a reduction of the purchase price. Contracts do not include a significant financing component.
The majority of customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products. Typically, when a customer contract contains multiple performance obligations, satisfaction of these obligations occurs simultaneously, at a single point in time (or within the same accounting period). Transfer of control typically occurs at the time of delivery and title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment. Thus, the Company generally recognizes revenue upon delivery of the product.
All shipping and handling activities are performed before the customers obtain control of products and accounted for as cost of goods sold.
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The Company offers a loyalty reward program to its dispensary customers and these loyalty points redeemed a separate performance obligation. A portion of the revenue generated for sales to customers participating in the loyalty reward program is allocated to the loyalty points earned. For the years ended December 31, 2020 and 2019, the allocation was approximately $1,499,000 and $279,000, respectively. The amount allocated to the points earned is deferred and recognized when the loyalty points are redeemed. As of December 31, 2020 and 2019, the loyalty liability totaled $793,149 and $58,761, respectively, and is included in contract liability on the consolidated balance sheets.
The Company does not have any customer contracts that contain future deliverables that meet the definition of unsatisfied performance obligations in accordance with Topic 606.
Fair value of assets and liabilities
Assets and liabilities are recorded based on the terms of each related transaction. Depreciation of property, plant and equipment and amortization of intangible assets is dependent upon estimates of useful lives based on management’s judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that consider factors such as economic and market conditions and the useful lives of assets.
Goodwill and intangible assets
Goodwill and indefinite life intangible asset impairment testing require us to make estimates in the impairment testing model. On an annual basis, we test whether goodwill and indefinite life intangible assets are impaired. Impairment is influenced by judgment in defining a cash-generating unit (“CGU”) and determining the indicators of impairment, and estimates used to measure impairment losses. The recoverable amount is the greater of value in use or fair value less costs to sell. The recoverable value of goodwill, indefinite and definite long-lived assets is determined using discounted future cash flow models, which incorporate assumptions regarding projected future cash flows and capital investment, growth rates and discount rates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Financial Instruments and Risk Management
Capital Management
The Company’s objective in managing capital is to ensure a sufficient liquidity position to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Company defines capital as net equity and debt, comprised of issued common shares and accumulated deficit, as well as notes payable. The Company seeks to ensure that it has sufficient cash resources to maintain its ongoing operations and finance its corporate and administration expenses, working capital and overall capital expenditures. Since inception, the Company has primarily financed its liquidity needs through continuing equity contributions and short-term cash advances from hard-money lenders. There have been no changes to the Company’s capital management since the prior fiscal year. The Company is not subject to externally imposed capital requirements.
Financial Instruments
The Company initially recognizes cash and cash equivalents, accounts receivable, notes receivable, notes payable and accrued liabilities, on the date they originate. All other financial assets and financial liabilities are initially recognized on the trade date when the Company becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
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Financial Risk Factors
The Company’s risk exposure and the impact on the Company’s financial instruments are summarized below:
| (a) | Credit risk |
There are no significant credit risks.
| (b) | Liquidity risk |
The Company is exposed to liquidity risk or the risk of not meeting its financial obligations as they come due. The Company regularly monitors and manages its cash flows to assess the liquidity necessary to fund operations. For the year ended December 31, 2020, the Company had $10.1 Million in current obligations and $5.0 Million in long term obligations. At September 30, 2021, the Company had $19.0 Million in current obligations and $10.4 Million in long term obligations. Liquidity risk increased significantly during the first nine months of 2021.
| (c) | Interest rate risk |
There is no significant interest rate risk.
| (d) | Regulatory risk |
Regulatory risk pertains to the risk that the Company’s business objectives are contingent, in part, upon the compliance with regulatory requirements. Due to the nature of the industry, regulatory requirements can be more stringent than other industries and may also be punitive in nature. Any delays in obtaining, or failure to obtain regulatory approvals can significantly delay operational and product development and can have a material adverse effect on the Company’s business, results of operation, and financial condition. The Company routinely monitors regulatory changes occurring in the cannabis industry at the city, state, and national levels. Although the general regulatory outlook for the cannabis industry has been moving in a positive direction, unforeseen regulatory changes could have a material adverse effect on the business as a whole.
| (e) | Asset forfeiture risk |
As the cannabis industry remains illegal under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.
| (f) | Banking risk |
Notwithstanding that a majority of states have legalized medical cannabis, and the US Congress’s passage of the SAFE Banking Act, there has been no change in US federal banking laws related to the deposit and holding of funds derived from activities related to the cannabis industry. Given that US federal law provides that the production and possession of cannabis is illegal under the US Federal Controlled Substances Act, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the cannabis industry.
Due to the present state of the laws and regulations governing financial institutions in the US, only a small percentage of banks and credit unions offer financial services to the cannabis industry. Although the Company has a strong relationship with a credit union partner, regulatory restrictions currently prevent the Company from obtaining financing from US federally regulated entities. Additionally, US federal prohibitions on the sale of cannabis may result in cannabis manufacturers and retailers being restricted from accessing the US banking system and they may be unable to deposit funds in federally chartered banking institutions. While the Company does not anticipate material impacts from dealing with banking restrictions directly relating to its business, additional banking restrictions could nevertheless be imposed that would result in existing deposit accounts being closed and/or the inability to make further bank deposits. The inability to open bank accounts would make it more difficult for the Company to operate and would substantially increase operating costs and risk.
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| (a) | Tax risk |
Tax risk is the risk of changes in the tax environment that would have a material adverse effect on the Company’s business, results of operations, and financial condition. Currently, state licensed cannabis businesses are assessed a comparatively high effective federal tax rate due to section 280E which bars businesses from deducting all expenses except their cost of goods sold when calculating federal tax liability. Any increase in tax levies resulting from additional tax measures may have a further adverse effect on the operations of the Company, while any decrease in such tax levies will be beneficial to future operations. Through 2020 and the first nine months through September 30, 2021, the Company was an LLC; so, any tax exposure would be assessed to the owners only.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets out, for each of the directors, executive officers and significant employees of the Corporation, the person’s name, state and country of residence, position with the Corporation, principal occupation and, if a director, the date on which the person became a director. Our directors are expected to hold office until the next annual general meeting of shareholders. Directors are elected annually and, unless re-elected, retire from office at the end of the next annual general meeting of shareholders. As a group, the directors and executive officers beneficially own, or control or direct, directly or indirectly, a total of 238,347,100 Common Shares and 30,000 Series A Preferred Shares. See “Principal Shareholders” for additional details regarding specific share ownership. Charles Wesley is the father of Martin and Andrew Wesley.
| Name | Position | Age | Term of Office | |||
| Martin Wesley | President, Director | 49 | 2017 - present | |||
| Charles Wesley | Chief Financial Officer, | 71 | ||||
| Chairman of the Board, Director | 2017 – present | |||||
| Andrew Wesley | Vice President, Director | 44 | 2017 – present |
Directors and Executive Officers
The following are brief profiles of our executive officers and directors, including a description of each individual’s principal occupation within the past five (5) years. See also “Directors and Officers – Conflicts of Interest”.
Charles Wesley, Chief Financial Officer, Director and Chairman
Charles Wesley is a founder of KVC, Chairman and Director on our Board of Directors and our Chief Financial Officer. With his two sons, Andrew and Martin Wesley, Charles founded and grew KVC from a development-stage cannabis company in 2017 to its present operations which generate approximately $68 million in annual revenue (based on unaudited 2021 performance) and has approximately 170 employees. Charles has primary responsibility for project and financial management, capital investment, treasury and controllership at KVC. Charles is a multi-disciplinary professional with demonstrated experience in leading and effecting change under adverse circumstances with a cadence of urgency.
Prior to his involvement in KVC, Charles held the position of Managing Principal at Mission-Critical Leadership from 2008 to 2017. From 2004 to 2008, Charles served as Vice President Technology & Consulting at BlackFoot/MediaBank. He has also served as Senior Practice Director at Oracle Corporation and Director, Oracle National Practice at Cap Gemini. Charles holds a MBA in Finance from Michigan State University and is a CPA (inactive license).
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Martin Wesley, President and Director
Martin Wesley is a founder of KVC, our President and a director on our Board of Directors. Together with his father, Charles Wesley and his brother, Andrew Wesley, Martin has helped develop and grow KVC to its current operations which generate approximately $68 million in revenue (based on unaudited 2021 performance) and has approximately 170 employees. Martin is primarily responsible for strategic growth projects, capital investment and acquisitions. Prior to his involvement in KVC in 2017, Martin was the co-founder of AddRelevancy where he and his brother, Andrew, built a PLA solution for the open web that enabled advertisers to target their product feeds to the broader web of content. Martin has over 18 years of experience in digital marketing.
Andrew Wesley, Vice President of Partner Development and Director
Andrew Wesley is a founder of KVC, our Vice President of Partner Development and a director on our Board of Directors. Together with his father, Charles Wesley and his brother, Martin Wesley, Andrew has helped develop and grow KVC to its current operations which generate approximately $68 million in revenue (based on unaudited 2021 performance) and has approximately 170 employees. Andrew is primarily responsible for supply chain development and wholesale channel development. Prior to his involvement in KVC in 2017, Andrew was the co-founder of AddRelevancy where he and his brother, Martin, built a PLA solution for the open web that enabled advertisers to target their product feeds to the broader web of content. Andrew has held director of sales positions at Boost Media, Inc. and 8thBridge, Inc.
Andrew has 16 plus years of experience building recurring revenue streams for SaaS platforms across the disciplines of Ad Serving, Paid Search, Analytics, Data Modeling, as well as Social Commerce and Social Marketing Platforms.
Corporate Cease Trade Orders, Bankruptcies, Penalties and Sanctions
No director or executive officer of the Corporation is, as at the date of this Offering Circular, or was, within ten (10) years before the date of this Offering Circular, a director, chief executive officer or chief financial officer of any Corporation (including the Corporation), that was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant Corporation access to any exemption under securities legislation that was in effect for a period of more than thirty (30) consecutive days:
| (1) | that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer, or |
| (2) | that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. |
No director or executive officer of the Corporation, or a shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation:
| (1) | is, as at the date of the Offering Circular, or has been within the five (5) years before the date of the Offering Circular, a director or executive officer of any Corporation (including the Corporation) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, state the fact; or |
| (2) | has, within the five (5) years before the date of the Offering Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder. |
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No director or executive officer of the Corporation, or a shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation, has been subject to (a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors and Executive Officers
We do not pay any compensation to our directors. The following table provides information regarding compensation earned by our President and our two most highly compensated executive officers other than our President who served during 2019 and 2020.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option awards ($) | Non-equity incentive plan compensation ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||
| Martin Wesley | 2020 | 200,000 | — | 200,000 | ||||||||||||||||||||||||
| President | 2019 | 200,000 | — | — | 200,000 | |||||||||||||||||||||||
| Charles Wesley | 2020 | 150,000 | ___ | 150,000 | ||||||||||||||||||||||||
| Chief Financial Officer | 2019 | 150,000 | — | — | — | — | 150,000 | |||||||||||||||||||||
| Andrew Wesley | 2020 | 200,000 | 200,000 | |||||||||||||||||||||||||
| Vice President, Partner Development | 2019 | 200,000 | — | — | 200,000 | |||||||||||||||||||||||
Retirement Benefits
We do not currently provide our named executive officers with supplemental or other retirement benefits.
Outstanding Equity Awards at December 31, 2021
As of December 31, 2021, no stock-based compensation awards to any of our named executive officers were outstanding.
Employment Agreements
We do not have any employment agreements with any of our named executive officers.
Equity Compensation Plans
On September 29, 2021, the Corporation’s shareholders and Board of Directors adopted an equity compensation plan titled the 2021 Incentive Stock Plan (the “Stock Option Plan”). The Stock Option Plan is administered by the board of directors, or if appointed, by a special committee of directors appointed from time to time by the board of directors. The aggregate number of Common Shares which may be reserved for issue under the Stock Option Plan is currently set at 5,400,000 (adjusted to 108,000,000 for forward stock split) and shall not exceed 10% of the issued and outstanding number of Common Shares on an “as converted” basis. The number of Common Shares subject to an option to a participant shall be determined by the board of directors, but no participant shall be granted an option which exceeds the maximum number of shares permitted by any stock exchange on which the Common Shares are then listed, or other regulatory body having jurisdiction. The exercise price of the Common Shares covered by each option shall be determined by the board of directors, provided however, that the exercise price shall not be less than the price permitted by any stock exchange on which the Common Shares are then listed, or other regulatory body having jurisdiction. The maximum length of any option shall be 10 years from the date the option is granted. The Stock Option Plan includes a provision that should an option expiration date fall within a blackout period or immediately following a blackout period, the expiration date will automatically be extended for 10 business days following the end of the blackout period. Under certain, limited circumstances, the board of directors has the absolute discretion to amend or terminate the Stock Option Plan. As of the date of this Offering Circular, the Board of Directors has not granted any options under the Stock Option Plan.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth information known to us regarding the beneficial ownership of our common stock as of January 21, 2022 by (1) each stockholder who is known by us to beneficially own more than 10% of our Common Shares, (2) each of our directors, (3) each of our executive officers named in the Summary Compensation Table above, and (4) all of our directors and executive officers as a group.
| Title of Class: | Name and Address of Beneficial Owner | Number of Common Shares Beneficially Owned (4) | Percent (5) | |||||||
| Common Shares | ||||||||||
| Charles M. Wesley Revocable Trust dated January 24, 2019(1) | 77,999,020 | 19.14 | % | |||||||
| Martin C. Wesley Revocable Trust dated June 30, 2021(2) | 81,809,860 | 20.08 | % | |||||||
| Andrew Wesley(3) | 78,538,220 | 19.27 | % | |||||||
| All executive officers and directors as a group (3 persons) | 238,347,100 | 58.49 | % | |||||||
| Series A Preferred Shares | Named Executive Officers and Directors(3) | Number of Series A Preferred Shares Beneficially Owned(4) | Percent(6) | |||||||
| Charles Wesley | 10,000 | 33.33 | % | |||||||
| Martin Wesley | 10,000 | 33.33 | % | |||||||
| Andrew Wesley | 10,000 | 33.33 | % | |||||||
| All executive officers and directors as a group (3 persons) | 30,000 | 100 | % | |||||||
| (1) | Charles Wesley has sole voting and investment power with respect to all Common Shares owned by the Charles M. Wesley Revocable Trust dated January 24, 2019. | |
| (2) | Martin Wesley has sole voting and investment power with respect to all Common Shares owned by the Martin C. Wesley Revocable Trust dated June 30, 2021. |
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| (3) | The persons named in this table have sole voting and investment power with respect to all Common or Series A Preferred Shares shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. The business address for each of the Named Executive Officers and Directors is 183 Main Street, Rio Vista, CA 94571. | |
| (4) | Under SEC rules, a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of options or the settlement of other equity awards. | |
| (5) | Calculated on the basis of 407,494,700 Common Shares outstanding as of January 21, 2022, plus any additional Common Shares that a stockholder has the right to acquire within 60 days after January 21, 2022. | |
| (6) | Calculated on the basis of 30,000 total Series A Preferred Shares outstanding as of January 21, 2022, plus any additional Series A Preferred Shares that a stockholder has the right to acquired within 60 days after January 21, 2022. |
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Except as described within the section entitled Executive Compensation of Directors and Officers in this Offering Circular, the Corporation had the following transactions with “Related Persons,” as that term is defined in item 404 of Regulation S-K, which includes, but is not limited to:
| ● | any of our directors, officers or promoters; |
| ● | any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding Common Shares or Series A Preferred Shares; or |
| ● | any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons. |
Related Party Transactions
Related party transactions are conducted on the terms and conditions agreed to by the related parties. It is the Corporation’s policy to conduct all transactions and settle all balances with related parties on market terms and conditions.
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Promissory Notes with Our Founders
In October 2021, Charles Wesley sold 120,000 Common Shares (2,400,000 Shares adjusted for subsequent 20:1 forward stock split) at a discount of fifty percent (50%) to the current offering price for total proceeds of $1,378,500 and loaned the amount of $1,378,750 to the Corporation under a Promissory Note dated October 20, 2021. Under the terms of the Promissory Note the loan bears 0% interest and is payable at the discretion of the Corporation. As of September 30, 2021, the balance on the outstanding loan is $1,378,750.
As of December 31, 2020, we had the following promissory notes outstanding with our Founders: a Promissory Note bearing 0% interest between Charles Wesley and the Corporation in the amount of $80,000; a Promissory Note bearing 0% interest between Andrew Wesley and the Corporation in the amount of $77,500; and a Promissory Note bearing 0% interest between Martin Wesley and the Corporation in the amount of $77,500. These three Promissory Notes were paid in full by the Corporation in June of 2021 and there is no outstanding balance on any of these Promissory Notes.
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Founders’ Equity Holdings in Companies Prior to Roll-up Transaction
Our Founders (Charles Wesley, Martin Wesley and Andrew Wesley) held equity ownership in the various companies that comprised the Roll-up Transaction. For further details of this transaction, refer to page 42.
Prior to the Roll-up Transaction, Charles Wesley held a 26.47% interest in Contra Costa Farms, LLC; a 26.22% interest in Kolaboration Concord, LLC; a 23.41% interest in Kolaboration Vallejo, LLC; a 26.49% interest in Kola Center Management, LLC; and a 20.7% interest in Rio Vista Farms, LLC. Immediately after the Roll-up Transaction, Charles Wesley owned a total of 24.80% of our outstanding Common Shares. For details on his current ownership refer to Security Ownership of Management and Certain Securityholders on page 64.
Prior to the Roll-up Transaction, Martin Wesley held a 26.19% interest in Contra Costa Farms, LLC; a 25.93% in Kolaboration Concord, LLC; a 23.15% interest in Kolaboration Vallejo, LLC; a 26.19% interest in Kola Center Management, LLC; and a 16.80% interest in Rio Vista Farms, LLC. Immediately after the Roll-up Transaction, Martin Wesley owned a total of 24.0%. of our outstanding Common Shares. For details on his current ownership refer to Security Ownership of Management and Certain Securityholders on page 64.
Prior to the Roll-up Transaction, Andrew Wesley held a 24.96% interest in Contra Costa Farms, LLC; a 24.71% interest in Kolaboration Concord, LLC; a 22.06% interest in Kolaboration Vallejo, LLC; a 24.96% interest in Kola Center Management, LLC; and a 17% interest in Rio Vista Farms, LLC. Immediately after the Roll-up Transaction, Andrew Wesley owned a total of 23.0%of our outstanding Common Shares. For further details on his current ownership refer to Security Ownership of Management and Certain Securityholders on page 64.
Conflicts of Interest
Conflicts of interest may arise as a result of the directors, officers and promoters of the Corporation also holding positions as directors or officers of other companies. Such persons also invest and may invest in businesses, including in the cannabis sector that compete directly or indirectly with the Corporation or act as customers or suppliers of the Corporation. Some of the individuals that are directors and officers of the Corporation have been and will continue to be engaged in the identification and evaluation of assets, businesses and companies on their own behalf and on behalf of other companies, and situations may arise where the directors and officers of the Corporation will be in direct competition with the Corporation. Conflicts, if any, will be subject to the procedures and remedies provided under applicable laws.
To the best of the Corporation’s knowledge, there are no known existing or potential material conflicts of interest among the Corporation or a subsidiary of the Corporation and a director or officer of the Corporation or a subsidiary of the Corporation as a result of their outside business interests except that: (i) certain of the Corporation’s or its subsidiaries’ directors and officers serve as directors and officers of other companies, and therefore it is possible that a conflict may arise between their duties to the Corporation and their duties as a director or officer of such other companies, and (ii) certain of the Corporation’s or its subsidiaries’ directors and officers have portfolio investments consisting of minority stakes in businesses that may compete directly or indirectly with the Corporation or act as a customer of, or supplier to, the Corporation.
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Trading History
There is currently no established public trading market for our securities and an active trading market in our securities may not develop or, if it is developed, may not be sustained.
Common Shares
Our authorized capital stock consists of One Billion (1,000,000,000) shares of Common Stock, with par value of $0.0001 per share. As of January 21, 2011, there were 407,494,700 Common Shares issued and outstanding. Our Common Shares are held by seventy-nine (79) stockholders of record, however, the Common Shares to be issued upon the closing of the Pacific Reserve merger are all currently reported as one shareholder group pending closing of the transaction. For further details, refer to “Pacific Reserve Acquisition” on page 48. On January 4, 2022, our board of directors and majority shareholders approved amended and restated articles of incorporation for the purposes of effectuating a 20:1 forward stock split of the Corporation’s common stock and amendment of certain voting rights of the Common Shares and Preferred Shares as described below.
The holders of Common and Preferred Shares (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by its Board of Directors; (ii) are entitled to share in all of its assets available for distribution to holders of common or preferred stock upon liquidation, dissolution or winding up of its affairs; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Common Shares are entitled to one non-cumulative vote per share only for the election of two (2) directors to the Board of Directors. The holders of Common Shares are not entitled to vote on any other matters on which stockholders may vote. When voting for election of two (2) directors to the Board of Directors, the Common Shares vote as a single class
Preferred Stock
Our authorized capital stock consists of 10,000,000 Series A Preferred Shares with par value of $0.0001 per share. As of January 21, 2022 there were 30,000 Series A Preferred Shares issued and outstanding, all of which are owned by our Founders and Directors, Charles, Martin and Andrew Wesley. Our Series A Preferred Shares are entitled to one non-cumulative vote per share on all matters on which stockholders may vote and have exclusive voting power to elect all directors to our Board of Directors except for the two (2) directors which may be elected by the holders of Common Shares.
Restricted Stock Awards
As of December 31, 2021, we had made restricted stock awards to a total of six (6) employees in the aggregate amount of 383,960 (7,679,200 adjusted for 20:1 forward stock split) shares of Common Stock. The shares vest at a rate of 1/12 per year over a three-year period or upon a change in control of the Corporation as described in the Stock Option Plan. These stock grants were originally issued as restricted membership units in our subsidiary, Contra Costa Farms, LLC and were re-issued under the KVC Stock Option Plan effective as of October 1, 2021 as part of the Roll-up Transaction. In the Roll-up Transaction, these restricted membership units were converted to KVC Common Shares and issued as of October 1, 2021 under the KVC Stock Option Plan. As of January 21, 2022, 2,268,000 of the Common Shares are vested and 5,411,200 Common Shares are unvested.
See “Prior Sales” on page 68 below.
Share Purchase Warrants
Prior to this offering, we have not issued and do not have outstanding any warrants to purchase shares of our Common Stock.
Options
There are no outstanding stock options granted under the Stock Option Plan. See Equity Compensation Plan on page 63 above.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into Common Shares or any rights convertible or exchangeable into Common Shares.
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Voting Rights
Except for two (2) directors, all directors of the Corporation are elected at the annual meeting of stockholders by a plurality of the votes cast at the election by the holders of the Series A Preferred Shares. Series A Preferred Shares have one vote per share for all matters entitled to be voted on pursuant to Wyoming law, the Corporation’s amended and restated articles of incorporation and its bylaws. Holders of Common Shares are entitled to vote to elect two (2) directors to our Board of Directors. Apart from the right to elect two (2) directors, holders of Common Shares do not have any voting rights. After this offering is complete and presuming all the 20,000,000 Common Shares are sold, the present stockholders will own 95.32% of its outstanding shares and the purchasers in this offering will own, in the aggregate, 4.68%of its outstanding shares. Stockholders have no pre-emptive rights.
Cash Dividends
As of the date of this Offering Circular, the Corporation has not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion of the Board of Directors and will depend upon the earnings of the Corporation, if any, its capital requirements and financial position, the general economic conditions, and other pertinent conditions. It is the Corporation’s present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in its business operations.
Certain legal matters with respect to the shares of Common Stock offered hereby will be passed upon by Weintraub Law Group, P.C. of San Diego, California.
The financial statements of the Corporation appearing elsewhere in this Offering Circular have been included herein in reliance upon the report of Armanino, LLP an independent certified public accounting firm, appearing elsewhere herein, and upon the authority of that firm as experts in accounting and auditing.
The following table summarizes details of the securities issued by the Corporation during the twelve (12) month period prior to the date of this Offering Circular.
| Date of Issuance | Description of Transaction | Price/Exercise Price | Number of Common Shares(1) | |||||||||
| 10/01/2021 | Restricted Stock Awards(2) | n/a | 7,679,200 | |||||||||
| 10/01/2021 | Issued to members of RVF, CCF, KVL and KCL | n/a | ||||||||||
| 339,292,240 | ||||||||||||
| 1/04/22 | Issuable to Pacific Reserve shareholders(4) | $ | 1.25 | 61,280,000 | ||||||||
| (1) | Adjusted for the 20:1 forward stock split of the Common Shares | |
| (2) | For details on Restricted Stock Awards, refer to “Restricted Stock Awards” on page 67. | |
| (3) | Issued as part of the Roll-up Transaction, for details refer to “Description of the Roll-up Transaction” on page 42. The original issuance was 16,964,612; the aggregate of 339,292,240 is adjusted for the subsequent 20:1 forward stock split of the Common Shares. | |
| (4) | Shares Issuable in the Pacific Reserve Merger transaction. See “Pacific Reserve Acquisition” on page 48 for further details. The total of 61,280,000 has been adjusted for the subsequent 20:1 forward stock split of the Common Shares. |
| 68 |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES
Our bylaws, subject to the provisions of Wyoming law, contain provisions which allow the Corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the Corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
DISQUALIFYING EVENTS DISCLOSURE
Regulation A prohibits an issuer from claiming an exemption from registration of its securities under such rule if the issuer, any of its predecessors, any affiliated issuer, any director, executive officer, other officer participating in the offering of the interests, general partner or managing member of the issuer, any beneficial owner of 20% or more of the voting power of the issuer’s outstanding voting equity securities, any promoter connected with the issuer in any capacity as of the date hereof, any investment manager of the issuer, any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with such sale of the issuer’s interests, any general partner or managing member of any such investment manager or solicitor, or any director, executive officer or other officer participating in the offering of any such investment manager or solicitor or general partner or managing member of such investment manager or solicitor has been subject to certain “Disqualifying Events” described in Rule 506(d)(1) of Regulation D subsequent to September 23, 2013, subject to certain limited exceptions. The Corporation is required to exercise reasonable care in conducting an inquiry to determine whether any such persons have been subject to such Disqualifying Events and is required to disclose any Disqualifying Events that occurred prior to September 23, 2013 to investors in the Corporation. The Corporation believes that it has exercised reasonable care in conducting an inquiry into Disqualifying Events by the foregoing persons and is aware of the no such Disqualifying Events.
It is possible that (a) Disqualifying Events may exist of which the Corporation is not aware and (b) the SEC, a court or other finder of fact may determine that the steps that the Corporation has taken to conduct its inquiry were inadequate and did not constitute reasonable care. If such a finding were made, the Corporation may lose its ability to rely upon exemptions under Regulation A, and, depending on the circumstances, may be required to register the Offering of the Corporation’s Shares with the SEC and under applicable state securities laws or to conduct a rescission offer with respect to the securities sold in the Offering.
INVESTOR ELIGIBILITY STANDARDS
The Shares will be sold to a person who is not an accredited investor only if the aggregate purchase price paid by such person is no more than 10% of the greater of such person’s annual income or net worth, not including the value of his primary residence, as calculated under Rule 501 of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended. In the case of sales to fiduciary accounts (Keogh Plans, Individual Retirement Accounts (IRAs) and Qualified Pension/Profit Sharing Plans or Trusts), the above suitability standards must be met by the fiduciary account, the beneficiary of the fiduciary account, or by the donor who directly or indirectly supplies the funds for the purchase of the Shares. Investor suitability standards in certain states may be higher than those described in this Offering Circular. These standards represent minimum suitability requirements for prospective investors, and the satisfaction of such standards does not necessarily mean that an investment in the Corporation is suitable for such persons.
Each investor must represent in writing that he/she meets the applicable requirements set forth above and in the subscription agreement, including, among other things, that (i) he/she is purchasing the Shares for his/her own account and (ii) he/she has such knowledge and experience in financial and business matters that he/she is capable of evaluating without outside assistance the merits and risks of investing in the Shares, or he/she and his/her purchaser representative together have such knowledge and experience that they are capable of evaluating the merits and risks of investing in the Shares. Transferees of the Shares will be required to meet the above suitability standards.
All potential purchasers of the Shares will be required to comply with know-your-customer and anti-money laundering procedures to comply with various laws and regulations, including the USA Patriot Act. The USA Patriot Act is designed to detect, deter and punish terrorists in the United States and abroad. The Act imposes anti-money laundering requirements on brokerage firms and financial institutions.
The Corporation is entitled to rely upon the accuracy of your representations. The Corporation may, but under no circumstances will it be obligated to, require additional evidence that a prospective purchaser meets the standards set forth above at any time prior to its acceptance of a prospective purchaser’s subscription. You are not obligated to supply any information so requested by the Corporation, but the Corporation may reject a subscription from you or any person who fails to supply such information.
| 69 |
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| 70 |
Kolaboration Ventures, LLC and Subsidiaries
Unaudited Consolidated Financial Statements
As Of September 30, 2021 and December 31, 2020
And For The Three And Nine Months Ended September 30, 2021 and 2020
| F-1 |
| UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: | Page | |
| Consolidated Balance Sheets | F-3 | |
| Consolidated Statements of Operations | F-4 | |
| Consolidated Statements of Changes in Members’ Equity | F-5 | |
| Consolidated Statements of Cash Flows | F-6 | |
| Notes to the Consolidated Financial Statements | F-7 |
| F-2 |
KOLABORATION VENTURES, LLC and subsidiaries
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 175,448 | 458,550 | ||||||
| Accounts receivable | 141,086 | 305,351 | ||||||
| Inventory | 11,588,585 | 7,188,969 | ||||||
| Prepaids and other current assets | 1,416,066 | 969,556 | ||||||
| 13,321,185 | 8,922,426 | |||||||
| Property, plant and equipment, net | 12,325,841 | 11,848,333 | ||||||
| Intangible assets | 6,500,000 | - | ||||||
| Goodwill | 2,628,853 | 2,628,853 | ||||||
| Other assets | 9,268 | - | ||||||
| Total assets | $ | 34,785,147 | $ | 23,399,612 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Cash overdraft | $ | 184,806 | $ | 83,976 | ||||
| Accounts payable | 10,061,378 | 4,662,146 | ||||||
| Accrued and other current liabilities | 4,847,729 | 2,056,053 | ||||||
| Contract liability | 1,063,023 | 793,149 | ||||||
| Current portion of notes payable - related parties | 15,000 | 235,000 | ||||||
| Current portion of notes payable | 2,804,959 | 2,278,575 | ||||||
| 18,976,895 | 10,108,899 | |||||||
| Notes payable, net of current portion | 10,200,627 | 4,872,737 | ||||||
| Other long-term liabilities | 178,000 | 135,500 | ||||||
| Total liabilities | 29,355,522 | 15,117,136 | ||||||
| Commitment and contingencies (Note 11) | ||||||||
| Members’ equity | ||||||||
| Members’ capital | (282,530 | ) | 2,881,463 | |||||
| Retained earnings | 5,494,118 | 4,827,345 | ||||||
| Noncontrolling interest | 218,037 | 573,668 | ||||||
| Total members’ equity | 5,429,625 | 8,282,476 | ||||||
| Total liabilities and members’ equity | $ | 34,785,147 | $ | 23,399,612 | ||||
See the accompanying notes to these unaudited consolidated financial statements.
| F-3 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended | Nine months ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenue | $ | 12,397,238 | $ | 13,090,454 | $ | 38,251,470 | $ | 31,115,927 | ||||||||
| Cost of goods sold | 8,603,427 | 7,446,433 | 22,906,296 | 16,650,914 | ||||||||||||
| Cost of goods sold - depreciation | 40,849 | 36,763 | 122,546 | 110,288 | ||||||||||||
| Gross profit (loss) | 3,752,962 | 5,607,258 | 15,222,628 | 14,354,725 | ||||||||||||
| Sales and marketing | 567,584 | 375,242 | 1,669,823 | 1,025,382 | ||||||||||||
| General and administration | 4,143,543 | 2,458,368 | 11,203,936 | 6,010,353 | ||||||||||||
| Depreciation and amortization | 168,633 | 58,553 | 373,109 | 180,652 | ||||||||||||
| Total operating expenses | 4,879,760 | 2,892,163 | 13,246,868 | 7,216,387 | ||||||||||||
| Income from operations | (1,126,798 | ) | 2,715,095 | 1,975,760 | 7,138,338 | |||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | (637,831 | ) | (98,954 | ) | (1,411,828 | ) | (444,607 | ) | ||||||||
| Other expense | (234,218 | ) | (54,701 | ) | (252,790 | ) | (54,701 | ) | ||||||||
| Total other expenses | (872,049 | ) | (153,655 | ) | (1,664,618 | ) | (499,308 | ) | ||||||||
| Net income (loss) | (1,998,847 | ) | 2,561,440 | 311,142 | 6,639,030 | |||||||||||
| Net income (loss) attributable to noncontrolling interest | (39,177 | ) | - | (355,631 | ) | - | ||||||||||
| Net income (loss) attributable to Kolaboration Ventures, LLC. | $ | (1,959,670 | ) | $ | 2,561,440 | $ | 666,773 | $ | 6,639,030 | |||||||
See the accompanying notes to these unaudited consolidated financial statements.
| F-4 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
Members’ Capital | Retained Earnings (Deficit) | Noncontrolling Interest | Total | |||||||||||||
| Balance at December 31, 2019 | $ | 2,432,388 | $ | (400,864 | ) | $ | - | $ | 2,031,524 | |||||||
| Capital contributions | 78,000 | - | - | 78,000 | ||||||||||||
| Members distributions | (200,000 | ) | - | - | (200,000 | ) | ||||||||||
| Net income | - | 4,077,590 | - | 4,077,590 | ||||||||||||
| Balance at June 30, 2020 (unaudited) | 2,310,388 | 3,676,726 | - | 5,987,114 | ||||||||||||
| Capital contributions | 610,000 | - | - | 610,000 | ||||||||||||
| Members distributions | (1,073,745 | ) | - | - | (1,073,745 | ) | ||||||||||
| Net income | - | 2,561,440 | - | 2,561,440 | ||||||||||||
| Balance at September 30, 2020 (unaudited) | $ | 1,846,643 | $ | 6,238,166 | $ | - | $ | 8,084,809 | ||||||||
| Members’ Capital | Retained Earnings (Deficit) | Noncontrolling Interest | Total | |||||||||||||
| Balance at December 31, 2020 | $ | 2,881,463 | $ | 4,827,345 | $ | 573,668 | 8,282,476 | |||||||||
| Capital contributions | 600,000 | - | - | 600,000 | ||||||||||||
| Members distributions | (3,011,993 | ) | - | - | (3,011,993 | ) | ||||||||||
| Net income (loss) | - | 2,626,443 | (316,454 | ) | 2,309,989 | |||||||||||
| Balance at June 30, 2021 (unaudited) | 469,470 | 7,453,788 | 257,214 | 8,180,472 | ||||||||||||
| Members distributions | (752,000 | ) | - | - | (752,000 | ) | ||||||||||
| Net income (loss) | - | (1,959,670 | ) | (39,177 | ) | (1,998,847 | ) | |||||||||
| Balance at September 30, 2021 (unaudited) | $ | (282,530 | ) | $ | 5,494,118 | $ | 218,037 | $ | 5,429,625 | |||||||
See the accompanying notes to these unaudited consolidated financial statements.
| F-5 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
| (unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income attributable to Kolaboration Ventures, LLC. | 666,773 | 6,639,030 | ||||||
| Net income (loss) attributable to noncontrolling interest | (355,631 | ) | - | |||||
| Depreciation expense | 495,655 | 290,940 | ||||||
| Amortization of debt discount and issuance costs | 883,586 | - | ||||||
| Change in non-cash working capital: | ||||||||
| Accounts receivable | 164,265 | 13,722 | ||||||
| Inventory | (4,399,616 | ) | (3,499,684 | ) | ||||
| Prepaids and other current assets | (446,510 | ) | (592,560 | ) | ||||
| Other assets | (9,268 | ) | - | |||||
| Accounts payable | 5,536,313 | (1,111,209 | ) | |||||
| Accrued and other current liabilities | 2,791,676 | 359,156 | ||||||
| Contract liability | 269,874 | - | ||||||
| Other liabilities | 42,500 | - | ||||||
| Net cash provided by operating activities | 5,639,617 | 2,099,395 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisition of intangible assets | (1,000,000 | ) | - | |||||
| Purchases of property, plant and equipment (note 6) | (973,163 | ) | (795,122 | ) | ||||
| Net cash used in investing activities | (1,973,163 | ) | (795,122 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of membership interests | 600,000 | 688,000 | ||||||
| Member distributions | (3,763,993 | ) | (1,273,745 | ) | ||||
| Proceeds from issuance of note payable | 3,518,267 | 200,000 | ||||||
| Proceeds from issuance of note payable - related parties | 15,000 | - | ||||||
| Repayment of notes payable | (4,184,660 | ) | (735,334 | ) | ||||
| Repayment of notes payable - related parties | (235,000 | ) | (84,321 | ) | ||||
| Change in cash overdraft | 100,830 | 7,265 | ||||||
| Net cash used in financing activities | (3,949,556 | ) | (1,198,135 | ) | ||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (283,102 | ) | 106,138 | |||||
| Cash and cash equivalents, beginning of the period | 458,550 | 8,754 | ||||||
| Cash and cash equivalents, end of the period | $ | 175,448 | $ | 114,892 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 1,411,828 | $ | 444,607 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| NON-CASH ACTIVITIES | ||||||||
| Accounts payable converted to notes payable | $ | 137,081 | $ | - | ||||
| Intangible asset financed by notes payable | $ | 5,500,000 | - | |||||
See the accompanying notes to these unaudited consolidated financial statements.
| F-6 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of Business Nature of Operations:
Headquartered in Rio Vista, California, Kolaboration Ventures, LLC (“KV” or the “Company”) was formed under the laws of California in May 2020, and is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development, and distribution. KV and its subsidiaries are working to expand in California through both organic growth and acquisitions while building a respected portfolio of top shelf brands. Wholly owned, licensed, and/or distributed brands within KVL’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms.
Rio Vista Farms, LLC (“RVF”) was created in July 2017, to engage in cannabis agriculture and related activities. Contra Costa Farms, LLC (“CCF”) was created in October 2018 to engage in cannabis agriculture and related activities. Both RVF and CCF operate retail dispensaries fully licensed with the State of California. In December 2020, the Company acquired a 50% interest in two failing dispensaries: one in Del Rey Oaks, California and one in Salinas, California, operating as Emerald Skyways LLC (“Emerald”). The Company reorganized Emerald as DRO Legacy, Inc. (“DRO”). In October 2020, CCF with 2 other parties created Portola Drive LLC, (“PD”) which CCF owns 50% of Portola. Portola acquired the real property in which the Del Rey Oaks dispensary operates. In July 2020, the Company formed Kolaboration Vallejo, LLC (“KVL”), in December 2020, the Company formed Kola Center Management, LLC (“KCM”) as a wholly owned subsidiary of CCF. KVL, KCM, DRO and PD were all formed to house various operations of the Company within California.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the accounting policies set out below have been applied consistently to all years presented. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority owned and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Non-controlling Interest
Non-controlling interest represents the proportionate ownership of DRO Legacy and Portola Drive held by minority members and reflects their capital investments as well as their proportionate interest in subsidiary losses and other changes in members’ equity, including translation adjustments.
Reclassifications
Certain balances have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. These reclassifications had no effect on the prior year’s net income or total members equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at invoice amounts, net of allowances for doubtful accounts. The Company evaluates the collectability of accounts receivable based on known collection risks and historical experience. The Company incurred bad debt expense of $11,602 and $10,602 for the three and nine months ended September 30, 2021 and $0 and $18,557 for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, the Company had no allowance for doubtful accounts.
| F-7 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventory
The net realizable value of inventory represents the estimated selling price for inventory in the ordinary course of business, less estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price the Company expects to realize by selling the inventory and the contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. As a result, the actual amount received on sale could differ from the estimated value of inventory. Costs incurred during the growing and production process are capitalized as incurred to the extent that cost is less than net realizable value. These costs include materials, direct and indirect labor, and overhead used in the growing and production processes. Periodic reviews are performed on the inventory balance. The impact of changes in inventory reserves is reflected in cost of goods sold. For the three and nine months ended September 30, 2021 and 2020, the Company has not recorded a write-down of inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization, if any. Depreciation related to assets used in production is recorded in cost of goods sold. Depreciation related to non-production assets is recorded through operating expenses. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term. Depreciation and amortization is calculated on a straight-line basis over the expected useful life of the asset as follows:
| Buildings and improvements | 5 to 29 years | |
| Machinery and equipment | 5 to 7 years | |
| Vehicles | 3 to 5 years |
Leasehold improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases. During the three and nine months ended September 30, 2021, maintenance and repair costs of $124,856 and $417,932, respectively, and for the three and nine months ended September 30, 2020, maintenance and repair costs of $98,224 and $257,934, respectively, were expensed as general and administration expenses.
Goodwill and Intangibles Assets
Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the cost of the specific asset acquired. The Company evaluates its goodwill for impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred in accordance with the provisions of FASB ASC 350, Goodwill and Other Intangible Assets. The Company determined that no impairment exists with respect to its goodwill and intangible assets as of September 30, 2021.
Revenue Recognition
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The adoption did not result in any change to revenue recognition for any of its revenue streams. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principle, the Company applies a five-step process.
| 1. | Identification of a contract or contracts with a customer; | |
| 2. | Identification of performance obligation(s) in the contract; | |
| 3. | Determination of the transaction price; | |
| 4. | Allocation of the transaction price to the performance obligations in the contract; and | |
| 5. | Recognition of revenue when, or as, the performance obligation is satisfied. |
| F-8 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contracts with customers are at the point of sale and, while they often include the transfer of multiple products to a customer, they do not require future obligations. The Company generally considers each transaction as a separate performance obligation. Products are generally sold without a right of return, except for the extremely rare instance of a significant product defect identified upon delivery, which is not considered a separate performance obligation.
The Company allocates the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. The Company uses judgment in determining the SSP for products. The Company typically determines an SSP range for its products which are reassessed on a periodic basis or when facts and circumstances change. For all performance obligations (multiple products), the Company is able to determine SSP based on the observable prices of products sold separately in comparable circumstances to similar customers.
In certain instances, the Company may provide incentives and discounts. The discounts are generally applied to promotional products. The discounts are determinable and fixed at the inception of the contract and accounted for as a reduction of the purchase price. Contracts do not include a significant financing component.
The majority of customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products. Typically, when a customer contract contains multiple performance obligations, satisfaction of these obligations occurs simultaneously, at a single point in time (or within the same accounting period). Transfer of control typically occurs at the time of delivery and title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment. Thus, the Company generally recognizes revenue upon delivery of the product.
All shipping and handling activities are performed before the customers obtain control of products and accounted for as cost of goods sold.
The Company offers a loyalty reward program to its dispensary customers and is deemed a separate performance obligation. A portion of the revenue generated in a sale is allocated to the loyalty points earned. For the years ended December 31, 2020 and 2019, the allocation was approximately $1,499,000 and $279,000, respectively. The amount allocated to the points earned is deferred until the loyalty points are redeemed. As of December 31, 2020 and 2019, the loyalty liability totaled $793,149 and $58,761, respectively, and is included in contract liability on the consolidated balance sheets.
The Company does not have any customer contracts that contain future deliverables that meet the definition of unsatisfied performance obligations in accordance with Topic 606.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASC 842, a lessee is required to recognize assets and liabilities for leases with terms of more than 12 months. Lessor accounting remains substantially similar to current U.S. GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease. The Company is evaluating the impact of this standard on the financial statements. The required adoption date of this standard is January 1, 2022 for emerging growth companies.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require the Company to use forward-looking information to better formulate its credit loss estimates. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.
| F-9 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3: Concentration of Credit Risk
Financial instruments that subject the Company to potential concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash primarily in U.S. bank accounts, which at times may exceed federally insured limits. As of September 30, 2021 and December 31, 2020, the Company had no uninsured cash and cash equivalents.
The Company’s business activities and accounts receivable are with customers in the cannabis industry located in California. For the three and nine months ended September 30, 2021 and 2020, the Company had no customers that exceeded 10% of revenue each year.
As of September 30, 2021, the Company had four customers exceeding 10% of the accounts receivable balance, while as of December 31, 2020 the Company had two customers that exceeded 10% of the accounts receivable balance. The balance for these customers as of September 30, 2021 and December 31, 2020 was $106,758 and $153,472, respectively.
Note 4: Business Combination
On December 20, 2020, the Company completed the acquisition of Emerald Skyway, LLC to expand the Company’s retail cannabis footprint in California. The fair value of the consideration transferred was $1.3 million. No transaction related expenses were recognized in connection with the business combination.
The following table summarizes the amounts of the identifiable assets acquired and liabilities assumed at the acquisition date.
| Cash and cash equivalents | $ | 46,989 | ||
| Accounts receivable - related parties | 1,423 | |||
| Prepaid and other current assets | 27,349 | |||
| Accounts payable | (492,524 | ) | ||
| Accounts payable - related parties | (563,292 | ) | ||
| Accrued and other current liabilities | (307,816 | ) | ||
| Contract liability | (24,895 | ) | ||
| Net Identifiable Liabilities Acquired | (1,312,766 | ) | ||
| Goodwill | 2,628,853 | |||
| Total Net Assets Acquired | $ | 1,316,087 |
Note 5: Inventory
Inventory consists of raw materials, work in process and finished goods. Finished goods consist of distillates and crude oil extracted from cannabis plant material as well as cannabis flower held for resale, and raw materials consist of the harvested cannabis plant material.
As of September 30, 2021 and December 31, 2020, inventory consisted of the following:
| As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Raw materials | $ | 742,239 | $ | 546,819 | ||||
| Work in process | 1,739,992 | 2,012,637 | ||||||
| Finished goods | 9,106,354 | 4,629,513 | ||||||
| Total inventory | $ | 11,588,585 | $ | 7,188,969 | ||||
| F-10 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Prepaids and other current assets
As of September 30, 2021 and December 31, 2020, prepaids and other current assets consisted of the following:
| As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Prepaid expenses | $ | 1,088,853 | $ | 682,440 | ||||
| Other receivables | 272,408 | 279,016 | ||||||
| Deposits | 54,805 | 8,100 | ||||||
| Total prepaid | $ | 1,416,066 | $ | 969,556 | ||||
Note 7: Property, Plant and Equipment, Net
As of September 30, 2021 and December 31, 2020, property, plant and equipment, net consisted of the following:
| As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Buildings and improvements | $ | 12,028,708 | $ | 10,649,880 | ||||
| Machinery and equipment | 812,801 | 739,534 | ||||||
| Vehicles | 75,211 | 46,684 | ||||||
| Total property, plant and equipment | 12,916,720 | 11,436,098 | ||||||
| Less: accumulated depreciation | (1,091,718 | ) | (596,063 | ) | ||||
| Construction in progress | 500,839 | 1,008,298 | ||||||
| Total property, plant and equipment, net | $ | 12,325,841 | $ | 11,848,333 | ||||
For the three and nine months ended September 30, 2021, depreciation expense was $209,482 and $495,655, respectively. For the three and nine months ended September 30, 2020, depreciation expense was $95,316 and $290,940, respectively.
Note 8: Intangible Assets
In July 2021, the Company acquired from HTP Group Inc. a specific cannabis use license for $6.5 million with consideration consisting of $1 million in cash and $5.5 million payable over 18 months from the date of closing. The acquisition enables the Company to expand our geographic coverage into another large market, expand brand awareness, and further improve buying power. The costs were capitalized as Intangible Assets, net and are being amortized over a ten-year period beginning October 2021.
| F-11 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9: Notes Payable
Notes payable consisted of the following at September 30, 2021 and December 31, 2020:
| As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Brann Mortgage to a financing company, interest rate of 12.9%, monthly interest and principal payments of $10,983 through October 2034, secured by building. | $ | 993,934 | $ | 996,487 | ||||
| Wilbur Mortgage to a financing company, interest rate of 8%, monthly interest and principal payments of $56,106 through October 2034, secured by building. | 2,338,739 | 2,691,509 | ||||||
| Portola Mortgage - 1st Position to a third party, interest rate of 9.65%, monthly interest payments of $9,247 through June 2022 and principal payment of $1,150,000 due June 2022, secured by property. | 1,150,000 | 1,150,000 | ||||||
| Portola Mortgage - 2nd Position to a third party, interest rate of 15%, monthly interest payments of $4,187 through June 2022, secured by property. | 335,000 | 335,000 | ||||||
| Portola Mortgage - 3rd Position to a third party, interest rate of 14%, monthly interest payments of $5,250 through June 2022, secured by property. | 450,000 | 450,000 | ||||||
| Portola Mortgage - 4th Position to a third party, interest rate of 0%, annual principal payments of $600,000, secured by property. | - | 600,000 | ||||||
| Libertas - Note Payable to a financing company, interest rate of 32%, monthly interest payments of $28,551 through September 2021, secured by property. | - | 1,008,480 | ||||||
| Gomes - Note Payable to a third party, interest rate of 18% through April 2020 and 10% through 2021, annual principal payments of $50,000 and monthly interest payments of $3,013 through 2019, $2,263 through 2020, monthly interest and principal payments of $8,791 through May 2021, unsecured. | - | 25,941 | ||||||
| Next Wave - Note Payable to a third party, interest rate of 11.25%, monthly interest and principal payment of $6,777 through December 2021, secured by premiums. | 18,158 | 84,567 | ||||||
| Portola Parking Lot - Note Payable to a third party, interest rate of 10%, monthly interest payments of $600 through October 2021, annual principal payments of $75,000, secured by land. | 75,000 | 75,000 | ||||||
| Toyota - Note Payable to a financing company, interest rate of 8.732%, monthly interest and principal payments of $597 through August 2024, secured by equipment. | 19,869 | 24,336 | ||||||
| Libertas - Note Payable to a financing company, interest rate of 20%, monthly payments of $58,667 through November 2021, secured by property. | 73,992 | - | ||||||
| Libertas - Note Payable to a financing company, interest rate of 20%, monthly payments of $280,500 through February 2023, secured by property. | 1,375,785 | - | ||||||
| Alt Funding - Note Payable to a financing company, interest rate of 4%, monthly payments of $160,013 through June 2022, secured by receivables. | 1,230,770 | - | ||||||
| HTP Group - Note Payable to a third party, interest rate of 3.5%, monthly payments of $200,000 through December 2022, secured by intangible. | 5,500,000 | - | ||||||
| Valley Premium Finance - Note Payable to a third party, interest rate of 11.25%, monthly interest and principal payment of $8,331 through January 2022, secured by premiums. | 29,161 | - | ||||||
| Gross long-term debt, including current maturities | 13,590,408 | 7,441,320 | ||||||
| Less: Debt discounts | (502,008 | ) | (229,978 | ) | ||||
| Less: Debt issuance costs | (82,814 | ) | (60,030 | ) | ||||
| Net long-term debt, including current maturities | 13,005,586 | 7,151,312 | ||||||
| Less: Current maturities | (2,804,959 | ) | (2,278,575 | ) | ||||
| Total Long-term portion of debt, net | $ | 10,200,627 | $ | 4,872,737 | ||||
| F-12 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2021, the future minimum principal payments due on notes payable are as follows:
| Fiscal Year Ending: | Minimum Payments | |||
| 2021 | $ | 2,804,959 | ||
| 2022 | 8,082,554 | |||
| 2023 | 568,454 | |||
| 2024 | 613,875 | |||
| 2025 | 546,808 | |||
| Thereafter | 973,758 | |||
| Total maturities of debt | $ | 13,590,408 | ||
| (a) | Brann Mortgage |
On October 21, 2019, the Company closed on a secured promissory note (the “Brann Mortgage”) of $960,000. The Brann Mortgage bears interest of 12.9% per annum and matures in October 2034. The Brann Mortgage provided by the lender was used to acquire real estate located in Rio Vista, California.
| (b) | Wilbur Mortgage |
On October 15, 2019, the Company closed on a secured promissory note (the “Wilbur Mortgage”) of $3,200,000. The Wilbur Mortgage bears interest of 8% per annum and matures in October 2034. The Wilbur Mortgage provided by the lender was used to acquire real estate located in Antioch, California.
| (c) | Portola Mortgage – 1st Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The secured promissory note (the “Portola Mortgage – 1st Position”) of $1,150,000 bears interest of 9.65% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (d) | Portola Mortgage – 2nd Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The second position secured promissory note (the “Portola Mortgage – 2nd Position”) of $335,000 bears interest of 15% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (e) | Portola Mortgage – 3rd Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The secured promissory note (the “Portola Mortgage – 3rd Position”) of $450,000 bears interest of 14% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (f) | Portola Mortgage – 4th Position |
On October 30, 2020, the Company entered into a fourth position loan to purchase Portola Drive assets. The secured promissory note (the “Portola Mortgage – 4th Position”) of $1,200,000 bears interest of 0% per annum and matures in February 2026. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (g) | Libertas |
On December 4, 2020, the Company closed on a note of $800,000 due to Libertas Funding, LLC (“Libertas”). The note bore interest at 32% per annum and matured in September 2021. The Libertas loan provided by the lender was used to fund construction and the facility at V Town Farms.
| (h) | Gomes |
On May 21, 2018, the Company closed on a loan of $200,868 (Gomes). The Gomes loan bore interest at 18% per annum through April 2020 and 10% per annum through its maturity date in May 2021. The Gomes loan provided by the lender was used to develop property located in Rio Vista, California.
| F-13 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (i) | Lendini |
On December 18, 2019, the Company closed on a note of $200,000 due to Lendini (“Lendini”). The note bore interest at 38% per annum and matured in July 2020. On January 8, 2020, the Company closed on a note of $200,000 due to Lendini. The Lendini note bore interest at 38% per annum and matured in July 2020. The Lendini loan provided by the lender was used to fund expansion at Rio Vista Farms.
| (j) | Next Wave |
On January 7, 2021, the Company closed on a note of $81,842 due to Next Wave Premium Finance of CA Inc. (“Next Wave”). The note bore interest at 11.25% and matured in October 2021. The Next Wave loan provided by the lender was used to acquire an insurance policy.
| (k) | Portola Parking Lot |
On October 16, 2019, the Company closed on a secured promissory note (Portola Parking Lot) of $150,000. The note bore interest at 10% per annum and matured in October 2021. The Portola Parking Lot provided by the lender was used to acquire property located in Del Rey Oaks, California.
| (l) | Toyota |
On August 29, 2019, the Company closed on a note of $31,355 due to Toyota Commercial Finance (“Toyota”). The note bears interest at 5.44% per annum and matures in September 2024. The Toyota loan provided by the lender was used to acquire equipment.
| (m) | Libertas |
On February 5, 2021, the Company closed on a note of $528,000 due to Libertas Funding, LLC (“Libertas”). The note bore interest at 20% per annum and matured in November 2021. The Libertas loan provided by the lender was used to fund construction and the facility at V Town Farms.
| (n) | Libertas |
On May 24, 2021, the Company closed on a note of $2,244,000 due to Libertas Funding, LLC (“Libertas”). The note bore interest at 20% per annum and matured in February 2023. The Libertas loan provided by the lender was used to fund expansion of existing operations.
| (o) | Alt Funding |
On March 31, 2021, the Company closed on a note of $1,920,000 due to Austin Business Finance, LLC,, (“Alt Funding”). The note bore interest at 4% per annum and matured in September 2021. The Alt Funding loan provided by the lender was used to fund expansion of existing operations.
| (p) | HTP Group |
On July 1, 2021, the Company closed on a note of $5,500,000 due to HTP Group (“HTP Group”). The note bore interest at 3.5% per annum and matures in December 2022. The HTP Group loan was to purchase a cannabis license.
| (q) | Valley Premium Finance |
On August 17, 2021, the Company closed on a note of $37,492 due to Valley Premium Finance of CA Inc. (“Valley Premium”). The note bore interest at 11.25% and matured in October 2021. The Valley Premium loan provided by the lender was used to acquire an insurance policy.
| F-14 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note: 10 Related Parties
Notes payable – related parties consisted of the following as of September 30, 2021 and December 31, 2020:
| As of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
| Note Payable to Andrew Wesley, interest rate of 0%. | - | 77,500 | ||||||
| Note Payable to Martin Wesley, interest rate of 0%. | - | 77,500 | ||||||
| Note Payable to Charles Wesley, interest rate of 0%. | - | 80,000 | ||||||
| Note Payable to James Yeagley, interest rate of 0%. | 15,000 | - | ||||||
| Gross long-term debt, including current maturities | 15,000 | 235,000 | ||||||
| Less: Current maturities | (15,000 | ) | (235,000 | ) | ||||
| Total Long-term portion of debt, net | $ | - | $ | - | ||||
Notes payable - related parties are held by related parties of the Company consisting of Charles Wesley, the Chief Financial Officer, Andrew Wesley, managing member, Martin Wesley, managing member, and James Yeagley, member.
As of September 30, 2021, the future minimum principal payments due on notes payable – related parties are as follows:
| Fiscal Year Ending: | Minimum Payments | |||
| 2021 | $ | 15,000 | ||
| Total maturities of debt | $ | 15,000 | ||
Note 11: Members’ Equity
For the three and nine months ended September 30, 2021, the Company received capital contributions in the amount of $0 and $600,000, respectively. For the three and nine months ended September 30, 2020, the Company received capital contributions in the amount of $610,000 and $688,000, respectively. For the three and nine months ended September 30, 2021, the Company paid distributions to the members of $752,000 and $3,763,993, respectively. For the three and nine months ended September 30, 2020, the Company paid distributions to the members of $1,073,745 and $1,273,745, respectively.
Note 12: Commitments and Contingencies
Operating Leases
The Company leases its business facilities from third parties under operating agreements. The leases expire under various terms through 2026; some of the leases contain renewal provisions. The Company incurred $320,192 and $785,563 of rent expense for the three and nine months ended September 30, 2021, respectively. The Company incurred $9,075 and $34,955 of rent expense for the three and nine months ended September 30, 2020, respectively.
| F-15 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under non-cancelable operation leases as of September 30, 2021 are as follows:
| Fiscal Year | Minimum Rents | |||
| 2021 | $ | 204,825 | ||
| 2022 | 814,200 | |||
| 2023 | 804,000 | |||
| 2024 | 804,000 | |||
| 2025 | 804,000 | |||
| Thereafter | 603,000 | |||
| Total future minimum rental payments | $ | 4,034,025 | ||
Litigation
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Company accrues for adverse outcomes as they become probable and estimable.
Note 13: Revenue Disaggregation
Revenue disaggregation consists of the following:
| As of | As of | |||||||||||||||
| Three months ended September 30, 2021 | Three months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | |||||||||||||
| Retail | $ | 12,321,544 | $ | 12,322,000 | $ | 37,779,560 | $ | 30,022,933 | ||||||||
| Distributors | 75,694 | 768,454 | 471,910 | 1,092,994 | ||||||||||||
| Revenue, net | $ | 12,397,238 | $ | 13,090,454 | $ | 38,251,470 | $ | 31,115,927 | ||||||||
Note 14: Subsequent Events
The Company has evaluated subsequent events through January 20, 2022, the date the financial statements were available to be issued.
Kolaboration Ventures Corporation (“KVC”) was incorporated in Wyoming on August 11, 2021. On October 1, 2021, the Company executed a reorganization plan which exchanged the membership interests of certain companies into common stock of KVC. The companies included in the exchange: Kolaboration Ventures, LLC; Rio Vista Farms, LLC; Contra Costa Farms, LLC; Kolaboration Vallejo, LLC; and Kolaboration Concord, LLC. As Contra Costa Farms owns 100% of KCM, 50% of DRO and 50% of Portola, these entities were not included in the reorganization/exchange.
In October 2021, the Company signed a promissory note with the Chief Financial Officer in the amount of approximately $1,379,000, with no stated interest rate, due upon demand.
In November and December of 2021, the Company secured merchant cash advance agreements, in the amount of approximately $2,970,000 with an interest rate of 4% with payments weekly for one year, secured with receivables of the company.
On January 4, 2022, KVC effectuated a 20:1 forward stock split of the Corporation’s common stock
On September 1, 2021 the company entered into a purchase agreement to acquire a 50% controlling interest in PR Farms SC, LLC (“Herbal Cruz”) in exchange for 72,000 (1,440,000 post stock-split) shares of KVC and debt of approximately $2,500,000. Closing pending certain requirements and in connection with the merger agreement with Pacific Reserve.
On January 5, 2022, the Company executed a Merger Agreement with Pacific Reserve, in which 60,800,000 shares of common stock of KVC are being exchanged for a 100% ownership interest in Pacific Reserve and the remaining 50% of Herbal Cruz. The purchase agreement and merger agreement are expected to close simultaneously in April 2022.
| F-16 |
Kolaboration Ventures, LLC and Subsidiaries
Consolidated Financial Statements
As Of And For The Years Ended
December 31, 2020 and 2019
| F-17 |
KOLABORATION VENTURES, llc and subsidiaries
INDEX TO consolidated FINANCIAL STATEMENTS
| Page | ||
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-19 | |
| CONSOLIDATED FINANCIAL STATEMENTS: | ||
| Consolidated Balance Sheets | F-20 | |
| Consolidated Statements of Operations | F-21 | |
| Consolidated Statements of Changes in Members’ Equity | F-22 | |
| Consolidated Statements of Cash Flows | F-23 | |
| Notes to the Consolidated Financial Statements | F-24 |
| F-18 |
Report of Independent Registered Public Accounting Firm
To the Members
Kolaboration Ventures, LLC
Rio Vista, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Kolaboration Ventures, LLC and its subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the full retrospective method.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ArmaninoLLP
San Ramon, California
We have served as the Company’s auditor since 2021.
January 5, 2022
| F-19 |
KOLABORATION VENTURES, LLC and subsidiaries
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 458,550 | $ | 8,754 | ||||
| Accounts receivable | 305,351 | 65,574 | ||||||
| Inventory | 7,188,969 | 4,640,452 | ||||||
| Prepaids and other current assets | 969,556 | 238,773 | ||||||
| 8,922,426 | 4,953,553 | |||||||
| Property, plant and equipment, net | 11,848,333 | 7,072,635 | ||||||
| Goodwill | 2,628,853 | - | ||||||
| Total assets | $ | 23,399,612 | $ | 12,026,188 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Cash overdraft | $ | 83,976 | $ | 117,210 | ||||
| Accounts payable | 4,662,146 | 3,771,298 | ||||||
| Accrued and other current liabilities | 2,056,053 | 1,005,850 | ||||||
| Contract liability | 793,149 | 58,761 | ||||||
| Current portion of notes payable - related parties | 235,000 | 206,740 | ||||||
| Current portion of notes payable | 2,278,575 | 826,115 | ||||||
| 10,108,899 | 5,985,974 | |||||||
| Long term liabilities | ||||||||
| Notes payable, net of current portion | 4,872,737 | 3,773,690 | ||||||
| Notes payable - related parties, net of current portion | - | 235,000 | ||||||
| Other long-term liabilities | 135,500 | - | ||||||
| Total liabilities | 15,117,136 | 9,994,664 | ||||||
| Commitment and contingencies (Note 11) | ||||||||
| Members’ equity | ||||||||
| Members’ capital | 2,946,463 | 2,432,388 | ||||||
| Retained earnings (deficit) | 4,815,421 | (400,864 | ) | |||||
| Noncontrolling interest | 520,592 | - | ||||||
| Total members’ equity | 8,282,476 | 2,031,524 | ||||||
| Total liabilities and members’ equity | $ | 23,399,612 | $ | 12,026,188 | ||||
See the accompanying notes to these consolidated financial statements.
| F-20 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the years ended, | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Revenue | $ | 42,905,128 | $ | 8,362,603 | ||||
| Cost of goods sold | 26,238,892 | 4,366,931 | ||||||
| Cost of goods sold - depreciation | 147,050 | 93,870 | ||||||
| Gross profit | 16,519,186 | 3,901,802 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 1,368,972 | 405,938 | ||||||
| General and administration | 8,877,948 | 2,239,926 | ||||||
| Depreciation and amortization | 264,262 | 42,217 | ||||||
| Total operating expenses | 10,511,182 | 2,688,081 | ||||||
| Income from operations | 6,008,004 | 1,213,721 | ||||||
| Other income (expenses): | ||||||||
| Interest expense | (610,469 | ) | (223,411 | ) | ||||
| Other expense | (181,250 | ) | - | |||||
| Total other expenses | (791,719 | ) | (223,411 | ) | ||||
| Net income | $ | 5,216,285 | $ | 990,310 | ||||
See the accompanying notes to these consolidated financial statements.
| F-21 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
| Members’ | Retained Earnings | Noncontrolling | ||||||||||||||
|
Capital | (Deficit) |
Interest | Total | |||||||||||||
| Balance at December 31, 2018 | $ | 691,888 | $ | (1,391,174 | ) | $ | - | $ | (699,286 | ) | ||||||
| Capital contributions | 1,860,500 | - | - | 1,860,500 | ||||||||||||
| Members distributions | (120,000 | ) | - | - | (120,000 | ) | ||||||||||
| Net income | - | 990,310 | - | 990,310 | ||||||||||||
| Balance at December 31, 2019 | 2,432,388 | (400,864 | ) | - | 2,031,524 | |||||||||||
| Capital contributions | 2,445,000 | - | - | 2,445,000 | ||||||||||||
| Member distributions | (1,930,925 | ) | - | - | (1,930,925 | ) | ||||||||||
| Noncontrolling interest in aquired subsdiary | - | - | 520,592 | 520,592 | ||||||||||||
| Net income | - | 5,216,285 | - | 5,216,285 | ||||||||||||
| Balance at December 31, 2020 | $ | 2,946,463 | $ | 4,815,421 | $ | 520,592 | $ | 8,282,476 | ||||||||
See the accompanying notes to these consolidated financial statements.
| F-22 |
KOLABORATION VENTURES, LLC and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the years ended, | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 5,216,285 | $ | 990,310 | ||||
| Depreciation expense | 411,312 | 136,087 | ||||||
| Amortization of debt discount | 7,231 | 16,190 | ||||||
| Gain on disposal of property, plant and equipment | - | (2,065 | ) | |||||
| Change in non-cash working capital: | ||||||||
| Accounts receivable | (239,777 | ) | (54,807 | ) | ||||
| Inventory | (2,548,517 | ) | (4,640,452 | ) | ||||
| Prepaids and other current assets | (703,434 | ) | (202,035 | ) | ||||
| Accounts payable | (312,604 | ) | 3,395,255 | |||||
| Accrued and other current liabilities | 153,269 | 428,696 | ||||||
| Contract liability | 709,493 | 45,326 | ||||||
| Other long-term liabilities | 135,500 | - | ||||||
| Net cash provided by operating activities | 2,828,758 | 112,505 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from disposal of property, plant and equipment | 52,333 | 23,000 | ||||||
| Acquisition of Emerald Sky, LLC | 46,989 | - | ||||||
| Purchases of property, plant and equipment | (2,104,343 | ) | (5,556,650 | ) | ||||
| Net cash used in investing activities | (2,005,021 | ) | (5,533,650 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of membership interests | 2,445,000 | 1,810,500 | ||||||
| Member distributions | (1,930,925 | ) | (120,000 | ) | ||||
| Proceeds from issuance of note payable | 1,000,000 | 4,338,316 | ||||||
| Repayment of notes payable | (1,648,042 | ) | (686,005 | ) | ||||
| Repayment of related parties notes payable | (206,740 | ) | (65,000 | ) | ||||
| Change in cash overdraft | (33,234 | ) | 117,210 | |||||
| Net cash provided by (used in) financing activities | (373,941 | ) | 5,395,021 | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 449,796 | (26,124 | ) | |||||
| Cash and cash equivalents, beginning of the period | 8,754 | 34,878 | ||||||
| Cash and cash equivalents, end of the period | $ | 458,550 | $ | 8,754 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 619,543 | $ | 191,795 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| NON-CASH ACTIVITIES | ||||||||
| Accounts payable converted to notes payable | $ | 84,567 | $ | - | ||||
| Conversion of related parties notes payable and interest to equity contribution | $ | - | $ | 50,000 | ||||
| Property, plant and equipment financed by notes payable | $ | 3,135,000 | $ | 181,335 | ||||
| Acquisition of Emerald Sky, LLC financed by accounts payable | $ | 795,495 | $ | - | ||||
See the accompanying notes to these consolidated financial statements.
| F-23 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of Business Nature of Operations:
Headquartered in Rio Vista, California, Kolaboration Ventures, LLC (“KV” or the “Company”) was formed under the laws of California in May 2020, and is a diversified cannabis company specializing in cultivation, non-volatile manufacturing, retail, brand development, and distribution. KV and its subsidiaries are working to expand in California through both organic growth and acquisitions while building a respected portfolio of top shelf brands. Wholly owned, licensed, and/or distributed brands within KVL’s portfolio include: Farms Brand, Fat Boys Farms, Ole 4 Fingers, Atoms Infused Flower, Rio Vista Farms and CoCo Farms.
Rio Vista Farms, LLC (“RVF”) was created in July 2017, to engage in cannabis agriculture and related activities. Contra Costa Farms, LLC (“CCF”) was created in October 2018 to engage in cannabis agriculture and related activities. Both RVF and CCF operate retail dispensaries fully licensed with the State of California. In December 2020, the Company purchased a controlling interest of Emerald Skyway, LLC (“Emerald”) which operates licensed dispensaries in the state of California. In July 2020, the Company formed Kolaboration Vallejo, LLC (“KVL”), in December 2020, the Company formed Kola Center Management, LLC (“KCM”) and in October 2020, the Company formed Portola Drive, LLC (“PD”) and Dro Legacy, Inc. (“DRO”). KVL, KCM, DRO and PD were all formed to house various operations of the Company within California.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the accounting policies set out below have been applied consistently to all years presented. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations have been reflected herein.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority owned and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Non-controlling Interest
Non-controlling interest represents the proportionate ownership of Emerald, DRO and PD, held by minority members and reflects their capital investments as well as their proportionate interest in subsidiary losses and other changes in members’ equity, including translation adjustments.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at invoice amounts, net of allowances for doubtful accounts. The Company evaluates the collectability of accounts receivable based on known collection risks and historical experience. The Company incurred bad debt expense of $129,964 and $35,127 for the years ended December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020 and 2019, the Company had no allowance for doubtful accounts.
| F-24 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventory
The net realizable value of inventory represents the estimated selling price for inventory in the ordinary course of business, less estimated costs of completion and costs necessary to make the sale. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price the Company expects to realize by selling the inventory and the contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. As a result, the actual amount received on sale could differ from the estimated value of inventory. Costs incurred during the growing and production process are capitalized as incurred to the extent that cost is less than net realizable value. These costs include materials, direct and indirect labor, and overhead used in the growing and production processes. Periodic reviews are performed on the inventory balance. The impact of changes in inventory reserves is reflected in cost of goods sold. As of December 31, 2020 and December 31, 2019, the Company has not recorded a write-down of inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization, if any. Depreciation related to assets used in production is recorded in cost of goods sold. Depreciation related to non-production assets is recorded through operating expenses. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term. Depreciation and amortization is calculated on a straight-line basis over the expected useful life of the asset as follows:
| Buildings and improvements | 5 to 29 years | ||
| Machinery and equipment | 5 to 7 years | ||
| Vehicles | 3 to 5 years |
Leasehold improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases. During the years ended December 31, 2020 and December 31, 2019, maintenance and repair costs of $357,048 and $49,553, respectively, were expensed as general and administration expenses.
Impairment of Long-Lived Assets
The Company evaluates property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of our long-lived assets may not be recoverable. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There were no impairment charges to long-lived assets during the years ended December 31, 2020 and 2019.
Goodwill
Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. The Company evaluates its goodwill for impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred in accordance with the provisions of FASB ASC 350, Goodwill and Other Intangible Assets. The Company determined that no impairment exists with respect to its goodwill as of December 31, 2020.
Income Taxes
The Company is a limited liability company that is treated as a partnership for U.S. federal and state income tax purposes. Accordingly, the Company is not subject to federal or state income taxes. The income or loss of the Company is included in the return of its members. Therefore, no provision, liability, or benefit for income taxes has been included in these financial statements. The Company does not have any unrecognized tax benefits at December 31, 2020 and 2019. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2020 and 2019, the Company did not accrue any interest or penalties related to uncertain tax positions.
Revenue Recognition
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The adoption did not result in any change to revenue recognition for any of its revenue streams. The Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principle, the Company applies a five-step process.
| F-25 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Identification of a contract or contracts with a customer; | |
| 2. | Identification of performance obligation(s) in the contract; | |
| 3. | Determination of the transaction price; | |
| 4. | Allocation of the transaction price to the performance obligations in the contract; and | |
| 5. | Recognition of revenue when, or as, the performance obligation is satisfied. |
Contracts with customers are at the point of sale and, while they often include the transfer of multiple products to a customer, they do not require future obligations. The Company generally considers each transaction as a separate performance obligation. Products are generally sold without a right of return, except for the extremely rare instance of a significant product defect identified upon delivery, which is not considered a separate performance obligation.
The Company allocates the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. The Company uses judgment in determining the SSP for products. The Company typically determines an SSP range for its products which are reassessed on a periodic basis or when facts and circumstances change. For all performance obligations (multiple products), the Company is able to determine SSP based on the observable prices of products sold separately in comparable circumstances to similar customers.
In certain instances, the Company may provide incentives and discounts. The discounts are generally applied to promotional products. The discounts are determinable and fixed at the inception of the contract and accounted for as a reduction of the purchase price. Contracts do not include a significant financing component.
The majority of customer contracts, which may be in the form of purchase orders, contracts or purchase agreements, contain performance obligations for delivery of agreed upon products. Typically, when a customer contract contains multiple performance obligations, satisfaction of these obligations occurs simultaneously, at a single point in time (or within the same accounting period). Transfer of control typically occurs at the time of delivery and title and the risks and rewards of ownership have passed to the customer, and the Company has a right to payment. Thus, the Company generally recognizes revenue upon delivery of the product.
All shipping and handling activities are performed before the customers obtain control of products and accounted for as cost of goods sold.
The Company offers a loyalty reward program to its dispensary customers and is deemed a separate performance obligation. A portion of the revenue generated in a sale is allocated to the loyalty points earned. For the years ended December 31, 2020 and 2019, the allocation was approximately $1,499,000 and $279,000, respectively. The amount allocated to the points earned is deferred until the loyalty points are redeemed. As of December 31, 2020 and 2019, the loyalty liability totaled $793,149 and $58,761, respectively, and is included in contract liability on the consolidated balance sheets.
The Company does not have any customer contracts that contain future deliverables that meet the definition of unsatisfied performance obligations in accordance with Topic 606.
Fair Value
The Company determines the fair value of its financial instruments in accordance with the provisions of Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurement, which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
| ● | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| F-26 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| ● | Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; | |
| ● | Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable inputs reflect the assumptions that market participants would use in pricing the asset or liability. |
The carrying values of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximated their fair values due to the short period of time to maturity or repayment.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASC 842, a lessee is required to recognize assets and liabilities for leases with terms of more than 12 months. Lessor accounting remains substantially similar to current U.S. GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease. The Company is evaluating the impact of this standard on the financial statements. The required adoption date of this standard is January 1, 2022 for emerging growth companies.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require the Company to use forward-looking information to better formulate its credit loss estimates. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.
Note 3: Concentration of Credit Risk
Financial instruments that subject the Company to potential concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash primarily in U.S. bank accounts, which at times may exceed federally insured limits. As of December 31, 2020 and 2019, the Company had no uninsured cash and cash equivalents.
The Company’s business activities and accounts receivable are with customers in the cannabis industry located in California. For the years ended December 31, 2020 and 2019, the Company had no customers that exceeded 10% of revenue each year.
As of December 31, 2020, the Company had two customers exceeding 10% of the accounts receivable balance, while as of December 31, 2019 the Company had four customers that exceeded 10% of the accounts receivable balance. The balance for these customers as of December 31, 2020 and 2019 was $153,472 and $60,780, respectively.
Note 4: Business Combination
On December 20, 2020, the Company completed the acquisition of Emerald Skyway, LLC to expand the Company’s retail cannabis footprint in California. The fair value of the consideration transferred was $1.3 million. No transaction related expenses were recognized in connection with the business combination.
| F-27 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the amounts of the identifiable assets acquired and liabilities assumed at the acquisition date.
| Cash and cash equivalents | $ | 46,989 | ||
| Accounts receivable - related parties | 1,423 | |||
| Prepaid and other current assets | 27,349 | |||
| Accounts payable | (492,524 | ) | ||
| Accounts payable - related parties | (563,292 | ) | ||
| Accrued and other current liabilities | (307,816 | ) | ||
| Contract liability | (24,895 | ) | ||
| Net Identifiable Liabilities Acquired | (1,312,766 | ) | ||
| Goodwill | 2,628,853 | |||
| Total Net Assets Acquired | $ | 1,316,087 |
Note 5: Inventory
Inventory consists of raw materials, work in process and finished goods. Finished goods consist of distillates and crude oil extracted from cannabis plant material as well as cannabis flower held for resale, and raw materials consist of the harvested cannabis plant material.
As of December 31, 2020 and 2019, inventory consisted of the following:
| As of | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Raw materials | $ | 546,819 | $ | 298,020 | ||||
| Work in process | 2,012,637 | 1,529,588 | ||||||
| Finished goods | 4,629,513 | 2,812,844 | ||||||
| Total inventory | $ | 7,188,969 | $ | 4,640,452 | ||||
Note 6: Prepaids and other current assets
As of December 31, 2020 and 2019, prepaids and other current assets consisted of the following:
| As of | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Prepaid expenses | $ | 682,440 | $ | 167,586 | ||||
| Other receivables | 279,016 | 66,500 | ||||||
| Deposits | 8,100 | 4,687 | ||||||
| Total prepaids and other current assets | $ | 969,556 | $ | 238,773 | ||||
Note 7: Property, Plant and Equipment, Net
As of December 31, 2020 and 2019, property, plant and equipment, net consisted of the following:
| As of | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Buildings and improvements | $ | 10,649,880 | $ | 6,557,761 | ||||
| Machinery and equipment | 739,534 | 680,940 | ||||||
| Vehicles | 46,684 | 18,684 | ||||||
| Total property, plant and equipment | 11,436,098 | 7,257,385 | ||||||
| Less: accumulated depreciation | (596,063 | ) | (184,750 | ) | ||||
| Construction in progress | 1,008,298 | - | ||||||
| Total property, plant and equipment, net | $ | 11,848,333 | $ | 7,072,635 | ||||
For the years ended December 31, 2020 and 2019, depreciation expense was $411,312 and $136,087, respectively.
| F-28 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8: Notes Payable
Notes payable consisted of the following at December 31, 2020 and 2019:
| As of | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Brann Mortgage to a financing company, interest rate of 12.9%, monthly interest and principal payments of $10,983 through October 2034, secured by building. | $ | 996,487 | $ | 999,530 | ||||
| Wilbur Mortgage to a financing company, interest rate of 8%, monthly interest and principal payments of $56,106 through October 2034, secured by building. | 2,691,509 | 3,130,222 | ||||||
| Portola Mortgage - 1st Position to a third party, interest rate of 9.65%, monthly interest payments of $9,247 through June 2022 and principal payment of $1,150,000 due June 2022, secured by property. | 1,150,000 | - | ||||||
| Portola Mortgage - 2nd Position to a third party, interest rate of 15%, monthly interest payments of $4,187 through June 2022, secured by property. | 335,000 | - | ||||||
| Portola Mortgage - 3rd Position to a third party, interest rate of 14%, monthly interest payments of $5,250 through June 2022, secured by property. | 450,000 | - | ||||||
| Portola Mortgage - 4th Position to a third party, interest rate of 0%, annual principal payments of $600,000 through February 2026, secured by property. | 600,000 | - | ||||||
| Libertas - Note Payable to a financing company, interest rate of 32%, monthly interest payments of $28,551 through September 2021, secured by property. | 1,008,480 | - | ||||||
| Gomes - Note Payable to a third party, interest rate of 18% through April 2020 and 10% through 2021, annual principal payments of $50,000 and monthly interest payments of $3,013 through 2019, $2,263 through 2020, monthly interest and principal payments of $8,791 through May 2021, unsecured. | 25,941 | 150,868 | ||||||
| Lendini - Note Payable to a financing company, interest rate of 38%, daily interest and principal payments of $2,090 through July 2020, secured by property. | - | 246,728 | ||||||
| Next Wave - Note Payable to a third party, interest rate of 11.25%, monthly interest and principal payment of $6,777 through October 2021, secured by premiums. | 84,567 | - | ||||||
| Portola Parking Lot - Note Payable to a third party, interest rate of 10%, monthly interest payments of $600 through October 2021, annual principal payments of $75,000, secured by land. | 75,000 | 150,000 | ||||||
| Toyota - Note Payable to a financing company, interest rate of 5.44%, monthly interest and principal payments of $597 through August 2024, secured by equipment. | 24,336 | 29,980 | ||||||
| Gross long-term debt, including current maturities | 7,441,320 | 4,707,328 | ||||||
| Less: Debt discounts | 229,978 | 67,940 | ||||||
| Less: Debt issuance costs | 60,030 | 39,583 | ||||||
| Net long-term debt, including current maturities | 7,151,312 | 4,599,805 | ||||||
| Less: Current maturities | 2,278,575 | 826,115 | ||||||
| Total Long-term portion of debt, net | $ | 4,872,737 | $ | 3,773,690 | ||||
| F-29 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020, the future minimum principal payments due on notes payable are as follows:
| Fiscal Year Ending | Minimum Payments | |||
| 2021 | $ | 2,278,575 | ||
| 2022 | 2,124,851 | |||
| 2023 | 903,454 | |||
| 2024 | 613,875 | |||
| 2025 | 546,808 | |||
| Thereafter | 973,757 | |||
| Total maturities of debt | $ | 7,441,320 | ||
| (a) | Brann Mortgage |
On October 21, 2019, the Company closed on a secured promissory note (the “Brann Mortgage”) of $960,000. The Brann Mortgage bears interest of 12.9% per annum and matures in October 2034. The Brann Mortgage provided by the lender was used to acquire real estate located in Rio Vista, California.
| (b) | Wilbur Mortgage |
On October 15, 2019, the Company closed on a secured promissory note (the “Wilbur Mortgage”) of $3,200,000. The Wilbur Mortgage bears interest of 8% per annum and matures in October 2034. The Wilbur Mortgage provided by the lender was used to acquire real estate located in Antioch, California.
| (c) | Portola Mortgage – 1st Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The secured promissory note (the “Portola Mortgage – 1st Position”) of $1,150,000 bears interest of 9.65% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (d) | Portola Mortgage – 2nd Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The second position secured promissory note (the “Portola Mortgage – 2nd Position”) of $335,000 bears interest of 15% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (e) | Portola Mortgage – 3rd Position |
In October 2020, the Company purchased assets related to Portola Drive and inherited the notes payable on the property. The secured promissory note (the “Portola Mortgage – 3rd Position”) of $450,000 bears interest of 14% per annum and matures in June 2022. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (f) | Portola Mortgage – 4th Position |
On October 30, 2020, the Company entered into a fourth position loan to purchase Portola Drive assets. The secured promissory note (the “Portola Mortgage – 4th Position”) of $1,200,000 bears interest of 0% per annum and matures in February 2026. The Portola Mortgage provided by the lender was used to acquire real estate located in Del Rey Oaks, California.
| (g) | Libertas |
On December 4, 2020, the Company closed on a note of $800,000 due to Libertas Funding, LLC (“Libertas”). The note bore interest at 32% per annum and matured in September 2021. The Libertas loan provided by the lender was used to fund construction and the facility at V Town Farms.
| (h) | Gomes |
On May 21, 2018, the Company closed on a loan of $200,868 (Gomes). The Gomes loan bore interest at 18% per annum through April 2020 and 10% per annum through its maturity date in May 2021. The Gomes loan provided by the lender was used to develop property located in Rio Vista, California.
| F-30 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (i) | Lendini |
On December 18, 2019, the Company closed on a note of $200,000 due to Lendini (“Lendini”). The note bore interest at 38% per annum and matured in July 2020. On January 8, 2020, the Company closed on a note of $200,000 due to Lendini. The Lendini note bore interest at 38% per annum and matured in July 2020. The Lendini loan provided by the lender was used to fund expansion at Rio Vista Farms.
| (j) | Next Wave |
On January 7, 2021, the Company closed on a note of $81,842 due to Next Wave Premium Finance of CA Inc. (“Next Wave”). The note bore interest at 11.25% and matured in October 2021. The Next Wave loan provided by the lender was used to acquire an insurance policy.
| (k) | Portola Parking Lot |
On October 16, 2019, the Company closed on a secured promissory note (Portola Parking Lot) of $150,000. The note bore interest at 10% per annum and matured in October 2021. The Portola Parking Lot provided by the lender was used to acquire property located in Del Rey Oaks, California.
| (l) | Toyota |
On August 29, 2019, the Company closed on a note of $31,355 due to Toyota Commercial Finance (“Toyota”). The note bears interest at 5.44% per annum and matures in September 2024. The Toyota loan provided by the lender was used to acquire equipment.
Note: 9 Related Parties
Notes payable – related parties consisted of the following as of December 31, 2020 and 2019:
| As of | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Note Payable to Charles Wesley, interest rate of 0%. | $ | 80,000 | $ | 80,000 | ||||
| Note Payable to Andrew Wesley, interest rate of 0%. | 77,500 | 77,500 | ||||||
| Note Payable to Martin Wesley, interest rate of 0%. | 77,500 | 77,500 | ||||||
| Note Payable to Emory Epperson, interest rate of 20%. | - | 10,000 | ||||||
| Note Payable to Charles Wesley, interest rate of 0%. | - | 47,000 | ||||||
| Note Payable to Steven Smith, interest rate of 20%. | - | 149,740 | ||||||
| Gross long-term debt, including current maturities | 235,000 | 441,740 | ||||||
| Less: Current maturities | 235,000 | 206,740 | ||||||
| Total Long-term portion of debt, net | $ | - | $ | 235,000 | ||||
Notes payable - related parties are held by related parties of the Company consisting of Charles Wesley, the Chief Financial Officer, Andrew Wesley, managing member, Martin Wesley, managing member, Steve Smith, member, and Emory Epperson, member.
As of December 31, 2020, the future minimum principal payments due on notes payable – related parties are as follows:
| Fiscal Year Ending | Minimum Payments | |||
| 2021 | $ | 235,000 | ||
| Total maturities of debt | $ | 235,000 | ||
| F-31 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10: Members’ Equity
For the years ended December 31, 2020 and 2019, the Company received capital contributions in the amount of $2,455,000 and $1,860,500, respectively. For the years ended December 31, 2020 and 2019, the Company paid distributions to the members of $1,930,925 and $120,000, respectively.
Note 11: Commitments and Contingencies
Operating Leases
The Company leases its business facilities from third parties under operating agreements. The leases expire under various terms through 2026; some of the leases contain renewal provisions. The Company incurred $364,880 and $27,785 of rent expense for the years ended December 31, 2020 and 2019, respectively. The Company’s subsidiary, Valley Farms, leases the business facility at Portola Drive from a related subsidiary of the Company, Portola Drive, LLC.
Future minimum lease payments under non-cancelable operation leases as of December 31, 2020 are as follows:
| Fiscal Year Ending | Minimum Rents | |||
| 2021 | $ | 745,300 | ||
| 2022 | 814,200 | |||
| 2023 | 804,000 | |||
| 2024 | 804,000 | |||
| 2025 | 804,000 | |||
| Thereafter | 603,000 | |||
| Total future minimum rental payments | $ | 4,574,500 | ||
Litigation
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Company accrues for adverse outcomes as they become probable and estimable. Currently, there is no pending litigation against the Company.
Note 12: Revenue Disaggregation
Revenue disaggregation consists of the following:
| For the years ended, | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Retail | $ | 40,988,214 | $ | 8,039,313 | ||||
| Distributors | 1,916,914 | 323,290 | ||||||
| Revenue, net | $ | 42,905,128 | $ | 8,362,603 | ||||
| F-32 |
KOLABORATION VENTURES, LLC and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13: Subsequent Events
The Company has evaluated subsequent events through January 5, 2022, the date the financial statements were available to be issued.
Kolaboration Ventures Corporation (“KVC”) was incorporated in Wyoming on August 11, 2021. On October 1, 2021, all of the operating LLCs which comprise KV were reorganized under the parent, KVC. They are: Kolaboration Ventures, LLC; Rio Vista Farms, LLC; Contra Costa Farms, LLC; Kolaboration Vallejo, LLC; and Kolaboration Concord, LLC. As Contra Costa Farms owns 100% of KCM, 50% of DRO and 50% of Portola, these entities were not reorganized.
In July 2021, the Company acquired from HTP Group Inc. a specific cannabis use license for $6.5 million and the consideration was $1 million in cash and $5.5 million payable over 18 months from the date of closing. The acquisition enables us to expand our geographic coverage into another large market, expand brand awareness, and further improve buying power.
Note 14: Events (Unaudited) Subsequent to the Date of the Independent Auditor’s Report
In February and May 2021, the company secured additional financing from Libertas in the amount of approximately $2,770,000, with terms similar to the existing note payable.
In April June, November and December of 2021, the Company secured financing from Austin Business Finance, LLC., in the amount of approximately $4,890,000 with an interest rate of 4% with payments weekly for one year from the date of each note, the notes are secured with the receivables of the company.
In October 2021, the Company signed a promissory note with the Chief Financial Officer in the amount of approximately $1,379,000, with 0% interest rate, due upon demand.
On January 4, 2022, KVC effectuated a 20:1 forward stock split of the Corporation’s common stock
On September 1, 2021 the company entered into a purchase agreement to acquire a 50% controlling interest in PR Farms SC, LLC (“Herbal Cruz”) in exchange for 72,000 (1,440,000 post stock-split) shares of KVC and debt of approximately $2,500,000. Closing pending certain requirements and in connection with the merger agreement with Pacific Reserve.
On January 5, 2022, the Company executed a Merger Agreement with Pacific Reserve, in which 60,800,000 shares of common stock of KVC are being exchanged for a 100% ownership interest in Pacific Reserve and the remaining 50% of Herbal Cruz. The purchase agreement and merger agreement are expected to close simultaneously in April 2022.
| F-33 |
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Rio Vista, California, United States on January 31, 2022.
| KOLABORTION VENTURES CORPORATION | ||
| By: | /s/ Martin Wesley | |
| Martin Wesley, President | ||
Pursuant to the requirements of the Securities Act of 1933, this Offering Circular has been signed by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
| /s/ Martin Wesley | President and Director | January 31, 2022 | ||
| Martin Wesley | ||||
| /s/ Andrew Wesley | Vice President and Director | January 31, 2022 | ||
| Andrew Wesley | ||||
| /s/ Charles Wesley | Chief Financial Officer and Director | January 31, 2022 | ||
| Charles Wesley |
ACKNOWLEDGEMENT ADOPTING TYPED SIGNATURES
The undersigned hereby authenticate, acknowledge and otherwise adopt the typed signatures above and as otherwise appear in this filing and Offering.
| /s/ Martin Wesley | ||
| Martin Wesley | ||
| /s/ Andrew Wesley | ||
| Andrew Wesley | ||
| /s/ Charles Wesley | ||
| Charles Wesley |
| 71 |
PART III: EXHIBITS
| 72 |
Exhibit 1A-1
Exhibit 1A-2
Exhibit 1A-2A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KOLABORATION VENTURES CORPORATION
a Wyoming Corporation
Martin Wesley hereby certifies that:
1. He is the President of Kolaboration Ventures Corporation, a Wyoming corporation.
2. The Articles of Incorporation of this Corporation are amended and restated in their entirety to read as follows and supersede and take the place of the existing Articles of Incorporation and all prior amendments thereto and restatements thereof:
ARTICLE I - NAME OF THE CORPORATION
The name of the Corporation shall be: Kolaboration Ventures Corporation (the “Corporation”).
ARTICLE II – PERPETUAL DURATION OF THE CORPORATION
The period of this Corporation’s duration is perpetual.
ARTICLE III - PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Wyoming Business Corporation Act other than the banking business, the trust Corporation business or the practice of a profession permitted to be incorporated by the Wyoming Business Corporation Act.
ARTICLE IV - AUTHORIZED CAPITAL
A. The aggregate number of shares of all classes of capital stock which this Corporation shall have authority to issue is 1,010,000,000 shares, of which 10,000,000 shares shall be shares of preferred stock, par value of $.0001 per share as described herein (“Preferred Stock”), and 1,000,000,000 shares shall be shares of common stock, par value of $.0001 per share (“Common Stock”).
(1) Preferred Stock. Notwithstanding the designation of the class of Series A Preferred Stock designated in Article XIV, the designations, preferences, limitations, restrictions, and relative rights of any additional classes of Preferred Stock, and variations in the relative rights and preferences as between different series shall be established in accordance with the Wyoming Business Corporation Act by the board of directors of the Corporation (“Board of Directors”). The holders of Preferred Stock shall have and possess all rights as shareholders of the Corporation, including such voting rights as may be granted elsewhere by these Articles of Incorporation, the WBCA and the Corporation’s Bylaws, except as such rights may be limited by the privileges and voting powers of the Common Stock to elect two (2) directors to the Board of Directors as set forth herein.
(2) Common Stock. One Billion (1,000,000,000) shares of Common Stock, par value $0.0001 per share. Except with respect to the right to elect two (2) directors to the Board of Directors of the Corporation or as otherwise may be required under the WBCA, the Common Stock shall have no voting rights. Upon the effective time (the “Effective Time”) of the filing of these Amended and Restated Articles of Incorporation, each one (1) share of the Corporation’s Common Stock that is issued and outstanding or held by the Corporation as treasury stock immediately prior to the Effective Time, is and shall be subdivided and reclassified into twenty (20) fully paid, nonassessable shares of Common Stock (the “Forward Stock Split”). Each certificate that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificates”) shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been subdivided and reclassified. Subject to preferential dividend rights, if any, of the holders of Preferred Stock, dividends on the Common Stock may be declared by the Board of Directors and paid out of any funds legally available therefor at such times and in such amounts as the Board of Directors shall determine.
B. The capital stock, after the amount of the subscription price has been paid in, shall not be subject to assessment to pay the debts of the Corporation.
C. Any stock of the Corporation may be issued for money, property, services rendered, labor done, cash advances for the Corporation, or for any other assets of value in accordance with the action of the Board of Directors, whose judgment as to value received in return therefor shall be conclusive and said stock when issued shall be fully paid and non-assessable.
D. The Board of Directors shall have the authority to impose restrictions upon the transfer of the capital stock of the Corporation as it deems necessary in the best interests of the Corporation or as required by law.
ARTICLE V - CUMULATIVE VOTING
Cumulative voting for the election of directors shall not be permitted.
ARTICLE VI - PREEMPTIVE RIGHTS
No holder of any stock of the Corporation shall be entitled, as a matter of right, to purchase, subscribe for or otherwise acquire any new or additional shares of stock of the Corporation of any class, or any options or warrants to purchase, subscribe for or otherwise acquire any such new or additional shares, or any shares, bonds, notes, debentures or other securities convertible into or carrying options or warrants to purchase, subscribe for or otherwise acquire any such new or additional shares unless specifically authorized by the governing board of the Corporation.
ARTICLE VII - GOVERNING BOARD
The governing board of this Corporation shall be known as directors, and the number of the directors may from time to time be increased or decreased in such manner as shall be permitted by the bylaws of this Corporation. There shall not be less than one member of the Board of Directors.
ARTICLE VIII - AUTHORITY OF BOARD OF DIRECTORS TO CHANGE CORPORATE NAME
The Board shall have the right to change the name of the Corporation without shareholder approval to a name that reflects the industry or business in which the Corporation’s business operations are conducted or to a name that will promote or conform to any principal product, technology or other asset of the Corporation that the Board, in its sole discretion, deems appropriate.
ARTICLE IX - BYLAWS
Bylaws of this Corporation may be adopted by the Board, which shall also have the power to alter, amend or repeal the same from time to time as permitted under the WBCA.
ARTICLE X – SHAREHOLDER VOTING ON CORPORATE ACTIONS
Notwithstanding the requirements of Wyoming law, the affirmative vote or concurrence of the holders of at least 50% of the outstanding shares of Preferred Stock of the Corporation are required to make effective all transactions that require shareholder approval under applicable law.
ARTICLE XI - INDEMNIFICATION OF DIRECTORS OFFICERS, EMPLOYEES, FIDUCIARIES AND AGENTS
A. The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under Wyoming law provided, however, that (A) the liability of directors is not limited or eliminated (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (B) the liability of directors is not limited or eliminated for any act or omission occurring prior to the date when these Articles of Incorporation becomes effective, or (vi) any of the acts set forth in section 17-16-202 of the Wyoming Business Corporations Act and (C) the liability of officers is not limited or eliminated for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors. The Corporation shall indemnify, to the fullest extent permitted by applicable law, any person, and the estate and personal representative of any such person, against all liability and expense (including attorneys’ fees) incurred by reason of the fact that he is or was a director or officer of the Corporation or, while serving at the request of the Corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of, or in any similar managerial or fiduciary position of, another domestic or foreign corporation or other individual or entity or of an employee benefit plan. The Corporation also shall indemnify any person who is serving or has served the Corporation as director, officer, employee, fiduciary, or agent, and that person’s estate and personal representative, to the extent and in the manner provided in any by law, resolution of the shareholders or directors, contract, or otherwise, so long as such provision is legally permissible.
B. The Corporation shall advance expenses in advance of the final disposition of the case to or for the benefit of a director, officer, employee, fiduciary, or agent, who is party to a proceeding such as described in the preceding paragraph A to the maximum extent permitted by applicable law.
C. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation or other person entitled to indemnification existing at the time of such repeal or modification.
ARTICLE XII - LIMITATIONS OF LIABILITY
A. Notwithstanding Wyoming law, specifically section 17-16-202 of the Wyoming Business Corporations Act, or the provisions of these Amended and Restated Articles of Incorporation, a director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or to its shareholders, or (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law. If the Wyoming Business Corporations Act is amended after this Article is adopted to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Wyoming Business Corporations Act, as so amended.
B. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
ARTICLE XIII ACTIONS OF SHAREHOLDERS
A. Meetings of shareholders shall be held at such time and place as provided in the bylaws of the Corporation or by resolution of the board of directors.
B. At all meetings of the shareholders, the presence of 50% of all votes entitled to be cast at the beginning of a meeting shall constitute a quorum.
C. Notwithstanding the provisions of these Articles, any action for which the Wyoming Business Corporations Act requires the approval of two-thirds of the shares or any class or series or voting group entitled to vote with respect thereto, unless otherwise provided in these Amended and Restated Articles of Incorporation, shall require for approval, the affirmative vote of 50% of the shares or any class or series or voting group outstanding and entitled to vote thereon.
D. Any vote of the shareholders of the Corporation may be taken either:
(1) at a meeting called for such purpose or,
(2) by the written consent of the shareholders in lieu of a meeting provided that shareholders holding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted consent to such action in writing.
ARTICLE XIV – DESIGNATION OF SERIES A PREFERRED STOCK
A. DESIGNATION OF SERIES; RANK. Pursuant to the Wyoming Business Corporations Act, the shares of the series of preferred stock of the Corporation designated in this Article shall be designated as the “Series A Preferred Stock” (the “Series A Preferred Stock”) and the number of shares initially constituting such series shall be Ten Million (10,000,000) shares.
B. DIVIDENDS. Dividends on the Series A Preferred Stock may be declared by the Board of Directors and paid out of any funds legally available therefor at such times and in such amounts as the Board of Directors shall determine.
C. VOTING RIGHTS. Except as otherwise required by law, the holders of Series A Preferred Stock shall be entitled to notice of any stockholders’ meeting and to vote as a single class upon any matter submitted to the stockholders for a vote including election of directors to the Board of Directors, subject to the voting rights of the holders of Common Stock to elect two (2) directors to the Corporation’s Board of Directors.
D. AMENDMENTS TO ARTICLES AND BYLAWS. So long as the Series A Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote of the holders of at least majority of all outstanding shares of Series A Preferred Stock, voting separately as a class: (i) amend, alter or repeal any provision of the Articles of Incorporation or the Bylaws of the Corporation so as to adversely affect the designations, preferences, limitations and relative rights of the Series A Preferred Stock or (ii) effect any reclassification of the Series A Preferred Stock.
E. AMENDMENT OF RIGHTS OF PREFERRED STOCK. The Corporation shall not, without the affirmative vote of the holders of at least majority of all outstanding shares of the Series A Preferred Stock, amend, alter or repeal any provision of this Article, PROVIDED, HOWEVER, that the Corporation may, by any means authorized by law and without any vote of the holders of shares of the Series A Preferred Stock, make technical, corrective, administrative or similar changes in this Article that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of the Series A Preferred Stock.
F. CONVERSION RIGHTS. Shares of Class A Preferred Stock are not convertible into any other class or series of stock.
G. REDEMPTION RIGHTS. The shares of the Series A Preferred Stock shall have no redemption rights.
H. PROTECTIVE PROVISIONS. So long as any shares of Series A Preferred Stock are outstanding, this Corporation shall not without first obtaining the approval (by written consent, as provided by law) of the Holders of at least 70% of the then outstanding shares of Series A Preferred Stock, voting together as a class, except as otherwise provided for in this Designation:
(a) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock;
(b) Effect an exchange, reclassification, or cancellation of all or a part of the Series A Preferred Stock, excluding a reverse stock split or forward stock split;
(c) Effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series A Preferred Stock; or
(d) Alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation.
PROVIDED, HOWEVER, that the Company may, by any means authorized by law and without any vote of the Holders of shares of the Series A Preferred Stock, make technical, corrective, administrative or similar changes in this Article that do not, individually or in the aggregate, adversely affect the rights or preferences of the Holders of shares of the Series A Preferred Stock.
I. MISCELLANEOUS.
(a) The headings of the various sections and subsections of this Article are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Article.
(b) Whenever possible, each provision of this Article shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Article. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Article would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.
(c) Except as may otherwise be required by law, the shares of the Series A Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in these Articles.
ARTICLE XV CONFLICTING INTEREST TRANSACTIONS
No act, contract, or other transaction between the Corporation and one or more of its directors, officers, or employees, or between the Corporation and any corporation or association of which one or more of this Corporation’s officers, directors, or employees are in any way interested, shall be affected or invalidated in any way because of such fact; provided, that such fact shall have been known to or disclosed to the Board of Directors of the Corporation prior to its authorization of such act, contract or other transaction. Any director or directors of the Corporation so interested may be present and may be counted in determining the existence of a quorum at any meeting of the Board of Directors which authorized or ratified such act, contract, or other transaction, and such director or directors may vote thereat with like force and effect as if they were not interested.
3. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the Board of Directors in accordance with the laws of the state of Wyoming.
4. The foregoing Amended and Restated Certificate of Incorporation has been duly approved by the required written consent of Shareholders in accordance with the laws of the state of Wyoming. The number of shares voting in favor of the Amended and Restated Certificate of Incorporation were 11,827,660 common shares and 30,000 Series A Preferred Shares, representing 69.37% of the aggregate issued and outstanding common and preferred stock of the Corporation, representing 69.32% of the aggregate issued and outstanding common stock of the Corporation and representing 100% of the aggregate issued and outstanding preferred stock of the Corporation. The percentage of vote required for each class was more than 50.1% and the percentage of vote required for the classes voting together as a single class was more than 50.1%.
SIGNATURE
IN WITNESS WHEREOF, I have hereunto set my hands this 4th day of January, 2022 hereby declaring and certifying that the facts stated hereinabove are true.
 | ||
| By: | Martin Wesley | |
| Its: | President |
Exhibit 1A-2B
AMENDED AND RESTATED BYLAWS
OF
KOLABORATION VENTURES CORPORATION
(A WYOMING CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Kolaboration Ventures Corporation (the “Corporation”) in the State of Wyoming shall be 30 N. Gould Street, Suite N, Sheridan, Wyoming 82801, or in such other location as the Board of Directors of the Corporation (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of California, as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS’ MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the Corporation may be held at such place, either within or without the State of Wyoming, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the applicable provisions of the Wyoming Business Corporation Act (the “Act”).
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the Corporation’s notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section.
BYLAWS KOLABORATION VENTURES CORPORATION 1 |
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Section, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, (ii) such other business must be a proper matter for stockholder action under the Act and applicable law, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (i) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-4(d) thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (b) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (c) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).
(c) Notwithstanding anything in the second sentence of paragraph (b) of this Section 5 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 (or elected or appointed pursuant to Article IV of these Bylaws) shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
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(e) Notwithstanding the foregoing provisions of this Section, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, stockholders must provide notice as required by the regulations promulgated under Exchange Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation proxy statement pursuant to Rule 14a-8 under Exchange Act.
(f) For purposes of this Section, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the President, (iv) the Board of Directors pursuant to a resolution adopted by directors representing a quorum of the directors then serving on the Board of Directors or (v) by the holders of shares entitled to cast not less than fifty percent (50%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. Any action required to be taken at any special meeting or which may be taken without a meeting, without prior notice and without a vote, if a consent or consents, setting forth the action so taken, shall be signed by the Board of Directors or holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting.
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, to the Chairman of the Board of Directors, the Chief Executive Officer, the President, or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his or her attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
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Section 8. Quorum and Manner of Voting. At all meetings of stockholders except for: (a) meetings at which directors are to be elected; or (b) where otherwise provided by statute or by the Certificate of Incorporation, the Amended and Restated Articles of Incorporation or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding preferred shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, or by the Certificate of Incorporation the Amended and Restated Articles of Incorporationor these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the outstanding preferred shares of stock present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. At all meetings of stockholders at which directors are to be elected, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding preferred shares shall constitute a quorum. Two (2) Directors shall be elected by a plurality of the votes of the common shares. All other board seats open for election shall be elected by a plurality of the votes of the preferred shares. Where a separate vote by a class or classes or series is required, except as otherwise provided by the statute or by the Certificate of Incorporation the Amended and Restated Articles of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation, the Amended and Restated Articles of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of outstanding shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. Except with respect to the election of two (2) directors to the Board of Directors or as required under the Wyoming Business Corporation Act, the holders of the common shares shall not have any voting rights. Any and all matters entitled to a vote of the stockholders shall be taken by action of the holders of the preferred shares as set forth herein.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting pursuant to the Certificate of Incorporation, these Bylaws or applicable law. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
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Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the Corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Wyoming law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting (including consent provided pursuant to Section 13) shall have the following effect: (i) if only one (1) votes, his or her act binds all; (ii) if more than one (1) votes and the vote is not evenly split, the act of the majority so voting binds all; (iii) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the state and federal courts of Wyoming for relief so provided in the Act. If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (iii) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
Section 13. Action without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
(b) Every written consent or electronic transmission shall bear the date of signature of each stockholders who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the Corporation by delivery to its principal office in the State of California, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.
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(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the Corporation as provided in the Act. If the action to which the stockholders consented is such as would have required the filing of a certificate under any section of the Act if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with the Act.
(d) An electronic mail, facsimile or other electronic transmission consenting to an action to be taken and transmitted by a stockholders or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Section, provided that any such electronic mail, facsimile or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (i) that the electronic mail, facsimile or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholders or proxyholder or authorized person or persons transmitted such electronic mail, facsimile or electronic transmission. The date on which such electronic mail, facsimile or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic mail, facsimile or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its principal office in the State of California, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by electronic mail, facsimile or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer, or, if a Chief Executive Officer has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the Chief Executive Officer, shall act as secretary of the meeting.
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(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office. The authorized number of directors of the Corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient.
Section 16. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Term of Directors.
(a) As set forth in the Amended and Restated Articles of Incorporation, the holder(s) of any preferred shares shall have exclusive voting rights to elect directors at each annual meeting of stockholders to serve until the next annual meeting of stockholders and his or her successor is duly elected and qualified or until his or her death, resignation, or removal subject to the voting rights of the common shares to elect two (2) directors to the Board of Directors.. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. As of the effective date of the Amended and Restated Articles of Incorporation and continuing during the period in which there are any holders of preferred shares, holders of common stock shall not be entitled to vote for more than two (2) directors to the Board of Directors.
(b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the Corporation is subject to Section 17-19-725 of the Act. During such time or times that the Corporation is subject to Section 17-19-725 of the Act, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one (1) candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
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Section 18. Vacancies. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director; provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under these Bylaws in the case of the death, removal, or resignation of any director.
Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. Removal.
(a) Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the preferred shares; or (ii) without cause by the affirmative vote of the holders of a majority of the preferred shares.
(b) During such time or times that the Corporation is subject to Section 17-16-808 of the Act, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of a majority of the preferred shares; provided, however, that unless the entire Board of Directors is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election in which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected.
Section 21. Meetings
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Wyoming which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, or by electronic mail, or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors.
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(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Wyoming whenever called by the Chairman of the Board of Directors, the Chief Executive Officer (if a director), the President or any director.
(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors then serving; provided, however, that such number shall never be less than one-third (1/3) of the total number of directors authorized except that when one (1) director is authorized, then one (1) director shall constitute a quorum. At any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. If the Certificate of Incorporation provides that one (1) or more directors shall have more or less than one vote per director on any matter, every reference in this Section to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
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Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Act to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the Corporation.
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Committee Composition and Term. The Board of Directors, subject to any requirements of any outstanding class or series of stock, if any, and the provisions of paragraphs (a) or (b) of this Section may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his or her death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal, or increase in the number of members of the committee. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she, or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
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(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer (if a director), or if the Chief Executive Officer is not a director or is absent, the President, or if the President is absent, the most senior Vice President (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his or her absence, any Assistant Secretary directed to do so by the Chief Executive Officer or President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the Corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one (1) or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected or appointed from time to time by the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one (1) person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected or appointed and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors, or by the Chief Executive Officer or other officer if so authorized by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no Chief Executive Officer and no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in paragraph (c) of this Section.
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(c) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The Chief Executive Officer shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) Duties of President. In the absence or disability of the Chief Executive Officer or if the office of Chief Executive Officer is vacant, the President shall preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. If the office of Chief Executive Officer is vacant, the President shall be the chief executive officer of the Corporation (including for purposes of any reference to Chief Executive Officer in these Bylaws) and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(e) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Chief Executive Officer may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time.
(g) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. The Chief Executive Officer may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller, to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time.
Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
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Section 30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the Chief Executive Officer or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written or electronic consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name, or to enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. All checks and drafts drawn on banks or other depositaries of funds to the credit of the Corporation or on special accounts of the Corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other Corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. The shares of stock in the Corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock, if any, of the Corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of shares of stock in the Corporation represented by certificate shall be entitled to have a certificate signed by or in the name of the Corporation by any two authorized officers of the Corporation, including but not limited to the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him or her in the Corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue.
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Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The Corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the Corporation in such manner as it shall require or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Restrictions on Transfer.
(a) No holder of any of the shares of stock in the Corporation may sell, transfer, assign, pledge, or otherwise dispose of or encumber any of the shares of stock in the Corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise (each, a “Transfer”) without the prior written consent of the Corporation, upon duly authorized action of its Board of Directors. The Corporation may withhold consent for any legitimate corporate purpose, as determined by the Board of Directors. Examples of the basis for the Corporation to withhold its consent include, without limitation, (i) if such Transfer to individuals, companies, or any other form of entity identified by the Corporation as a potential competitor or considered by the Corporation to be unfriendly; or (ii) if such Transfer increases the risk of the Corporation having a class of security held of record by two thousand (2,000) or more persons, or five hundred (500) or more persons who are not accredited investors (as such term is defined by the SEC), as described in Section 12(g) of the Exchange Act and any related regulations, or otherwise requiring the Corporation to register any class of securities under Exchange Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the Corporation in connection with the initial issuance of such shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, internet site, or similar method of communication, including without limitation any trading portal or internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer represents a Transfer of less than all of the shares then held by the stockholder and its affiliates or is to be made to more than a single transferee.
(b) If a stockholder desires to Transfer any shares, then the stockholder shall first give written notice thereof to the Corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. Any shares proposed to be transferred to which Transfer the Corporation has consented pursuant to paragraph (a) of this Section will first be subject to the Corporation’s right of first refusal located in Section 46 of these Bylaws.
(c) Any Transfer, or purported Transfer, of shares not made in strict compliance with this Section shall be null and void, shall not be recorded on the books of the Corporation and shall not be recognized by the Corporation.
(d) The foregoing restriction on Transfer shall terminate upon (i) the date securities of the Corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act of 1933, as amended (the “1933 Act”) or; (ii) the date securities of the Corporation are declared qualified by the SEC under the exemption permitted by Regulation A or Regulation A+ under the 1933 Act.
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(e) The certificates representing shares of stock in the Corporation shall bear on their face the following legend so long as the foregoing Transfer restrictions are in effect:
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A TRANSFER RESTRICTION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”
Section 37. Fixing Record Dates.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day immediately preceding the day on which notice is given, or if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of stockholder of record entitled to notice of or to vote at a meeting of stockholder shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Wyoming, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
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Section 38. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Wyoming.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates (covered in Section 34 of these Bylaws), may be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Employees and Other Agents.
(a) Directors and Executive Officers. The Corporation shall indemnify its directors and executive officers (for the purposes of this Article, “executive officers” shall have the meaning defined in Rule 3b-7 promulgated under Exchange Act) to the fullest extent not prohibited by the Act or any other applicable law; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; provided, further, that the Corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Act or any other applicable law or (iv) such indemnification is required to be made under paragraph (d) of this Section 43.
(b) Other Officers, Employees and Other Agents. The Corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Act or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The Corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or executive officer of the Corporation, or is or was serving at the request of the Corporation as a director or executive officer of another Corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding; provided, however, that, if the Act requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section, no advance shall be made by the Corporation to an executive officer of the Corporation (except by reason of the fact that such executive officer is or was a director of the Corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation.
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(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Section shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and the director or executive officer. Any right to indemnification or advances granted by this Section to a director or executive officer or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the Corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Act or any other applicable law for the Corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the Corporation) for advances, the Corporation shall be entitled to raise as a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his or her conduct was lawful. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Act or any other applicable law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Section 43 shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Act or any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Section 43 shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors, and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Act, or any other applicable law, the Corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section.
(h) Amendments. Any repeal or modification of this Section shall only be prospective and shall not affect the rights under these Bylaws in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation.
(i) Saving Clause. If this Section or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of these Bylaws that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the Corporation shall indemnify each director and executive officer to the full extent under applicable law.
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(j) Certain Definitions. For the purposes of this Section 43, the following definitions shall apply:
(1) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the “Corporation” shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee, or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a director, officer, employee, or agent of another Corporation, partnership, joint venture, trust, or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving Corporation as he or she would have with respect to such constituent Corporation if its separate existence had continued.
(4) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the Corporation shall include, without limitation, situations where such person is serving at the request of the Corporation as, respectively, a director, executive officer, officer, employee, trustee, or agent of another Corporation, partnership, joint venture, trust, or other enterprise.
(5) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee, or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Section.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 of these Bylaws. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph, or telex, or by electronic mail or other electronic means.
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(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in paragraph (a) of this Section, or as provided for in Section 21 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Act, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under the Act, any notice given under the provisions of the Act, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholder at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the Corporation within sixty (60) days of having been given notice by the Corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the Corporation.
ARTICLE XIII
AMENDMENTS
Section 45. Amendments. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law, by the Certificate of Incorporation, the Amended and Restated Articles of Incorporation, such action by stockholders shall require the affirmative vote of the holders of a majority of the voting power of the outstanding preferred shares.
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ARTICLE XIV
RIGHT OF FIRST REFUSAL
Section 46. Right of First Refusal. No stockholder shall Transfer any of the shares of stock in the Corporation, except by a Transfer which meets the requirements set forth in Section 36 and below:
(a) If the stockholder desires to Transfer any of his shares of stock, then the stockholder shall first give the notice specified in Section 36(b) of these Bylaws and comply with the provisions therein.
(b) For thirty (30) days following receipt of such notice, the Corporation shall have the option to purchase of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the Corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other Transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the Corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d) of this Section.
(c) The Corporation may assign its rights hereunder.
(d) In the event the Corporation or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder’s notice, the Secretary of the Corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the Corporation receives said transferring stockholder’s notice; provided, however, that if the terms of payment set forth in said transferring stockholder’s notice were other than cash against delivery, the Corporation or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholder’s notice.
(e) In the event the Corporation or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder’s notice, said transferring stockholder may, subject to the Corporation’s approval and all other restrictions on Transfer pursuant to Section 36 of these Bylaws, within the sixty (60)-day period following the expiration or waiver of the option rights granted to the Corporation or its assignees(s) herein, Transfer the shares specified in said transferring stockholder’s notice which were not acquired by the Corporation or its assignees(s) as specified in said transferring stockholder’s notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of these Bylaws in the same manner as before said Transfer.
(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the right of first refusal in paragraph (a) of this Section:
(1) A stockholder’s Transfer of any or all shares held either during such stockholder’s lifetime or on death by will or intestacy to such stockholder’s immediate family or to any custodian or trustee for the account of such stockholder or such stockholder’s immediate family or to any limited partnership or limited liability company of which the stockholder, members of such stockholder’s immediate family or any trust for the account of such stockholder or such stockholder’s immediate family will be the general or limited partner(s) of such partnership or the controlling member(s) of such limited liability company. “Immediate family” as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such Transfer;
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(2) A stockholder’s bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent Transfer of said shares by said institution shall be conducted in the manner set forth in these Bylaws;
(3) A stockholder’s Transfer of any or all of such stockholder’s shares to the Corporation or to any other stockholder of the Corporation;
(4) A stockholder’s Transfer of any or all of such stockholder’s shares to a person who, at the time of such Transfer, is an officer or director of the Corporation;
(5) A corporate stockholder’s Transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares, or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder;
(6) A corporate stockholder’s Transfer of any or all of its shares to any or all of its stockholders; or
(7) A Transfer by a stockholder which is a limited or general partnership, or limited liability company, to any or all of its partners or former partners, or limited liability company members or former limited liability company members, in accordance with partnership interests and limited liability company interests, respectively.
In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this Section and the transfer restrictions in Section 36, and there shall be no further Transfer of such stock except in accord with this Section and the transfer restrictions in Section 36.
(g) The provisions of these Bylaws may be waived with respect to any Transfer either by the Corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). These Bylaws may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation.
(h) Any Transfer, or purported Transfer, of securities of the Corporation shall be null and void unless the terms, conditions, and provisions of these Bylaws are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate upon (i) the date securities of the Corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act of 1933, as amended; or (ii) the date securities of the Corporation are declared qualified by the SEC pursuant to Regulation A or Regulation A+ under the 1933 Act.
(j) The certificates representing shares of stock in the Corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”
(k) To the extent this Section conflicts with any written agreements between the Company and the stockholder attempting to Transfer shares, any such written agreements shall control.
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ARTICLE XV
LOANS TO OFFICERS
Section 47. Loans to Officers. Except as otherwise prohibited under applicable law, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee, or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock in the Corporation. Nothing in these Bylaws shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
ARTICLE XVI
MISCELLANEOUS
Section 48. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Section, the Board of Directors shall cause an annual report to be sent to each stockholder of the Corporation not later than one hundred twenty (120) days after the close of the Corporation’s fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the Corporation that such statements were prepared without audit from the books and records of the Corporation. When there are more than one hundred (100) stockholders of record of the Corporation’s shares, and in accordance with the Act, additional information as required shall also be contained in such report; provided, however, that if the Corporation has a class of securities registered under Section 12 of the Exchange Act, the Exchange Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than one hundred (100) holders of record of the Corporation’s shares, the requirement of sending of an annual report to the stockholders of the Corporation is hereby expressly waived.
Section 49. Forum. Unless the Corporation consents in writing to the selection of an alternative forum, California shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders; (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the Act, the Certificate of Incorporation or the Bylaws of the Corporation; or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine.
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Exhibit 1A-3A
KOLABORATION VENTURES CORPORATION
COMMON SHAREHOLDER
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
September 30, 2021
| COMMON SHAREHOLDER PIGGYBACK REGISTRATION RIGHTS AGREEMENT |
TABLE OF CONTENTS
| RECITALS | 1 | ||
| 1. | REGISTRATION RIGHTS | 1 | |
| 1.1 | Definitions | 1 | |
| 1.2 | Piggyback Registrations | 2 | |
| 1.3 | Obligations of the Company | 3 | |
| 1.4 | Furnish Information | 4 | |
| 1.5 | Delay of Registration | 4 | |
| 1.6 | Indemnification | 4 | |
| 1.7 | “Market Stand-Off” Agreement | 7 | |
| 1.8 | Rule 144 Reporting | 7 | |
| 1.9 | Termination of the Company’s Obligations | 8 | |
| 1.10 | Limitations on Subsequent Registration Rights | 8 | |
| 2. | ASSIGNMENT AND AMENDMENT | 8 | |
| 2.1 | Assignment | 8 | |
| 2.2 | Amendment of Rights | 8 | |
| 2.3 | New Common Shareholders | 8 | |
| 3. | GENERAL PROVISIONS | 8 | |
| 3.1 | Notices | 8 | |
| 3.2 | Entire Agreement | 9 | |
| 3.3 | Governing Law | 9 | |
| 3.4 | Severability | 9 | |
| 3.5 | Third Parties | 9 | |
| 3.6 | Successors and Assigns | 9 | |
| 3.7 | Captions | 9 | |
| 3.8 | Counterparts | 9 | |
| 3.9 | Costs and Attorneys’ Fees | 9 | |
| 3.10 | Adjustments for Stock Splits and Certain Other Changes | 9 | |
| 3.11 | Aggregation of Stock | 9 | |
KOLABORATION VENTURES CORPORATION
COMMON SHAREHOLDER PIGGYBACK REGISTRATION RIGHTS AGREEMENT
This Common Shareholder Piggyback Registration Rights Agreement (“Agreement”) is made and entered into as of September 30, 2021 by and among Kolaboration Ventures Corporation, a Wyoming corporation (“Company”) and the holders of the Company’s common stock (“Common Stock”) listed on Exhibit A hereto. The holders of Common Stock will be referred to herein as “Common Shareholders” and each individually as a “Common Shareholder.”
RECITALS
WHEREAS, this Agreement is being executed and delivered pursuant to the Contribution Agreement/Merger Agreement dated September 30, 2021 (“Contribution Agreement”/”Merger Agreement”) by and among the Company and the Common Shareholders.
WHEREAS, subject to the terms and conditions of the Contribution Agreement/Merger Agreement, the Company has agreed to grant Common Shareholders the piggyback registration rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:
AGREEMENT
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of Agreement:
Registration. “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended (“Securities Act”), and the declaration or ordering of effectiveness of such registration statement.
Registrable Securities. “Registrable Securities” means: (a) any and all shares of the Company’s Common Stock and (b) any shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, in exchange for or in replacement of, all such shares of Common Stock described in clause (a); excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which rights under this Section 1 are not assigned in accordance with this Agreement or any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Securities Act (“Excluded Shares”).
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Registrable Securities Then Outstanding. “Registrable Securities then Outstanding” will mean the number of shares of Common Stock which are Registrable Securities and (a) are then issued and outstanding or (b) are then issuable pursuant to the exercise or conversion of then outstanding and then exercisable options, warrants or convertible securities.
Holder. “Holder” or “Holders” means any person or persons owning of record Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any assignee of record of such Registrable Securities to whom rights under this Section 1 have been duly assigned in accordance with this Agreement; provided, however, the Company will in no event be obligated to register Common Stock.
SEC. “SEC” means the United States Securities and Exchange Commission.
1.2 Piggyback Registrations.
(a) Piggyback Registrations. The Company will notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any demand or Form S- 3 registration of the Company’s preferred shareholders or to any employee benefit plan or a corporate reorganization) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder will, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice will inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder will nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.
(b) Underwriting. If a registration statement under which the Company gives notice under this Section 1.2 is for an underwritten offering, then the Company will so advise the Holders of Registrable Securities. In such event, the right of any such Holder’s Registrable Securities to be included in a registration pursuant to this Section 1.2 will be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting will enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting will be allocated, first, to the Company, and second, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting will be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons will be deemed to be a single “Holder,” and any pro rata reduction with respect to such “Holder” will be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Holder,” as defined in this sentence.
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(c) Expenses. All expenses incurred in connection with a registration pursuant to this Section 1.2 (excluding underwriters’ and brokers’ discounts and commissions), including, without limitation all federal and “blue sky” registration and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one (1) counsel for the selling Holder or Holders will be borne by the Company.
1.3 Obligations of the Company. Whenever required to affect the registration of any Registrable Securities under this Agreement, the Company will, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days;
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration;
(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue-Sky laws of such jurisdictions as will be reasonably requested by the Holders, provided the Company will not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering (it being understood and agreed, as a condition to the Company’s obligations under this clause (e), each Holder participating in such underwriting will also enter into and perform its obligations under such an agreement);
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(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and
(g) Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a “comfort” letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.
1.4 Furnish Information. It will be a condition precedent to the obligations of the Company to take any action pursuant to Section 1.2 hereof that the selling Holders will furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as will be required to timely effect the registration of their Registrable Securities.
1.5 Delay of Registration. No Holder will have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are included in a registration statement under Section 1.2 hereof:
(a) By the Company. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (“Exchange Act”), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”):
(i) Any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto;
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(ii) The omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or
(iii) Any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, the indemnity agreement contained in this Subsection 1.6(a) will not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent will not be unreasonably withheld), nor will the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, the indemnity agreement contained in this Subsection 1.6(b) will not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent will not be unreasonably withheld; and provided further, the total amounts payable in indemnity by a Holder under this Subsection 1.6(b) in respect of any Violation will not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises.
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(c) Notice. Promptly after receipt by an indemnified party under this Section 1.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party will have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, an indemnified party will have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, will relieve such indemnifying party of any liability to the indemnified party under this Section 1.6, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability it may have to any indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (“Final Prospectus”), such indemnity agreement will not inure to the benefit of any person if a copy of the Final Prospectus (i) was furnished to the indemnified party and (ii) was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 1.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact this Section 1.6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 1.6; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; provided, however, in any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
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(f) Survival. The obligations of the Company and Holders under this Section 1.6 will survive the completion of any offering of Registrable Securities in a registration statement, and otherwise.
1.7 “Market Stand-Off” Agreement.
(a) Each Holder hereby agrees it will not, to the extent requested by the Company or an underwriter of securities of the Company, sell or otherwise transfer or dispose of or engage in any other transaction regarding any Registrable Securities or other shares of stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for up to one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, all executive officers and directors of the Company then holding Common Stock of the Company enter into similar agreements.
(b) In order to enforce the foregoing covenant, (i) the Company will have the right to place restrictive legends on the certificates representing the shares subject to this Section 1.7 and to impose stop transfer instructions with respect to the Registrable Securities and such other shares of stock of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period and (ii) the Holder agrees to execute the form of agreement requested by the Company and/or underwriter.
1.8 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to:
(a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(c) As long as a Holder owns any Registrable Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to the reporting requirements of the Exchange Act), a copy of the most recent annual or quarterly report of the Company and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Holder to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the Exchange Act).
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1.9 Termination of the Company’s Obligations. The Company will have no obligations pursuant to Section 1.2 with respect to: (a) any request or requests for registration made by any Holder on a date more than two (2) years after the closing date of the first firmly underwritten public offering of Common Stock of the Company pursuant to a Registration Statement filed with, and declared effective by, the SEC under the Securities Act, on the terms and conditions approved by the Company’s board of directors (an “Initial Public Offering”) or (b) any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Section 1.2 if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may be sold in a three-month period without registration under the Securities Act pursuant to Rule 144 under the Securities Act.
1.10 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company will not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that provides such holder or prospective holder with registration rights superior to the registration rights provided to the Common Shareholders pursuant to this Section 1.
2. ASSIGNMENT AND AMENDMENT.
2.1 Assignment. The assignment and transfer of Registrable Stock is governed by a Stockholders Agreement between the Company and the Common Stockholders of even date. No assignment is permitted unless made subject to the provisions of that agreement.
2.2 Amendment of Rights. Subject to Section 2.3, any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Common Shareholders (and/or any of their permitted successors or assigns) holding shares of Registrable Securities representing and/or convertible into a majority of all Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.2 will be binding upon each Common Shareholder, each Holder, each permitted successor or assignee of such Common Shareholder or Holder and the Company.
2.3 New Common Shareholders. Notwithstanding anything herein to the contrary, if additional parties purchase shares of Common Stock from the Company (each such person or entity, a “New Common Shareholder”), then each such New Common Shareholder will become a party to this Agreement as a “Common Shareholder” hereunder, without the need for any consent, approval or signature of any Common Shareholder when such New Common Shareholder has both: (a) purchased shares of Common Stock and paid the Company all consideration payable for such shares and (b) executed one or more counterpart signature pages to this Agreement as a “Common Shareholder,” with the Company’s consent.
3. GENERAL PROVISIONS.
3.1 Notices. Any notice, request or other communication required or permitted hereunder will be in writing and will be deemed to have been duly given if personally delivered, deposited in the U.S. mail by registered or certified mail, return receipt requested, postage prepaid, electronic-mail when receipt is electronically confirmed (a) if to a Common Shareholder, as set forth below the Common Shareholder’s name on the signature page of this Agreement, and (ii) if to the Company, to the address set forth below:
Kolaboration Ventures Corporation
183 Main Street
Rio Vista, CA 94571
Attention: Chuck Wesley
CFO
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Any party hereto (and such party’s permitted assigns) may by notice so given change its address for future notices hereunder. Notice will be deemed conclusively given when personally delivered or when deposited in the mail in the manner set forth above.
3.2 Entire Agreement. This Agreement, together with all the exhibits hereto, constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof.
3.3 Governing Law. This Agreement will be governed by and construed exclusively in accordance with the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, excluding that body of law relating to conflict of laws and choice of law.
3.4 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) will be excluded from this Agreement and the balance of this Agreement will be interpreted as if such provision(s) were so excluded and will be enforceable in accordance with its terms.
3.5 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement.
3.6 Successors and Assigns. Subject to the provisions of Section 2.1, the provisions of this Agreement will inure to the benefit of, and will be binding upon, the successors and permitted assigns of the parties hereto.
3.7 Captions. The captions to sections and subsections of this Agreement have been inserted for identification and reference purposes only and will not be used to construe or interpret this Agreement.
3.8 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Executed counterparts of this Agreement may be delivered by facsimile transmission or by delivery of a scanned counterpart in portable document format (PDF) by e-mail. The signatures in the facsimile or PDF data file will be deemed to have the same force and effect as if the manually signed counterpart had been delivered to the other party in person.
3.9 Costs and Attorneys’ Fees. In the event any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party will recover all of such party’s costs and attorneys’ fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom.
3.10 Adjustments for Stock Splits and Certain Other Changes. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock of the Company, then, upon the occurrence of any subdivision, combination or stock dividend of such Common Stock, the specific number of shares so referenced in this Agreement will automatically be proportionally adjusted to reflect the effect on the outstanding shares of such Common Stock by such subdivision, combination or stock dividend.
3.11 Aggregation of Stock. All shares held or acquired by affiliated entities or persons will be aggregated together for the purpose of determining the availability of any rights under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Common Shareholder Piggyback Registration Rights Agreement as of the date and year first above written.
| COMPANY | ||
| Kolaboration Ventures Corporation, a Wyoming corporation | ||
| By: |  | |
| Martin Wesley, President and Chief Executive Officer | ||
COMMON SHAREHOLDER PIGGYBACK REGISTRATION RIGHTS AGREEMENT
COMMON SHAREHOLDER
| Signed: |
| Printed Name: |
| Title (if applicable): |
| Address: | ||
[COUNTERPART SIGNATURE PAGE TO COMMON SHAREHOLDER PIGGYBACK REGISTRATION RIGHTS AGREEMENT]
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EXHIBIT A COMMON STOCKHOLDERS
| Martin C. Wesley Revocable Trust Dated June 30, 2021 | |
| Charles M. Wesley Revocable Trust Dated January 24, 2019 | |
| Andrew Wesley | |
| Joann Henderson | |
| Kyle Henderson | |
| Garet Zook | |
| Owen Hennefer | |
| Michael Douglas | Jeffrey Hamlin |
| Gregory Douglas | Retyrement LLC |
| Geoffrey Shenk | Midnight Sugar Trading Co. |
| Charlie Vezzali | Alexis & Ryan Housh |
| Rob Cooper | Mark Silva & Karina Santos |
| Josh Vining | Christopher Silva |
| Deborah Braaten | RMN 1008 LLC |
| Susanne Bentley | Joseph Silva & Deborah Silva |
| Matthew Peters | Emmanuel Galan |
| Cindy Vining | Jerrold W. Crawford |
| Jon Dunckel | Robert & Jeanne Yeagley |
| Bryan Smith | |
| Steve Smith | |
| El Capitan Ventures LLC Series C | |
| David M Perry and Andrea L Perry | |
| Henry W. Ayer III, Living Trust | |
| David Lee Brandt | |
| Brad & Katie Runge | |
| Steve R. Cunha & Laura R. Cunha Family Trust UTD 3/14/2003 | |
| Pello & Mary Walker | |
| Pamela Bayer | |
| Monique E. Young Trust Dated January 4, 2013 | |
| Mark J Corcoran & Karin L Scholdberg | |
| Loretta Young | |
| Maria Bazinet | |
| Aviation Hangar Services LLC | |
| Elena Dolgoborodova | |
| Jeremy Newberry | |
| Kaiser Family Trust | |
| Aaron Schneider | |
COMMON SHAREHOLDER PIGGYBACK REGISTRATION RIGHTS AGREEMENT
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Exhibit 1A-3B
Stockholders’ Agreement
THIS STOCKHOLDERS’ AGREEMENT (“Agreement”) made this 30th day of September 2021 by and among Martin Wesley, an individual residing at 11670 Byron Hwy, Brentwood, CA 94513 (“First Stockholder”), Andrew Wesley, an individual residing at 1751 Orchard Lane, Brentwood, CA 94513 (“Second Stockholder”), and Charles Wesley, an individual residing at 16 Wood Duck Court, Copperopolis, CA 95228 (“Third Stockholder”) (the First Stockholder, the Second Stockholder and the Third Stockholder are hereinafter referred to individually as a a “Founding Stockholder” and collectively as the “Founding Stockholders”), the Stockholder whose name appears at the bottom of the Signature Page of this Agreement hereinafter referred to as “Stockholder” and Kolaboration Ventures Corporation, a corporation organized and existing under the laws of Wyoming with its principal place of business at 183 Main Street, Rio Vista, CA 94571 (the “Corporation”).
WHEREAS, the Founding Stockholders and the Stockholder are the owners of shares of the capital stock (“Stock”) of the Corporation.
WHEREAS, the Founding Stockholders and Stockholder believe it to be in their best interests and in the best interests of the Corporation that the transfer of such stock be restricted.
IT IS THEREFORE AGREED:
1. All Shares Subject to Agreement. All shares of Stock at any time held or owned by the Stockholder or by his legal representative shall be subject to this Agreement and to all the obligations and restrictions hereof.
2. Restriction on Transfers. No Stockholder shall voluntarily or involuntarily transfer or encumber any of the shares of Stock at any time held, owned, or hereafter acquired by him, or any interest therein, except in accordance with and subject to this Agreement. When used in this Agreement “transfer” shall mean sell, assign, convey, donate, bequeath, transfer or otherwise dispose (otherwise than by an involuntary transfer) and “encumber” shall mean mortgage, pledge, hypothecate or otherwise encumber or contract to encumber.
3. Voluntary Transfer. No Stockholder shall voluntarily transfer or encumber any shares of Stock unless such Stockholder obtains the prior written consent of all the Founding Stockholders which consent may be withheld for any reason or no reason. No Founding Stockholder shall voluntarily transfer or encumber any shares of Stock unless such Founding Stockholder obtains the prior written consent of all other Founding Stockholders which consent may be withheld for any reason or no reason.
4. Right of First Refusal. If a Stockholder (the “Selling Stockholder”) desiring to dispose of a portion of his shares of Stock in the Corporation shall receive a bona fide offer in writing from a financially capable purchaser to purchase all such portion of the Selling Stockholder’s shares of Stock, the Selling Stockholder shall give written notice to the other Stockholders and the Corporation of his intention to make such transfer stating the name and address of the proposed transferee, the number of shares of Stock (the “Offered Stock”) then held or owned by the Selling Stockholder and the price to be paid therefor and the terms of payment.
The Corporation, upon receipt of such notice of transfer, shall have the option (“First Option”) to purchase all, but not less than all, of the offered Stock at the price and upon the terms bona fide offered by the proposed transferee. The First option shall be exercisable within the 15-day period (“First Option Period”) after the date of receipt of such notice and shall be exercised by the sending of a notice to the Selling stockholder with a copy to the Founding Stockholders. In determining whether or not the Corporation shall exercise the First Option, the Selling Stockholder shall vote the Offered Stock as directed by a vote of the Founding Stockholders.
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In the event the Corporation does not exercise the First Option, then the Founding Stockholders shall have the option, exercisable upon written notice to the Selling Stockholder within 15 days after the expiration of the First Option Period (the “Second Option Period”), to purchase pro rata, in proportion to their respective holdings of Stock, all, but not less than all, of the Offered Stock at the price and upon the terms bona fide offered by the proposed transferee. In the event any of the Founding Stockholders do not elect to purchase his proportionate share, the other Founding Stockholders who elected to purchase the Offered Stock shall have the option to purchase the shares of Stock which such other Founding Stockholders did not elect to purchase, pro rata, in proportion to their respective holdings of Stock or in any other percentage which they decide.
If the Corporation and the Founding Stockholders elect not to, or fail to, exercise their options to purchase all the Offered Stock, the Selling Stockholder may make the proposed transfer of the Offered Stock to the proposed transferee in accordance with the terms of the bona-fide offer within the 15-day period following the expiration of the Second Option Period. The proposed transferee shall become a party to this Agreement with respect to the Offered stock and shall execute a duplicate of this Agreement. If the proposed transfer of the Offered Stock is not consummated within such 15-day period, the terms and conditions of this Section shall again apply to the Offered Stock.
4. Involuntary Transfers. An “involuntary transfer” shall mean any transaction, proceeding or action by or in which any Stockholder (but not a Founding Stockholder) shall be deprived or divested of any right, title or interest in or to any of his Stock (including, without limiting the generality of the foregoing, seizure under levy of attachment or execution, transfer in connection with bankruptcy or other court proceeding to a trustee in bankruptcy or receiver, or any transfer to a state or to a public officer or agency pursuant to any statute pertaining to escheat or abandoned property) other than one occasioned by the death or the incompetence or incapacity of a Stockholder.
If there shall be an involuntary transfer of any shares of Stock of any Stockholder to any person:
a. The transferee shall take and hold the shares of Stock subject to this Agreement and to all the obligations and restrictions upon the Stockholder from whom the shares of Stock was acquired, and shall observe and comply with this Agreement and with such obligations and restrictions.
b. The Stockholder from whom said Stock was transferred (the “Transferring Stockholder”), or the transferee, shall forthwith give notice to the Founding Stockholders and Stockholders and the Corporation stating when the involuntary transfer occurred, the reason therefor, the number of shares transferred (the “Transferred Stock”), and the address and capacity of the transferee. The Corporation, upon receipt of such notice of transfer, shall have the option (“First Option”) to purchase all, but not less than all, of the Transferred Stock and any shares of Stock remaining in the ownership of Transferring Stockholder (the “Remaining Stock”), at a price equal to the net worth (assets less liabilities) at book value per share of Stock (the “Involuntary Transfer Purchase Price”), valued as of the date of the involuntary transfer and determined by the regularly retained accountant of the Corporation. The First Option shall be exercisable within the 15-day period (“First Option Period”) after the date of receipt of such notice and shall be exercised by the sending of notices to the transferee and Transferring Stockholder with a copy to the Founding Stockholders other Stockholders. In determining whether or not the Corporation shall exercise the First Option, the transferee shall vote the Transferred Stock and the Transferring Stockholder shall vote the Remaining Stock as directed by a vote of the Founding Stockholders.
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In the event the Corporation does not exercise the First Option, the Founding Stockholders shall have the option (“Second Option”), exercisable upon written notice within 15-days after the expiration of the First Option Period (the “Second Option Period”) to purchase, pro rata, in proportion to their respective holdings of Stock, all, but not less than all, of the Transferred Stock and the Remaining Stock at the Involuntary Transfer Purchase Price. In the event any of the Founding Stockholders do not elect to purchase their proportionate share, the other Founding Stockholders who elected to purchase the Transferred Stock and Remaining Stock shall have the option to purchase, pro rata, in proportion to their respective holdings of Stock or in any other percentage which they decide, that portion of the Transferred Stock and Remaining Stock which such other Founding Stockholders elected not to purchase.
c. Payment for the Transferred Stock and Remaining Stock purchased shall be made in five (5) consecutive annual installments. The first installment shall be paid by the Corporation or the purchasing Founding Stockholders, as the case may be, to the transferee and Transferring Stockholder not later than 15- days after the expiration of the Second Option Period. The remaining four (4) installments of the Involuntary Transfer Purchase Price shall be paid, together with interest at the highest U.S. Money Center Commercial prime rate for corporate loans as reported in the Money Rates Section of the Wall Street Journal, New York City edition, adjusted from time to time on a daily basis (“Prime Rate”) on the unpaid balance, and evidenced by promissory notes in the form of Schedule B delivered to the transferee and the Transferring Stockholder by the Corporation or the purchasing Stockholders, as the case may be, contemporaneously with the first installment.
d. If the Corporation and the Founding Stockholders elect not to, or fail to, exercise their options to purchase the Transferred Stock and Remaining Stock, transferee shall become a party to this Agreement with respect to the Transferred Stock and shall execute a duplicate of this Agreement and the Transferring Stockholder shall continue to be subject to the terms of this Agreement with respect to the Remaining Stock in the same manner as if no involuntary transfer had been made.
5. Reserved.
6. Death of a Stockholder.
a. Upon the death of any Founding Stockholder or Stockholder, the estate of the decedent Stockholder shall accept all of the decedent Stockholder’s shares of Stock in the Corporation.
b. Transfer upon the event of the death of a Stockholder is not a “transfer” as used herein and is not restricted.
c. The estate of the decedent shall become a party to this Agreement with respect to the inherited shares and shall execute a duplicate of this Agreement and shall continue to be subject to the terms of this Agreement with respect to the shares in the same manner as if no transfer had been made.
7. Reserved.
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8. Purchase Price.
The purchase price per share of Stock to be paid on any purchase pursuant to Section 6 shall be the Agreed Value (as determined in Section 9) or if no Agreed Value has been determined by the Founding Stockholders, the purchase price shall be calculated as determined by the Board of Directors of the Corporation after consultation with its professional advisors, including attorneys and accountants.
9. Agreed Value. The Board of Directors of the Corporation may at any time fix an agreed value (the “Agreed Value”) of a share of Stock by a Certificate of Agreed Value signed by all the Stockholders in the form of Exhibit D. If at any time when it becomes necessary to determine the value of a share of Stock and a Certificate of Agreed Value is in existence and such Certificate of Agreed Value is dated within one (1) year of the date as of when the value is to be determined, then the Agreed Value set forth in such certificate shall be conclusive as the value and shall be accepted as the value as of the date on which the value shall be required or made for the purposes of Section 8. In no event shall a certificate of agreed value be effective unless signed by all the Board of Directors. The Board of Directors may at any time execute a new certificate of agreed value which shall automatically replace all prior certificates of agreed value, and in no event shall any but the last certificate of agreed value be effective, if at all, for the purposes herein specified.
10. Reserved.
11. Restrictive Legend. An executed counterpart of this Agreement shall be filed with the Secretary of the Corporation and kept with the records of the Corporation at its office. An officer of the Corporation shall endorse on the face or back of each certificate of Stock, heretofore or hereafter issued to any Stockholder, legends substantially as follows:
The Stock represented by the within certificate is issued, accepted and held subject to the terms of a Stockholders’ Agreement dated September , 2021. A copy of such Agreement has been filed at the office of the Corporation. This Certificate and the stock represented hereby are not subject to sale, assignment, transfer, encumbrance or other disposition, except as provided in such Agreement; to all of which Agreement the holder hereof, by the acceptance hereof, agrees. The securities represented by this Certificate have been acquired for investment and have not been registered under the Securities Act of 1933, as amended, or under any state securities laws. These securities may not be sold or transferred in the absence of such registration or an opinion of counsel satisfactory to Corporation that no registration is required.
12. Term. All rights and obligations of any party under this Agreement shall terminate upon the occurrence of any of the following events:
a. Cessation of the Corporation’s business;
b. Bankruptcy, general assignment for benefit of creditors, receivership, or dissolution of the Corporation;
c. The voluntary agreement of all parties who are then bound by the terms hereof.
d. Upon the Company registering its stock pursuant to the Securities Exchange Act of 1934.
13. Notices. All notices and other communications hereunder shall be given in writing, shall be personally delivered or sent by certified mail, postage, prepaid, shall be deemed given on the date of delivery or of mailing, and shall be addressed as first set forth above.
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14. Partial Invalidity. If any provision of this Agreement, or the application of such provision to any person or circumstances, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby.
15. Entire Agreement. This Agreement and the documents referred to herein contain the entire agreement among the parties with respect to the matters contemplated herein, and may not be amended, supplemented or discharged, and no provision hereof may be modified or waived, except expressly by an instrument in writing signed by all of the parties hereto.
16. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of California applicable to agreements made and to be performed entirely in such State.
17. Succession. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors, assigns, distributees and legal representatives, subject to the terms hereof, but in no event shall options to purchase granted hereunder to Stockholders be assignable except to transferees of Stock who become parties hereto.
18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute the same instrument.
[This space left intentionally blank]
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WITNESS the execution of this Agreement as of the day and year first above written.
Kolaboration Ventures Corporation
| By: |  |
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| Martin Wesley, CEO | ||
| First Stockholder | ||
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| Martin Wesley | ||
| Second Stockholder | ||
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| Andrew Wesley | ||
| Third Stockholder | ||
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| Charles Wesley | ||
| Stockholder Printed Name |
| Stockholder Signature |
[Stockholder Signature page.]
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SCHEDULE B.
PROMISSORY NOTE
U.S. $[number]
[city and state of execution]
[date of execution]
FOR VALUE RECEIVED, the undersigned (“Maker”) promises to pay to the order of [Name of Lender], an individual residing at [address] (the “Noteholder”) or at such other place as the holder hereof may designate in writing, the principal sum of dollars ($ ) together with interest at the highest U.S. Money Center commercial prime rate of interest for corporate loans as reported in the Money Rates section of the Wall Street Journal, [city] edition, adjusted from time to time on a daily basis. Principal shall be payable in [number] consecutive equal [annual/monthly/quarterly] principal installments of dollars ($ ) together with interest in arrears, with the first installment due [date] and the remaining installments due on [date] thereafter; except that, unless sooner paid, all principal hereunder shall be due and payable on [date].
Maker shall have the right at any time to prepay the entire outstanding amount of this Note. Maker shall have the right to make a partial prepayment of this Note at any time.
Maker will be in default if:
1. Maker does not make any payment within [number] days of the date due;
2. The Maker shall be unable to pay its or his debts as they mature or shall make an assignment for the benefit of any of its or his creditors;
3. A proceeding in bankruptcy or for reorganization of the Maker or the readjustment of any of their respective debts under Title 11 of the United States Code, as amended, or any part thereof, or under any other laws, whether state or federal, for the relief of debtors now or hereafter existing, shall be commenced by the Maker or shall be commenced against the Maker and shall not be discharged within [number] days of its commencement;
4. A receiver or trustee shall be appointed for the Maker or for any substantial part of its assets, or any proceeding shall be instituted for, in the case the Maker is a Corporation, the dissolution or the full or partial liquidation of the Corporation, and such receiver or trustee shall not be discharged within [number] days of his appointment, or such proceeding shall not be discharged within [number] days of its commencement;
5. A judgment creditor of the Maker shall obtain possession of any of its or his assets by any means including, without limitation, levy, restraint, or replevin;
6. The validity or enforceability of this Note, or any lien contemplated hereby shall be contested by the Maker.
7. The Maker, if an individual, dies.
Then, at the option of Noteholder, immediately and without notice to Maker upon the occurrence of an event of default specified in the foregoing subparagraphs of this Note, the obligation of Maker hereunder shall immediately become due and payable without further action of any kind, and this Note shall become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by Maker.
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The Maker further promises to pay all costs and expenses, including reasonable attorney fees, which may be incurred by the Noteholder in collecting any sums due under this Note or in bringing any action to foreclose the lien securing this Note or in protecting or sustaining any lien, security agreement or Escrow Agreement.
Failure by the holder hereof to insist upon performance in accordance with the terms of this Note or the lien securing this Note shall not be deemed a waiver of any other obligation under this Note or the lien securing this Note.
Noteholder reserves the right to pledge, hypothecate or otherwise dispose of this Note. Any subsequent holder of this Note shall not be subject to (and the Maker expressly waives as against such subsequent holder) any defenses, set-offs, counterclaims or other objections to the payment of this Note.
Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof.
Any notice to Maker provided for in this Note shall be given by mailing such notice by certified mail addressed to Maker at the address stated below, or to such other address as Maker may designate by notice to the Noteholder. Any notice to the Noteholder shall be given by mailing such notice by certified mail, return receipt requested, to the Noteholder at the address stated above in this Note, or at such other address as may have been designated by notice to Maker.
This Note is to be governed by and construed in accordance with the laws of [state] for all purposes.
This Note is secured by an Escrow Agreement dated [date] between the Maker and Noteholder.
[name of Maker]
[signature]
Address of Maker: [address]
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SCHEDULE C. ESCROW AGREEMENT
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (“Agreement”) made this [date] by and among [name of secured party], a [corporation/partnership/limited liability] organized and existing under the laws of [state] having its principal place of business at [address] (“Secured Party”), [name of Stockholder], an individual residing at [address] (“Stockholder”) and [name of Escrow Agent], an individual residing at [address] (“Escrow Agent”).
1. ESCROW SHARES. Pursuant to that certain Stockholders’ Agreement dated September ____, 2021 (the “Stockholders’ Agreement”) among Stockholder, Secured Party and [name of corporation], a corporation organized and existing under the laws of [state] having its principal place of business at [address] (“Corporation”), Stockholder hereby delivers and deposits with Escrow Agent Certificate No. _________ representing [number] shares of the issued and outstanding common stock of Corporation now owned of record by Escrow Agent but beneficially owned by Stockholder, in proper form for transfer. The common stock referred to in paragraph 1 of this Agreement shall be hereinafter referred to as the “Escrow Shares.”
2. SECURITY FOR PROMISSORY NOTE. Such Escrow Shares shall be held by Escrow Agent in order to secure the payment of a certain promissory note from Stockholder, dated [date], made payable to Secured Party (hereinafter referred to as the “Note”), a copy of which is attached hereto as Schedule B to the Stockholders’ Agreement.
3. ESCROW TERM. The term of this escrow arrangement (the “Escrow Term”) is from the date hereof until all sums, including, but not limited to, the interest and principal due under the Note are paid in full.
4. RIGHTS TO ESCROW SHARES. During the Escrow Term, subject to this Agreement, all rights to and interest in the Escrow Shares, including, but not limited to, voting and dividend rights, shall be retained by Stockholder. During the Escrow Term Stockholder shall not sell, assign, pledge or otherwise transfer any right to or interest in the Escrow Shares, including, but not limited to, dividend and voting rights, unless all sums, including but not limited to, the entire principal and all interest under the Note, shall have been paid in full.
5. TERMINATION OF ESCROW. In the event that all sums, including, but not limited to the entire principal and all interest under the Note have been paid in full, Secured Party shall forthwith give notice of said full payment to Escrow Agent, with a copy of said notice to Stockholder. Upon receipt of said notice by Escrow Agent, this Agreement shall terminate and Escrow Agent shall forthwith transfer the Escrow Shares from escrow to Stockholder.
6. DEFAULT. In the event that, at any time during the Escrow Term, Stockholder shall be in default on the Note (after expiration of any applicable grace period provided therein), Secured Party may give Stockholder written notice of said default, with a copy of said written notice to Escrow Agent. If the default has not been corrected and remedied within the [number]-day period following giving of such notice, Secured Party shall so notify Escrow Agent, who shall transfer ownership of the Escrow Shares to Secured Party after [number] days from receipt of said notice from Secured Party unless Escrow Agent receives written notice within said [number]-day period from Secured Party that the default has been corrected and remedied. In the event said default is corrected and remedied, Secured Party shall give written notice to such effect to Escrow Agent and Escrow Agent shall retain the Escrow Shares in escrow as security for future payments under the Note in accordance with the terms of this Agreement. If the default was corrected and remedied by payment of the entire unpaid principal balance and the interest and all other amounts due under the Note, Escrow Agent shall transfer the Escrow Shares from escrow to Stockholder and this Agreement shall thereupon terminate. Escrow Agent shall make the above transfers in reliance upon said notices and shall not question their execution or validity, the effectiveness of their provisions or the truth or accuracy of any information contained therein.
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7. RESIGNATION OF ESCROW AGENT, SUCCESSORS. Escrow Agent may resign as escrow agent by giving notice of such resignation to the parties hereto, and in the event of such resignation he may appoint as successor escrow agent a bank or trust company, or he may appoint one or more responsible individuals acceptable to all the parties hereto as successor escrow agent, and any such successor or successors shall have the same rights and duties as if originally named herein.
8. COURT ORDER. Notwithstanding anything herein contained to the contrary, upon the receipt by Escrow Agent of a certified judgment, decree or order of a court which directs Escrow Agent to take any action, Escrow Agent shall take such action.
9. DUTIES OF ESCROW AGENT. The duties and responsibilities of Escrow Agent shall be limited to those specifically set forth in this Agreement and the performance of such action as, in the judgment of Escrow Agent shall be reasonable, necessary or appropriate to carry out Escrow Agent’s duties specified in this Agreement.
10. LIABILITY OF ESCROW AGENT. Escrow Agent shall not be liable for any act which Escrow Agent may do or omit to do hereunder while acting in good faith and in the exercise of his own judgment. Any act done or omitted by him pursuant to the advice of independent legal counsel shall be conclusive evidence of such good faith. Escrow Agent may act in reliance upon any instrument or signature which he believes to be genuine and may assume that any person purporting to give notice or advice or instructions in connection with the provisions hereof has been duly authorized to do so. Escrow Agent is authorized to disregard any directions, instructions, notices, communications, or information from any source whatsoever, excepting only a statement executed by Secured Party or a duly authorized agent of Secured Party or a judgment, order or decree of any court. In any case in which Escrow Agent obeys or otherwise complies with any such directive, statement, judgment, order or decree, Escrow Agent shall not be liable to any person, by reason of such obedience or compliance notwithstanding that such directive, statement, judgment, order or decree may be subsequently withdrawn, rescinded, reversed, modified, annulled, set aside or vacated, or, in the case of a judgment, order or decree, found to have been entered without jurisdiction.
11. TERMINATION. This Agreement shall not be terminated, revoked, rescinded or modified in any respect without the prior written approval of all of the parties hereto.
12. INDEMNITY. Secured Party, Stockholder and Corporation, hereby jointly and severally agree to indemnify and hold harmless the Escrow Agent against any and all losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and reasonable counsel fees and disbursements, which may be imposed upon him or incurred by him hereunder or in the performance of his duties hereunder, including any litigation arising from this Agreement or involving the subject matter hereof or the Escrow Shares deposited hereunder.
13. TERMINATION OF DUTIES. Escrow Agent’s duties hereunder shall cease upon the disbursement of the Escrow Shares as provided in paragraph 5 or 6 against a written receipt therefor.
14. NO ELECTION OF REMEDIES. The exercise of Secured Party’s rights under this Agreement shall not be deemed an election of remedies.
15. NOTICES. All notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if received by certified mail, return receipt requested, to the address first set forth above. A duplicate copy of any notice delivered hereunder shall be delivered simultaneously to the Corporation at the address set forth in paragraph 1 hereof or to such other address as the Corporation may designate by written notice delivered hereunder.
16. BINDING EFFECT. This Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns and their respective subsidiaries, parents or affiliates.
17. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of California.
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IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be executed and signed as of the day and year first above written.
[name of secured party]
By: [name and title of signatory]
[signature]
[name of Stockholder]
[signature]
[name of corporation]
By: [name and title of signatory]
[signature]
[name of Escrow Agent]
[signature]
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SCHEDULE D. CERTIFICATE OF AGREED VALUE
Pursuant to Section 9 of the Stockholders’ Agreement dated as of September , 2021, by and among the undersigned, being all of the Board Directors of Kolaboration Ventures Corporation (the “Corporation”), hereby fix the Agreed Value of each share of Stock of the Corporation at dollars ($ ).
This Certificate may be executed in counterparts, each of which so executed shall be deemed an original, but all of which, taken together, shall constitute one and the same Certificate, binding upon the parties hereto, and their successors, heirs and assigns.
Dated: ___________________
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Exhibit 1A-4
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATUTES OR REGULATIONS OF NON-U.S. JURISDICTIONS OR ANY STATE SECURITIES OR BLUE SKY LAWS, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. ALTHOUGH AN OFFERING CIRCULAR ON FORM 1-A FOR A TIER II OFFERING HAS BEEN FILED AND QUALIFIED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), THAT OFFERING STATEMENT DOES NOT INCLUDE THE SAME INFORMATION THAT WOULD BE INCLUDED IN A REGISTRATION STATEMENT UNDER THE ACT.
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this “Subscription Agreement”) is made as of ____________, 2022, by and between ____________________________ (the “Subscriber”), and Kolaboration Ventures Corporation, a Wyoming corporation (the “Corporation”).
RECITALS:
WHEREAS, subject to the terms and conditions of this Agreement, the Subscriber wishes to irrevocably subscribe for and purchase (subject to acceptance of such subscription by the Corporation) certain Common Shares (the “Shares”) of the Corporation, offered pursuant to that certain Offering Circular, incorporated into the Corporation’s Form 1-A, filed and qualified with the SEC effective [________ __, 2022] (the “Offering Circular”) of the Corporation; and
WHEREAS, the Offering will terminate on the first to occur of: (i) the date on which the Maximum Offering is completed; or (ii) one year after the date of the Offering Circular. Notwithstanding, the Corporation may extend the Offering by an additional 90 days or terminate the Offering at any time.
NOW, THEREFORE, in consideration of the foregoing premises, the respective representations, warranties, covenants, and agreements contained herein and in the Offering Circular filed contemporaneously with the Securities and Exchange Commission (the “SEC”), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Subscription Agreement, intending to be legally bound, hereby agree as follows:
1. Subscription. Subject to the express terms and conditions of this Agreement, the Subscriber hereby tenders this subscription and applies to purchase the number of Common Shares (“Shares”) in the Corporation indicated below, pursuant to the terms of this Subscription Agreement. The purchase price of each Share $1.25 per Share, with a minimum individual investment of $1,000.00 payable in full upon subscription.
(a) The Subscriber understands that the Shares are being offered pursuant to the Offering Circular filed with the SEC and its exhibits (the “Offering Circular”).
(b) The Offering of the Common Shares is described in the Offering Circular, which is available at [insert website] as well as on the EDGAR website of the SEC. While they are subject to change, the Corporation advises the Subscriber to print and retain a copy of these documents for the Subscriber’s records.
(c) In connection with this subscription, the Subscriber represents and warrants that the personal, business and financial information provided to the Corporation along with this Subscription Agreement or through any online website, is complete and accurate, and presents a true statement of the Subscriber’s financial condition. The Subscriber further sets forth statements upon which reliance can be made to determine the suitability of the Subscriber to purchase the Shares.
(d) The Corporation has the right to reject this Subscription in whole or in part for any reason. The Subscriber may not cancel, terminate or revoke this Agreement, which, in the case of an individual, shall survive the Subscriber’s death or disability and shall be binding upon the Subscriber and the Subscriber’s heirs, trustees, beneficiaries, executors, personal or legal administrators or representatives, successors, transferees and assigns.
(e) Once the Subscriber makes a funding commitment to purchase Common Shares, such commitment shall be irrevocable until the Shares are issued, the Purchase is rejected by the Corporation, or the Corporation otherwise determines not to consummate the transactions contemplated by this Agreement.
(f) By signing below, the Subscriber agrees to the following terms and consents to receive communications relating to the Shares electronically from the Corporation.
2. Payment and Purchase Procedure. The Purchase Price shall be paid simultaneously with Subscriber’s subscription. Subscriber shall deliver payment for the aggregate purchase price of the Shares by ACH deposit or by wire transfer to an account designated by the Corporation. The Subscriber acknowledges that, in order to subscribe for Shares, he must fully comply with the purchase procedure requirements set forth in Section 10 below.
(a) If the Corporation returns the Subscriber’s Purchase Price to the Subscriber, the Corporation will not owe or pay any interest to the Subscriber.
(b) If this Subscription is accepted by the Corporation, the Subscriber agrees to comply fully with the terms of this Agreement, the Common Shares and all other applicable documents or instruments of the Corporation. The Subscriber further agrees to execute any other necessary documents or instruments in connection with this Subscription and the Subscriber’s purchase of the Shares.
(c) In the event that this Subscription is rejected in full or the offering is terminated, payment made by the Subscriber for the Shares will be refunded to the Subscriber without interest and without deduction, and all of the obligations of the Subscriber hereunder shall terminate. To the extent that this Subscription is rejected in part, the Corporation shall refund to the Subscriber any payment made by the Subscriber to the Corporation with respect to the rejected portion of this Subscription without interest and without deduction, and all of the obligations of Subscriber hereunder shall remain in full force and effect except for those obligations with respect to the rejected portion of this Subscription, which shall terminate.
3. Representations and Warranties of the Corporation. The Corporation represents and warrants to Subscriber that the following representations and warranties are true and complete in all material respects as of the date of each Closing:
(a) The Corporation is a corporation duly formed, validly existing and in good standing under the Wyoming Business Corporations Act (the “WBCA”). The Corporation has all requisite power and authority to own and operate its properties and assets, to execute and deliver this Subscription Agreement, the Shares and any other agreements or instruments required hereunder.
(b) The issuance, sale and delivery of the Shares in accordance with this Subscription Agreement have been duly authorized by all necessary corporate action on the part of the Corporation. The Shares, when issued, sold and delivered against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid and non-assessable;
(c) The acceptance by the Corporation of this Subscription Agreement and the consummation of the transactions contemplated hereby are within the Corporation’s powers and have been duly authorized by all necessary corporate action on the part of the Corporation. Upon the Corporation’s acceptance of this Subscription Agreement, this Subscription Agreement shall constitute a valid and binding agreement of the Corporation, enforceable against the Corporation in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and (iii) with respect to provisions relating to indemnification and contribution, as limited by the Corporation’s articles of incorporation, bylaws and the WBCA in general.
4. Representations, Warranties and Agreements of Subscriber. In connection with the issuance of securities hereunder, Subscriber hereby makes the following representations, warranties and agreements and confirms the following understandings:
(a) The information that the Subscriber has furnished herein, including, without limitation, the information set forth in the Investor Questionnaire attached hereto as Annex II, which has been completed by the Subscriber and submitted herewith to the Corporation, and any other information furnished by the Subscriber to the Corporation regarding whether the Subscriber qualifies as (i) an “accredited investor” as that term is defined in Rule 501 under Regulation D (“Regulation D”) promulgated under the U.S. Securities Act of 1933, as amended (the “Act”), which definition is set forth on Annex III attached hereto, and/or (ii) a “qualified purchaser” as that term is defined in Regulation A promulgated under the Act, is correct and complete as of the date of this Agreement and will be correct and complete on the date, if any, that the Corporation accepts this Subscription. Further, the Subscriber shall immediately notify the Corporation of any change in any statement made herein prior to the Subscriber’s receipt of the Corporation’s acceptance of this Subscription, including, without limitation, the Subscriber’s status as an “accredited investor” and/or “qualified purchaser.” The representations and warranties made by the Subscriber may be fully relied upon by the Corporation and by any investigating party relying on them.
(b) The Subscriber (i) is an “accredited investor” as that term is defined in Rule 501 under Regulation D, which definition is set forth on Annex III attached hereto, or (ii) if the Subscriber is not an “accredited investor” as that term is defined in Rule 501 under Regulation D, the amount of Shares being purchased by the Subscriber does not exceed 10% of the greater of the Subscriber’s annual income or net worth (for natural persons), or 10% of the greater of the Subscriber’s annual revenue or net assets at fiscal year-end (for non-natural persons). The Subscriber agrees to provide to the Corporation any additional documentation the Corporation may reasonably request, including, in addition to the Investor Questionnaire any other documentation as may be required by the Corporation to form a reasonable basis that the Subscriber qualifies as an “accredited investor” as that term is defined in Rule 501 under Regulation D promulgated under the Act.
(c) The Subscriber has received a copy of the Offering Circular, has been given the opportunity to read and review it carefully, and has had an opportunity to question representatives of the Corporation and obtain such additional information concerning the Corporation as the Subscriber requested. All questions of the Subscriber have been satisfactorily answered prior to making this investment.
(d) The Subscriber has sufficient experience in financial and business matters to be capable of utilizing such information to evaluate the merits and risks of the Subscriber’s investment, and to make an informed decision relating thereto; or the Subscriber has utilized the services of his, her or its financial advisor or other investment representative and together they have sufficient experience in financial and business matters that they are capable of utilizing such information to evaluate the merits and risks of the Subscriber’s investment, and to make an informed decision relating thereto.
(e) The Subscriber has evaluated the risks of this investment in the Corporation, including those risks particularly described in the Offering Circular, and has determined that the investment is suitable for him, her or it. The Subscriber has adequate financial resources for an investment of this character, and at this time could bear a complete loss of his investment. The Subscriber understands that any projections or other forward-looking statements that were made in the Offering Circular are mere estimates and may not reflect the actual results of the Corporation’s operations. The Subscriber understands that the Use of Proceeds in the Offering Circular are estimates, are not binding, and are subject to the Corporation’s discretion, and may not reflect the actual use of proceeds by the Corporation of the funds they receive from this offering and from your investment.
(f) The Subscriber understands that the Shares are not being registered under the Securities Act of 1933, as amended (the “Securities Act”) on the ground that the issuance thereof is exempt under Regulation A of Section 3(b) of the Securities Act, and that reliance on such exemption is predicated in part on the truth and accuracy of the Subscriber’s representations and warranties, and those of the other purchasers of Shares.
(g) The Subscriber understands that the Shares are not being registered under the securities laws of certain states on the basis that the issuance thereof is exempt as an offer and sale not involving a registerable public offering in such state, since the Shares are “covered securities” under the National Securities Market Improvement Act of 1996 (“NSMIA”). The Subscriber understands that reliance on such exemptions is predicated in part on the truth and accuracy of the Subscriber’s representations and warranties and those of other purchasers of Shares. The Subscriber covenants not to sell, transfer or otherwise dispose of any of the Shares unless such Shares have been registered under the applicable state securities laws, or an exemption from state registration is available.
(h) The Subscriber has no need for any liquidity in this investment and is able to bear the economic risk of his investment for an indefinite period of time. The Subscriber has been advised and is aware that: (a) there is no public market for the Shares and a public market for the Shares may not develop; (b) it may not be possible to liquidate the investment readily; and (c) the Shares have not been registered under the Securities Act of 1933 and applicable state law and an exemption from registration for resale may not be available.
(i) All contacts and contracts between the Subscriber and the Corporation regarding the offer and sale to him or her of Shares have been made within the state indicated below subscriber’s signature on the signature page of this Subscription Agreement and the Subscriber is a resident of such state.
(j) The Subscriber has relied solely upon the Offering Circular, other material provided by the Corporation and independent investigations made by him or her or his or her representatives and advisors with respect to the Shares subscribed for herein, and no oral or written representations beyond the Offering Circular and other material provided by the Corporation have been made to the Subscriber or relied upon by the Subscriber by the Corporation, its representatives or assigns, or any other person or entity.
(k) The Subscriber agrees not to transfer or assign this subscription or any interest therein.
(l) The Subscriber hereby acknowledges and agrees that, except as may be specifically provided herein, the Subscriber is not entitled to withdraw, terminate or revoke this subscription.
(m) If the Subscriber is a partnership, corporation, limited liability company or trust, it has been duly formed, is validly existing, has full power and authority to make this investment, and has not been formed for the specific purpose of investing in the Shares.
(n) The Subscriber meets any additional suitability standards and/or financial requirements that may be required in the jurisdiction in which he or she resides, or is purchasing in a fiduciary capacity for a person or account meeting such suitability standards and/or financial requirements, and is not a minor. The Subscriber has received a copy of the Offering Circular, has been given the opportunity to read the section of the Offering Circular entitled “Investor Eligibility Standards” and hereby agrees to comply with all requirements of the USA PATRIOT Act and all other know-your-customer and anti-money-laundering laws and regulations.
(o) The Subscriber consents to, and agrees to be bound by all the terms of the Bylaws of the Corporation, including but not limited to, any restrictions on voting rights and/or any transfer restrictions contained in said Bylaws.
(p) The Subscriber’s knowledge and experience in financial and business matters are such that it is capable of evaluating the risks of making the investment contemplated hereby, including the risks regarding Federal Cannabis Laws, as described in Section 9 hereof, and the risk associated with the regulatory oversight of the Act and the Regulator, as described in Section 8 hereof.
(q) The Subscriber acknowledges and agrees that any share certificate or, in the case of uncertified securities, any notice of issuance, for the Shares shall bear the following legends with the necessary information inserted (as well as any legends required by the Corporation or applicable state or federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW (THE “ACTS”) AND MAY NOT BE TRANSFERRED BY THE HOLDER EXCEPT (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S (“REGULATION S”) UNDER THE SECURITIES ACT, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH (1) RULE 144A UNDER THE SECURITIES ACT, OR (2) RULE 144 UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
(r) This Subscription Agreement and all other documents executed in connection with this subscription for Shares are valid, binding and enforceable agreements of the Subscriber.
5. Foreign Investors. If the Subscriber is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), the Subscriber hereby represents that he or she has satisfied himself or herself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Subscriber’s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.
6. Valuation. The Subscriber acknowledges that the price of the Shares was set by the Corporation on the basis of the Corporation’s internal valuation and no warranties are made as to value. The Subscriber further acknowledges that future offerings of securities by the Corporation may be made at lower valuations, with the result that the Subscriber’s investment will bear a lower valuation.
7. Indemnification. The representations, warranties and covenants made by Subscriber herein shall survive the closing of this Subscription Agreement. Subscriber agrees to indemnify and hold harmless the Corporation and its respective officers, directors and affiliates, and each other person, if any, who controls the Corporation within the meaning of Section 15 of the Securities Act against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all reasonable attorneys’ fees, including attorneys’ fees on appeal) and expenses reasonably incurred in investigating, preparing or defending against any false representation or warranty or breach of failure by Subscriber to comply with any covenant or agreement made by Subscriber herein or in any other document furnished by Subscriber to any of the foregoing in connection with this transaction.
8. Regulatory Compliance. This Subscription Agreement is subject to strict requirements for ongoing regulatory compliance by the parties hereto, including, without limitation, requirements that the parties take no action in violation of the Medicinal and Adult-Use Marijuana Regulation and Safety Act, or MAUCRSA, and any successor or replacement thereto, (the “Act”) or the guidance or instruction of the Bureau of Cannabis Control or BCC, the California Department of Food and Agriculture, or CDFA and the California Department of Public Health or CDPH (BCC, CDFA and CDPH collectively referred to herein at the “Regulator”). The parties acknowledge and understand that the Act and/or the requirements of the Regulator are subject to change and are evolving as the marketplace for state-compliant cannabis businesses continues to evolve. If necessary or desirable to comply with the requirements of the Act and/or the Regulator, the parties hereby agree to (and to cause their respective affiliates and related parties and representatives to) use their respective commercially reasonable efforts to take all actions reasonably requested to ensure compliance with the Act and/or the Regulator, including, without limitation, negotiating in good faith to amend, restate, amend and restate, supplement, or otherwise modify this Subscription Agreement to reflect terms that most closely approximate the parties original intentions but are responsive to and compliant with the requirements of the Act and/or the Regulator. In furtherance, not limitation of the foregoing, the parties further agree to cooperate with the Regulator to promptly respond to any informational requests, supplemental disclosure requirements, or other correspondence from the Regulator and, to the extent permitted by the Regulator, keep all other parties hereto fully and promptly informed as to any such requests, requirements, or correspondence.
9. Governing Law. This Subscription Agreement will be governed by and construed in accordance with the laws of the State of California. The exclusive venue for any legal action under this Agreement will be in the proper forum in the State of California. This clause does not apply to claims brought to enforce any duty or liability created by the Securities Act or the Securities Exchange Act of 1934 (“Exchange Act”, or the rules and regulations thereunder.
10. Additional Disclaimers. The parties hereto agree and acknowledge that no party makes, will make, or shall be deemed to make or have made any representation or warranty of any kind regarding the compliance of this Subscription Agreement with any Federal Cannabis Laws of the United States. No party hereto shall have any right of rescission or amendment arising out of or relating to any non-compliance with Federal Cannabis Laws unless such non-compliance also constitutes a violation of applicable state law as determined in accordance with the Securities Act or by the appropriate state securities regulator. As used herein, “Federal Cannabis Laws” means any U.S. federal laws, civil, criminal or otherwise, as such relate, either directly or indirectly, to the cultivation, harvesting, production, distribution, sale and possession of cannabis, marijuana or related substances or products containing or relating to the same, including, without limitation, the prohibition on drug trafficking under 21 U.S.C. § 841(a), et seq., the conspiracy statute under 18 U.S.C. § 846, the bar against aiding and abetting the conduct of an offense under 18 U.S.C. § 2, the bar against misprision of a felony (concealing another’s felonious conduct) under 18 U.S.C. § 4, the bar against being an accessory after the fact to criminal conduct under 18 U.S.C. § 3, and federal money laundering statutes under 18 U.S.C. §§ 1956, 1957, and 1960 and the regulations and rules promulgated under any of the foregoing. In furtherance, not limitation of the foregoing, Subscriber has read, agrees to and acknowledges the risk factors enumerated on Annex I hereto. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS SUBSCRIPTION AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY TO THIS SUBSCRIPTION AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (ii) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, AND (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY.
11. Purchase Procedure. The Subscriber acknowledges that, in order to subscribe for Shares, he or she must, and he or she does hereby, deliver to the Corporation: (a) a fully completed and executed counterpart of the Signature Page attached to this Subscription Agreement; and (b) payment for the aggregate Purchase Price in the amount set forth on the Signature Page attached to this Agreement. Payment may be made by either check, wire, credit card or ACH deposits. The transactions contemplated hereby will be completed electronically through the software provided by Dealmaker.Tech.
12. Acknowledgement of Risks Factors. The Subscriber has carefully reviewed and thoroughly understands the risks associated with an investment in the Shares as described in the Offering Circular. The Subscriber acknowledges that this investment entails significant risks.
13. Consent to Electronic Delivery. The Subscriber hereby agrees that the Corporation may deliver all SEC reports, including offering circulars, exhibits, supplements, U.S., Canadian or other non-U.S. legends, notices, financial statements, valuations, reports, reviews, analyses or other materials, and any and all other documents, information and communications concerning the affairs of the Corporation and its investments, including, without limitation, information about the investment required or permitted to be provided to the Subscriber with respect to the Shares, by means of e-mail or by posting on an electronic message board or by other means of electronic communication. The Subscriber hereby consents to receive from the Corporation electronically all documents, communications, notices, contracts, and agreements arising from or relating in any way to the Subscriber’s or the Corporation’s rights, obligations or services under this Agreement including materials or information made available to Subscriber in connection with this offering over the web-based platform maintained by Dealmaker.Tech (each a “Disclosure”). The decision to do business with the Corporation electronically is the Subscriber’s decision. This Agreement informs the Subscriber of its rights concerning Disclosures.
14. Miscellaneous. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons or entity or entities may require. Other than as set forth herein, this Subscription Agreement is not transferable or assignable by Subscriber. The representations, warranties and agreements contained herein shall be deemed to be made by and be binding upon Subscriber and its heirs, executors, administrators and successors and shall inure to the benefit of the Corporation and its successors and assigns. None of the provisions of this Subscription Agreement may be waived, changed or terminated orally or otherwise, except as specifically set forth herein or except by a writing signed by the Corporation and Subscriber. In the event any part of this Subscription Agreement is found to be void or unenforceable, the remaining provisions are intended to be separable and binding with the same effect as if the void or unenforceable part were never the subject of agreement. The invalidity, illegality or unenforceability of one or more of the provisions of this Subscription Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Subscription Agreement in such jurisdiction or the validity, legality or enforceability of this Subscription Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. This Subscription Agreement supersedes all prior discussions and agreements between the parties, if any, with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. The terms and provisions of this Subscription Agreement are intended solely for the benefit of each party hereto and their respective successors and assigns, and it is not the intention of the parties to confer, and no provision hereof shall confer, third-party beneficiary rights upon any other person. The headings used in this Subscription Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
[Remainder of Page Intentionally Blank – Signatures Follow]
IN WITNESS WHEREOF, the Subscriber, or its duly authorized representative(s), hereby acknowledges that the Subscriber has read and understood the Risk Factors set forth in the Offering Circular, and has hereby executed and delivered this Agreement, and executed and delivered herewith the Purchase Price, as of the date set forth above.
| THE SUBSCRIBER: | |
| Name of the Subscriber | |
| Description of Entity (if applicable) | |
| Signature of the Subscriber | |
| Name of Person Signing on behalf of the Subscriber | |
| Title (if applicable) |
| Address of the Subscriber: |
| Telephone: | ||
| E-mail: |
U.S. Taxpayer Identification Number (if applicable)
Number of Shares Purchased: _________________________
Purchase Price per Share: US $1.25_______________________
Aggregate Purchase Price: US $_____________________
ACCEPTED BY: KOLABORATION VENTURES CORPORATION
Signature of Authorized Signatory: __________________________________
Name of Authorized Signatory: Martin Wesley, President and Director
Date of Acceptance: __________________, 2022.
[Signature Page]
Annex I
CERTAIN RISK FACTORS
Kolaboration Ventures Corporation (together with its direct and indirect controlled affiliates and related parties through services contracts and other affiliate relationship, collectively, the “Corporation”) operates in a new industry which is highly regulated, highly competitive and evolving rapidly. As such, new risks may emerge, and management may not be able to predict all such risks or be able to predict how such risks may result in actual results differing from the results contained in any forward-looking statements.
The Corporation’s businesses incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Corporation and, therefore, on the Corporation’s prospective returns. Further, the Corporation may be subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect our ability to conduct our business. The litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. A material adverse impact on our financial statements also could occur for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the control of the Corporation and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Corporation’s earnings and could make future capital investments or the Corporation’s operations uneconomic. The industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants and which cannot be reliably predicted.
Notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a Schedule 1 controlled substance under the United States Controlled Substances Act of 1970. As such, cannabis-related practices or activities, including without limitation, the cultivation, manufacture, importation, possession, use or distribution of cannabis, are illegal under United States federal law. Strict compliance with state laws with respect to cannabis will neither absolve the Corporation of liability under United States federal law, nor will it provide a defense to any federal proceeding which may be brought against the Corporation. Any such proceedings brought against the Corporation may adversely affect the Corporation’s operations and financial performance.
Because of the conflicting views between state legislatures and the federal government of the United States regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation, regulation, and enforcement. Unless and until the United States Congress amends the United States Controlled Substances Act with respect to cannabis or the Drug Enforcement Agency reschedules or de-schedules cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law, which would adversely affect the current and future operations and investments of the Corporation in the United States.
As a result of the tension between state and federal law, there are a number of risks associated with the Corporation’s existing and future operations and investments in the United States.
On January 4, 2018, then-U.S. Attorney General Jeff Sessions formally rescinded the standing U.S. Department of Justice (“DOJ”) federal policy guidance governing enforcement of marijuana laws, as set forth in a series of memos and guidance from 2009-2014, principally the memorandum authored in August 2013 by then Deputy Attorney General, James Cole (the “Cole Memorandum”). The Cole Memorandum generally directed U.S. Attorneys not to enforce the federal marijuana laws against actors who are compliant with state laws, provided enumerated enforcement priorities were not implicated.
The rescission of the Cole Memorandum and other Obama-era prosecutorial guidance did not create a change in federal law as the Cole Memorandum was never legally binding; however, the revocation removed the DOJ’s guidance to U.S. Attorneys that state-regulated cannabis industries substantively in compliance with the Cole Memorandum’s guidelines should not be a prosecutorial priority.
On January 21, 2021, Joseph R. Biden, Jr. was sworn in as President of the United States. President Biden’s nomination for Attorney General, Merrick Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive cannabis enforcement policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of cannabis, either medically or otherwise.
The federal government of the United States has always reserved the right to enforce federal law regarding the sale and disbursement of medical or recreational marijuana, even if state law sanctioned such sale and disbursement. Although the rescission of the above memorandums does not necessarily indicate that marijuana industry prosecutions are now affirmatively a priority for the DOJ, there can be no assurance that the federal government will not enforce such laws in the future.
Additionally, there can be no assurance that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. It is also important to note that local and city ordinances may strictly limit and/or restrict the distribution of cannabis in a manner that could make it extremely difficult or impossible to transact business in the cannabis industry.
If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing state laws are repealed or curtailed, the Corporation’s businesses would be materially and adversely affected. Federal actions against any individual or entity engaged in the marijuana industry or a substantial repeal of marijuana related legislation could adversely affect the Corporation, its business and its investments.
The Corporation’s operations in the cannabis industry are likely illegal under the applicable federal laws of the United States and other applicable law. There can be no assurances the federal government of the United States or other jurisdictions will not seek to enforce the applicable laws against the Corporation. The consequences of such enforcement would be materially adverse to the Corporation and the Corporation’s business and could result in the forfeiture or seizure of all or substantially all of the Corporation’s assets.
The concepts of “medical cannabis” and “retail cannabis” do not exist under United States federal law because the U.S. Controlled Substances Act classifies “marijuana” as a Schedule I drug. Under United States federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, cannabis-related practices or activities, including without limitation, the manufacture, importation, possession, use or distribution of cannabis remain illegal under United States federal law.
Although the Corporation’s activities are compliant with applicable United States state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve the Corporation of liability under United States federal law, nor may it provide a defense to any federal proceeding which may be brought against the Corporation. Any such proceedings brought against the Corporation may adversely affect the Corporation’s operations and financial performance.
Non-US citizen Subscribers in a state-compliance cannabis company in the United States may experience burdensome immigration scrutiny and non-compliance with US federal law may impose material risks on owners, managers, and employees without US citizenship.
Violations of any United States federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the United States federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture.
This could have a material adverse effect on the Corporation, including reputations and ability to conduct business, their holding (directly or indirectly) of adult use cannabis licenses in the United States, the listing of their securities on various stock exchanges, their financial position, operating results, profitability or liquidity or the market price of any publicly traded shares.
In addition, it is difficult for the Corporation to estimate the time or resources that would be needed for the investigation of any such matters or its final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.
There is still uncertainty surrounding the Biden Administration and any acting or future Attorney General and their influence and policies in opposition to the cannabis industry as a whole.
Many factors could cause the Corporation’s actual results, performances and achievements to differ materially from those expressed or implied by the forward-looking statements and forward-looking information, including without limitation, the following factors:
| ● | The activities of the Corporation are subject to evolving regulation that is subject to changes by governmental authorities in the U.S. and internationally; | |
| ● | Third parties with which the Corporation does business, including banks and other financial intermediaries, may perceive that they are exposed to legal and reputational risk because of the Corporation’s cannabis business activities; | |
| ● | The Corporation’s ability to distribute returns generated from operations and investments in the U.S. may be limited by anti-money laundering laws, capital requirements, and long-term tax efficiencies; | |
| ● | Under Section 280E of the Internal Revenue Code, normal business expenses incurred in the business of selling marijuana and its derivatives are not deductible in calculating income tax liability. Therefore, certain of the Corporation’s affiliates will be precluded from claiming certain deductions otherwise available to non-marijuana businesses. As a result, an otherwise profitable, business may in fact operate at a loss after taking into account its income tax expenses. There is no certainty that the Corporation will not be subject to 280E in the future, and accordingly, there is no certainty that the impact that 280E has on the Corporation’s margins will ever be reduced; | |
| ● | Federal prohibitions result in marijuana businesses being potentially restricted from accessing the U.S. federal banking system, and the Corporation may have difficulty depositing funds in federally insured and licensed banking institutions. This may lead to further related issues, such as the potential that a bank will freeze the Corporation’s accounts and risks associated with uninsured deposit accounts. There is no certainty that Corporation will be able to maintain its existing accounts or obtain new accounts in the future; and | |
| ● | The Corporation is subject to applicable anti-money laundering laws and regulations. |
The Corporation is reliant on cultivation licenses to produce adult use cannabis products.
The Corporation is dependent upon its licenses for its ability to grow, store and sell adult use cannabis and other products derived therefrom in the jurisdictions where licensing is required and such licenses are subject to ongoing compliance, reporting requirements and renewal.
The Corporation’s ability to grow, store and sell cannabis is dependent on its licenses. The licenses are subject to ongoing compliance, reporting requirements and renewal. Although the Corporation believes it will meet the requirements for future renewals of its licenses, there can be no guarantee that government bodies will renew any applicable license or, if renewed, that such licenses will be renewed on the same or similar terms or that regulatory authorities will not revoke any licenses.
Should the Corporation fail to comply with the requirements of an applicable license or should a regulatory authority not renew a license when required, or renew an applicable license on different terms or revoke a license, there would be a material adverse effect on the Corporation’s business, financial condition and results of operations.
The Corporation is subject to changes in California, United States and international laws, regulations and guidelines which could adversely affect the Corporation’s future business, financial condition and results of operations.
The Corporation’s operations will be subject to various laws, regulations and guidelines relating to the manufacture, management, packaging/labelling, advertising, sale, transportation, storage and disposal of adult use cannabis but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment.
Changes to such laws, regulations and guidelines due to matters beyond the control of the Corporation may cause material adverse effects business, financial condition and results of operations of the Corporation.
Annex II
QUALIFIED INVESTOR QUESTIONNAIRE
In connection with the offer and sale by Kolaboration Ventures Corporation (the “Corporation”) of Common Shares (“Shares”) of the Corporation, the undersigned hereby represents and warrants to the Corporation and intends that the Corporation rely upon these representations and warranties as follows:
The following definitions apply to the undersigned, for purposes of determining whether the undersigned is an “accredited investor”:
___ The undersigned is not an accredited investor.
_____An institutional investor as defined in Rule 501(a)(1).
___ An organization described in section 501(c)(3) of the Internal Revenue Code, corporation, business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
___ A natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000.
___ A natural person who had an individual income in excess of $200,000 in each of the two most recent years and has a reasonable expectation of reaching the same income level in the current year.
___ A natural person who had joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
___ A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered.
___ An entity in which all of the equity owners are accredited investors.
Please complete the following:
1. My individual net worth, or joint net worth with my spouse, is not less than _____________.
2. My individual income, or joint income with my spouse is:
Estimated This Year: _____________
3 . Investing in private businesses is not for investors with short-term time horizons. Are you comfortable investing in securities that have limited liquidity? _____________.
4. Investing in private businesses involves significant risk. When investing in our Shares, are you willing to take on significant risk to potentially earn a return on your investment? _____________.
5. I believe that I have the knowledge and experience in finance and business to evaluate the merits and risks of investing in the Common Shares issued by the Corporation. _____________.
6. Please describe the nature and extent of your business, financial and investment experience which you believe gives you the capacity to evaluate the merits and risks of investing in the Common Shares issued by the Corporation and the capacity to protect your interests. _____________.
7 . Do you have a pre-existing personal or business relationship with the Corporation or any of its officers, managers or controlling persons? _____________.
Annex III
Definition of “Accredited Investor”
Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the Corporation reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000.
(i) Except as provided in paragraph (a)(5)(ii) of this section, for purposes of calculating net worth under this paragraph (a)(5):
(A) The person’s primary residence shall not be included as an asset;
(B) Indebtedness that is secured by the person’s primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and
(C) Indebtedness that is secured by the person’s primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability;
(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in § 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited investors.
Exhibit 1A-5
Exhibit 1A-6A
Exhibit 1A-6B
Exhibit 1A-6C
Exhibit 1A-6D
Contribution Agreement
THIS CONTRIBUTION AGREEMENT dated September 30, 2021 (“Agreement”) by and among Kolaboration Ventures Corporation, a corporation organized and existing under the laws of Wyoming having its principal place of business at 183 Main Street, Rio Vista, CA 94571 (“Buyer”), and those parties listed on Schedule 1.1 (collectively, the “Sellers” and individually as a “Seller”) who are all of the members of Contra Costa Farms LLC, a limited liability company organized and existing under the laws of the California having its principal place of business at 3400 Wilbur Avenue, Antioch, CA 94509 (“Company”).
WITNESSETH:
WHEREAS, the Sellers wish to contribute to Buyer, on the terms and for the consideration hereinafter provided, the membership interests of the Company, which will represent one hundred percent (100%) of the issued and outstanding membership interests of the Company in a transaction intended to qualify as a tax deferred contribution under Section 351 of the Internal Revenue Code of 1986;
WHEREAS, Rio Vista Farms LLC (“RVF”), a seven and one-half percent (71/2%) member of the Company, desires to exchange their membership interests in the Company for shares of common stock of the Buyer and those shares will be distributed to the members of FVF as set forth in a Contribution Agreement of even date; and
WHEREAS, simultaneously with this Contribution Agreement, four (4) other contribution agreements and one (1) merger agreement of even date shall be executed by companies affiliated with the Sellers. Together, the six (6) agreements are intended to qualify as a tax deferred contribution under Section 351 of the Internal Revenue Code of 1986.
NOW, THEREFORE, in consideration of the promises and the respective agreements hereinafter set forth, Buyer and Sellers hereby agree as follows:
1. CONTRIBUTION OF MEMBERSHIP INTERESTS.
1.1 Contribution of Membership Interests. Upon the terms and subject to the provisions of this Agreement, the Sellers agree that they will sell, convey, transfer, assign and deliver to Buyer at the Closing provided for in Article 2, free and clear of all claims, liens, pledges, encumbrances, mortgages, charges, security interests, options, preemptive rights or other interests or equities whatsoever, all of the membership interests duly and validly issued, fully paid and non- assessable, (collectively, “Purchased Interests”) of the Company owned by the Sellers in accordance with the Schedule of Purchased Interests attached hereto as Schedule 1.1.
1.2 Consideration for Contribution of the Purchased Interests. Subject to the terms and conditions of this Agreement and in reliance upon the representations, warranties and covenants of Sellers herein contained, and in full consideration of such sale, conveyance, transfer, assignment and delivery of the Purchased Interests to Buyer, Buyer agrees to issue shares of common stock to each Seller as designated in Schedule 1.1, attached hereto, is hereinafter referred to as the “Consideration”).
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1.3 Registration Rights. The Sellers designated in Schedule 1.1 shall receive registration rights as set forth in the Registration Rights Agreement set forth in Exhibit A.
1.4 Stockholders’ Agreement. Each Seller shall execute the Stockholders’ Agreement as set forth in Exhibit B.
2. THE CLOSING AND ISSUANCE OF CONSIDERATION.
2.1 Closing. The closing (“Closing”) with respect to the acquisition of the Purchased Interests under this Agreement and all other transactions contemplated hereby shall take place at 10 AM PDT on September__, 2021 at the law offices of Shustak, Reynolds & Partners located at 401 West A Street, Suite 220, San Diego, CA 92101 (or on such later time and date as the parties may agree). The time and date of the Closing is hereinafter called the “Closing Date.”
2.2 Payment of Consideration. At the Closing, the Buyer shall transfer to the Sellers its shares of common stock of the Buyer, free and clear of all claims, liens, pledges, encumbrances, mortgages, charges, security interests, options, preemptive rights, restrictions or any other interests or imperfections of title whatsoever.
2.3 Transfer of Purchased Interests. At the Closing, the Sellers shall transfer membership interests to Buyer, free and clear of all claims, liens, pledges, encumbrances, mortgages, charges, security interests, options, preemptive rights, restrictions or any other interests or imperfections of title whatsoever. Said transfer shall be affected by making entries on the books of the Company. If any Seller shall fail or refuse to deliver any of the Purchased Interests, or any membership certificate or closing certificate or document required to be delivered by that Seller, at the Closing as provided herein, such default shall not relieve any other Seller of his obligations to comply fully with this Agreement, and the Buyer, at its option and without prejudice to its rights against any such defaulting Seller or Sellers, may (a) acquire only the Purchased Interests which have been delivered to it, or (b) refuse to acquire any Purchased Interests and thereby terminate all of its obligations hereunder to all the Sellers, by delivery of written notice of termination and with no liability of the Buyer to the non-defaulting Sellers. The Sellers acknowledge that the Purchased Interests are unique and not otherwise available, and agree that, in addition to any other available remedies, Buyer may seek any equitable remedies to enforce performance by the Sellers hereunder, including, without limitation, an action for specific performance. If any Seller shall fail to perform his obligations under this Agreement at the Closing, no other Seller shall per se have any liability to Buyer therefor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company and the Sellers, to each of them as specifically set forth below, hereby represent, warrant and agree as of the date hereof and as of the date of the Closing as follows:
3.1 Organization and Qualification of Company. The Company is duly organized, validly existing and in good standing under the laws of California. The Company has all requisite power and authority to own or lease all of its properties and assets and to conduct its business in the manner and in the places where such properties are owned or leased or such business is now conducted by it.
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The books of the Company are current and contain correct and complete copies of the Articles of Organization and Operating Agreement of the Company, including all amendments thereto and restatements thereof. The record book of the Company is also current, correct, and complete and reflects the issuance of all of the membership interests in the Company since the date of its formation.
3.2 Authority of Company and the Sellers. This Agreement and each of the agreements and other documents and instruments delivered or to be delivered to Buyer pursuant to or in contemplation of this Agreement will constitute, when so delivered, the valid and binding obligations of such of Sellers as are parties thereto and shall be enforceable in accordance with their respective terms. The execution, delivery and performance of this Agreement and each of the agreements and other documents and instruments delivered or to be delivered to Buyer by Sellers or the Company have been duly authorized by all necessary action of Sellers and, with respect to Company, are within Company’s powers.
The execution, delivery and performance of any such agreement, document or instrument by any of the Sellers and the execution, delivery and performance of this Agreement or any other agreement, document or instrument by any of the sellers and the Company, except as specifically identified on the Schedule of Breaches, Defaults and Required Consents attached hereto as Schedule 3.2 does not, and will not, with the passage of time or the giving of notice or both:
(i) result in a breach of or constitute a default or result in any right of termination or other effect adverse to the Company under any indenture or loan or credit agreement of any of the Sellers or the Company, or any other agreement, lease or instrument to which any of the Sellers or the Company is a party or by which the property of any of the Sellers or the Company is bound or affected;
(ii) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance or claim of any nature whatsoever on the Purchased Interests or any property or assets now owned, leased or used by the Company;
(iii) result in a violation of or default under any law, rule, or regulation, or any order, writ, judgment, injunction, decree, determination, award, now in effect having applicability to any of the Sellers or the Purchased Interests;
(iv) violate any provisions of the Articles of Organization or the Operating Agreement of the Company, or
(v) require any approval, consent or waiver of, or filing with, any entity, private or governmental.
3.3 Subsidiaries and Investments. Except as specifically disclosed on the Schedule of Subsidiaries and Investments attached hereto as Schedule 3.3, the Company has no subsidiaries and does not own any securities of or other interests or interests in, any firm, corporation, partnership, joint venture, trust, association, estate, joint stock company, organization, enterprise or entity, except temporary investments in the ordinary course of business.
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3.4 Capitalization. The authorized membership interests of the Company consists of those membership interests issued and outstanding. The Purchased Interests has been duly and validly authorized, and is duly and validly issued, fully paid and non-assessable. Except as set forth on Schedule 1.1, the Purchased Interests are free and clear of any and all claims, liens, pledges, charges, encumbrances, mortgages, security interests, options, preemptive or other rights, restrictions on transfer, or other interests or equities or imperfections of title whatsoever. There are no other equity securities of Company outstanding on the date hereof and there are no existing warrants, preemptive or other rights, options, calls, commitments, conversion privileges, or other agreements (all the foregoing being collectively called “Options”) obligating Company to any membership interests of the Company. The Company has no membership interests of any class authorized or outstanding except as identified herein. The Purchased Interests represents one hundred percent (100%) of the issued and outstanding membership interests of the Company. To the Best Knowledge of the Company, the Purchased Interests and Options issued to date by the Company, or any subsidiary, were issued in transactions exempt from registration under the federal Securities Act of 1933, as amended (the “Securities Act”) and under applicable state securities or Blue Sky laws (the “State Laws”). To the Best Knowledge of the Company, it has not violated the Securities Act or the State Laws in connection with the issuance of any shares of capital stock or other securities from the date of organization through the Closing Date.
3.5 Valid Title to Purchased Interests. The Sellers have in accordance with Schedule 1.1, and will deliver to Buyer, valid and marketable title to the Purchased Interests at the Closing, free and clear of any claims, liens, pledges, charges, encumbrances, mortgages, security, interests, options, preemptive or other rights, restrictions on transfer or other interest or equities or any other imperfections of title whatsoever. Each Seller, as to himself only, represents and warrants that he has full power and lawful authority to execute and deliver this Agreement and to consummate and perform the transactions contemplated hereby; and that the execution and delivery of this Agreement by him and the consummation and performance of the transactions contemplated hereby by him are and will be the legal, valid and binding obligation of such Seller, enforceable against him in accordance with their terms.
3.6 Assets.
(a) Physical Assets, Cash, Machinery. All assets of the Company included in Company’s Interim Date Balance Sheet (as hereinafter defined), other than those disposed of since the Interim Date in the ordinary course of business, are at the date of the Closing, the assets associated with and necessary to the business and operations of Company. With respect to the machinery and equipment owned by the Company, Sellers make no representation, warranty, express or implied, including in particular the implied warranties of merchantability and fitness for a particular purpose, other than the warranty of title and that such machinery and equipment (i) is and will be as of the Closing Date in good operating condition for its intended purposes in the operation of the business as heretofore conducted by Seller, ordinary wear and tear excepted, (ii) has been maintained on an “as needed” basis consistent with the Company’s past practice and, (iii) is substantially adequate for current needs and, currently projected production levels of the Company, including the processing of the existing backlog on a basis consistent with the Company’s past practice. The machinery, equipment and other like assets have been and will be, up to the Closing, operated in a manner consistent with the Company’s present operating practices.
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(b) Liens. Except as listed on Schedule 3.6(b) hereto, Company has good and marketable title to all its assets (including, without limiting the generality of the foregoing, those reflected in the Balance Sheet (as hereinafter defined), except as since sold or otherwise disposed of in the ordinary and normal course of business on commercially reasonable terms), free and clear of all claims, liens, pledges, charges, mortgages, security interests, encumbrances, equities or other imperfections of title of any nature whatsoever, except for liens for current taxes and assessments not yet due and payable.
(c) Inventory. The inventory of the Company reflected on the Balance Sheet or existing at the date hereof has been acquired in the ordinary course of the Company’s business and is of a quality and quantity saleable in the ordinary course of the Company’s business at prevailing market prices; is valued at lower of cost or market and reflects write-downs to realizable values in the case of items which have become unsaleable or slow moving (except at prices less than cost) through regular distribution channels in the Company’s business.
(d) Real Estate. With the exception of the real estate and buildings and improvements thereon which the Company owns and operates at 3400 Wilbur Avenue, Antioch, CA 94509 and described on Schedule 3.6(d) (the “Real Estate”), the Company does not own or lease any real estate. With respect to the Real Estate:
(i) The Real Estate and the operations conducted thereon and the uses made thereof are in compliance with all, and are not in violation of any, applicable federal, state or local statute, ordinance, code, order, requirement, law, rule or regulation relating to occupational health or safety, building or zoning matters. Sellers have delivered to Buyer true, complete and correct copies or results of any reports, studies or tests in the possession of or initiated by any of Sellers pertaining to the existence of toxic waste on any part of the Real Estate or concerning compliance with or liability under laws relating to toxic waste and other environmental matters in the operation of the business of the Company and the Real Estate, or other environmental concerns with respect to the Real Estate, a copy of which reports, studies or tests being attached hereto as Schedule 3.6(d)(i).
(ii) No written or oral notice of violation of any applicable federal, state or local statute, ordinance, order, requirement, law, rule, regulation, or of any covenant, condition, restriction or easement affecting the Real Estate, with respect to the use or occupancy of the Real Estate, has been given by any person having jurisdiction over the Real Estate or by any other person entitled to enforce the same, or to the best of Company’s knowledge, any other person or entity since the date of Company’s ownership of the Real Estate.
(iii) To the best of Company’s knowledge, without having made any investigation, there is no plan, study or effort by any governmental authority or any other person or entity having jurisdiction over the Real Estate which may prevent or hinder the continued use of the Real Estate as heretofore used in the conduct of the Company’s business.
(iv) To the best of Company’s knowledge, without having made any investigation, there is no intended or proposed federal, state or local statute, ordinance, order, requirement, law, rule or regulation (including, but not limited to, zoning changes) intended or proposed by any governmental authority or agency or any other person or entity having jurisdiction over the Real Estate which may prevent or hinder the continued use of the Real Estate as heretofore used in the conduct of the Company’s business. There is no suit, action, claim or legal, administrative, arbitration or other proceeding or governmental investigation pending (including, but not limited to any eminent domain proceeding) or, to the best of Sellers’ knowledge, without having made any investigation, intended or proposed by any governmental authority or agency or any other person or entity having jurisdiction over the Real Estate against or affecting the Real Estate or the use thereof.
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(v) Company has not received any actual oral or written notice of any existing plan to modify or realign any street or highway or eminent domain proceeding that would result in the taking of all or any part of the Real Estate or that would prevent or hinder the continued use of the Real Estate as heretofore used in the conduct of the Company’s business, nor have Sellers received any actual oral or written notice that any such plan is intended or proposed.
(vi) Except as set forth on the Schedule of Liens and Encumbrances attached hereto as Schedule 3.6(b), there are no encroachments onto the Real Estate of any improvements of any adjoining property, nor does the Real Estate or any improvements thereon encroach onto any adjoining property.
(vii) There are no unpaid taxes, assessments (special, general or otherwise) or bonds of any nature affecting the Real Estate or any portion thereof.
(viii) All covenants, conditions, restrictions, easements and similar matters of record or of which Sellers have actual knowledge affecting the Real Estate are presently and at Closing shall be complied with in all material respects.
(ix) Neither this Agreement nor anything provided to be done under this Agreement violates or shall violate any contract, document, understanding, agreement, arrangement or instrument affecting the Real Estate to which the Company is a party.
(x) Sellers represent that the buildings on the Real Estate are, and as of the Closing Date will be, structurally sound in all material respects for their current use and purpose, namely, as a cannabis facility for the Company. Buyer shall accept the Real Estate “as is” and in its present condition on the Closing Date, subject to normal wear and tear, without claim against the Company for any defects therein of any kind, latent or otherwise, and agrees that the Company made no warranty or representation, express or implied, as to the condition of the Real Estate or any portion thereof or as to its permitted uses.
(xi) Sellers have not received any written or oral actual notice from either the Company’s insurance carriers or the United States Department of Labor Occupational Health and Safety Administration specifying any corrective items in respect of the Real Estate, the operations conducted thereon, or the uses made thereof.
(xii) The Company owns good and marketable fee simple absolute title to the Real Estate free and clear of any and all mortgages, deeds of trust, liens, encumbrances, claims, charges, security interests, equities, covenants, conditions, restrictions, easements, rights of way or other matters affecting the Real Estate of record or of which Sellers have actual knowledge, except as set forth on Schedule 3.6(d).
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3.7 Conduct of the Business. The Company is not a party to, or subject to or bound by nor are any of its assets subject to or bound by any agreement, oral or written, or any judgment, law, rule, regulation, order, writ, injunction or decree of any court or governmental or administrative body which prohibits or adversely affects or upon the consummation of the transactions contemplated hereby would prohibit or adversely affect: (i) the use of any or all of the assets and property of Company necessary for operation in the ordinary and usual course of business; or (ii) the conduct of its business and operations, in each case, in all respects in the same manner as such business has been conducted by it. Company has all properties and rights necessary to conduct the business and operations of the Company in all material respects in substantially the same manner as such business has been conducted by it prior to the date hereof. Except as disclosed on the Schedule of Consents, Permits, Authorizations and Security Clearances attached hereto as Schedule 3.7(a), neither Sellers nor the Company is required by any person or governmental authority to obtain any consents, authorizations, licenses, permits, orders, certificates, registrations, qualifications or security clearances for the conduct of Company’s business (including qualifications to transact business as a foreign corporation in various states); and, except as set forth on Schedule 3.7(a), Sellers and Company have obtained all such consents, authorizations, licenses, permits, orders, certificates, registrations, qualifications and security clearances; the same are valid and subsisting; and, except as set forth on Schedule 3.7(a), the consummation of this Agreement will not invalidate the same. The business and operations of the Company have been, and are being conducted in compliance with all applicable statutes, ordinances, orders, rules and regulations of any federal, state or local governmental authority (including without limitation those relating to fair labor practices and standards, equal employment practices and occupational safety and health and federal procurement). The Company has not failed in any material way to comply with any law, order or regulation, in any way applicable to or affecting the Company’s business of any governmental commission, board or agency or instrumentality, domestic or foreign, having jurisdiction over the Company or its operations, including, without limitation, laws, orders and regulations thereof relating to zoning, building codes, antitrust, occupational safety and health, consumer product safety, product liability, hiring, wages, employee benefit plans and programs, collective bargaining and the payment of withholding and Social Security taxes, and the Company has not received any actual written or oral notices or other communication from any such agency with respect to an alleged, actual or potential violation and/or failure of Company to comply with any of the foregoing.
The Sellers have no reason to believe that business relations currently maintained with Company’s significant suppliers, customers and others will not be similarly maintained in all substantial respects after the date hereof and the date of the Closing. Without limiting the generality of the foregoing no supplier, distributor or customer of the Company has notified the Company that it intends to discontinue its relationship with the Company.
3.8 Financial Statements and Undisclosed Liabilities.
(a) The Company has delivered to the Buyer its unaudited balance sheet (“Balance Sheet”) as of June 30, 2020 (the “Interim Date”) and its audited financial statements of the Company for the period ended December 31, 2020 (all of which financial statements are collectively referred to as “Interim Financial Statements”). The Interim Financial Statements and similar balance sheets and statements for periods subsequent to those covered by the Interim Financial Statements are hereinafter referred to as “Financial Statements.”
(b) All of the Financial Statements: (i) are true and correct in all material respects and present fairly the financial position of the Company as of the dates thereof and the results of operations and changes in financial position for the respective periods covered by such statements, and (ii) have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with Company’s past practices.
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(c) The Company does not have any indebtedness, liability, claim or obligation of any nature, fixed or contingent, choate or inchoate, liquidated or unliquidated, secured or unsecured or otherwise of any kind or nature whatsoever, except: (i) as shown dollar for dollar on the Balance Sheet or incurred in the ordinary course of business on commercially reasonable terms subsequent to the Interim Date; or (ii) commercial obligations to perform pursuant to executory obligations not in default as disclosed pursuant to this Agreement. To the best of Sellers’ knowledge, there is no existing condition, situation or set of circumstances which will result in any such liabilities.
(d) The accounts receivable shown on the Interim Financial Statements or those acquired after the Interim Date and not collected prior to the date hereof arose in the ordinary and normal course of business and represent accounts validly due for goods sold or services rendered or validly incurred indebtedness on the part of those obligated thereon, are fully collectible in the ordinary course of business in the aggregate face amounts thereof without offset or counterclaim, net of the reserve for doubtful accounts shown on the Balance Sheet, if any, which reserve, if any, has been determined on a basis which is consistent with prior periods, and there are no facts actually known to Sellers to cause an increase in such reserve. Notwithstanding the foregoing,
The books of account of the Company reflect as of the dates shown thereon substantially all of its material items of income and expense, and all of its assets, liabilities, liens and accruals required to be reflected therein.
3.9 Taxes. The amounts stated as provisions for taxes on the Balance Sheet are sufficient for the payment of all federal, state, local and foreign taxes, assessments and other governmental charges or levies, and all employment and payroll-related taxes, including any penalties and interest (collectively referred to in this Agreement as “taxes”) thereon, whether or not based upon or measured by, in whole or in part, net income, and whether or not disputed, of the Company accrued for or applicable to all periods ended on or prior to the Interim Date. The Company has duly made all deposits required by law with respect to employees withholding taxes and has duly filed with all appropriate governmental agencies and bodies (whether federal, state, local or foreign) all income, sales, use, license, franchise, excise, gross receipts, employment and payroll-related and real and personal property tax returns and all other tax returns which were required to be filed, all of which properly reflect the taxes owed by the Company or any subsidiary for the periods covered thereby, and has paid, or has established adequate reserves (as required by generally accepted accounting principles) for the payment of, all taxes shown to be due on such returns, except in each case sales and use taxes in those instances where the customers of the Company are contractually obligated to pay the tax. The Company has not received any notice of assessment or deficiency or proposed assessment by the U.S. Internal Revenue Service or any other taxing authority in connection with such tax returns for taxes due in excess of $10,000 and there is no pending tax examination of or tax claim immediately due and payable asserted against the Company or its properties, except those disclosed in Schedule 3.9. There is no tax lien on any of the assets of the Company, except for liens for taxes not yet due and payable. No federal or state income tax return filed by the Company has been audited, and no agreements for the extension of time or the waiver of the statute of limitations for the assessment of any deficiency or adjustment for any year is in effect. Correct and complete copies of all federal and state income tax returns filed by the Company have been delivered to Buyer.
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3.10 Patents, Trade Names, Trademarks and Copyrights.
All patents, patent applications, trade names, registered or common law trademarks, trademark applications and copyrights owned by or licensed to Company are listed in the Schedule of Patents, Trademarks and Copyrights attached hereto as Schedule 3.10 and have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices of other countries, states or other jurisdictions to the extent all patents, patent applications, trade names, registered or common law trademarks, trademark applications and copyrights owned by or licensed to Company are listed in the Schedule of Patents, Trademarks and Copyrights attached hereto as Schedule 3.10 and have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices of other countries, states or other jurisdictions to the extent set forth on said Schedule 3.10, and have been properly maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and each such country, state or other jurisdictions. Except as set forth in said Schedule 3.10, use of said patents, trade names, trademarks or copyrights does not require the consent of any third party and the same are freely transferable (except as otherwise provided by applicable law or in Schedule 3.10) and are owned exclusively by Company free and clear of any attachments, liens, encumbrances or adverse claims. No outstanding order, decree, judgment or stipulation, and no proceeding charging Company with infringement of any adversely held patent, trade name, trademark or copyright has been filed or, to the best of the Company’s knowledge, is threatened to be filed and the continuing conduct of the business of Company will not result in the infringement of any patents, patent applications, trade names, trademarks, copyrights or other rights owned by or owed to any third party. Except as specifically disclosed in Schedule 3.10, the Company has not used and does not need to use or rely upon any patent, trade name, trademark or copyright in order to conduct its business as presently being conducted or presently contemplated to be conducted.
The Company has the right to use, free and clear of any claims or rights of any third party, all trade secrets, customer lists, manufacturing processes, secret processes, know-how and any other confidential information required for or used in the manufacture or marketing of all products either being sold or manufactured by Company, including, without limitation, any products licensed by Company from others. The Company is not in any way making any unlawful or wrongful use of any trade secrets, customer lists, manufacturing processes, secret processes, know-how or any other confidential information of any third party, including, without limitation, any former employer of any present or past employee of Company. Neither the Sellers nor, to the best of Seller knowledge, any officer, director or key employee (which shall mean any person at or above the office of Vice President), of the Company is a party to any non-competition agreement, non-disclosure agreement, or similar agreement with any third party.
3.11 List of Contracts. Except for the contracts, commitments, plans, agreements and licenses described in the Schedule of Contracts and Commitments attached hereto as Schedule 3.11, and except for items involving less than five thousand dollars ($5,000), the Company is not a party to, nor is any of its properties or assets subject to or otherwise bound by, any:
(a) Contract with any present or former Stockholder, director, officer or employee, agent or consultant;
(b) Collective bargaining agreement (or any side agreement, local understanding or settlement agreement relating to any such collective bargaining agreement) or any agreement or contract with any labor union or other employees’ association;
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(c) Lease or similar agreement regarding any real property or personal property involving annualized payments or potential payments by or to the Company of at least thirty thousand dollars ($30,000);
(d) Any contract involving more than ten thousand dollars ($10,000) for the future purchase of commodities, materials, inventory, ingredients, supplies, products, merchandise, services or equipment;
(e) Bonus, pension, profit-sharing, retirement or any hospitalization, or insurance or similar plan or practice, formal or informal, in effect with respect to employees of the Company or any other person or entity;
(f) Franchise, dealer, distribution, sales or agency contract or commitment;
(g) Any other outstanding contract of sale involving more than ten thousand dollars ($10,000), or any distribution agreement, representative or sales agency agreement, creating any obligation of Company to sell or distribute products;
(h) Guarantees or indemnities, direct or indirect, current or contingent, of the obligations of customers of the Company or any other person or entity;
(i) Contracts with suppliers, vendors, distributors, clients, customers or others for the future performance of services or provision of goods by or for Company which are not terminable by the Company on less than thirty (30) days prior notice without penalty;
(j) Insurance policy;
(k) Advertising contract or commitment;
(l) Bank account, lock box or similar depository arrangements;
(m) Any license or franchise agreement (as licensor/franchisor or licensee/franchisee);
(n) Any real estate mortgage, loan or credit agreement with any lender, any indenture, pledge, conditional sale or title retention agreement, equipment obligation or lease, or lease purchase agreement;
(o) Any agreement restricting the freedom of the Company or of its employees, to compete in any line of business, in any geographic area or with any person or entity.
(p) Any other material contracts affecting the Company.
(q) Any contract of the Company to which the United States government or any agency thereof is a party.
All the contracts and commitments listed in said Schedule 3.11 are valid and binding obligations of the Company and of the other parties thereto in accordance with their respective terms and conditions except as set forth on Schedule 3.11.
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There has been no breach or default of any provisions of any such contract, commitment, lease or other agreement by the Company, or to the best of the Company’s knowledge, any other party thereto, and nothing has occurred which, with lapse of time or the giving of notice or both, would constitute a breach or default by the Company, or to the best of the Company’s knowledge, by any other party thereto with respect to any such contract or commitment or which would cause acceleration of any obligation of any party thereto or the creation of any lien, encumbrance, security interest in or upon the Purchased Interests, or the assets of Company. Buyer has been furnished with true and complete copies of all scheduled contracts and commitments.
3.12 Litigation. Except as set forth on Schedule 3.12, there is no action, suit, proceeding or investigations pending against the Company, and, to the best of the Company’s knowledge after reasonable inquiry, there is no threatened action, suit, proceeding or investigation against the Company, nor has the Company received any written or oral actual notice of any such action, suit, proceeding or investigation. No judgement, order, writ, injunction or decree or award has been issued by or, so far as is known by the Company after reasonable inquiry, requested of any court or governmental agency which might result in an adverse change in the business, property or assets, or in the condition, financial or otherwise, of Company or which might adversely affect the transactions contemplated by this Agreement. The Company has never been subject to any bankruptcy or other insolvency proceedings.
3.13 Absence of Changes. Since the Interim Date, the Company has conducted its business only in the ordinary course and Company has not, as of the date hereof, either directly or indirectly since the Interim Date:
(a) incurred any obligation or liability (absolute, accrued, contingent or otherwise), other than current liabilities incurred and obligations otherwise permitted by this Agreement;
(b) mortgaged, pledged or subjected to lien, charge or any encumbrance or other imperfections of title any of its assets, tangible or intangible;
(c) purchased, sold, assigned, transferred, abandoned or otherwise disposed of any assets other than on commercially reasonable terms in the ordinary and normal course of its business, or cancelled any debts or claims, other than in the ordinary and normal course of business on commercially reasonable terms and in amounts which in the aggregate are not material;
(d) experienced any materially adverse change in its financial position, assets, liabilities or business;
(e) entered into any transaction other than in the ordinary and normal course of business on commercially reasonable terms in amounts in the aggregate that are not material;
(f) issued any stock, bonds, convertible securities or other securities, or become obligated to issue any such securities or granted any stock options, warrants, calls, conversion privileges, commitments or rights with respect to such securities;
(g) declared, set aside or paid any dividend on, or made any other distribution in respect of, the capital stock of Company or made any direct or indirect redemption, purchase or other acquisition by Company of its own capital stock (or any agreement under which Company has become obligated to do any of the foregoing);
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(h) entered into any compromise or settlement of any litigation, proceeding or governmental investigation relating to Company or its assets, properties, rights or business;
(i) changed or amended the Articles of Organization or the Operating Agreement of the Company;
(j) suffered any damage, destruction or loss whether or not covered by insurance which might materially adversely affect the property, business or operations of the Company;
(k) made or suffered any amendment, modification or termination of any material contract or agreement which might adversely affect the properties, business or operations of the Company;
(l) received actual notice of any labor trouble, difficulty, dispute or organizing effort involving any employees of the Company;
(m) made any loans (other than travel expense advances, and other loans in amounts of less than ten thousand dollars ($10,000) each) to any stockholders, directors, officers or employees of Company;
(n) except as provided for in this Agreement, changed the number or kind of shares of capital stock authorized, issued or outstanding;
(o) formed any subsidiaries or merged or consolidated, or obligated itself to do so, with or into any other entity;
(p) repaid any loans or other advances from stockholders or partners or repaid any indebtedness of the Company for which any stockholder was a guarantor or was otherwise directly or indirectly liable;
(q) waived any rights, contractual or otherwise, whether or not in the ordinary course of business;
(r) paid or discharged any lien or liability of Company which was not shown on the Interim Date Balance Sheet or incurred in the ordinary course of business thereafter;
(s) incurred any obligation or liability on behalf of Company to any of its officers, directors, employees or Sellers (including, without limitation, any increase in compensation or bonuses payable to such officers, directors or employees earning more than ten thousand dollars ($10,000) per year) or any loans or advances made by Company to any of its officers, directors, employees or stockholders except normal compensation and expense allowances payable to such persons in the ordinary course of business of the Company;
(t) entered into any lease or sublease, pledge or hypothecation of real or personal property or of any of the Company’s assets.
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3.14 Insurance. The Schedule of Insurance attached hereto as Schedule 3.14 contains a correct and complete list of all policies (including binders) of insurance held by or on behalf of the Company or relating to its business or any of its assets (specifying the insurer, the amount of coverage, type of insurance, risks insured, any pending claims thereunder and claims history in the last twenty-four (24) months). To the Best Knowledge of the Company, such policies are valid and enforceable in accordance with their respective terms and are outstanding and duly in force as of the date hereof. Except as set forth in Schedule 3.14, there is no default with respect to any provision contained in any such policy, nor has there been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required thereby, which has had or reasonably might have a material adverse effect on the enforceability of substantial rights of the Company under any such policy. There are no claims that are not accrued on the Balance Sheet, and there are no unusual provisions for retroactive or retrospective premium adjustments or cancellation or nonrenewal. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any policy has been received by the Company. No policy of the Company has been cancelled by the issuer within the last three (3) years. Except, as set forth on any Schedule hereto, to the Company’s Best Knowledge, there is no state of facts and no event has occurred which reasonably might form the basis of any claim against or relating to the Company or its business or operations or any of its assets which are covered by any of such policies, or which might materially increase the premiums (other than general increases and additions to assets covered) payable under any such policy. Schedule 3.14 also contains a true and complete description of all outstanding bonds and other surety arrangements issued or entered into in connection with the Company or its business.
3.15 Insider Indebtedness. No officer, director or stockholder of Company is indebted to Company or otherwise owes Company any money.
3.16 Employee Benefit Plans. Schedule 3.16 sets forth a complete and accurate description of all employee benefit plans and all collective bargaining agreements relating to employee benefits with respect to which the Company has or may incur any future or contingent obligations, including, without limitation, all plans, agreements, arrangements, or policies relating to deferred compensation, incentive compensation, holiday, vacation, pensions, profit sharing, retirement income or other benefits, stock purchase and stock option plans, bonuses, severance arrangements, health benefits, insurance benefits and all other employee benefit or fringe benefits, including any employee welfare benefit plans and employee pension benefit plans within the meaning of Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (collectively referred to as the “Plans”).
3.17 Governmental and Other Approvals. Except as set forth in Schedule 3.2, all requisite consents, authorizations, licenses, permits, orders, certificates and approvals of all governmental authorities or other parties necessary for the Sellers and the Company to consummate the transactions contemplated by this Agreement will be obtained as of the time of Closing. The Company has all consents, licenses, permits, registrations, approvals and certificates required under applicable law or regulation, federal, state and local, necessary to the ownership of all of the assets of the Company and necessary to the operation of the Company’s business as presently conducted and as presently contemplated. The Company and its operations have conformed and presently conform to all laws, ordinances, requirements, regulations or orders, including, without limitation, those relating to fair labor practices and standards, equal employment practices, or occupational safety and health applicable to the conduct of the Company’s business and the ownership and management of any of its property.
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3.18 Environmental Protection.
(a) The Company has obtained and will maintain through the Closing Date all permits, licenses, certificates and other authorizations which are required with respect to the operation of its business under federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes (the “Environmental Laws”).
(b) The Company is in compliance in all respects with all terms and conditions of the required permits, licenses and authorizations required by the Environmental Laws, and is also in full compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. The Company has heretofore delivered to Buyer true and complete copies of all environmental studies made in the last three
(3) years relating to its business.
(c) There is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending, relating to the Company’s business or, to the best knowledge of the Company, threatened against the Company, relating in any way to the Environmental Laws or any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder.
(d) There are no past or present (or, to the best knowledge of the Sellers, anticipated) events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance with the Environmental Laws or with any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, or which may give rise to any common law or legal liability, including, without limitation, liability under the Clean Water Act, the Clear Air Act, Occupational Safety and Health Act of 1970, as amended, the Environmental Protection Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or similar state or local laws, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, by the Company of any pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or waste.
(e) There has been no emission, spill, release or discharge whether from any Company location or disposal site, into or upon (i) the air, (ii) soils or improvements, (iii) surface water or ground water, or (iv) the sewer, septic system or waste treatment, storage or disposal system servicing such sites of any toxic or hazardous substances or wastes used, stored, generated, treated or disposed at or from any of the aforementioned sites (any of which events is hereafter referred to as “Hazardous Discharge”). All of the Company’s assets are free of all toxic or hazardous substances or wastes.
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(f) There has been no complaint, order, directive, claim, citation or notice by any governmental authority or any other person or entity with respect to (i) air emissions, (ii) spills, releases or discharges to soils or any improvements located thereon, surface water, ground water or the sewer, septic system or waste treatment, storage or disposal systems servicing any Company location or disposal site, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes or (vi) other environmental, health or safety matters affecting the Company, any real property related to the operation of the Company’s business, any improvements located thereon or the business therein conducted (any of which is hereafter referred to as an “Environmental Complaint”).
(g) Prior to the Closing there shall not occur any Hazardous Discharge.
3.19 Certificate of Organization. The Certificate of Organization of the Company and all amendments thereto to the Certificate have been validly adopted by the stockholders and directors of the Company and the Certificate of Organization, as amended, is in full force and effect and is legal, valid, binding and enforceable in accordance with its terms.
3.20 Operating Agreement. The Operating agreement of the Company, and all amendments to the Operating Agreement, have been validly adopted, and the Operating Agreement, as amended, is in full force and effect and are legal, valid, binding and enforceable in accordance with its terms.
3.21 Labor Relations. Except as set forth in Schedule 3.21 (a) the Company is in compliance in all respects with all federal, state and local laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice; (b) there is no unfair labor practice complaint against the Company pending or, to the best knowledge of the Company, threatened. There are no proceedings pending or, to the best knowledge of the Company, threatened before the National Labor Relations Board with respect to the Company; (c) there are no discrimination charges (relating to sex, age, race, national origin, handicap or veteran status) pending before any federal or state agency or authority; (d) there is no labor strike or similar material dispute pending or, to the best knowledge of Sellers, threatened against or involving the Company; (e) there is no pending representation question involving an attempt to organize a bargaining unit including any employees of the Company and no labor grievance has been filed within the past twelve (12) months with the Company which has had or will have a material adverse effect on the Company;
(e) there is no arbitration proceeding under any collective bargaining agreement pending or, to the best knowledge of the Company, threatened.
3.22 Members. The Company has no members other than the Sellers.
3.23 Non-Affiliation. Except as disclosed in Schedule 3.11, neither Sellers nor the Company nor any corporation or firm in which any of them owns stock or has any beneficial interest, is a party to or has any beneficial interest in any contract, agreement, undertaking, obligation or arrangement to which the Company is a party or by which the Company or any of its properties is bound or subject, or has any ownership interest (other than an investment in a publicly held corporation, not exceeding five percent (5%) of the outstanding capital stock of such corporation) with any customer, competitor, supplier or distributor of the Company.
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3.24 Disclosure. No representation or warranty in this and no statement contained elsewhere in this Agreement or in any Schedule, Exhibit, Certificate or other document furnished or to be furnished to Buyer pursuant hereto or in connection with the transactions contemplated under this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. There is no fact, which materially and adversely affects, or, to the best of Sellers’ knowledge, in the future may materially and adversely affect, the condition of the Company which has not been set forth herein. With respect to all representations and warranties herein which are made “to the best of the Company’s knowledge,” the Company shall be deemed to have knowledge of any matter or fact if any of the Company’s senior management, which shall mean any person at or above the office of Vice President, has actual personal knowledge of such matter or fact.
4. REPRESENTATIONS AND WARRANTIES BY BUYER.
As of the date hereof and as of the date of the Closing, Buyer represents and warrants as follows:
4.1 Organization and Qualification of Buyer. Buyer is duly organized, validly existing and in good standing under the laws of Wyoming. Buyer has full corporate power and authority to own or lease all of its properties and assets and to conduct its business in the manner and in the places where such properties are owned and leased or such business is now conducted by it.
4.2 Authority of Buyer. This Agreement and each of the agreements and other documents and instruments delivered or to be delivered by Buyer pursuant to or in contemplation of this Agreement will constitute, when so delivered, the valid and binding obligation of Buyer and shall be enforceable in accordance with their respective terms. The execution, delivery and performance of this Agreement and each such agreement, document and instrument has been duly authorized by all necessary corporate action of Buyer and is within Buyer’s corporate powers. The execution, delivery and performance of any such agreement, document or instrument by Buyer and the execution, delivery and performance of this Agreement or any other agreement, document or instrument by the Buyer does not and will not with the passage of time or the giving of notice or both:
(i) result in a breach of or constitute a default under any indenture or loan or credit agreement or under any agreement of the Buyer, or any other material agreement, lease or instrument to which Buyer is a party or by which the property of Buyer is bound or affected;
(ii) result in a violation of or default under any law, rule, or regulation, or any order, writ, judgment, injunction, decree, determination, award, indenture, material agreement, lease or instrument now in effect having applicability to Buyer;
(iii) violate any provisions of the Certificate of Incorporation or Bylaws of Buyer; or
(iv) require any approval, consent or waiver of, or filing with, any entity, private or governmental, which has not been obtained.
4.3 Governmental Approvals. All requisite consents, authorizations, licenses, permits, orders, certificates and approvals of all third parties and/or governmental agencies, including without limitation any governmental agency or authority of the United States, or other jurisdiction whose approval is necessary for Buyer to consummate the transactions contemplated by this Agreement have been obtained.
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4.4 Disclosure. No representation or warranty in this Article 4, and no statement contained elsewhere in this Agreement or in any schedule, exhibit, certificate or other document furnished or to be furnished by Buyer to Sellers pursuant hereto or in connection with the transactions contemplated under this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading.
5. REPRESENTATIONS AND WARRANTIES BY EACH OF THE SELLERS.
5.1 Purchase for Investment. Each Seller hereby represents and warrants to the Buyer that such Seller is acquiring the Consideration for its own account, for investment, and not with a view to the distribution thereof in violation of the Securities Act of 1933 or of the State Laws. Each Seller understands that the Consideration has not been registered under the Securities Act of 1933 or the State Laws, by reason of their sale to each Seller in transactions exempt from registration; and, that the Consideration must be held by each Seller indefinitely unless a subsequent disposition thereof is registered under the Securities Act of 1933 and the State Laws or is exempt from registration.
Each Seller represents and warrants to the Buyer that the sale of the Consideration to it hereunder is exempt from registration under the provisions of Section 4(a)(2) of the Securities Act of 1933.
5.2 Accredited Investor. Except as set forth in Schedule 5.2, each Seller is an accredited investor as such term is defined in Rule 501 of Regulation D under the Securities Act. Each Seller has such knowledge and experience in financial and business matters that each Seller is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment without impairing the Investor’s financial condition and is able to bear the economic risk of such investment for an indefinite period of time.
5.3 Other Representations by Each Seller. Each Seller has reviewed and considered those materials delivered to each Seller by the Buyer in connection with this Agreement, and each Seller is sufficiently familiar with the business of the Buyer to have evaluated the decision to make an investment in the Buyer. Further, each Seller has been afforded an opportunity to make inquiries concerning the Buyer or any other matters relating to the issuance of the Consideration and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of the representations and warranties of the Buyer.
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6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
6.1 Survival of Representations and Warranties. All representations, warranties, covenants and obligations herein or in any Exhibit, Schedule, certificate or financial statement delivered by either party to the other party incident to the transactions contemplated hereby shall be deemed to have been relied upon by the other party, shall survive the execution and delivery of this Agreement, any investigation at any time made by any party hereto, and the issuance, sale and purchase of the Purchased Interests and payment therefor until one (1) year after the Closing Date (the “Cut-off Date”); provided, however, that (a) the representations and warranties of the Company and the Sellers contained in Sections 3.1, 3.2, 3.3, 3.4 and 3.5 shall survive indefinitely after the Closing Date, (b) the representations and warranties of Sellers contained in Section 3.9 shall survive until the expiration of the applicable statutes of limitation as the same may be extended by the Company or Buyer, provided any such extension must be with the prior written approval of Sellers, which approval shall not be unreasonably withheld and (c) the covenants and obligations of the parties contained herein shall be enforceable after the Cut-Off Date subject to any limitations therein set forth. No claim of misrepresentation or breach of any representation, warranty, covenant or obligation may be made by any party hereunder unless notice of such claim is given to the party claimed against on or before the Cut-off Date, or such later survival date as is prescribed for such representation, warranty or covenant in the proviso of the immediately preceding sentence.
6.2 Further Assurances. From time to time after the Closing and without further consideration, the parties will execute and deliver, or arrange for the execution and delivery of such other instruments of conveyance and transfer and take such other action or arrange for such other actions as may reasonably be requested to more effectively complete any of the transactions provided for in this Agreement or any document annexed hereto.
7. INDEMNIFICATION AND SETOFF.
7.1 Indemnification by the Company and Sellers. The Company, and to the extent the Sellers have made representations and warranties as set forth in this Agreement, the Company and the Sellers hereby agree severally, to defend, indemnify and hold Buyer, and its respective officers, directors, shareholders, employees, agents, attorneys and representatives, harmless from and against any damages, liabilities, losses and expenses (including, without limitation, reasonable attorneys’ fees) which may be sustained or suffered by Buyer arising out of, based upon, or by reason of a breach of any representation or warranty, or a failure to perform any agreement or covenant made by the Company or the Sellers in this Agreement or in any exhibit, schedule, certificate or financial statement delivered hereunder, or arising out of, based upon, or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing covered by such breached representations, warranties or covenants; provided, however, that no indemnification shall be payable with respect to any claim for breach of any representation, warranty or covenant asserted by Buyer after the Cut-Off Date or such later survival date as is prescribed for such representation, warranty or covenant in the proviso of the first sentence of Section 6.1 hereof.
7.2 Indemnification by the Buyer. The Buyer hereby agrees to defend, indemnify and hold the Sellers and the Company and their respective employees, agents, attorneys, and representatives, harmless from and against any damages, liabilities, losses and expenses (including, without limitation, reasonable attorneys’ fees) which may be sustained or suffered by the Sellers arising out of, based upon, or by reason of a breach of any representation or warranty, or a failure to perform any agreement or covenant, made by the Buyer in this Agreement or in any exhibit, schedule, certificate or financial statement delivered hereunder, or arising out of, based upon, or by reason of any claim, action or proceeding asserted or instituted growing out of any matter or thing covered by such breached representations, warranties or covenants; provided, however, that no indemnification shall be payable with respect to any claim for breach of any representation, warranty or covenant asserted by Sellers or the Company after the Cut-Off Date or such later survival date as is prescribed for such representation, warranty or covenant in the proviso of the first sentence of Section 6.1 hereof.
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7.3 Notice; Defense of Claims. Each party to this Agreement shall give prompt written notice to the other party or parties to this Agreement under each claim for indemnification hereunder specifying the amount and nature of the claim, and of any matter which is likely to give rise to an indemnification claim. Each party to this Agreement has the right to participate at its own expense in the defense of any such matter or its settlement, or the indemnified party may direct the indemnifying party to take over the defense of such matter so long as such defense is expeditious. Failure to give timely notice of a matter which may give rise to an indemnification claim shall not affect the rights of the indemnified party to collect such claims from the indemnifying party so long as such failure to so notify does not materially adversely affect the indemnifying party’s ability to defend such claim against a third party. No indemnifying party, in the defense of any claim or litigation shall, except with the consent of an indemnified party, which consent shall not be unreasonably withheld or delayed, consent to entry of any judgment or enter into any settlement by which such indemnified party is to be bound and which judgment or settlement does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
8. NON-DISCLOSURE COVENANTS.
8.1 Disclosure of Information. It is understood that the businesses of Company and the Buyer are of a confidential nature. Prior to the date hereof the Company or the Buyer may have revealed and on or after the date hereof the Company and the Buyer may reveal to the Sellers confidential information concerning Company or the Buyer or any of their affiliates or subsidiaries which, if known to competitors thereof, would damage Company or the Buyer or its said affiliates or subsidiaries. The Sellers agree that they will never divulge or appropriate to their own use, or to the use of any third party, any secret or confidential information or knowledge obtained by them concerning Company or the Buyer or their subsidiaries or affiliates, including, but not limited to, information pertaining to methods, processes, designs, equipment, catalogs, customer lists and operating procedures. The restrictions contained in this paragraph against disclosing or using confidential information shall not apply to information which is in the public domain other than by reason of Sellers’ breach of this Agreement or to information previously disclosed by Sellers or the Company to prospective purchasers of the Company, which prospective purchasers have executed and delivered nondisclosure agreements to the Company. Sellers represent that such confidentiality agreements are contracts between the Company and such prospective buyers and that they provide in pertinent part for inter alia: a prohibition on the prospective buyer’s use or disclosure of such confidential information, a return (except for one certain prospective buyer) of the confidential material at the Company’s request, and a prohibition on solicitation of the Company’s employees for a period after the date of execution of the confidentiality agreement.
8.2 Disclosure of Transaction. Neither party shall disclose the contents of this Agreement nor the terms of the sale contemplated hereunder without the prior written consent of the other party.
9. MISCELLANEOUS.
9.1 Taxes. Any taxes in the nature of a sale or transfer tax and any stock transfer tax, payable on the sale or transfer of all or any portion of the Purchased Interests or the consummation of any other transaction contemplated hereby shall be paid by the Buyer.
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9.2 Assignability. Neither this Agreement nor any rights or obligations hereunder, are assignable by Sellers or the Company. The rights of Buyer under this Agreement are assignable in part or wholly to any company controlled by, controlling or under common control with Buyer and any assignee of Buyer shall succeed to and be possessed of the rights of Buyer hereunder to the extent of the assignment made; provided, however, that and such assignment by Buyer shall not relieve Buyer of its obligations hereunder. In addition, after the Closing, Buyer may assign all of its rights and/or obligations under this Agreement to any person who acquires either the stock of Buyer or the Company, or substantially all of the assets of the Company; provided, however, that any such assignment by Buyer shall not relieve Buyer of its obligations hereunder.
9.3 Publicity. Except as otherwise required by law, none of the parties hereto shall issue any press release or make any other public statement relating to or connected with, or arising out of, this Agreement or the matters contained herein, without obtaining the prior approval of the Company to the contents and the manner of presentation and publication thereof.
9.4 Section Headings. The Section and paragraph headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect provisions thereof. All Exhibits and/or Schedules hereto shall be initialed for identification or may be physically annexed hereto, but in either event such Exhibits or Schedules shall be deemed to be a part hereof.
9.5 Waiver. Neither the failure nor any delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, or of any other right, power or remedy or preclude any further or other exercise thereof, or the exercise of any other right, power or remedy.
9.6 Expenses. Except as otherwise provided herein, the Buyer and Sellers shall pay the fees and expenses of their respective accountants and legal counsel incurred in connection with the transactions contemplated by this Agreement.
9.7 Notices. Any notices required or permitted to be given hereunder shall be given in writing and delivered in person or sent certified mail, postage prepaid, return receipt requested, to the respective parties at their addresses set forth at the beginning of this Agreement or at such other addresses as may hereinafter be designated by such party in writing to other parties.
9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of California.
9.9 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the transaction contemplated herein and shall not be modified or amended except by an instrument in writing signed by the parties hereto.
9.10 Validity. The invalidity or unenforceability of any particular provision of this Agreement shall not affect any other provisions hereof, and this Agreement shall be construed in all other respects as if such invalid and unenforceable provisions were omitted.
9.11 Execution Capacity of Sellers. Each of the Sellers hereby acknowledge that their execution of this Agreement as provided below, whether personally or through their attorney-in-fact, shall be in their individual capacities as well as in their capacities as shareholders of the Company.
9.12 Counterparts. This Agreement may be signed in any number of counterparts each of which shall be deemed to be an original and all of which together shall constitute but one and the same instrument. This Agreement may be executed via DocuSign or other similar product.
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IN WITNESS WHEREOF, we have set our hands and seals as of the date first above written.
| Kolaboration Ventures Corporation | ||
| By: |  |
|
| Martin Wesley, its President | ||
| Contra Costa Farms LLC | ||
| By: |  |
|
| Charles Wesley, its Managing Member & CFO | ||
[Contribution Agreement Entity Signature Page.]
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Member Consent
WHEREAS, the Manager has determined it to be in the best interest of the Company to implement a corporate restructuring transaction;
WHEREAS, pursuant to Section 5.4, subsection (i) of the Company’s Operating Agreement, the consent of a majority of the members is required before entering into, on behalf of the Company, any transaction constituting a reorganization;
RESOLVED, the undersigned has determined, and hereby consents to, the reorganization of the Company as outlined in this Contribution Agreement and all other related transaction documents.
The undersigned, a Seller of Purchased Interests, does hereby execute the Contribution Agreement and recognizes his Purchased Interest on Schedule 1.1 and hereby executes the Stockholders’ Agreement attached hereto as Exhibit B.
Seller, on one hand, and the Company, on the other hand, for themselves and their respective predecessors, successors, affiliates, officers, directors, principals, partners, employees, executors, beneficiaries, representatives, agents, assigns, attorneys, and all others claiming by or through them hereby release and forever discharge each other and their respective predecessors, successors, affiliated entities, subsidiaries, parent companies, affiliates, officers, directors, principals, partners, employees, executors, beneficiaries, representatives, agents, assigns, attorneys from any and all action, suits , proceedings, debts, contracts, agreements, promises, damages, claims and demands of any kind, nature or description, known or unknown, whether based upon a tort, contract or other theory of recovery, and whether for compensatory damages, punitive damages or other relief in law, equity or otherwise, that any of the Parties has ever had, now has, or hereafter can, shall or may have for, upon, or by reason of any matter, cause or thing whatsoever from the inception of the Company to the day of the date of this Agreement.
| Seller | ||
| Name: | ||
| Address: | ||
| Email: |
| Phone Number: | ||
| Contra Costa Farms LLC | ||
| By: | ||
| Charles Wesley, its Managing Member and CFO | ||
| 22 |
[Contribution Agreement Seller Signature Page.]
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
| 23 |
EXHIBIT B
STOCKHOLDERS’ AGREEMENT
| 24 |
SCHEDULES
Schedule 1.1—Purchased Interests
Schedule 1.3—Vesting of Unvested Shares
Schedule 3.2—Breaches, Defaults and Required Consents
Schedule 3.3—Subsidiaries and Investments
Schedule 3.6(b)—Liens and Encumbrances
Schedule 3.6(d)—Real Estate Owned
Schedule 3.6(d)(i)—Environmental Reports, Inspection Reports and Repair Estimates
Schedule 3.7(a)—Consents, Permits, Authorizations and Security Clearances
Schedule 3.9—Taxes
Schedule 3.10—Patents, Trademarks and Copyrights
Schedule 3.11—Contracts and Commitments
Schedule 3.12—Pending and Threatened Litigation
Schedule 3.14—Insurance
Schedule 3.16—Employee Benefit Plans
Schedule 3.18—Environmental Matters
Schedule 3.21—Labor Relations
| 25 |
Schedule 1.1—Purchased Interests
Contra Costa Farms LLC
| Member | Percentage | Vested Share Conversion | Non-vested Share Conversion |
Accredited | ||||
| Martin Wesley | 24.93% | 3,392,882 | 2,883,983 | Yes | ||||
| Charles Wesley | 24.93% | 3,392,882 | 2,883,983 | Yes | ||||
| Andrew Wesley | 23.68% | 3,222,782 | 2,739,396 | Yes | ||||
| Rio Vista Farms12 | 7.50% | 1,020,600 | 867,520 | Yes | ||||
| Maria Bazinet Real Estate Inc. | 2.85% | 387,828 | 329,658 | Yes | ||||
| Owen Hennefer | 2.50% | 340,200 | 289,173 | Yes | ||||
| Mike Herman ( El Capitan Ventures LLC Series C ) | 2.00% | 272,160 | 231,339 | Yes | ||||
| Brad and Katie Runge | 2.00% | 272,160 | 231,339 | Yes | ||||
| David Lee Brandt | 1.00% | 136,080 | 115,669 | Yes | ||||
| Gordon Gravelle (Aviation Hangar Services LLC ) | 1.00% | 136,080 | 115,669 | Yes | ||||
| Steve Smith | 1.00% | 136,080 | 115,669 | Yes | ||||
| Elena Dolgoborodova | 0.85% | 115,668 | 98,319 | Yes | ||||
| Steve & Laura Cunha | 0.75% | 102,060 | 86,752 | Yes | ||||
| David M Perry and Andrea L Perry | 0.70% | 95,256 | 80,969 | Yes | ||||
| Mark J. Corcoran &Karin Scholdberg | 0.67% | 90,765 | 77,151 | Yes | ||||
| Garet Zook | 0.55% | 74,844 | 63,618 | Yes | ||||
| Henry Ayer III ( Henry W. Ayer III, Living Trust ) | 0.50% | 68,040 | 57,835 | Yes | ||||
| Michael Douglas | 0.50% | 68,040 | 57,835 | Yes | ||||
| Monique Young | 0.33% | 45,315 | 38,518 | Yes | ||||
| Loretta Young | 0.17% | 22,725 | 19,317 | Yes | ||||
| Pamela Bayer | 0.17% | 22,725 | 19,317 | Yes | ||||
| Pello & Mary Walker | 0.17% | 22,725 | 19,317 | No | ||||
| Newberry Family Trust | 1.25% | 170,100 | 144,587 | N/A |
1 These shall be calculated in accordance with Section 1.1(b) of the Asset Purchase Agreement of Contra Costa Farms LLC of even date.
2 Contra Costa Farms LLC will distribute these shares to its members pursuant to a Contribution Agreement of even date.
| 1 |
Schedule 3.2—Breaches, Defaults, Notices and Required Consents
| Agreement | Date | Parties | Applicable Provision | Requirement | ||||
| Strategic Partner Sales & Marketing Agreement | 11/23/2020 | CoCo Farms and Big Pete’s LLC & Big Pete’s Treats | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. | ||||
| Strategic Partner Sales & Marketing Agreement | 11/23/2020 | CoCo Farms and California Loyal Inc DBA Bloom Farms | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. | ||||
| Strategic Partner Sales & Marketing Agreement | 11/23/2020 | CoCo Farms and Golden Systems LLC | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. |
| 2 |
| Strategic Partner Sales & Marketing Agreement | 12/24/2020 | CoCo Farms and Hollister Cannabis Co | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. | ||||
| Strategic Partner Sales & Marketing Agreement | 11/23/2020 | CoCo Farms and GSN Consulting LLC d.b.a. Pacific Reserve and Pacific Reserve Nursery LLC | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. |
| Strategic Partner Sales & Marketing Agreement | 12/24/2020 | CoCo Farms and Vista Prime Management d.b.a. House of Platinum | 10(g) Assignment | Neither Party may assign this Agreement, in whole or in part, without the other Party’s prior written consent; provided, however, that the sale of any portion of the assets of either Party, or any of its subsidiaries, its acquisition by merger into another company, shall not be deemed an assignment of this Agreement by such Party. Provided further, that the Party to be sold or acquired in accordance with the previous sentence must provide written notice to the other Party of any such sale or acquisition within forty-five (45) calendar days of the closing. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. |
| 3 |
| Retainer Agreement (for legal services) | June 20, 2020 | Contra Costa Farms LLC and Adibi IP Group, PC | N/A | Silent. | ||||
| Agreement of Sale of Future Receipts | December 4, 2020 | Contra Costa Farms LLC, Rio Vista Farms LLC, Kolaboration Vallejo LLC and Libertas Funding LLC | Section 47 | Purchaser may assign, transfer or sell its rights or delegate its duties either in whole or in part without prior notice to the merchant or the guarantor. Neither merchant nor guarantor shall have the right to assign their respective rights or obligations under the Agreement without first obtaining purchaser’s written consent. | ||||
| Agreement of Sale of Future Receipts | February 5, 2021 | Contra Costa Farms LLC, Rio Vista Farms LLC, Kolaboration Vallejo LLC and Libertas Funding LLC | Section 47 | Purchaser may assign, transfer or sell its rights or delegate its duties either in whole or in part without prior notice to the merchant or the guarantor. Neither merchant nor guarantor shall have the right to assign their respective rights or obligations under the Agreement without first obtaining purchaser’s written consent. | ||||
| Future Receivables Sale Agreement | March 31, 2021 | Contra Costa Farms LLC and Austin Business Finance, LLC | Section 8 | The parties may change any of the terms of the agreement or amend the agreement but any such changes or amendments shall not be effective unless in writing and signed by all parties. | ||||
| Workers Compensation and Employers’ Liability Insurance | August 20, 2020 | Contra Costa Farms LLC and Accredited Surety and Casualty Company, Inc. | Part Six – section C. | Transfer of insured’s rights and duties under the policy may not be transferred without Accredited’s written consent |
| 4 |
Schedule 3.3-Subsidiaries
| 1. | Entity: Kola Center Management LLC3 | |
| State of formation: California | ||
| Ownership: 97% of membership interests are owned by Contra Costa Farms LLC |
3 Immediately prior to closing, Contra Costa Farms LLC had membership interests in Kolaboration Vallejo LLC and Kolaboration Concord LLC; said ownership was dissolved via the Contribution Agreement dated September 30, 2021.
| 5 |
Schedule 3.6(b)—Liens and Encumbrances
Libertas Funding LLC (see Schedule 3.11)
UCC-1 filed with the California Secretary of State on December 10, 2020
File # U200036091124
Type: Lien financing
Debtor: Contra Costa Farms LLC (and affiliated companies)
Secured party: CT Corporation System (as representative)
Description: All assets of the Debtor now owned or hereafter acquired and wherever located, including, but not limited to, any and all equipment, fixtures, inventory, accounts, credit card receivables, chattel paper, documents, instruments, investment property, general intangibles, letter-of-credit rights and deposit accounts, together with any products and proceeds thereof.
Alternative Funding Group
UCC-1 filed with the California Secretary of State on March 29, 2021
File # U210034016418
Type: Lien financing
Debtor: Contra Costa Farms LLC, Fat Boys LLC
Secured party: Austin Business Finance, LLC
Description: All inventory, fixtures, equipment, vehicles, accounts receivable, goods and the profits therefrom, bonds, stocks, cash and cash equivalents, household goods and furnishings, investment property, negotiable instruments, and general intangibles.
| 6 |
Schedule 3.6(d)—Real Estate Owned
The Company owns real property in the County of Contra Costa located at 3400 Wilbur Avenue, Antioch, California 94509.
| 7 |
Schedule 3.7(a)—Consents, Permits, Authorizations and Security Clearances
Conditional Use Permits
Use Permit No.: UP-18-23; Variance V-19-03; Design Review (AR-18-24)
Approved by City of Antioch on September 10, 2019 via Resolution No. 2019/142
Site: 3400 Wilbur Avenue, Antioch, California 94509; APN 051-031-020
California State Cannabis Licenses
BCC Microbusiness license n. C12-0000279-LIC.
CDFA license n. CCL20-0002314
| 8 |
Schedule 3.9 Taxes
The Company has the following tax exposure4:
2020
Federal: $2,538,123
4 Calculations prepared by Armanino LP, the Company’s auditors.
| 9 |
Schedule 3.10—Patents, Trademarks and Copyrights
Trademarks
Coco Farms (long logo)
Serial number: 90346227
Filing date: November 27, 2020
Mark code: (3) Design plus word
Status: Live
Coco Farms (stacked logo)
Serial number: 90346225
Filing date: November 27, 2020
Mark code: (3) Design plus word
Status: Live
Coco Farms
Serial number: 90346223
Filing date: November 27, 2020
Mark code: (4) standard character mark
Status: Live
Copyrights
None.
Tradenames
Coco Farms
Miscellaneous IP:
www.Enjoycocofarms.com
| 10 |
Schedule 3.11—Contracts and Commitments
UFCW Labor Peace Agreement
Between: Kolaboration Ventures, LLC (and all related entities listed in Exhibit C) and employees eligible to join collective bargaining unit
Dated: February 19, 2021 (and revised May 6, 2021)
Strategic Partner Sales & Marketing Agreement
| 1. | Partners: | Big Pete’s LLC; Big Pete’s Treats5 | |
| Dated: | November 23, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) | ||
| 2. | Partners: | California Loyal Inc. d/b/a Bloom Farms | |
| Dated: | November 23, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) | ||
| 3. | Partners: | Golden Systems LLC | |
| Dated: | November 23, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) | ||
| 4. | Partners: | Hollister Cannabis Co. | |
| Dated: | December 24, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) | ||
| 5. | Partners: | GSN Consulting LLC d/b/a Pacific Reserve; Pacific Reserve Nursery LLC | |
| Dated: | November 23, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) | ||
| 6. | Partners: | Vista Prime Management d/b/a House of Platinum | |
| Dated: | December 24, 2020 | ||
| Term: | 18 months (automatically renews for successive one year terms without notice) | ||
| Services: | Marketing/promotion (see list of each party’s obligations and payment terms on Appendix A) |
Exclusivity - verbal
See spreadsheet of partners.
5 The contracts are between CoCo Farms and other “sister” companies (Rio Vista Farms LLC and Kolaboration Vallejo LL).
| 11 |
Engagement Agreement
Parties: Contra Costa Farms LLC and Adibi IP Group, PC
Dated: June 20, 2020
Services: Legal – intellectual property
Agreement of Sale of Future Receipts
| 1. | Parties: Contra Costa Farms LLC, Rio Vista Farms LLC, Kolaboration Vallejo LLCand Libertas Funding LLC | |
| Dated: December 4, 2020 | ||
| Term (estimated): Nine months | ||
| Sold amount of future receipts: $1,056,000.00 | ||
| Purchase price: $800,000.00 | ||
| Services: Cash advance | ||
| 2. | Parties: Contra Costa Farms LLC, Rio Vista Farms LLC, Kolaboration Vallejo LLCand Libertas Funding LLC | |
| Dated: February 5, 2021 | ||
| Term (estimated): Nine months | ||
| Sold amount of future receipts: $528,000.00 Purchase price: $400,000.00 | ||
| Daily payment: $2,793.66 Services: Cash advance |
Future Receivables Sale Agreement
| Parties: | Contra Costa Farms LLC and Austin Business Finance, LLC |
| Dated: | March 31, 2021 |
| Term: | March 31, 2021 (date of execution by Company) until amount sold plus administration fee has been paid and settled in full by Company |
Sold amount of future receipts: $1,280,000
Purchase price: $1,000,000
Remittance amount: $24,615.38
Number of Payments: 52
Services: Cash advance
| 12 |
Schedule 3.12—Pending and Threatened Litigation
Chris Edwards v. Rio Vista Farms LLC
Department of Industrial Relations – Labor Commissioner’s Office
Retaliation Complaint Investigation Unit
Case No. RCI-CM-804340 (erroneously lodged against RVF – was a CoCo Farms employee)
Hire date: August 3, 2020
Termination date: August 12, 2020
Complaint filed: August 15, 2020
Description: Per February 12, 2021 correspondence from RVF’s counsel, Edwards was an employee for eight (8) days of Contra Costa Farms LLC (“CoCo Farms”) when he filed his first complaint (Case No. RCI-CM-803117); was dismissed/closed per January 25, 2020 correspondence, and (presumably) being investigated under new case number (RCI-CM-804340. Edwards reported issues to OSHA and criminal activity to BCC, claims he was fired in retaliation. Counsel for RVF requested the complaint be dismissed for lack of jurisdiction due to binding arbitration clause in employment agreement, no basis to claims.
Ginsi Robinson v. Rio Vista Farms LLC
Department of Industrial Relations – Labor Commissioner’s Office
Retaliation Complaint Investigation Unit
Case No. RCI-CM-805748 (erroneously lodged against RVF – was a CoCo Farms employee)
Hire date: June 29, 2020
Termination date: September 9, 2020
Complaint filed: September 10, 2020
Description: Labor Commissioner’s Office received a retaliation complaint from Robinson on September 10, 2010, prompting the DIR to write RVF on October 23, 2020. Robinson contacted OSHA on August 13, 2020 to lodge a complaint regarding purported forklift violations (wires hanging out of the walls), unsanitary restrooms that did not have hot water. A BCC claim was also filed against RVF by Robinson on August 13, 2020; Robinson claims after submitting the OSHA and BCC complaints, she noticed a sudden decline in responsibilities, lack of communication from the company, felt ignored at times and harassed during others. Chuck Wesley met with Robinson on September 3, 2020 to discuss Robinson’s attendance issue and offered to pay Robinson until January 2021 in lieu of termination. Per December 14, 2020 correspondence from RVF’s counsel, Robinson was an at-will employee with legitimate attendance issues (resulting in several write-ups/warnings in accordance with their company handbook). As of December 2020, RVF claims to be unaware of any specific OSHA complains filed by Robinson. Counsel for RVF requested the complaint be dismissed for lack of jurisdiction due to arbitration clause in her employment agreement and due to Robinson’s failure to make a prima facie claim.
| 13 |
Schedule 3.14—Insurance
| Contra Costa Farms LLC | Carrier | Policy # | Policy Period | Premium | ||||||
| Workers Compensation and Employers Liability | Accredited Surety And Casualty Company, Inc. | 1ATCA16003802-0 | 08/19/20 To 08/19/21 | $ | 50,297.00 | |||||
| Commercial General Liability Coverage | American Federation Insurance Company | AFGL-CA-00670-00 | 12/13/20 to 12/13/21 | $ | 20,505.00 | |||||
| Commercial Product Liability Coverage | United Specialty Insurance Company | ELMCA003523-00 | 12/13/20 to 12/13/21 | $ | 56,224.00 | |||||
| 14 |
Schedule 3.16—Employee Benefit Plans
Paid Time Office
Hourly Employees
Eligibility: All full-time employees (those working a minimum of 30 hours or more) are eligible.
| 1. | Accrue up to 15 days or 120 hours of PTO per calendar year (time off is subject to supervisory approval, staffing needs and company procedures) | |
| 2. | PTO is capped at 20 days or 160 hours (if not used, will stop accruing) | |
| 3. | Accruals are based solely upon paid hours worked up to 40 hours per week, and max out at 2,080 hours per year, excluding overtime. PTO does not accrue on unpaid leaves of absence. | |
| 4. | Employees are required to use available PTO when taking time off from work and can be taken in one-hour increments, scheduled in advance and accordance with RVF’s attendance policy. | |
| 5. | Employees may not borrow against their PTO banks (no advance will be granted) | |
| 6. | In accordance with California State law, an employee will be paid upon termination from the Company for all PTO hours accumulated but not used. |
Managers
| 1. | Can accrue up to 17 days or 136 hours of PTO per calendar year (time off is subject to supervisory approval, staffing needs and company procedures) | |
| 2. | PTO is capped at 20 days or 160 hours (if not used, will stop accruing) | |
| 3. | Accruals are based solely upon paid hours worked up to 40 hours per week and max out at 2,080 hours per year. PTO does not accrue on unpaid leaves of absence. | |
| 4. | Managers are required to use available PTO when taking time off from work (can only be taken in increments of 8 hours), scheduled in advance and accordance with RVF’s attendance policy. | |
| 5. | Managers may not borrow against their PTO banks (no advance will be granted) | |
| 6. | In accordance with California State law, an employee will be paid upon termination from the Company for all PTO hours accumulated but not used. |
Insurance
New hire waiting period: First of the month following 30 days
| 1. | Medical | |||
| a. | United Healthcare Select Plus PPO Gold | |||
| b. | Kaiser Permanente Silver 70 HMO | |||
| 2. | Dental | |||
| a. | United Healthcare | |||
| 3. | Vision | |||
| a. | United Healthcare | |||
| 15 |
Schedule 3.21—Labor Relations
See Schedule 3.12 – pending and threatened litigation.
| 16 |
Schedule 5.2 – Accredited Investors
See schedule 1.1. All investors are accredited, with the exception of Pello & Mary Walker (.17%).
| 17 |
Exhibit 1A-6E
Exhibit 1A-6F
Exhibit 1A-6G
Exhibit 1A-7A
Exhibit 1A-8A
Exhibit 1A-8B
Exhibit 1A-11
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form 1-A of our audit report dated January 5, 2022 relating to the consolidated financial statements of Kolaboration Ventures, LLC. and Subsidiary for the years ended December 31, 2020 and 2019, which report appears in the Proxy Statement/Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Armanino LLP
San Ramon, California
January 28, 2022
Exhibit 1A-12A
 |
10085 CARROLL CANYON ROAD, SUITE 230 SAN DIEGO, CALIFORNIA 92131
TELEPHONE (858) 566-7010 FACSIMILE (858) 566-7015 |
January 31, 2022
Kolaboration Ventures Corporation
183 Main Street
Rio Vista, CA 94571
Re: Form 1-A Offering Circular
To whom it may concern:
We have acted as securities counsel to Kolaboration Ventures Corporation (the “Corporation”) in connection with the preparation and filing with the Securities and Exchange Commission of a Regulation A offering statement on Form 1-A, as filed on January ___, 2022 (the “Offering Statement”) relating to the offer by the Corporation of up to 20,000,000 shares of the Corporation’s common stock for a purchase price of $1.25 per share (the “Shares”).
This opinion letter is being delivered in accordance with the requirements of Item 17(12) of Form 1-A under the Securities Act of 1933, as amended.
In connection with rendering this opinion, we have examined the originals, or certified, conformed or reproduction copies, of all such records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the genuineness of all signatures on original or certified copies and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies.
We have reviewed: (a) the amended and restated articles of incorporation of the Corporation; (b) the amended and restated bylaws of the Corporation; (c) the offering circular; (d) form of Subscription Agreement; and (e) such other corporate documents, records, papers and certificates as we have deemed necessary for the purposes of the opinions expressed herein.
Based upon and subject to the foregoing and to the other qualifications and limitations set forth herein, we are of the opinion that the Shares, when issued and delivered in the manner and/or the terms described in the Offering Statement as filed (after it is declared qualified), will be validly issued, fully paid and non-assessable.
We express no opinion with regard to the applicability or effect of the law of any jurisdiction other than, as in effect on the date of this letter, (a) the internal laws of the State of Wyoming and (b) the federal laws of the United States. We express no opinion as to laws of any other jurisdiction. We assume no obligation to revise or supplement this opinion should the laws be changed after the effective date of the Offering Statement by legislative action, judicial decision or otherwise.
We hereby consent to the filing of this opinion as an exhibit to the Offering Statement and to the reference to our firm under the caption “Legal Matters” in the Offering Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act.
Respectfully,
/s/ Weintraub Law Group P.C.
/s/ Richard A. Weintraub, Esq.
Exhibit 1A-13
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