Ameriguard Security Services, Inc 8-K, filed Dec 14, 2022
Ameriguard Security Services, Inc. (AGSS)
About this 8-K
Ameriguard Security Services, Inc filed this 8-K on December 14, 2022, reporting on events of December 9, 2022.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.01: Completed an acquisition or sale of assets
- Item 2.02: Financial results
- Item 3.02: Unregistered sale of equity
- Item 5.01: Change in control
- Item 5.02: Director or officer change, or executive pay
- Item 5.03: Charter or bylaw amendment, or fiscal year change
- Item 5.06: Change in shell company status
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date
of Report (Date of Earliest event Reported):
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(Commission File Number) | (IRS
Employer Identification No.) |
| (Address of principal executive offices) |
| (Registrant’s telephone number, including area code) |
| HEALTH REVENUE ASSURANCE HOLDINGS, INC. |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Table of Contents
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “seeks,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand; financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims.
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
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| Item 1.01 | Entry into a Material Definitive Agreement |
On, December 9, 2022, AmeriGuard Security Services, Inc. f/k/a Health Revenue Assurance Holding, Inc. a Nevada corporation (“we”, “AGSS” or the “Company”), entered into a Definitive Share Exchange Agreement (the “Merger Agreement”) with AmeriGuard Security Services, Inc., a California corporation, (“AmeriGuard”) and Lawrence Garcia (“Garcia”) the majority shareholder of AmeriGuard (the “Majority Shareholder”) and the minority shareholders of AmeriGuard (“Minority Shareholders”). Under the Merger Agreement, One Hundred Percent (100%) of the ownership interest of AmeriGuard was exchanged for an aggregate of 90,000,000 shares of common stock of AGSS issued to the Majority Shareholders and the Minority Shareholders, in accordance with the Share Exchange Agreement (the “Merger”). The former stockholders of AmeriGuard acquired a majority of the issued and outstanding common stock as a result of the share exchange transaction. The transaction has been accounted for as a recapitalization of the Company, whereby AmeriGuard is the accounting acquirer.
Immediately after completion of such share exchange, the Company will hold a total of 640 issued and outstanding shares of AmeriGuard.
| Item 2.01 | Completion of Acquisition or Disposition of Assets |
THE SHARE EXCHANGE AND RELATED TRANSACTIONS
The foregoing description of the Merger and related transactions does not purport to be complete and is qualified in its entirety by reference to the complete text of the Merger, which is filed as Exhibit 2.1 hereto, each of which is incorporated herein by reference.
On December 9, 2022, AGSS entered into the Merger Agreement. AmeriGuard became a wholly owned subsidiary of AGSS, and AGSS its only shareholder and will continue in its existence with one owner, AGSS. Pursuant to the Share Exchange, (a) the Majority Shareholder relinquished all of his 573 Amerigaurd common shares and the Minority Shareholders relinquished all of their 67 AmeriGuard common shares, constituting all issued and outstanding shares of AmeriGuard (the “AmeriGuard Shares”), and were issued an aggregate of 80,578,125 and 9,421,875 respectively of AGSS common shares, representing 86.26% and 10.09% of the outstanding Common Stock of AGSS and (b) AmeriGuard returned the A-1 Preferred Stock of AGSS for retirement. After the issuance of the common shares, the existing 3,417,302 common shares represent 3.66% of the outstanding common stock of AGSS.
Pursuant to the terms of a settlement agreement, by and among Garcia, AmeriGuard, and Lillian Flores (“Flores”), dated July 7, 2022 (the “Settlement Agreement”), AmeriGuard repurchased the 450 common shares of Flores for a total consideration of $3,384,950 payable in five equal annual installments compounded semi-annually at a three percent rate. The initial payment on July 8, 2022, of $686,990 reduced the balance to $2,697,960. The second through fifth installment are due on December 31, 2023 through December 31, 2026.
Prior to Merger, under the terms of a stock pledge agreement, by and among Garcia, Flores and AmeriGuard, dated July 7, 2022, 360 AmeriGuard common shares remained held in AmeriGuard treasury pledged to Flores. On Merger these pledged shares were substituted with 50,625,000 AGSS common stock of the 80,578,125 issued to Lawrence Garcia. These pledged shares are redeemed and returned to Garcia based on a stock redemption agreement, by and among Garcia, Flores and AmeriGuard, dated July 7, 2022.
The purposes of the transactions described in this Current Report were to complete a business combination by a stock for stock merger and complete a recapitalization of the company with the result being that AmeriGuard became a wholly owned subsidiary of AGSS. Our business operations will now focus on the business of AmeriGuard and its management will be the management of AGSS.
There is no offering with this merger.
Effective immediately after the Share Exchange, the stock transfer books of AmeriGuard shall be closed.
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DESCRIPTION OF BUSINESS
Changes to the Business.
We intend to continue AmeriGuard’s line of business. AmeriGuard principally provides guard services to governmental, quasi-governmental and commercial property management. Guard services generated $22 million in revenues for the fiscal year ended December 31, 2021. Guard services include, providing armed and unarmed uniformed security personnel for access control, mobile patrols, traffic control, security console/system operators, fire safety directors, communication, reception, concierge and front desk/doorman operations.
Corporation Information
Our principal executive offices are currently located at 5470 W Spruce Ave Suite 102 Fresno CA 93722.
Our website; www.ameriguardsecurity.com.
Employees
As of September 30, 2022, we had 294 full-time employees, 206 of these employees are represented by collective bargaining agreements and the Company considers it relations with its employees to be very good.
Corporate History
The Company was incorporated in Nevada on December 13, 2010.
The Company intended to become a provider of revenue cycle services to a broad range of healthcare providers. We offer our customers integrated solutions designed around their specific business needs, including revenue cycle data analysis, contract and outsourced coding, billing, coding and compliance audits, coding education, coding consulting, physician coding services and ICD-10 education and transition services.
On February 10, 2012, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Health Revenue Assurance Holdings, Inc. (formerly known as Anvex International, Inc., “HRAH”), a Nevada company, and its wholly-owned subsidiary Health Revenue Acquisition Corporation (“Acquisition Sub”), which was treated for accounting purposes as a reverse recapitalization with HRAA, considered the accounting acquirer. Each share of HRAA’s common stock was exchanged for the right to receive approximately 1,271 shares of HRAH’s common stock. Before their entry into the Merger Agreement, no material relationship existed between HRAH and Acquisition Sub or HRAA. On April 27, 2012, the Company completed a 12.98 to 1 forward stock split. On May 2, 2012, the Company changed its ticker symbol from ANVX to HRAA.
The Company then went dormant in August 2014.
On July 14, 2020, as a result of a custodianship in Clark County, Nevada, Case Number: A816259, Custodian Ventures LLC (“Custodian”) was appointed Custodian of the Company.
On July 15, 2020 Custodian appointed David Lazar as the Company’s Chief Executive Officer, President, Secretary, Chief Financial Officer, Chief Executive Officer and Chairman of the Board of Directors.
On September 8, 2021, under the terms of a private stock purchase agreement, 10,000,000 shares of Series A-1 Preferred Stock, $0.001 par value per share (the “Shares”) of the Company, were transferred from Custodian Ventures, LLC to AmeriGuard Security Services, Inc. California corporation (AmeriGuard). As a result, AmeriGuard became holder of approximately 91% of the voting rights of the issued and outstanding share capital of the Company on a fully-diluted basis of the Company, and became the controlling shareholder. The consideration paid for the Shares was $450,000. In connection with the transaction, David Lazar forgave the Company from all debts owed to him and/or Custodian Ventures, LLC.
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On September 8, 2021, the Company accepted the resignations from David Lazar as the Company’s Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and as a Member of the Board of Directors. Effective on the same date to fill the vacancies created by Mr. Lazar’s resignations, the Company appointed Lawrence Garcia as the Company’s President, CEO, CFO, Treasurer, Secretary, and Chairman of the Board of Directors. These resignations are in connection with the consummation of the private stock purchase agreement and was not the result of any disagreement with Company on any matter relating to Company’s operations, policies or practices.
On March 11, 2022, the Company, amended its articles of incorporation to change its name to AmeriGuard Security Services, Inc. from Health Revenue Assurance Holdings, Inc. The name was deemed effective by FINRA on March 17, 2022.
Pursuant to the Merger Agreement, we acquired the business of AmeriGuard and will continue the existing business of AmeriGuard as our wholly owned subsidiary.
AmeriGuard was formed on November 14, 2002. The corporation was incorporated with the issuance of 1,000 common shares formerly held by Lawrence Garcia, President and CEO with 550 shares and Lillian Flores, former VP of Operations with 450 shares. On July 12, 2022 under the terms of a Settlement Agreement, Flores exchanged her 450 shares for consideration of $3,384,950 and a promissory note in that amount secured by a stock pledge. AmeriGuard provides armed guard services as a federal contractor with licenses in 7 states and provides commercial guard services in California.
Our Industry
Security guard and related services in the US is a $43 billion industry comprising over 11,000 companies and 900,000 officers. Over 55%, ($24 billion) of this market is serviced by 40 companies, with the top 4 firms, with Allied Universal, Securitas, G4S and Prosegur Security controlling 74% ($31.8 billion), an average revenue of $7.9 billion; the next 21 firms control 8.4% ($3.6billion), an average of 172 million and the next 10 firms control 1% ($550 million) with a range of $20 to $100 million with average of $50 million. AmeriGuard’s approximately $22 million in annual revenue places is within the top 25 firms in the country. The rest of the market comprises over 7,900 firms with $19 billion or an average of $2.5 million in revenue. This consolidation of market share has not been gradual but rather a rapid shift over the last five years in an industry which once was highly fragmented and widely dispersed, from smaller regional and local companies to the largest companies.
We believe that the top 40 companies have the resources to harness technology, to expand their business into related services other than guard services. Companies with over $50 million in revenue have, over the last 10 years, experienced steady growth while those guard companies under $20 million, the remaining 9,900 firms, have experienced declining revenues. We believe that the principal reason for this is the steady diversification of security services away from the traditional guard services to areas of utilization of technology requiring capital. Along with this, we believe that the profitability challenges below $20 million annual sales are much more difficult that above $50 million is sales, largely due to the significant economies of scale achieve at the higher revenue levels.
The proliferation of technology while increasing efficacy in performance and inevitably lower costs in the future, the impact on the contract security industry will likely have mixed results – positive for companies who harness technology into their service delivery strategies – and negative for those companies who fail to invest in or adopt these service-enhancing capabilities. Despite the advances in the U.S. contract guarding business over recent years, there remains a question as to the industry’s viability in view of the increasing trend for integrating manned services with security systems (i.e. security video, access control and monitoring) along with the emergence of other new smart technology options and solutions (i.e. robotics, drones, cybersecurity and crowd sharing alert notification).
The recent merger and acquisition trend, primarily by the major national and international security organizations and fueled by investment and funding from private equity firms, is continuing. The underlying reason for this shift is less obvious and suggests an increasing number of sellers who concluded that their better option was to exit and sell rather than remain in the marketplace and try to compete and organically grow their market share
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Despite its low barriers of entry and nominal capital requirements, the security guard business has become more challenging for the smaller owner/operator. The traditionally historic advantage of the smaller operator’s ability to offer relationship-driven customized services is no longer totally sufficient for sustainable growth – especially with the increasing regulatory challenges of the Affordable Care Act, federal and state minimum wage laws, Family Medical Leave Act and state laws (i.e. meal and rest break reporting and now, predictive scheduling).
Even stronger local and smaller regional companies are finding it more difficult to protect their client base and grow revenues under increasing regulatory as well as competitive pressures. Larger regional and national organizations are dealing with the regulatory climate while growing market share by leveraging infrastructure, technology, economies of scale with more aggressive pricing and better service reliability. This approach appears to offer a more compelling value proposition from the client’s perspective, which seems evident by the higher client retention rates reported by the major security companies.
However, this consolidating trend may not be inevitable for the future as newer, more tech-savvy owner/operators enter the business and recognize how to adopt best practices with a variety of sophisticated third-party software platforms and applications to help level the playing field. These include talent management and on-boarding applications to attract, hire and maintain a more skilled and reliable workforce; integrated labor management platforms to control scheduling, compliance, operations, payroll, billing and financial reporting; and state-of-the-art social media marketing applications.
The contract security industry should now be able to more effectively capitalize on and penetrate opportunities in a $20 billion in-house market – especially for those companies who have invested and integrated technology into a more highly reliable ecosystem of protective services.
For the foreseeable future, the U.S. manned guarding business seems likely for continued sustainable growth. While the technology/manpower ratio may shift the revenue mix going forward, based on today’s currently expanding U.S. economy, the prospects for an aggregate growth rate of four percent or more seem realistic and perhaps even conservative, especially for ownership who have prudently invested in technology enhancements to their core guarding operations.
Providing these strategies can yield an attractive ROI, increase operating profits (EBITDA ranges of four to six percent and higher) and enterprise valuations, this industry seems not only viable but also opportune for further investment consideration
(The above industry data taken from https://www.nasco.org/wp-content/uploads/2021/08/2021-Bob-Perry-Contract-Security-Industry-White-Paper-1.pdf)
Regulatory Matters/Compliance
Each State has specific licensing requirements companies must meet to perform guard services, especially armed guard services. To date, the Company holds firearm licenses in over twelve States and does not foresee any license or governmental requirements preventing us from continuing to operate in any State a contract is awarded to us. As a company with over 300 employees, we are subject to all of the standard federal and state labor laws and have consistently met those requirements to date, including ERISA.
Contracting officers have indicated that they believe the government has no concern relating to the merger as long as the responsible person(s) remains.
Properties
The Company’s corporate headquarters is located at 5470 W. Spruce Avenue, Suite 102, Fresno CA. The lease is currently month to month. Landlord has not indicated a desire for a new lease. Our lease payments are a total of $55,767 for the entire term (or, $4,230 per month).
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Legal Proceedings
While we have not been involved in any litigation related to the performance of our guard services, armed or otherwise, to date, as an armed guard Company with contracts with Governmental entities is a possibility of legal proceedings that could be more serious than the average business. From time to time, the Company is involved in matters relating to claims arising from the ordinary course of business, but those claims have been labor and union related and have been settled on an administrative level not in court.
While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition or cash flows.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.
Basis of Consolidation
All significant inter-company transactions and balances are eliminated in consolidation.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include revenue recognition, valuation of accounts receivable, and useful lives of property and equipment.
Revenue Recognition
Revenue for contracted services is recognized on invoicing as stipulated by the contract. Other services provided are recognized at the time the service is provided. Bad debt has historically been immaterial and therefore no reserve has been established.
Stock Compensation
The Company accounts for stock-based compensation under the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair value on the grant date. Services performed and other transactions settled in the Company’s common stock are recorded at the estimated fair value of the stock issued, if that value is more readily determinable than the fair value of the consideration received. Currently, there is no stock compensation plan in place. A plan will be determined by the Compensation Committee formed by the Board after the Merger.
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Income taxes
Income taxes are based on income (loss) for financial reporting purposes and reflect a current tax liability (asset) for the estimated taxes payable (recoverable) in the current year tax return and changes in deferred taxes. Deferred tax assets or liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax laws and rates. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized.
Accounting Treatment
The Merger is accounted for as a reverse merger and recapitalization and AmeriGuard is deemed to be the acquirer in the reverse merger for accounting purposes. Consequently, the assets and liabilities and the historical operations of the Company that will be reflected in the financial statements prior to the Merger will be those of AmeriGuard and the consolidated financial statements of the Company after completion of the Merger will include the assets and liabilities of AGSS, historical operations of AGSS and operations of AGSS from the Closing Date of the Merger. Further with the issuance of the shares of common stock pursuant to the Merger, a change in control of the Company occurred as of the date of the Merger.
Tax Treatment
For federal income tax purposes, the Share Exchange shall qualify as a reorganization under the provisions of Section 368 (a)(2)(B) of the internal revenue Code of 1986, as amended (the code”), and the rules and regulations promulgated thereunder, and be tax-free pursuant to Section 351(a) of the code.
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RISK FACTORS
We may engage in a business combination that causes tax consequences to us and our shareholders.
Federal and state tax consequences can be a significant factor in considering any business combination that we may undertake. As a result, such transactions may be subject to significant taxation to the buyer and its shareholders under applicable federal and state tax laws. While we intend to structure any business combination so as to minimize the federal and state tax consequences to the extent practicable in accordance with our business objectives, there can be no assurance that any business combination we undertake will meet the statutory or regulatory requirements of a tax-free reorganization or similar favorable treatment or that the parties to such a transaction will obtain the tax treatment intended or expected upon a transfer of equity interests or assets. A non-qualifying reorganization, combination or similar transaction could result in the imposition of significant taxation, both at the federal and state levels, which may have an adverse effect on both parties to the transaction, including our shareholders.
It is unlikely that our shareholders will have any opportunity to evaluate or approve a business combination.
Our shareholders will not have the opportunity to evaluate and approve the business combination. In most cases, business combinations do not require shareholder approval under applicable law, and our Articles of Incorporation and Bylaws do not afford our shareholders with the right to approve such a transaction. Further, Mr. Garcia, our Chief Executive Officer and sole director, is the holder of over 86% of the voting rights of the Company on a fully diluted basis. Accordingly, our shareholders will be relying almost exclusively on the judgement of our board of directors (“Board”) and Chief Executive Officer and any persons on whom they may rely with respect to a potential business combination. To develop and implement our business plan, may in the future hire lawyers, accountants, technical experts, appraisers, or other consultants to assist with determining the Company’s direction’ and consummating any transactions contemplated thereby. We may rely on such persons in making difficult decisions in connection with the Company’s future business and prospects. The selection of any such persons will be made by our Board, and any expenses incurred, or decisions made based on any of the foregoing could prove to be averse to the Company in hindsight, the result of which could be diminished value to our shareholders.
Risks Related to Our Business
Concentration of Revenue
The company receives over 90% of its total revenue from four Federal contracts. These contracts have specific terms, typically five years with the opportunity for extension, but there are no assurances they will be extended. Although we have had several extended in the past, there is no guarantee this will again happened in the future. However, there are significant direct expenses for each contract that also are removed from operations at the end of a contract. As a result, the revenue lost from a completed contract does not affect the bottom-line profits in an amount equal to the revenue lost. The actual net income impact depends on the contract. To mitigate this risk the company actively pursues additional contracts on an ongoing basis.
Long process in acquiring contracts
The process required to acquire a government contract takes several months to complete prior to delivery of the proposal to the contracting agency. Due to the time span required to prepare a proposal and wining the contract is not guaranteed, the company maintains a department of individuals who monitor and write proposals for all government contracts that fit our operating criteria that become open for bid on a continuing basis. It is important to the company that new contracts are acquired consistently to maintain and grow annual revenue
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Transitioning from carve out contracts to open market contracts
Currently the company benefits from several ownership criteria and business size that increases the probability of contract awards. The company meets the contracting qualifications of disabled veteran and minority owned business. Another aspect of contract opportunities is set aside for small businesses. This as defined as those who have operating revenue on average over the past five (5) years under $25.5 million. Currently the company is below this threshold, yet our strategic plan is to move past the average revenue limits within the next 24 months. This should not be seen as a negative in that we will only exceed this limit once we reach annual revenue of $40 million or more during the next 24 months, putting us in an excellent financial position to compete with the much larger companies who operate in the $50-$100 million revenue level. Another aspect of our strategy is to acquire similar guard companies who already have small business contracts with the government which add significantly to our bottom line putting us in even a better position to win additional large government contracts.
Staffing Shortages
Like all industries today, the guard industry is not exempt from staffing shortages. This is an ongoing challenge and in its worst case can impact our ability to meet the requirements of the contracts awarded. The company nor our competitors have discovered a silver bullet to address this challenge. However, we have developed a strategy that we anticipate will help meet the challenge. This strategy does need to remain confidential so as to not tip our hand to our competitors. We will indicate that we have successfully implemented this strategy in the past and it was very successful.
Impact of COVID
Initially the impact of the COVID pandemic was positive for the guard industry. Our industry is considered essential and with less activity at the sites we protect, we were able to meet and exceed the contract requirements with fewer staff and little to no overtime. As a result, each contract became more profitable than normal full operations. The challenges have actually come after the critical year of 2020. As the government began to require vaccinations for all employees and contractors, along with quarantine requirements, staffing became a big problem. Starting in 2021 and continuing to today, these policies implemented by the federal government has made it very difficult for us to meet the staffing needs and thus as increased overtime expenses to levels never before seen. As we discussed regarding staffing shortages this is where COVID has had the greatest impact on us, and it continues. However, during August the CDC released new guideline relating to vaccines, transmission, and quarantines that if implemented by the federal government will help us recover from the staffing shortages. If the federal government adjusts to the new guidelines, we will see individuals returning to their guard positions.
Accelerating Inflation
All industries struggle when operating in times of inflation like we are experiencing in 2022. The results are increased pressure on salaries, operational costs increase due to higher fuel prices and the increased cost of all supplies. The one silver lining for the company is that federal contacts require that the salary increases that we negotiate with the labor union must be covered by increasing the monthly contracted rate. This of course is stipulated by contract that we do not exceed what is customary in the area with related contracts. This is significant in that guard salaries account for over 90% of operational costs, reducing the impact of inflation.
Key employees are essential to expanding our business.
Lawrence Garcia and other key employees are essential to our ability to continue to grow and expand our business. Mr. Garcia, as owner, allows the company to bid on the restricted contracts that we discussed earlier regarding transitioning out of the special carveout contracts. Other long-term employees have significant impact on the success of operations and understanding of the industry. They have established relationships within the industry in which we operate. If Mr. Garcia or any of the long-term employees were to leave the company, our growth strategy might be hindered, which could materially affect our business and limit our ability to increase revenue. However, we are taking steps to implement process and procedure to insure no single person lost would be detrimental to our long- term success.
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If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
Although our management team, CEO and CFO, have not specifically managed a publicly traded company, we do have experience with the issues and requirements of Sarbanes-Oxley Act. The company CFO is a California CPA with over 30 years of experience in business operations and has been through multiple financial statement audits that required compliance with the Sarbanes-Oxley Act. Management has already identified individuals and consultants who can support management’s efforts to comply with all internal controls and reporting requirements. The company is confident we will be able to meet all requirements.
Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales.
Technology innovations to which our current and potential customers might have access to, could reduce or eliminate their need for our services. Like all industries as new or other disruptive technology that reduces or eliminates the use of one or more of our services could negatively impact the need for our services. However, our management team and board of directors are aware of this challenge and are very innovative and forward thinking. Yet, our failure to develop, introduce or enhance our services able to compete with new technologies in a timely manner could have an adverse effect on our business, results of operation and financial condition. The management team is continually focused on improvements and new technology to insure we are not left behind.
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Risks Related to Our Securities
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because we were engaged in a reverse merger, it may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we were engaged in a “reverse merger” with a prior “shell company.” Securities analysts of major brokerage firms may not provide coverage of the Company since there is little incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future. Due to this challenge management is taking steps to increase awareness of the merger and have laid the groundwork to ensure our company is well received in the marketplace.
Our common stock is considered a “penny stock.”
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore may be a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares.
We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our common stock. We plan to retain any future earning to finance growth.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our common stock as of September 30, 2022 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. Immediately following the Merger, we have 93,417,302 shares of common stock issued and outstanding.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures include shares of our Common Stock issuable upon securities convertible or exchangeable into shares of our Common Stock within sixty (60) days of September 30, 2022 which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.
| Name and Address | Beneficial Ownership | Percentage of Class (1) | ||||||
| Lawrence Garcia | 80,578,125 | 86,26 | % | |||||
| Micahel Goossen, CPA | 2,671,875 | 2.86 | % | |||||
| Douglas Anderson* | 3,515,625 | 3.76 | % | |||||
| All officers/directors as a group (3 people) | 86,765,625 | 92.88 | % | |||||
| (1) | Based on 93,417,302 shares of common stock outstanding as of September 30, 2022. |
| * | Appointed on December 7, 2022. |
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EXECUTIVE COMPENSATION
During the year ended December 31, 2021 and the interim period from January 1 to effective date of Merger no compensation was paid to Lawrence Garcia, our president, treasurer, secretary and director paid by AGSS.
Employment Agreements
Prior to merger date no employment agreements were in place. It is the intention of ownership to rely on the recommendation of the compensation committee appointed by the Board of Directors.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards held by our officers as of December 31, 2021.
Board of Directors
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death, resignation or removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses incurred by them in connection with attending board meetings and receive a monthly honorarium for serving on the board.
Compensation committee
The board of directors plans to establish a compensation committee as required by Sarbanes-Oxley Act. The committee will make compensation recommendation to the board
2022 Equity Incentive Plan
Our Board of Directors and stockholders owning a majority of our outstanding shares plans to adopt an Equity Incentive Plan following the merger. Details of the plan will be developed with the input of the Board of Directors along with the then established compensation committee.
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DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists of five hundred million (500,000,000) shares of common stock, par value $0.001 per share. Immediately after giving effect to the Merger and related transactions, there were 93,417,302 shares of our common stock issued and outstanding.
Common Stock
The following is a summary of the material rights and restrictions associated with our common stock.
The holders of our common stock currently have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled to one non-cumulative vote per share on all matters on which stock holders may vote. Please refer to the Company’s Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of the Company’s securities.
Preferred Stock
The holders of our Series A-1 Preferred Stock currently (i) have preferred equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors of the Company; (ii) hold distribution preferences upon liquidation, dissolution or winding up of the affairs of the Company (iii) convert into seventy-two (72) shares, for each share of Series A-1 Preferred Stock, at the discretion of the holder; and (iv) are entitled to seventy-two (72) votes per share of Series A-1 Preferred Stock on all matters on which stock holders may vote.
Following the merger there will ne no Preferred Stock outstanding. Any future issuance will be at the discretion of the Board of Directors.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Transfer Agent
The transfer agent for our common stock is VStock Transfer, and its telephone number is (727) 289-0010.
Trading Information
Our common stock is currently approved for quotation on OTC Markets (otcmarkets.com) under the symbol “AGSS”.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under our Articles of Incorporation, no director or officer will be held personally liable to us or our stockholders for damages of breach of fiduciary duty as a director or officer unless such breach involves intentional misconduct, fraud, a knowing violation of law, or a payment of dividends in violation of the law. Under our bylaws, directors and officers will be indemnified to the fullest extent allowed by the law against all damages and expenses suffered by a director or officer being party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative. This same indemnification is provided pursuant to Nevada Revised Statutes, Chapter 78.
The general effect of the foregoing is to indemnify a control person, officer or director from liability, thereby making us responsible for any expenses or damages incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity, provided they did not engage in fraud or criminal activity.
Any repeal or modification of these provisions approved by our shareholders shall be prospective only and shall not adversely affect any limitation on the liability of a director or officer of ours existing as of the time of such repeal or modification.
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| Item 2.02 | Results of Operation and Financial Condition |
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of AmeriGuard, for the nine months ending September 30, 2022 and 2021along with the fiscal years ended December 31, 2021 and 2020, should be read in conjunction with the Selected Consolidated Financial Data, our financial statements, and the notes to those financial statements that are included elsewhere in this Current Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Current Report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
The following few pages contain summary Income Statement reports along with descriptions of the key changes for the two years ending December 31, 2021 and 2020, audited, and the nine months ending September 30, 2022 and 2021, unaudited. A review of those pages that include variance analysis and industry information will give you a clear picture as to the performance of AmeriGuard over these two and a half years.
In summary, 2020 was a profitable year financially despite COVID-19.As a company with 92% of revenue from federal contracts that were considered “essential”, we continued to operate at full capacity. As you will see the Operational Net Income for 2020 was 4.5% which is high for our industry. The year ending 2021 reflects a normal year except for the purchase of AGSS.
The reality of the guard industry and the Federal Contract market is that it operates on very tight gross margins. For companies our size around $20 million in annual sales, the bottom line fluctuates between 1.25% to 3%. However, the administrative overhead required to manage this volume of federal contracts can handle 2 to 3 times this number. Thus, as contracts revenue exceeds $20 million, the bottom-line profits grow significantly. As you will learn in our discussion about the strategic plan moving forward following merger with additional government contract and with acquiring a couple of competitors our operational net income % is expected to exceed the industry averages.
Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021
The following table presents a summary of operating information for the nine months ended September 30, 2022, and 2021:
| For the Nine months ended | Increase / | Increase / | ||||||||||||||
| September 30, 2022 | September 30, 2021 | (Decrease) $ | (Decrease) % | |||||||||||||
| Total Revenue | $ | 18,838,996 | $ | 16,736,465 | $ | 2,102,531 | 13 | % | ||||||||
| Cost of Services | 16,237,701 | 15,178,135 | 1,059,566 | 7 | % | |||||||||||
| Gross Margin | $ | 2,601,295 | $ | 1,558,330 | $ | 1,042,965 | 67 | % | ||||||||
| Gross Margin % | 13.81 | % | 9.41 | % | 4.40 | % | 47 | % | ||||||||
| Operating expenses | 2,070,812 | 1,270,456 | 800,657 | 63 | % | |||||||||||
| Depreciation expense | 33,282 | 40,949 | (7,667 | ) | -19 | % | ||||||||||
| Interest Expense | 60,693 | 45,240 | 15,452 | 34 | % | |||||||||||
| Net Income from Operations | $ | 436,508 | $ | 201,985 | $ | 234,523 | 116 | % | ||||||||
| Other income (Expense) | (259,935 | ) | (515,426 | ) | 255,491 | 50 | % | |||||||||
| Net Income/(loss) before income taxes | $ | 176,573 | $ | (313,441 | ) | $ | 490,014 | 156 | % | |||||||
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Total Revenue:
Total revenue increased $2,102,531 for the nine months ending September 30, 2022 as compared to the previous year September 30, 2021. This increase of approximately 13% is attributable to two increases in revenue from services and a minor change in accounting systems. The company saw an increase in security services revenue of approximately $1,688,000 due to a services fee increase for commercial contracts and cost increases relating to payroll passed on to federal contracts as allowed for in the agreements. Commercial contracts also incurred an increase in patrol service revenue in the amount of approximately $240,000. Finally, a change in accounting procedures relating to three other companies related to the AmeriGuard. Prior to 2022, related administrative salaries and overhead were allocated between related companies, reducing expenses for the company and increasing expenses of the related companies. In an effort to separate the related companies from AmeriGuard, the company began to bill the related companies on a monthly basis for administrative services and overhead provided by the company. The administrative services revenue accounted for approximately $174,000 of the increase.
Cost of Services:
Cost of services increased $1,059,566 for the nine months ending September 30, 2022. The majority of this 7% change was due to an increase in total direct labor of approximately $1,072,000. The remaining increase of approximately $13,000 was due to the minor increases in the other direct expenses.
Gross Margin:
Gross margin increased $1,042,965. The 67% increase was due directly to the information discussed in the previous two paragraphs.
Operating Expenses:
Operating expenses experienced a significant increase during the nine months ending September 30, 2022 over the previous year 2021 in the amount of $800,657. Of this 63% increase, approximately $620,000 is directly related to the change in accounting policy of allocating administrative salaries to multiple companies to expensing all of the administrative salaries and billing the companies to which services are provided. There was an increase in vehicle expenses of approximately $117,000 due to fuel cost increases and maintenance expenses. Travel expenses increased approximately $53,000, with the remaining increase of approximately $11,000, due to fluctuations in other administrative expenses.
Interest Expense:
Interest expense decreased over 34% due to a new note payable to Lillian Flores a minority shareholder who executed a previously established buyout agreement in July 2022. The loan required a first payment on signing, with the first principal and interest payment due December 31, 2023. Interest at a rate of 3.11% is accrued monthly and will be paid on that date. Further explanation can be found in the September 30, 2022 financial statements and footnotes provided later in this document.
Net Income:
Net income from operations increased by $234,523 an 116% increase over 2021. However, in both years we saw a significant amount of other nonoperational expenses related to the purchase of Health Revenue Assurance Holding, Inc. a Nevada corporation in 2021 and the one-time expenses relating to the of preparation for the merger with Health Revenue Assurance Holding, Inc. a Nevada corporation as described in this 8K.
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Liquidity and Capital Resources
The Company’s principal sources of liquidity include cash from operations and proceeds from long term debt financing. During the nine months ending September 30, 2022 the Company did not receive proceeds from long term debt.
As of September 30, 2022, the Company had cash balances of approximately $1,658,000 as compared to approximately $2,130,000 as of December 31, 2021, a decrease of approximately $471,000. The decrease was attributable to net cash provided by operations of approximately $472,000 and net cash used in financing activities of approximately $862,000. The Company has a working capital surplus of approximately $1,240,000.
Year ended December 31, 2021 compared to the year ended December 31, 2020
Results of Operations
The following table presents a summary of operating information for the year ended December 31, 2021and 2020:
| For the year ended | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||
| 31-Dec-21 | 31-Dec-20 | ($) | (%) | |||||||||||||
| Total Revenue | 22,442,513 | 19,491,197 | 2,951,316 | 15 | % | |||||||||||
| Cost of Services | 20,628,998 | 17,052,496 | 3,576,502 | 21 | % | |||||||||||
| Gross Margin | 1,813,515 | 2,438,701 | (625,186 | ) | -26 | % | ||||||||||
| Gross Margin % | 8.1 | % | 12.5 | % | -4.4 | % | -35 | % | ||||||||
| Operating expenses | 1,552,450 | 1,435,921 | 106,546 | 7 | % | |||||||||||
| Depreciation expense | 52,273 | 58,238 | (5,965 | ) | -10 | % | ||||||||||
| Interest expense | 59,439 | 63,232 | (3,793 | ) | -6 | % | ||||||||||
| Net Income from operations | 149,353 | 881,310 | (569,061 | ) | -65 | % | ||||||||||
| Other income (expense) | (500,000 | ) | 2,031,197 | (2,531,197 | ) | -125 | % | |||||||||
| Net Income before income taxes | (350,647 | ) | 2,912,507 | (3,100,258 | ) | -106 | % | |||||||||
Total Revenue:
Total revenue increased by $2,951,316 or 15%, from $19,491,197 for the year ended December 31, 2020 to $22,442,513 for the year ended December 31, 2021. The increase was due primarily to increased revenue generated from a new contract awarded to the company mid-2020. The year ending 2020 held only 6 months of revenue from this contract while 2021 received a full year of revenue. To understand the impact of a single Federal Contract it’s important to note that 92% of all revenue of the company come from such contracts.
Cost of Services:
Cost of services increased by $3,576,502 or 21%, from $17,052,496 for the year ended December 31, 2020 to $20,628,998 for the year ended December 31, 2021. The increase was due primarily to two significant events during this time period. First, a portion of the increase is due to the aforementioned contract awarded mid-2020 with the related labor costs of only 6 months in 2020 and 12 months in 2021. The second cause for the increase in 2021 over 2020 was that during 2020, the federal contracts required a reduction in guard hours due to the closing of the offices guarded under the contracts and a desire to prevent guards from working too closely together. As a result, contract labor costs were below normal. With total staffing costs equating nearly 90% of contract revenue, any reduction in contract hours required has an immediate impact on the total cost of services.
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Gross Margin:
Gross margin decreased by $625,186, or 26%, from $2,438,701 for the year ended December 31, 2020 to $1,813,515 for the year ended December 31, 2021. Related to this, gross margin percentage decreased 35% from 12.5% for the year ended December 31, 2020 to 8.1% for the year ended December 31, 2021. The decrease was due to an increase in profitability of the federal contracts due to changes in staffing requirements relating to COVID during 2020. During 2020 the federal contract office reduced the number of guard hours required yet continued to pay the contracts at the regular rate. As a result, the contracts that normally generate a 10% or less gross profit percentage ticked up a few points. The hour reductions ended towards the end of 2020 and 2021 was a full year of regular staffing returning the gross profit percentage to a more normal level.
Operating Expenses:
Operating expenses were $1,552,450 for the year ended December 31, 2021, an increase of 7%, or 106,546 from $1,435,921 the year ended December 31, 2020. The increase was primarily due to an increase in administrative activities related to the purchase of the shell corporation Health Revenue Assurance Holdings, Inc. The purpose of this purchase is a possible merger of AmeriGuard Security Services, Inc. with Heath Revenue Assurance Holdings resulting in the need to prepare the company for such a merger. This required the establishment of additional positions in the HR department and the Finance department. It also required a substantial increase in professional fees for financial statement audits, compliance with the SEC and legal representation.
Net Income:
As a result of the above factors, a net income from operations of approximately $881,310 was recognized for the year ended December 31, 2020 as compared to net income from operations of $149,353 for the year ended December 31, 2021, a decrease of $569,061 or 65%. The decrease was attributable to the effect of the increase in direct labor costs in the cost of services section along with the increase in staffing and professional fees under the operational expenses as explained previously.
Other Income (Expense):
Both 2020 and 2021 experience unique situations not normally related to operations listed as other income and expense. In 2020, the other income amount of $2,031,197 includes the forgiveness of a PPP loan in the amount of $1,900,000. In 2021 the other expense amount of $500,000 reflects the purchase price of AGSS, for $450,000 along with related initial expenses of $50,000. These two “below the line” transactions were significant and unusual for AmeriGuard. Normal activity is $15,000 or less annually.
Liquidity and Capital Resources
The Company’s principal sources of liquidity include cash from operations and proceeds from long term debt financing. During the year ended December 31, 2021 the Company did not receive and proceeds from long term debt.
As of December 31, 2021, the Company had cash balances of approximately $2,130,000 as compared to approximately $3,060,000 as of December 31, 2021, a decrease of approximately $926,000. The decrease was attributable to net cash used by operations of approximately $212,500 and net cash used in financing activities of approximately $713,500. The Company has a working capital surplus of approximately $2.8 million.
Net cash used in operating activities was approximately $212,500 for the year ended December 31, 2021. This compared to net cash provided in operating activities of approximately $2,194,827 in the year ended December 31, 2020. The decrease of approximately $2,407,000 was primarily due to a PPP loan received and forgiven in 2020 in the amount of approximately $1,900,000 adding significantly to the normal increase in cash from operations along with the $500,000 use of cash in 2021 for the purchase of the shell corporation discussed earlier.
Net cash used in investing activities was approximately $735,600 in the year ended December 31, 2021 as compared to net cash used of approximately $780,700 in the year ended December 31, 2020 decreasing in the amount of $45,100 for the period.
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Net cash provided by financing activities amounted to approximately $21,500 in the year ended December 31, 2021, compared to net cash provided in the year ended December 31, 2020 of approximately $1,261,500, representing a decrease in net cash flow from financing activities of approximately $1,240,000. During 2020, the Company received an SBA working capital loan of $1,083,600 used to close out and existing credit line of $372,515 leaving the remaining balance in reserve for new contract costs. Also, during 2020 an unrelated company who partnered with the Company issued a short term note for equipment purchase for a contract in which the two companies partnered. Due to the significant amount of cash on hand as of December 31, 2020, using financing for purchases or operations was reduced. The Company purchased a used vehicle from an unrelated company financed with a 12-month loan in the amount of $21,500.
Management Discussion of Strategic Plans
On December 9, 2022, as described in Section 2.01, AGSS acquired AmeriGuard via a stock exchange. After which, AmeriGuard became the 100% subsidiary of AGSS resulting in the consolidated annual revenue of AGSS to exceed $22 million. We hope to achieve material growth following a very simple menu:
| ● | Aggressive bidding on new and current Federal Guard Contracts. |
| ● | Meet the growing needs in the Commercial Guard services. |
| ● | Acquisitions of Federal Contracting competitors, specifically those with high level secret security clearance. |
| ● | Acquisition of businesses operating in the governmental contracting market achieving greater margins such as the Transportation industry and technology, specifically cyber-security and related IT services. |
Government Contracts
We will continue to take advantage of our federal contracting bidding category of a veteran owned, minority owned, small business (initially) narrowing the field of competition for each contract. The small business category is defined as average sales over 5 years at or below $25.5 million. We project that we will remain below that level for the next two calendar years. Another category that increases contracting opportunities is the much-coveted position of having high level secret clearance. We have held this clearance in the past and are actively seeking to gain such clearance again.
With over 20 years of experience with government contracts providing significant understanding of the bidding process along with a team of 5 individuals processing contract bids, we are confident of being awarded two or three new contracts in the next eighteen months. This activity will impact our total annual sales volume by approximately $10-$15 million.
As previously mentioned in the industry discussion, the industry is going through a merger and acquisition phase driven by the need to consolidate overhead and a significant percentage of owner retirements. One key reason for the creation of this public company is to gain the significant capital necessary to acquire two or three companies already in the governmental contract market.
Commercial Guard Services
With the increasing crime rates in most major cities across the country the gap between what the business owners expect from law enforcement and what law enforcement can deliver is widening. A specific concern is the amount of time it takes from the moment an alarm is triggered and the arrival of an officer. This can be multiple hours and sometimes not at all for local police departments. The time gap as described could mean the difference between a broken window to a multi thousand-dollar loss.
It is a part of our regular service to dispatch an armed officer to respond quickly to the alarm, secure the scene and await law enforcement or the business owner. We believe that this quick response ensures a higher level of security for our customers. We provide the complete package of alarms, video cameras to armed response. This complete vertical can be duplicated in any town USA. It is true that other guard companies do provide armed response, yet not many also have surveillance systems under their operational control and monitored with local dispatch as we do.
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Our strategy is to acquire commercial guard companies in the states where we have federal contracts allowing us to establish a kind of farm system for guards who can start at a no experience entry position, receive experience and training to ultimately be employed at the high value level of unionized federal guard. Like many industries, it is extremely difficult to find and keep the employees needed for our federal contracts. This negatively impacts the bottom-line success of a contract due to extra overtime not anticipated. A program like this will allow individuals to start and build a career, not just a job.
Other Business Acquisitions
The last item on our menu is the acquisition of a related governmental contractor in the Transportation and/or Cyber Security business. These lines of business achieve high margins and play in the same contract market as our guard services. We can become successful players in this market very quickly.
AGSS will look to identify a few potential Cyber Security/IT companies that could be acquired. We see the acquisition of a quality Cyber Security company and an important aspect of our strategic plan. The Executive Team will identify potential acquisitions with great urgency.
Implementation and Timeline
For the acquisitions we will identify target companies that meets the specific strategic and financial criteria established by the board, and then seek the necessary capital. The acquisition offer will include both cash and AGSS stock. This track will be very aggressive, and our strategic goal is to acquire companies adding to the annual revenue at a level of $10 million each quarter, starting 1st quarter 2023. This can be accomplished through the acquisition of 1 or more companies each quarter. We have identified several industries with companies that may fit our acquisition parameters and if acquired would help us meet this goal in the first four quarters of operations following the merger.
The criteria that management is currently using to identify acquisition target are:
| 1. | Currently holding governmental contracts in good standing and/or with solid commercial operations. |
| 2. | Companies in related industries provide significant value to our company’s bottom line. |
| 3. | A minimum of a 10% EBTIDA (non-guard companies), and guard companies with the majority of revenues from government contracts with an EBTIDA of 2.5+%. |
| 4. | Consolidation savings will bring EBTIDA to 15% (non-guard companies), and 8-10% for guard companies. |
| 5. | Monthly revenues exceeding $500,000. |
| 6. | Has a clear path for revenue growth. |
| 7. | If the company does not meet the criteria in 1-6. It needs to demonstrate an ability to grow 10% per year or more and bring positive cash flow to the company. |
For new government contracts, this approach is a bit more time-consuming and competitive. Preparing proposals for the contracts that become available is not the problem, the time aspect is the dates the contracts are awarded.
The capital required component of these contracts is twofold. First, the contract often requires new equipment and vehicles. Second, the bidding company must have enough working capital to cover the first three months of payroll. With payroll cost being 80% of the contract and various equipment requirements, the required capital on hand can be significant. For a contract that has $15 million per year in revenue the capital on hand requirement would exceed $3,000,000.
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The following is a description of the assumptions made for each quarter of operation.
Post-merger through first quarter 2023, December 2022 – March 31, 2023
There will be some initial working capital challenges as we go through the process of establishing a full Executive team and other processes necessary for proper operations. Although we have been operating effectively with the structure we have in place, the Executive team will continue to take the steps necessary to transition to a public company. The ongoing reality of inflation will continue to put pressure on the cash position following the merger and into 2023.
We will be looking to raise capital to get through this process required to meet the operational and SEC requirements of a public company. It is projected that the company will continue to maintain a positive cash position regardless of the impact of the merger, yet there is very little room for any unexpected expense or revenue issues.
During these initial months, operations will be settling in and becoming much smoother. We will begin to focus on our two growth strategies. One is the winning of additional governmental guard contracts and the second executing profitable acquisitions.
As to acquisitions our other avenue of growth, the central valley of CA is ripe with opportunity for guard company acquisitions. It’s not clear as to the capital necessary to acquire these companies, but they will only be considered if they meet the general criteria indicated above. Our cash flow projection assumes the acquisition of one guard company in central California in the 1st quarter of 2023.
We also will be pressing hard to find a cybersecurity company to acquire. Executive Management is confident that we will at minimum start negotiations with a company in this industry and hoping to close a deal before the end of the 1st quarter 2023.
We anticipate that the Company will be able to implement one new guard contract with annual revenues over $10 million, which provides cash at the rate of 6%.
Each new guard contract requires capital to cover startup costs. The startup costs include guard equipment such as pistols and uniforms, vehicles, and payroll for the first two months. These costs are reimbursed from the contract but can take a full year to recoup 100% of the costs. This requires the company to have on hand a minimum of 15% of the annual contract revenue. For example, a $30 million 5-year contract requires $1.2 million for startup funds. Even though these funds are recouped within the first year, if the company is awarded multiple contracts back-to-back, cash on hand can be a problem. The cash flow projection assumes funding of the start-up funds via line of credit and investor support.
Second quarter of operation, April – June 30, 2023
During this quarter our focus will be acquiring a guard company of a large enough size to have annual sales over $10 million, with the hopes of providing additional cash from operations at 6% of annual sales.
During this quarter we also look to acquire a transportation company, hopefully with federal contract(s). The capital required for this industry is heavy on the asset side in that vehicles need to be ready to go at the time of contract award. However, bottom line earnings can exceed 12%. Like the guard industry, this industry is going through mergers and acquisitions. Management is confident they will be able to find a few companies that meet our acquisition requirements.
Third quarter of operation, July – September 30, 2023
The third quarter of operation anticipates the operations of an acquired transportation company with a net cash percentage of 12% or more. This quarter could see the blending in of the transportation company and the consolidation of overheads.
At this point AGSS should have a complete Executive Team, full Board of Directors, processes and procedures in place and will be aggressively working to achieve our goal of $100 million in annual sales.
As previously indicated it is anticipated that AGSS will acquire additional Security Companies competing with AGSS in the government contracting market, along with companies that meet the acquisition criteria previously mentioned, from June 2023 through the end of the year. The previous comments and timeline reflect management’s expectations that are achievable and are at the minimum of management’s intentions. Based on market activities and investor readiness, the pace of acquisitions and contract awards could accelerate.
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| Item 3.02 | Unregistered Sales of Equity Securities |
On December 9, 2022, AGSS entered into the Merger Agreement. Pursuant to the Share Exchange, (a) the Majority Shareholder relinquished all of his 573 Amerigaurd common shares and the Minority Shareholders relinquished all of their 67 AmeriGuard common shares, constituting all issued and outstanding shares of AmeriGuard (the “AmeriGuard Shares”), and were issued an aggregate of 80,578,125 and 9,421,875 respectively of AGSS common shares, representing 86.26% and 10.09% of the outstanding Common Stock of AGSS and (b) AmeriGuard returned the A-1 Preferred Stock of AGSS for retirement.
| Item 5.01 | Changes in Control of Registrant. |
In connection with the closing of the Merger, and as described in Item 5.02 of this Current Report, our sole officer and director resigned upon the closing of the Merger, and the officers and directors of AmeriGuard became our officers and directors.
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Set forth below is information regarding our directors and executive officers following the closing of the Merger. Pursuant to the terms of the Merger, our sole officer and director, Lawrence Garcia, was appointed as President and Chief Executive Officer, was appointed as our Chief Operating Officer, Secretary and Treasurer, Michael Goossen as our Chief Financial Officer. In addition, in connection with the Merger, Douglas Anderson was appointed to serve as a director on December 7, 2022
The following persons became our executive officers and directors upon effectiveness of the Merger, and hold the positions set forth opposite their respective names.
| Name | Age | Position | ||
| Lawrence Garcia | 50 | Chairman of the Board, President and Chief Executive Officer | ||
| Chief Operating Officer, Chief Marketing Officer, Secretary, Treasurer and Director | ||||
| Michael Goossen, CPA | 60 | Chief Financial Officer | ||
| Douglas Anderson* | 60 | Director |
| * | Appointed December 7, 2022. |
Lawrence Garcia is the CEO and President of AmeriGuard Security Service, Inc incorporated in state of California in 2002. Lawrence is a disabled veteran of the United States Navy and of Hispanic dissent. He has led the company from a small local guard company to a national company currently managing five Federal Government armed guard contracts with annual revenue of over $22 million. Mr. Garcia has twice been named, “Businessman of the Year” in the State of California.
Michael Goossen, CPA is the Chief Financial Officer of AmeriGuard Security Services, Inc., a California Corporation. Michael has been a CPA since 1986, has worked in multiple industries as a CFO and CEO. During the past 20 years he has been providing small business consulting, offering CFO services and executive leadership development. Michael began working with AmeriGuard as a CFO consultant and business strategic services 3 years ago and became the full time CFO for AmeriGuard in August 2022.
Douglas Anderson, Board Director. Mr. Anderson is the CEO of Wall Street Capital Partners and has been involved in or exposed to most aspects of corporate finance with over 20 years on Wall Street. Prior to his work in corporate finance, he served in the U.S. Marine Corps, including the elite Marine Reconnaissance Battalion. He held a Top-Secret clearance while serving operationally in the U.S. State Department at American Embassies overseas, as well as at the U.N. in New York, where he participated in Security Enhancement programs. Mr. Anderson was formally trained on Wall Street as an Underwriter. He has been interviewed and broadcast nationally and internationally, many times as an expert both on NASDAQ and at the NYSE. Mr. Anderson earned his undergraduate degree from the University of Washington and postgraduate graduate education includes executive education from Harvard in Finance and Texas A&M in Agriculture Science. Mr. Anderson has served as an Advisor, Director, public company CEO and public company Board Director over his career.
22
Related Party Transactions
On July 7, 2022 the AmeriGuard entered into a buyout agreement with its minority shareholder Lillian Flores. The value of AmeriGuard to be used for the buyout agreement was calculated using an independent evaluation service which determined the December 31, 2020 value to be approximately $6,400,000. As a 45% owner, Mrs. Flores’ share was approximately $2,885,000. After negotiation of some additional funds due Mrs. Flores, the final buyout amount was approximately $3,385,000. A 5-year promissory note was executed (exhibit 10.1) and the note is secured by a stock pledge (exhibit 10.2).
Director Independence
Lawrence Garcia, CEO and majority Shareholder is our only non-independent director.
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the Company; | |
| ● | the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); | |
| ● | a family member of the director is, or at any time during the past three years was, an executive officer of the Company; | |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); | |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or | |
| ● | the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit. |
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses) |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| ● | been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
23
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Ethics
We have not adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, because of the small number of persons involved in the management of the Company.
| Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
The Company amended and restated our bylaws. The updated bylaws are attached hereto as Exhibit 3.2.
| Item 5.06 | Change in Shell Company Status. |
Following the consummation of the Merger described in Item 2.01 of this Current Report on Form 8-K, we believe that we are no longer a shell corporation as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
| Item 9.01 | Financial Statements and Exhibits. |
| (a) | Financial Statements of Business Acquired. In accordance with Item 9.01(a), AmeriGuard Security Services, Inc. audited financial statements for the period from December 31, 2021 and 2020 and reviewed financial statements for the nine months ended September 30, 2022 is filed in this Current Report on Form 8-K on F-2-18, respectively, as required by Regulation S-X Rule 3-05(b). |
| (b) | Pro forma financial information. |
In accordance with Item 9.01(b), unaudited pro forma condensed combined financial statements as of September 30, 2022, adjusted to give the effect of the acquisition of AmeriGuard, as if the acquisition had occurred at January 1, 2021, and the accompanying notes are included in this Report beginning on Page F-19.
| (c) | Exhibits. |
24
9.01(a) Financial Statements of Business Acquired
Financial Statements
Table of Contents
Audited Balance Sheets of AmeriGuard Security Services, Inc. as of December 31, 2021 and 2020, and the Related Audited Statements of Operations, Shareholders’ Equity, and Cash Flows for the years ended December 31, 2021 and 2020.
Reviewed Balance Sheet of AmeriGuard Security Services, Inc. as of September 30, 2022, and the Related Audited Statements of Operations, Shareholders’ Equity, and Cash Flows for the nine months ended September 30, 2022.
F-1
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of AmeriGuard Security Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of AmeriGuard Security Services, Inc. as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor since 2021
Lakewood, CO
April 25, 2022
F-2
AmeriGuard Security Services, Inc.
BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 2,129,801 | $ | 3,056,449 | ||||
| Accounts receivable, net (note 1) | 2,215,198 | 2,191,826 | ||||||
| Prepaid insurance | 107,883 | 74,934 | ||||||
| Related Party Receivable (note 3) | 10,596 | - | ||||||
| Total Current Assets | 4,463,478 | 5,323,209 | ||||||
| Other Non-Current Assets | ||||||||
| Fixed assets, net depreciation (note 4) | 132,802 | 175,564 | ||||||
| Receivable from related party | - | - | ||||||
| Total Non-Current Assets | 132,802 | 175,564 | ||||||
| Total Assets | $ | 4,596,280 | $ | 5,498,773 | ||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 418,341 | $ | 384,598 | ||||
| Accrued Payroll | 657,741 | 582,048 | ||||||
| Payroll liability - Pension (note 5) | 616,579 | 539,342 | ||||||
| Current portion of notes payable (note 6) | 127,615 | 194,856 | ||||||
| Total Current Liabilities | 1,820,276 | 1,700,844 | ||||||
| Long Term Liabilities | ||||||||
| Long term portion of notes payable (note 6) | 780,845 | 944,964 | ||||||
| Total Liabilities | 2,601,121 | 2,645,808 | ||||||
| Stockholders’ equity | ||||||||
| Common stock, $1.00 par value, 1,000 shares issued and outstanding at December 31, 2019 and 2020 (Note 7) | 1,000 | 1,000 | ||||||
| Retained earnings | 1,994,159 | 2,851,965 | ||||||
| Total Stockholders’ Equity | 1,995,159 | 2,852,965 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 4,596,280 | $ | 5,498,773 | ||||
See accompanying notes to financial statements
F-3
AmeriGuard Security Services, Inc.
STATEMENTS OF OPERATIONS
| For the Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Security Services | $ | 22,418,328 | $ | 19,468,546 | ||||
| Other related income | 24,185 | 22,651 | ||||||
| Total Revenue | 22,442,513 | 19,491,197 | ||||||
| Cost of Services | ||||||||
| Salaries and related taxes | 13,873,242 | 11,843,458 | ||||||
| Employee benefits | 2,915,323 | 2,446,800 | ||||||
| Sub-Contractor payments | 3,433,959 | 2,363,121 | ||||||
| Guard training | 222,298 | 179,871 | ||||||
| Vehicles and equipment expenses | 184,176 | 219,246 | ||||||
| Total Cost of Services | 20,628,998 | 17,052,496 | ||||||
| Gross Margin | 1,813,515 | 2,438,701 | ||||||
| Operating Expenses | ||||||||
| Salaries, payroll taxes and benefits | 365,433 | 407,819 | ||||||
| Vehicle expense | 295,054 | 248,098 | ||||||
| Professional services | 301,854 | 234,353 | ||||||
| Cellular services | 112,140 | 108,216 | ||||||
| General liability insurance | 111,287 | 76,635 | ||||||
| Advertising and marketing | 77,349 | 72,370 | ||||||
| General and administrative expenses | 289,333 | 288,430 | ||||||
| Loan interest | 59,439 | 63,232 | ||||||
| Depreciation expense | 52,273 | 58,238 | ||||||
| Total Operating Expenses | 1,664,162 | 1,557,391 | ||||||
| Net Income/(Loss) from Operations | 149,353 | 881,310 | ||||||
| Other Income (Expense) | ||||||||
| Other Income | - | 2,031,197 | ||||||
| Other (Expense) | (500,000 | ) | ||||||
| Total Other Income (Expense) | - | 2,031,197 | ||||||
| Net Income/(loss) before Income Taxes | (350,647 | ) | 2,912,507 | |||||
| Income tax expense | 33,923 | 48,498 | ||||||
| Net Income/(loss) | $ | (384,570 | ) | $ | 2,864,009 | |||
| Net Income/(loss) per Common Share - Basic and Diluted | $ | (384.57 | ) | $ | 2,864.01 | |||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 1,000 | 1,000 | ||||||
See accompanying notes to financial statements
F-4
AmeriGuard Security Services, Inc.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED December 31, 2020 and 2021
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-In | Stockholders’ | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Equity | Equity | ||||||||||||||||
| Balance, December 31, 2019 | 1,000 | $ | 1,000 | $ | - | $ | 318,013 | $ | 319,013 | |||||||||||
| Owner draws | - | - | (330,057 | ) | (330,057 | ) | ||||||||||||||
| Net Income for year ended December 31, 2020 | 2,864,009 | 2,864,009 | ||||||||||||||||||
| Balance, December 31, 2020 | 1,000 | $ | 1,000 | $ | - | $ | 2,851,965 | $ | 2,852,965 | |||||||||||
| Owner draws | - | - | (473,236 | ) | (473,236 | ) | ||||||||||||||
| Net Income for year ended December 31, 2021 | (384,570 | ) | (384,570 | ) | ||||||||||||||||
| Balance, December 31, 2021 | 1,000 | $ | 1,000 | $ | - | $ | 1,994,159 | $ | 1,995,159 | |||||||||||
See accompanying notes to financial statements
F-5
AmeriGuard Security Services, Inc.
STATEMENTS OF CASH FLOWS
| For the Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income/(Loss) | $ | (384,570 | ) | $ | 2,864,009 | |||
| Adjustment to reconcile net loss from operations: | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Accounts receivable, net | (23,372 | ) | (1,313,554 | ) | ||||
| Prepaid insurance | (32,949 | ) | (74,934 | ) | ||||
| Related Party Receivable | (10,596 | ) | - | |||||
| Depreciation | 52,273 | 58,238 | ||||||
| Accounts payable | 33,742 | 260,967 | ||||||
| Accrued Payroll | 75,693 | 133,559 | ||||||
| Payroll liability - Pension | (85,867 | ) | 266,542 | |||||
| Net Cash (Used)/provided in Operating Activities | (212,542 | ) | 2,194,827 | |||||
| Cash Flows Used from Financing Activities | ||||||||
| Purchase of fixed assets | (24,552 | ) | (157,856 | ) | ||||
| Payment online of credit | - | (372,515 | ) | |||||
| Reduction in balance from AmeriGuard Security Systems, Inc | - | 219,564 | ||||||
| Loan principal payments | (237,816 | ) | (139,845 | ) | ||||
| Owner distributions | (473,238 | ) | (330,057 | ) | ||||
| Net Cash Used by Investing Activities | (735,606 | ) | (780,709 | ) | ||||
| Cash Provided from Financing Activities | ||||||||
| Secure Transportation vehicle loan | 21,500 | - | ||||||
| Master’s Security equipment loan | - | 177,854 | ||||||
| SBA Loan | - | 1,083,600 | ||||||
| Net Cash Provided by Financing Activities | 21,500 | 1,261,454 | ||||||
| Net Increase (Decrease) in Cash | (926,648 | ) | 2,675,572 | |||||
| Cash at Beginning of Period | 3,056,449 | 380,877 | ||||||
| Cash at End of Period | $ | 2,129,801 | $ | 3,056,449 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Income Taxes Paid | $ | 33,923 | $ | 48,498 | ||||
| Interest Paid | $ | 59,439 | $ | 63,232 | ||||
See accompanying notes to financial statements
F-6
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
AmeriGuard Security Services, Inc., is a California Sub-Chapter S Corporations formed on November 14, 2002. The corporation was incorporated with the issuance of 1,000 shares of no-par value stock currently held by Lawrence Garcia, President and CEO with 550 shares and Lillian Flores, VP of Operations with 450 shares. The Company provides armed guard services as a federal contractor with licenses in 5 states and provides commercial guard services in California.
The Company’s accounting year end is December 31.
Basis of Presentation
These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.
Risks and Uncertainties
The risks and uncertainties described below may not be the only ones we are or may face in the future. If any of the following do occur, our business, financial condition or results of operations could be materially adversely affected.
The company receives over 90% of its total revenue from four Federal contracts as described in Note 9 below. These contracts have specific terms, typically five years with the opportunity for extension, but there are no assurances they will be extended. Although we have had several extended in the past, there is no guarantee this will again happened in the future. However, there are significant direct expenses for each contract that also are removed from operations at the end of a contract. As a result, the revenue lost from a completed contract does not affect the bottom-line profits in an amount equal to the revenue lost. The actual net income impact depends on the contract.
The process required to acquire a government contract takes several months to complete prior to delivery of the proposal to the contracting agency. Due to the time span required to prepare a proposal and wining the contract is not guaranteed, the company maintains a department of individuals who monitor and write proposals for all government contracts that become open for bid on a continuing basis. It is important to the company that new contracts are acquired consistently to maintain and grow annual revenue.
Other risks to operations consist of State and Federal regulations, staffing shortages, the ongoing impact of COVID, accelerating inflation, and overall business environment issues we cannot foresee.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, along with the collectability of some receivables from customers.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On December 31, 2021 and December 31, 2020, the Company had cash and cash equivalents totaling $2,129,801 and $3,056,449 respectively.
F-7
Accounts Receivable
We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to other bad debt expense. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers. With over ninety percent of year end accounts receivable balance from Federal contracts that require payment, and the uncollectable amount historically has been less than 1%. As of December 31, 2021 and 2020, an allowance for estimated uncollectible accounts was determined to be unnecessary.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful life for Machinery and Equipment, and Vehicles is 5 years.
Net Income/(Loss) per Share
Net income/(loss) per common share is computed by dividing net income or loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share”. Basic earnings/(loss) per common share (“EPS”) calculations are determined by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Revenue Recognition
We recognize revenue when the Invoice for contracted services is issued as stipulated by the contract. Other services provided are recognized at the time the service is provided. Ninety nine percent of revenues are billed monthly and recognized in the month the services were provided. Refunds and returns, which are minimal, are recorded as a reduction of revenue. The Company has not recorded a reserve for returns at December 31, 2021, or 2020 since it does not believe such returns will be material.
Fair Value of Financial Instruments
The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
| ☐ | Level 1 - quoted market prices in active markets for identical assets or liabilities. | |
| ☐ | Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ☐ | Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The carrying amount of the Company’s financial instruments approximates their fair value as of December 31, 2020 and December 31, 2021, due to the short-term nature of these instruments.
F-8
Recently Issued Accounting Pronouncements
FASB ASU No. 2016-02 (Topic 842), “Leases” – Issued in February 2016, ASU No. 2016-02 established ASC Topic 842, Leases, as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We would be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments and will continue to recognize expense on a straight-line basis upon adoption of this standard. ASU 2016-02 is effective for reporting periods for private companies beginning after December 15, 2021, with early adoption permitted. In July 2018, the FASB issued an update ASU 2018-11 Leases: Targeted Improvements, which provides companies with an additional transition option that would permit the application of ASU 2016-02 as of the adoption date rather than to all periods presented. The Company expects to adopt this standard for the reporting year ending December 31, 2022.
NOTE 3 – RELATED PARTY RECEIVABLE
On July 7, 2021, the company has entered into an agreement to purchase 100% of the Preferred A-1 Stock of Health Revenue Assurance Holdings, Inc. a SEC registered company for $450,000. The Company is pursuing a business combination with AmeriGuard Security Services, Inc., (formerly HRAH). To date we have no signed definitive agreement, have not submitted the terms of the proposed transaction to appropriate regulatory agencies for approval and have not determined the terms of any agreement. If a business combination is consummated with AmeriGuard Security Services, Inc., (formerly HRAH) will cease to be a shell company (as defined in Rule 12b-2 of the Exchange Act). AmeriGuard Security Services, Inc. (formerly HRAH) will be a publicly traded operating company engaged in providing security services.
If Company does not consummate a business combination with AmeriGuard Security Services, Inc., (formerly HRAH) the Company does not expect that existing operational cash flow of will be sufficient to fund presently anticipated operations. The Company will be required to continue to fund AGSS Inc. administrative expenses.
These expenses are being treated as a Related Party Receivable. The receivable balances on December 31, 2021 and 2020 was $10,596 and $0 respectively.
NOTE 4 – FIXED ASSETS
Fixed assets consist of the following at December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Machinery and Equipment | 246,975 | 243,923 | ||||||
| Vehicles | 131,749 | 143,699 | ||||||
| Total Fixed Assets | 378,749 | 387,622 | ||||||
| Accumulated Depreciation | (245,947 | ) | (212,058 | ) | ||||
| Fixed Assets, Net | $ | 132,802 | $ | 175,564 | ||||
NOTE 5 – PAYROLL LIABILITY – PENSION
The company offers various pension plans to employee groups based on location of employment. Corporate office employees and guards have an option to participate in a 401K sponsored by the company with a matching program up to 5% of employee salary. Federal contracts have union agreements that define the pension calculation and due dates. It is the responsibility of the company to calculate the pension benefit amount each month and contribute the amount due to the plan designated. The pension balances due on December 31, 2021 and 2020 for all plans was $616,579 and $539,342 respectively.
F-9
NOTE 6 – NOTES PAYABLE
In May 2017, the company entered into a vehicle finance agreement with Ford Credit Corporation. The amount financed was $33,425, with 59 principal and interest payments of $721, with a fixed interest rate of 10.44%. Balance remaining in the amount of $0 and $11,134 as of December 31, 2021 and 2020 respectively.
In June 2020, AmeriGuard Security Services, Inc. received a SBA Loan through Fresno First Bank in the amount of $1,080,000 that was used to close out the Citibank loan in the amount of $312,339 with the remaining balance after expenses held in reserve. The SBA loan is a 10-year loan with monthly principal and interest payment of $11,988. Interest rate fixed at 6%. Due to the COVID relief program passed on the federal level, the federal government covered the initial payments for the first year through 2020 and into 2021. Payments were posted as reduction in principle with the interest portion being recorded as income. Balance remaining on the SBA loan was $888,845 and $1,052,964 as of December 31, 2021 and 2020 respectively.
In January 2020, the Company entered into a financing agreement with Master Security Company for the purchase of vehicles, guns, and guard equipment for the National Institute of Health USEPA contract which began May 2020. The principal financed was $150,000, with interest of 4% for a term of 21 months. Resulting in a monthly principal and interest payment of $7,406. Balance remaining in the amount of $7,729 and $75,722 as of December 31, 2021 and 2020 respectively.
In December 2021, the Company entered into a financing agreement with Secure Transportation Inc. for the purchase of three used vehicles in the amount of $21,500. Note requires 12 equal payments of $1,900 with a calculated interest rates of 5% with the first payment December 15, 2021. Balance remaining in the amount of $19,615 as of December 31, 2021.
The following schedule details the loans active as of December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Current Portion: | ||||||||
| Notes and loans payable | $ | 127,615 | $ | 194,856 | ||||
| Total Current Portion | 127,615 | 194,856 | ||||||
| Long term Portion: | ||||||||
| Notes and loans payable | 780,845 | 944,964 | ||||||
| Total Long term Portion | 780,845 | 944,964 | ||||||
| $ | 908,460 | $ | 1,139,820 | |||||
NOTE 7 – STOCKHOLDERS’ EQUITY
The company has authorized and issued 1,000 common shares with a par value of $0.00 on inception date, no additional shares issued as of December 31, 2021 and December 31, 2020. Lawrence Garcia, President and CEO, holds 550 shares and Lillian Flores, Vice President, holds 450 shares.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The company has a multiple vehicle lease agreement with Enterprise Leasing. As of December 31, 2021, the company had 11 vehicles under lease. The lease agreement includes maintenance services along physical damage insurance. The term of the lease agreement varies based on the date vehicle were leased and the respective terms for each vehicle. The master lease is updated annually and requires annual internal financial reports and company tax return.
F-10
NOTE 9 – CONCENTRATION OF SALES
The company generated approximately $22,100,000 and $19,700.000 in guard service revenue for the years 2021 and 2020 respectively. Of the total guard service revenue, approximately 92% was earned from four federal contracts operated by the company. The contracts and their respective terms are as follows:
| ● | Social Security Administration, NSC | - September 2017 through September 2022 |
| ● | Social security Administration, SSC | - June 2017 through June 2022 |
| ● | Social Security Administration, WBDOC | - June 2021 through July 2026 |
| ● | National Institute of Health- EPA | - May 2020 through March 2025 |
NOTE 10 – LITIGATION AND CLAIMS
None per attorney letter
NOTE 11 – INCOME TAXES
The Company has elected, with the consent of its stockholders, to be treated as an S Corporation under the Internal Revenue Code. In lieu of corporate income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Company’s income. Therefore, no provision for income taxes has been included in the accompanying financial statements.
NOTE 12 – SUBSEQUENT EVENTS
On March 11, 2022, the Company, amended the articles of incorporation of Health Revenue Assurance Holdings, Inc. to change its name to AmeriGuard Security Services, Inc. The name was deemed effective by FINRA on March 17, 2022.
On March 11, 2022, AmeriGuard Security Services, Inc. amended its articles of incorporation to reverse split its Common Stock at a rate of 1 for 20, which was declared effective by FINRA on March 17, 2022. The Common Stock was reversed split 1 for 20 pre-split 68,346,042 to post-split 3,417,002.
On March 17, 2022, the Company was informed by FINRA that the Company’s ticker symbol would be changed to AGSS in twenty business days.
F-11
AmeriGuard Security Services, Inc.
BALANCE SHEETS
| September 30, | ||||
| 2022 | ||||
| Assets | ||||
| Current Assets | ||||
| Cash | $ | 1,658,329 | ||
| Accounts receivable, net (note 2) | 1,932,551 | |||
| Prepaid insurance | 128,379 | |||
| Related Party Receivable (note 3) | 49,120 | |||
| Total Current Assets | 3,768,379 | |||
| Other Non-Current Assets | ||||
| Fixed assets, net depreciation (note 4) | 213,890 | |||
| Total Non-Current Assets | 213,890 | |||
| Total Assets | $ | 3,982,269 | ||
| Liabilities | ||||
| Current Liabilities | ||||
| Accounts payable | $ | 702,275 | ||
| Accrued Interest | 21,300 | |||
| Accrued Payroll | 665,191 | |||
| Payroll liability - Pension (note 5) | 394,635 | |||
| Current portion of notes payable (note 6) | 719,563 | |||
| Total Current Liabilities | 2,502,964 | |||
| Long Term Liabilities | ||||
| Long term portion of notes payable (note 6) | 2,801,744 | |||
| Total Liabilities | 5,304,708 | |||
| Stockholders’ equity | ||||
| Common stock, $1.00 par value, 640 shares issued and outstanding at September 30, 2022 (note 7) | 640 | |||
| Treasury stock issued, not outstanding, 360 Shares | 360 | |||
| Retained earnings | (1,323,439 | ) | ||
| Total Stockholders’ Equity | (1,322,439 | ) | ||
| Total Liabilities and Stockholders’ Equity | $ | 3,982,269 | ||
Unaudited
See accompanying notes to financial statements
F-12
AmeriGuard Security Services, Inc.
STATEMENTS OF OPERATIONS
For the Nine Months Ending September 30, 2022
| Revenue | ||||
| Security Services | $ | 18,802,985 | ||
| Other related income | 36,011 | |||
| Total Revenue | 18,838,996 | |||
| Cost of Services | ||||
| Salaries and related taxes | 11,067,161 | |||
| Employee benefits | 2,270,637 | |||
| Sub-Contractor payments | 2,595,784 | |||
| Guard training | 161,525 | |||
| Vehicles and equipment expenses | 142,594 | |||
| Total Cost of Services | 16,237,701 | |||
| Gross Margin | 2,601,295 | |||
| Operating Expenses | ||||
| Salaries, payroll taxes and benefits | 842,048 | |||
| Vehicle expense | 331,506 | |||
| Professional services | 245,810 | |||
| Cellular services | 80,136 | |||
| General liability insurance | 79,245 | |||
| Advertising and marketing | 76,695 | |||
| General and administrative expenses | 415,373 | |||
| Loan interest | 60,693 | |||
| Depreciation expense | 33,282 | |||
| Total Operating Expenses | 2,164,788 | |||
| Net Income/(Loss) from Operations | 436,508 | |||
| Other Expenses | ||||
| Merger Preparation Expenses | (249,585 | ) | ||
| Other (Expense) note 3 | (8,600 | ) | ||
| Total Other Income | (258,185 | ) | ||
| Net Income/(loss) before Income Taxes | 178,323 | |||
| Income tax expense | 1,750 | |||
| Net Income/(loss) | $ | 176,573 | ||
| Net Income/(loss) per Common Share - Basic and Diluted | $ | 275.89 | ||
| Weighted Average Number of Common Shares Outstanding - Basic and Diluted | 640 | |||
Unaudited
See accompanying notes to financial statements
F-13
AmeriGuard Security Services, Inc.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Nine Months Ending September 30, 2022
| Additional | Total | |||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Paid-In | Stockholders’ | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Equity | Equity | ||||||||||||||||||||||
| Balance, December 31, 2021 | 1,000 | $ | 1,000 | - | $ | - | $ | - | $ | 1,994,159 | $ | 1,995,159 | ||||||||||||||||
| Owner draws | (11,749 | ) | (11,749 | ) | ||||||||||||||||||||||||
| Acquisition of Related Business | (97,471 | ) | (97,471 | ) | ||||||||||||||||||||||||
| Shareholder Buyout (note 7) | (3,384,950 | ) | (3,384,950 | ) | (3,384,950 | ) | ||||||||||||||||||||||
| Buyout Adjustment to Stock | (360 | ) | $ | (360 | ) | 360 | $ | 360 | - | - | ||||||||||||||||||
| Net Income ending June 30, 2022 | 176,573 | 176,573 | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | 640 | $ | 640 | 360 | $ | 360 | $ | (3,384,950 | ) | $ | (1,323,439 | ) | $ | (1,322,439 | ) | |||||||||||||
Unaudited
See accompanying notes to financial statements
F-14
AmeriGuard Security Services, Inc.
STATEMENTS OF CASH FLOWS
For the Nine Months Ending September 30, 2022
| Cash Flows from Operating Activities | ||||
| Net Income/(Loss) | $ | 176,573 | ||
| Adjustment to reconcile net loss from operations: | ||||
| Changes in Operating Assets and Liabilities | ||||
| Accounts receivable, net | 282,646 | |||
| Prepaid expenses | (20,496 | ) | ||
| Related Party Receivable | (38,524 | ) | ||
| Depreciation | 33,282 | |||
| Accounts payable | 283,115 | |||
| Accrued Interest | 21,300 | |||
| Payroll Liabilities | 7,450 | |||
| Payroll liability - Pension | (221,944 | ) | ||
| Net Cash (Used)/provided in Operating Activities | 523,402 | |||
| Cash Flows Used from Financing Activities | ||||
| Purchase of Equipment | (31,017 | ) | ||
| Leasehold Improvements - Office | (130,129.00 | ) | ||
| Sale of Vehicles | 21,500 | |||
| Accumulated Depreciation adjustment | 25,277 | |||
| Loan principal payments | (771,286 | ) | ||
| Owner distributions | (11,749 | ) | ||
| Retained Earnings impact of Acquisition (note 7) | (97,470 | ) | ||
| Net Cash Used by Investing Activities | (994,874 | ) | ||
| Cash Provided from Financing Activities | ||||
| Net Cash Provided by Financing Activities | - | |||
| Net Increase (Decrease) in Cash | (471,473 | ) | ||
| Cash at Beginning of Period | 2,129,801 | |||
| Cash at End of Period | $ | 1,658,329 | ||
| Supplemental Cash Flow Information: | ||||
| Income Taxes Paid | $ | 1,750 | ||
| Interest Paid | $ | 60,693 |
Unaudited
See accompanying notes to financial statements
F-15
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
AmeriGuard Security Services, Inc., is a California Sub-Chapter S Corporations formed on November 14, 2002. The corporation was incorporated with the issuance of 1,000 shares of no-par value stock currently held by Lawrence Garcia, President and CEO with 550 shares and Lillian Flores, VP of Operations with 450 shares. The Company provides armed guard services as a federal contractor with licenses in 5 states and provides commercial guard services in California.
The Company’s accounting year end is December 31.
Basis of Presentation
These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.
Risks and Uncertainties
The risks and uncertainties described below may not be the only ones we are or may face in the future. If any of the following do occur, our business, financial condition or results of operations could be materially adversely affected.
The company receives over 90% of its total revenue from four Federal contracts as described in Note 9 below. These contracts have specific terms, typically five years with the opportunity for extension, but there are no assurances they will be extended. Although we have had several extended in the past, there is no guarantee this will again happened in the future. However, there are significant direct expenses for each contract that also are removed from operations at the end of a contract. As a result, the revenue lost from a completed contract does not affect the bottom-line profits in an amount equal to the revenue lost. The actual net income impact depends on the contract.
The process required to acquire a government contract takes several months to complete prior to delivery of the proposal to the contracting agency. Due to the time span required to prepare a proposal and wining the contract is not guaranteed, the company maintains a department of individuals who monitor and write proposals for all government contracts that become open for bid on a continuing basis. It is important to the company that new contracts are acquired consistently to maintain and grow annual revenue.
Other risks to operations consist of State and Federal regulations, staffing shortages, the ongoing impact of COVID, accelerating inflation, and overall business environment issues we cannot foresee.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, along with the collectability of some receivables from customers.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On September 30, 2022 the Company had cash and cash equivalents totaling $1,658,329.
F-16
Accounts Receivable
We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to other bad debt expense. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers. With over ninety percent of year end accounts receivable balance from Federal contracts that require payment, and the uncollectable amount historically has been less than 1%. As of September 30, 2022, an allowance for estimated uncollectible accounts was determined to be unnecessary.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful life for Machinery and Equipment, and Vehicles is 5 years.
Net Income/(Loss) per Share
Net income/(loss) per common share is computed by dividing net income or loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share”. Basic earnings/(loss) per common share (“EPS”) calculations are determined by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
Revenue Recognition
We recognize revenue when the Invoice for contracted services is issued as stipulated by the contract. Other services provided are recognized at the time the service is provided. Ninety nine percent of revenues are billed monthly and recognized in the month the services were provided. Refunds and returns, which are minimal, are recorded as a reduction of revenue. The Company has not recorded a reserve for returns as of September 30, 2022 since it does not believe such returns will be material.
Fair Value of Financial Instruments
The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
| ☐ | Level 1 - quoted market prices in active markets for identical assets or liabilities. | |
| ☐ | Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ☐ | Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The carrying amount of the Company’s financial instruments approximates their fair value as of September 30, 2022, due to the short-term nature of these instruments.
F-17
Recently Issued Accounting Pronouncements
FASB ASU No. 2016-02 (Topic 842), “Leases” – Issued in February 2016, ASU No. 2016-02 established ASC Topic 842, Leases, as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a two-method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We would be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments and will continue to recognize expense on a straight-line basis upon adoption of this standard. ASU 2016-02 is effective for reporting periods for private companies beginning after December 15, 2021, with early adoption permitted. In July 2018, the FASB issued an update ASU 2018-11 Leases: Targeted Improvements, which provides companies with an additional transition option that would permit the application of ASU 2016-02 as of the adoption date rather than to all periods presented. The Company expects to adopt this standard for the reporting year ending December 31, 2022.
NOTE 3 – RELATED PARTY RECEIVABLE
On July 7, 2021, the company has entered into an agreement to purchase 100% of the Preferred A-1 Stock of Health Revenue Assurance Holdings, Inc. a SEC registered company for $450,000. The Company is pursuing a business combination with AmeriGuard Security Services, Inc., (formerly HRAH). To date we have no signed definitive agreement, have not submitted the terms of the proposed transaction to appropriate regulatory agencies for approval and have not determined the terms of any agreement. If a business combination is consummated with AmeriGuard Security Services, Inc., (formerly HRAH) will cease to be a shell company (as defined in Rule 12b-2 of the Exchange Act). AmeriGuard Security Services, Inc. (formerly HRAH) will be a publicly traded operating company engaged in providing security services.
If Company does not consummate a business combination with AmeriGuard Security Services, Inc., (formerly HRAH) the Company does not expect that existing operational cash flow of will be sufficient to fund presently anticipated operations. The Company will be required to continue to fund AGSS Inc. administrative expenses.
These expenses are being treated as a Related Party Receivable. The receivable balance on September 30, 2022 was $41,658.
NOTE 4 – FIXED ASSETS
Fixed assets consist of the following on September 30, 2022:
| Building Lease Improvements | 130,129 | |||
| Machinery and Equipment | 277,992 | |||
| Vehicles | 110,274 | |||
| Total Fixed Assets | 518,396 | |||
| Accumulated Depreciation | (304,506 | ) | ||
| Fixed Assets, Net | $ | 213,890 |
NOTE 5 – PAYROLL LIABILITY – PENSION
The company offers various pension plans to employee groups based on location of employment. Corporate office employees and guards have an option to participate in a 401K sponsored by the company with a matching program up to 5% of employee salary. Federal contracts have union agreements that define the pension calculation and due dates. It is the responsibility of the company to calculate the pension benefit amount each month and contribute the amount due to the plan designated. The pension balances due on September 30, 2022 is $394,635.
F-18
NOTE 6 – NOTES PAYABLE
In June 2020, AmeriGuard Security Services, Inc. received an SBA Loan through Fresno First Bank in the amount of $1,080,000 that was used to close out the Citibank loan in the amount of $312,339 with the remaining balance after expenses held in reserve. The SBA loan is a 10-year loan with monthly principal and interest payment of $11,988. Interest rate fixed at 6%. Due to the COVID relief program passed on the federal level, the federal government covered the initial payments for the first year through 2020 and into 2021. Payments were posted as reduction in principle with the interest portion being recorded as income. Balance remaining on the SBA loan was $823,347 as of September 30, 2022.
On July 6, 2022 the company executed a buyout agreement of the minority shareholder Lillian Flores. See note 7 for details. The resulting note payable due had a balance of $2,697,860 as of September 30, 2022
The following schedule details the loans active as of September 30, 2022:
| Current Portion: | ||||
| Notes and loans payable | $ | 719,563 | ||
| Total Current Portion | 719,563 | |||
| Long term Portion: | ||||
| Notes and loans payable | 2,801,744 | |||
| Total Long-term Portion | 2,801,744 | |||
| $ | 3,521,307 | |||
NOTE 7 – STOCKHOLDERS’ EQUITY
The company has authorized and issued 1,000 common shares with a par value of $1.00 on inception date, no additional shares issued as of September 30, 2022. Lawrence Garcia, President and CEO, holds 640 shares and is the only shareholder. The remaining 360 shares are held in treasury as collateral for the shareholder buyout agreement as described in the paragraph below. After each payment is made per the agreement, 90 chares will be released from Treasury and given to Lawrence Garcia.
On June 1, 2022, the company agreed to accept the assets and liabilities of The Training Point, Inc. A company wholly owned by CEO Lawrence Garcia. There was no financial consideration paid to the owner, Lawrence Garcia, with the operations continuing as a training department within the Company. The net impact to Stockholders’ Equity was a decrease in net assets of $97,471. The Training Point is a corporation in the state of Maryland and will be dissolved with the filing of the final tax return for the year ending 2022.
On July 6, 2022 the Company executed a share buyout agreement with Lillian Flores. The agreement purchased all 450 shares of AmeriGuard Security Services, Inc, held by Lillian Flores in the amount of $2,884,950 with an additional consideration in the amount of $500,000. The total buyout was $3,384,950. The Company was evaluated by an outside third party as of December 31, 2020. The total due is to be paid over five equal payments plus interest annual at the rate of 3.11% with the first payment of $676,990 due at time of signing. The remaining four payments are due each December, starting December 31, 2023. Interest is accrued annually and expensed monthly based on the buyout agreement payment schedule. Interest for the three-month ending September 30, 2022 is $21,300.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The company has a multiple vehicle lease agreement with Enterprise Leasing. As of September 30, 2022, the company had 19 vehicles under lease. The lease agreement includes maintenance services along physical damage insurance. The term of the lease agreement varies based on the date vehicle were leased and the respective terms for each vehicle. The master lease is updated annually and requires annual internal financial reports and company tax return.
F-19
NOTE 9 – CONCENTRATION OF SALES
The company generates approximately $22,100,000 in contract guard service revenue on an annual basis. Of the total guard service revenue, approximately 92% was earned from four federal contracts operated by the company. The contracts and their respective terms are as follows:
| ● | Social Security Administration, NSC | - September 2022 through September 2027 |
| ● | Social security Administration, SSC | - June 2022 through June 2027 |
| ● | Social Security Administration, WBDOC | - June 2021 through July 2026 |
| ● | National Institute of Health- EPA | - May 2020 through March 2025 |
NOTE 10 – LITIGATION AND CLAIMS
None per attorney letter
NOTE 11 – INCOME TAXES
The Company has elected, with the consent of its stockholders, to be treated as an S Corporation under the Internal Revenue Code. In lieu of corporate income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Company’s income. Therefore, no provision for income taxes has been included in the accompanying financial statements.
NOTE 12 – SUBSEQUENT EVENTS
None
F-20
9.01(b) Pro Forma financial information.
F-21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 9, 2022, AmeriGuard Security Services, Inc., formerly Health Revenue Assurance Holdings, Inc. (the “Company” or “AGSS”) entered into (a) a Definitive Share Exchange Agreement (as amended to date, the “Merger Agreement”) with AmeriGuard Security Services, Inc. (“AmeriGuard.”) a California Corporation and the stockholders of AmeriGuard (the “AmeriGuard Stockholders”);
Pursuant to the Exchange Agreement, AmeriGuard will become a direct, wholly owned subsidiary of AGSS (the “Merger”). The Exchange Agreement is each discussed in greater detail under Note 1 “Description of the Merger”.
AmeriGuard closed the Merger on December 9, 2022, AGSS closed the acquisition of AmeriGuard. The unaudited pro forma condensed consolidated financial information is presented to illustrate the estimated effects of the merger between the Amerigaurd and AGSS, Inc. based on the historical financial position and results of operations of AmeriGuard and AGSS. It is presented as follows:
| ● | The unaudited pro forma condensed consolidated balance sheet as of September 30, 2022 was prepared based on (i) the historical unaudited balance sheet of AGSS as of September 30, 2022 and (ii) the historical unaudited consolidated balance sheet of AmeriGuard as of September 30, 2022. | |
| ● | The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2022 was prepared based on (i) the historical unaudited statement of operations of AGSS for the nine months ended September 30, 2022 and (ii) the historical unaudited statement of operations of AmeriGuard for the nine months ended September 30, 2022. | |
| ● | The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2021 was prepared based on (i) the historical audited statement of operations of AGSS for the year ended December 31, 2021 and the (ii) the historical audited statement of operations of AmeriGuard for the year ended December 31, 2021. |
While AGSS is the legal acquirer, the merger will be accounted for as a reverse acquisition using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”). AmeriGuard will be deemed to be the acquirer for financial accounting purposes. The unaudited pro forma condensed consolidated financial information set forth below primarily gives effect to the following: the consummation of the merger; the application of the acquisition method of accounting in connection with the merger; transaction costs incurred in connection with the exchange.
Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information. The unaudited pro forma condensed consolidated balance sheet data gives effect to the merger as if it had occurred on September 30, 2022. The unaudited pro forma condensed consolidated statements of operations data for the nine months ended September 30, 2022 and the year ended December 31, 2021 gives effect to the merger as if it had occurred on January 1, 2021.
The unaudited pro forma condensed consolidated financial information has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the merger been completed as of the dates indicated. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial position or operating results of the combined company. The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed consolidated financial information to give effect to unaudited pro forma events that are directly attributable to the merger, factually supportable and, with respect to the unaudited pro forma condensed consolidated statement of operations, expected to have a continuing impact on the results of operations of the combined company. The accompanying unaudited pro forma condensed consolidated statement of operations does not include any pro forma adjustments to reflect certain expected financial benefits of the merger, such as tax savings, cost synergies or revenue synergies, or the anticipated costs to achieve those benefits, including the cost of integration activities, or restructuring actions which may be achievable or the impact of any non-recurring activity and one-time transaction related costs.
F-22
The unaudited pro forma condensed consolidated financial information has been prepared using the acquisition method of accounting under existing GAAP, which is subject to change. AmeriGuard is deemed the accounting acquirer in the merger for accounting purposes and AGSS is treated as the acquiree, based on a number of factors considered at the time of preparation, including control over the post-merger company as evidenced by the composition of executive management and the board of directors as well as the relative equity ownership after the closing of the merger. The application of acquisition accounting is dependent upon the working capital positions at the closing of the merger and is dependent on certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The combined company will complete the valuations and other studies following the merger and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the merger. The assets and liabilities of AGSS, Inc. and other pro forma adjustments have been measured based on various preliminary estimates using assumptions that the Company and the AGSS, Inc. believe are reasonable, based on information that is currently available. Accordingly, the pro forma adjustments are preliminary. Differences between these preliminary estimates and the final acquisition accounting could be significant, and these differences could have a material impact on the accompanying unaudited pro forma condensed consolidated financial information and the combined company’s future results of operation and financial position.
The unaudited pro forma condensed consolidated financial information has been compiled in a manner consistent with the accounting policies adopted by AmeriGuard. Following the completion of the merger, the combined company will perform a detailed review of AmeriGuard’s accounting policies and will conform the combined company policies. The combined company may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on the consolidated financial statements of the combined company. Transactions between AGSS and AmeriGuard during the periods presented in the unaudited pro forma condensed consolidated financial information were not significant.
This unaudited pro forma condensed consolidated financial information was derived from and should be read in conjunction with the accompanying notes, as well as the following historical financial statements and the related notes of AmeriGuard and AGSS.:
| ● | Separate historical audited financial statements of AmeriGuard as of December 31, 2021 and 2020 and included in this Form 8-K filing with the Securities and Exchange Commission. |
| ● | Separate historical unaudited financial statements of AmeriGuard and the nine months ended September 30, 2022 and included in this Form 8-K filing with the Securities and Exchange Commission. |
| ● | Separate historical audited financial statements of AGSS as of December 31, 2021, included in AGSS’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
| ● | Separate historical unaudited financial statements of AGSS and the nine months ended September 30, 2022 included in AGSS’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. |
F-23
AMERIGUARD
SECURITY SERVICES, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2022
| Historical
as of September 30, | ||||||||||||||||||||
| 2022 | Merger | Consolidated | ||||||||||||||||||
| AGSS | AmeriGuard | Adjustments | 30-Sep-22 | |||||||||||||||||
| Dr. | Cr. | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash | $ | - | $ | 1,658,329 | $ | 1,658,329 | ||||||||||||||
| Accounts receivable, net (note 1) | 1,932,551 | 1,932,551 | ||||||||||||||||||
| Prepaid insurance | 128,379 | 128,379 | ||||||||||||||||||
| Related Party receivable | 41,658 | 41,659 | (7) | - | ||||||||||||||||
| Total Current Assets | - | 3,760,917 | 3,719,259 | |||||||||||||||||
| Fixed assets, net depreciation (note 4) | 213,890 | 213,890 | ||||||||||||||||||
| TOTAL ASSETS | $ | - | $ | 3,974,807 | $ | 3,933,149 | ||||||||||||||
| Liabilities and Stockholders’ Deficit | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Accounts payable | $ | 702,275 | $ | 702,275 | ||||||||||||||||
| Accrued Interest | 21,300 | 21,300 | ||||||||||||||||||
| Accrued Interest | 40,470 | (8) | 40,470 | |||||||||||||||||
| Accrued Payroll | 665,191 | 665,191 | ||||||||||||||||||
| Payroll liability - Pension | 394,635 | 394,635 | ||||||||||||||||||
| Current portion of notes payable | 719,563 | 719,563 | ||||||||||||||||||
| Due to related party | 41,659 | 41,659 | (1) | |||||||||||||||||
| 41,659 | 2,502,964 | 2,543,434 | ||||||||||||||||||
| Long Term Liabilities | ||||||||||||||||||||
| Long term portion of notes payable | 735,168 | 735,168 | ||||||||||||||||||
| Long term portion of notes payable | 2,801,744 | 2,801,744 | ||||||||||||||||||
| 6,039,876 | 6,080,346 | |||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||
| Series A-1 Preferred Stock, par value $0.001 25,000,000 shares authorized, 10,000,000 shares issued and outstanding at September 30, 2022 | 10,000 | 10,000 | (2) | - | ||||||||||||||||
| Common stock, $1.00 par value, 1,000 shares issued and 640 outstanding at September 30, 2022 | 640 | 640 | (6) | |||||||||||||||||
| Common stock, par value $0.001, 500,000,000 shares authorized, 3,817,302 shares issued and outstanding at December 31, 2021 | ||||||||||||||||||||
| Common stock, par value $0.001, 500,000,000 shares authorized, 93,817,302 shares issued and outstanding at September 30, 2022 | 68,346 | 90,000 | (5) | 158,346 | ||||||||||||||||
| Retained earnings - AmeriGuard | (2,066,069 | ) | 41,659 | (7) | (3,985,017 | ) | ||||||||||||||
| 500,000 | (12) | |||||||||||||||||||
| 2,296,350 | (4) | |||||||||||||||||||
| 80,939 | ||||||||||||||||||||
| (10) | ||||||||||||||||||||
| Additional paid-in capital | 9,976,045 | 10,000 | (2) | (618,425 | ) | |||||||||||||||
| 10,096,049 | (3) | |||||||||||||||||||
| 90,000 | (5) | |||||||||||||||||||
| 640 | (6) | |||||||||||||||||||
| 500,000 | (12) | |||||||||||||||||||
| 80,939 | (10) | |||||||||||||||||||
| Accumulated surplus (deficit) | (10,096,049 | ) | 40,470 | (8) | ||||||||||||||||
| 10,096,049 | (3) | |||||||||||||||||||
| 41,659 | (1) | 2,297,539 | ||||||||||||||||||
| 2,296,350 | (4) | |||||||||||||||||||
| Total Stockholders’ Deficit | (41,658 | ) | (2,147,557 | ) | ||||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | - | $ | 3,974,807 | 13,197,766 | 13,197,766 | $ | 3,932,789 | ||||||||||||
F-24
AMERIGUARD
SECURITY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATION
for the nine months ended September 30, 2022
| Pro Forma | ||||||||||||||||
| Historical | Merger | Consolidated | ||||||||||||||
| AGSS | AmeriGuard | Adjustments | 9/30/2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Security Services | $ | $ | 18,838,996 | $ | 18,838,996 | |||||||||||
| Cost of Services | ||||||||||||||||
| Salaries | 11,067,161 | 11,067,161 | ||||||||||||||
| Employee benefits | 2,270,637 | 2,270,637 | ||||||||||||||
| Sub-Contractor | 2,595,784 | 2,595,784 | ||||||||||||||
| Guard training | 161,525 | 161,525 | ||||||||||||||
| Vehicles expense | 142,594 | 142,594 | ||||||||||||||
| Total services cost | - | $ | 16,237,701 | 16,237,701 | ||||||||||||
| Gross Margin | 2,601,295 | 2,601,295 | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| Salaries, payroll taxes and benefits | 842,048 | 842,048 | ||||||||||||||
| Vehicle expense | 331,506 | 331,506 | ||||||||||||||
| Professional services | 16,569 | 251,310 | (16,569 | )(9) | 251,310 | |||||||||||
| Cellular services | 80,136 | 80,136 | ||||||||||||||
| General liability insurance | 79,345 | 79,345 | ||||||||||||||
| Advertising and marketing | 76,695 | 76,695 | ||||||||||||||
| General and administrative | 4,728 | 417,335 | (4,728 | )(9) | 417,335 | |||||||||||
| Loan interest | 60,693 | 60,693 | ||||||||||||||
| Promissory note interest | 40,470 | (8) | 40,470 | |||||||||||||
| Depreciation expense | 33,282 | 33,282 | ||||||||||||||
| Total operating expenses | 21,297 | 2,172,350 | 2,212,820 | |||||||||||||
| Operating Income (Loss) before income taxes | (21,297 | ) | 428,945 | 407,648 | ||||||||||||
| Other expenses | ||||||||||||||||
| Merger preparation expense | (258,185 | ) | (258,185 | ) | ||||||||||||
| Net income (loss) before income tax expense | 170,760 | 149,463 | ||||||||||||||
| Income tax expense | 0 | 1,750 | 1,750 | |||||||||||||
| Net Income (Loss) | $ | (21,297 | ) | $ | 169,010 | $ | 147,713 | |||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic and diluted | 93,417,302 | 640 | (640 | ) | 93,417,302 | |||||||||||
| Basic and diluted net loss per share | $ | (0.00 | ) | $ | 264.08 | $ | 0.00 | |||||||||
F-25
AMERIGUARD
SECURITY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
| Pro Forma | ||||||||||||||||
| Historical | Merger | Consolidated | ||||||||||||||
| AGSS | AmeriGuard | Adjustments | 12.31.21 | |||||||||||||
| Revenue | ||||||||||||||||
| Security Services | $ | $ | 22,442,080 | $ | 22,442,080 | |||||||||||
| Cost of Services | ||||||||||||||||
| Salaries | 13,873,242 | 13,873,242 | ||||||||||||||
| Employee benefits | 2,752,219 | 2,752,219 | ||||||||||||||
| Sub-Contractor | 3,433,959 | 3,433,959 | ||||||||||||||
| Guard training | 222,298 | 222,298 | ||||||||||||||
| Vehicles and equipment expenses | 184,176 | 184,176 | ||||||||||||||
| Total Cost of Services | - | $ | 20,465,894 | 20,465,894 | ||||||||||||
| Gross Margin | 1,976,186 | 1,976,186 | ||||||||||||||
| Operating Expenses | ||||||||||||||||
| Salaries, payroll taxes and benefits | 365,433 | 365,433 | ||||||||||||||
| Vehicle expense | 295,054 | 295,054 | ||||||||||||||
| Professional services | 301,854 | 301,854 | ||||||||||||||
| Cellular services | 112,140 | 112,140 | ||||||||||||||
| General liability insurance | 111,287 | 111,287 | ||||||||||||||
| Advertising and marketing | 77,349 | 77,349 | ||||||||||||||
| General and administrative | 25,640 | 289,108 | (25,640 | )(2) | 289,108 | |||||||||||
| Loan interest | 59,439 | 59,439 | ||||||||||||||
| Promissory note interest | 80,939 | (10) | 80,939 | |||||||||||||
| Depreciation | 52,273 | 52,273 | ||||||||||||||
| Total operating expenses | 25,640 | 1,663,937 | 1,744,876 | |||||||||||||
| Net Income/(Loss) from Operations | (25,640 | ) | 312,249 | 286,609 | ||||||||||||
| Other (Expense) | (500,000 | ) | 500,000 | (12) | 0 | |||||||||||
| Net Income/(Loss) before Income Taxes | (25,640 | ) | (187,751 | ) | 286,609 | |||||||||||
| Income tax | 33,923 | 33,923 | ||||||||||||||
| Net Income | $ | (25,640 | ) | $ | (221,674 | ) | 252,686 | |||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic and diluted | 93,417,302 | 1,000 | (1,000 | ) | 93,417,302 | |||||||||||
| Basic and diluted net loss per share | $ | (0.0003 | ) | $ | (221.67 | ) | $ | 0.0027 | ||||||||
F-26
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. Description of the Merger
On December 9, 2022 pursuant to the terms and conditions of the Merger Agreement, and upon the consummation of the Merger:
In accordance with and subject to the provisions of the merger Agreement and the Nevada Revised Statutes (the “Code”), at the Effective Time, AmeriGuard became a wholly owned subsidiary of AGSS, and AGSS became its only shareholder, and it shall continue in its existence with one owner, AGSS. Pursuant to the Merger Agreement, (A) the Majority Shareholder relinquished all of his 573 AmeriGuard common shares and the Minority Shareholders relinquished all of their 67 common shares, constituting all issued and outstanding shares of AmeriGuard (the “AmeriGuard Shares”), and acquired an aggregate of 80,578,125 and 9,421,875 AGSS common shares, representing 86% and 10% of the outstanding Common Stock of AGSS and (B) AmeriGuard retired and returned the issued and outstanding preferred stock to AGSS.
2. Basis of Presentation
The unaudited pro forma condensed consolidated financial information is prepared in accordance with Article 11 of SEC Regulation S-X. The historical financial information has been adjusted in the accompanying unaudited pro forma condensed consolidated financial information to give effect to unaudited pro forma events that are:
| ● | directly attributable to the merger; | |
| ● | factually supportable; and | |
| ● | with respect to the unaudited pro forma condensed consolidated statement of operations, expected to have a continuing impact on the results of operations of the combined company. |
The merger will be treated as a business combination for accounting purposes, with AmeriGuard as the deemed accounting acquirer and AGSS as the deemed accounting acquiree. Therefore, the historical basis of AmeriGuard assets and liabilities will not be remeasured as a result of the merger. In identifying AmeriGuard as the acquiring entity, the companies considered the structure of the merger, relative outstanding share ownership at closing and the composition of the combined company’s board of directors and senior management.
The unaudited pro forma condensed consolidated financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The acquisition method of accounting uses the fair value concepts defined in ASC Topic 820, “Fair Value Measurement” (“ASC 820”). Fair value is defined in ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants.
Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.
The unaudited pro forma condensed consolidated balance sheet data gives effect to the merger as if it had occurred on September 30, 2022. The unaudited pro forma condensed consolidated statement of operations data gives effect to the merger as if it had occurred on January 1, 2021.
F-27
The unaudited pro forma condensed consolidated financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed consolidated financial information has not been adjusted to give effect to certain expected financial benefits of the merger, such as tax savings, cost synergies or revenue synergies, or the anticipated costs to achieve these benefits, including the cost of integration activities. The unaudited pro forma condensed consolidated financial information does not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the combination that are not expected to have a continuing impact on the business of the combined company. Further, one-time transaction-related expenses anticipated to be incurred prior to, or concurrent with, the closing of the merger are not included in the unaudited pro forma consolidated statement of operations. However, the impact of such transaction expenses is reflected in the unaudited pro forma consolidated balance sheet as a decrease to accumulated deficit and as an increase to accrued expenses.
3. Accounting Policies
The unaudited pro forma condensed consolidated financial information has been compiled in a manner consistent with the accounting policies of AmeriGuard. Following the merger, the combined company will conduct a review of accounting policies of AGSS in an effort to determine if differences in accounting policies require further reclassification of results of operations or reclassification of assets or liabilities to conform to AmeriGuard accounting policies and classifications. As a result of that review, the combined company may identify differences among the accounting policies of the companies that, when conformed, could have a material impact on the unaudited pro forma condensed consolidated financial information.
4. Unaudited Pro Forma Condensed Consolidated Balance Sheet Adjustments
The following provides explanations of the various adjustments to the unaudited pro forma condensed consolidated balance sheet as September 30, 2022
AmeriGuard Security Services, Inc. (NV)
Pro forma merger adjustments
for the nine months ending September 30, 2022 and
for the year ending December 31 2021
The following provides explanation of the various adjustment to the unaudited pro forma condensed consolidated balance sheet as of September 30, 2022
| AGSS adjustments | ||||||||||
| 1 | Related party payable to AmeriGuard | 41,659 | ||||||||
| Accumulated (Deficit) – AGSS | 41,659 | |||||||||
| To reverse AGSS payable | ||||||||||
| Above entry includes reversal of nine months ended September 30, 2022 related party see No. 11 | ||||||||||
| 2 | Series A-1 Preferred Stock - AGSS | 10,000 | ||||||||
| Additional paid in capital - AGSS | 10,000 | |||||||||
| To eliminate the Series A-1 Preferred Stock - AGSS to additional paid in capital and cancel the Series A-1 preferred stock | ||||||||||
| 3 | Additional Paid in Capital | 10,096,049 | ||||||||
| Accumulated Deficit | 10,096,049 | |||||||||
| To eliminate the accumulated deficit of AGSS to Additional paid in capital | ||||||||||
F-28
| AmeriGuard Adjustments | ||||||||||
| 4 | Retained earnings - AmeriGuard | 2,296,350 | ||||||||
|
Accumulated Surplus |
2,296,350 | |||||||||
| To adjust AmeriGuard Retained Earnings to Accumulated Surplus | ||||||||||
| 5 | Additional Paid in Capital | 90,000 | ||||||||
| Common stock - AGSS | 90,000 | |||||||||
| Adjustment for the recapitalization of AGSS under IRC Section 385 through the contribution of the outstanding share capital in AmeriGuard in exchange for the issuance of 90,000,000 shares of common stock of AGSS as follows: | ||||||||||
| AmeriGuard common |
AGSS common |
|||||||||
| Majority shareholder of AmeriGuard | 573 | 80,578,125 | ||||||||
| Minority shareholder of AmeriGuard | 67 | 9,421,875 | ||||||||
| Total common share issuance. | 640 | 90,000,000 | ||||||||
|
6 |
Common Stock - AmeriGuard Majority SH | 573 | ||||||||
| Common Stock - AmeriGuard Minority SH | 67 | |||||||||
| Treasury Stock | 360 | |||||||||
| Additional paid in capital | 1,000 | |||||||||
| To record cancellation of 573 shares held by Majority Shareholder | ||||||||||
| To record cancellation of 67 shares held by Minority Shareholder | ||||||||||
| 7 | Retained Earnings | 41,659 | ||||||||
| Related party receivable | 41,659 | |||||||||
| To eliminate the related party receivable | ||||||||||
| The following provides explanation of the various adjustment to the unaudited pro forma condensed consolidated statement of operations for the year ending September 30, 2022 | ||||||||||
| AmeriGuard adjustments | ||||||||||
| 8 | Promissory note interest | 40,470 | ||||||||
| Accrued interest payable | 40,470 | |||||||||
| Assuming AmeriGuard buyout of AmeriGuard Shareholder occurred on January 1 2021 the interest expense represents accrued interest expense to be recorded on $2,697,960 x 3% for the year ended December 31 2021 and for the nine months ending September 30, 2022 | ||||||||||
| on September 30 BS the above entry is closed to accumulated surplus (deficit) | ||||||||||
| AGSS Adjustments | ||||||||||
| 9 | Related party payable | 21,297 | ||||||||
| General and Administrative Expenses | 4,728 | |||||||||
| Professional expenses | 16,569 | |||||||||
| To reverse related payable. See No. 1 entry for full reversal | ||||||||||
F-29
The following provides explanation of the various adjustment to the unaudited pro forma condensed consolidated statement of operations for the year ending December 31, 2021
AmeriGuard Adjustments
| 10 | Retained Earnings - AmeriGuard | 80,939 | ||||||||
| Accumulated Surplus (Deficit) | 80,939 | |||||||||
| Assuming buyout of AmeriGuard Shareholder occurred on January 1 2021 the interest expense represents accrued interest expense to be recorded on $2,697,960 x 3% for the year ended December 31 2021 | ||||||||||
| 11 | Related party receivable | 25,640 | ||||||||
| General and Administrative | 25,640 | |||||||||
| To eliminate the related party receivable | ||||||||||
| 12 | Retained Earnings | 500,000 | ||||||||
| Additional paid in capital | 500,000 | |||||||||
| To eliminate other expense. Amount paid for Custodian Preferred A1 Shares and adjust to additional paid in capital |
F-30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 14, 2022
| AMERIGUARD SECURTIY SERVICES, Inc. | ||
| By: | /s/ Lawrence Garcia | |
| Lawrence Garcia | ||
| Chief Executive Officer and President | ||
25
9.01(c) Exhibits
| Index to Exhibits | |||||||||||
| Exhibit | Incorporated by Reference | Filed Furnished | |||||||||
| No. | Exhibit Description | Form | Date | Number | Herewith | ||||||
| 2.1 | Definitive Share Exchange Agreement | Filed | |||||||||
| 3.1 | Amended and Restated Articles of Incorporation of AMERIGUARD SECURITY SERVICES, INC. (Nevada) | Filed | |||||||||
| 3.2 | Amended and Restated Bylaws of AMERIGUARD SECURITY SERVICES, INC. (Nevada) | Filed | |||||||||
| 3.3 | Articles of Incorporations AmeriGuard Security Services, Inc. (AmeriGuard)(California) | Filed | |||||||||
| 3.4 | Bylaws AGS, Inc. (AmeriGuard) (California) | Filed | |||||||||
| 10.1 | Promissory Note (Secured by Stock Pledge) | Filed | |||||||||
| 10.2 | Stock Pledge Agreement | Filed | |||||||||
| 23.1 | Consent of BF Borgers CPA PC | Filed | |||||||||
In reviewing the agreements included or incorporated by reference as exhibits to this Current Report on Form 8-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
| ● | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate. |
| ● | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
| ● | may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
| ● | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Current Report on Form 8-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
26
Exhibit No. 2.1
DEFINITIVE SHARE EXCHANGE AGREEMENT
This Definitive Share Exchange Agreement (“Agreement”), dated as of December 9, 2022, is among AmeriGuard Security Services, Inc. (“Ameriguard”), a California corporation and Lawrence Garcia (“Garcia”) the majority shareholder of AMERIGUARD (the “Majority Shareholder”) and Ameriguard Security Services Inc., a Nevada corporation (“AGSS”). Collectively, the Shareholders, Ameriguard, and AGSS are the “Parties.”
The parties hereby enter into this Agreement, following which,
| 1. | AGSS will own 640 common shares of Ameriguard, representing 100% of the issued and outstanding equity of Ameriguard; |
| 2. | Ameriguard will continue its corporate existence as a California C corporation. |
| 3. | The Majority Shareholder, or its assignee, will be issued 80,578,125 common shares of AGSS, $0.001 par value per share (the “Common Stock”), representing 86.26% of AGSS’s outstanding shares of Common Stock (the “Share Exchange”), calculated post-issuance, for Garcia’s 573 common Stock of Ameriguard. As per the terms of the “Stock Pledge Agreement” 50,625,000 common shares of the Majority Shareholder, representing 54.19% are pledged in substitution for the 360 Amerigaurd treasury shares held as collateral. |
| 4. | The Minority Shareholders, or its assignee, will be issued 9,421,875 common shares of AGSS, $0.001 par value per share (the “Common Stock”), representing 10.09% of AGSS’s outstanding shares of Common Stock (the “Share Exchange”), calculated post-issuance, in exchange for 67 common stock of Ameriguard. |
| 5. | Ameriguard shall return and retire 10,000,000 shares of Series A-1 Preferred Stoc, $0.001 par value per share (the “Preferred Stock”), to AGSS, and |
| 6. | Ameriguard will hold no common shares of AGSS, as the wholly-owned subsidiary of AGSS. |
As a result of this Agreement, AGSS will be announcing this reverse merger. The first consolidated post-acquisition report will be the Quarterly Report for the period ended December 31, 2022.
RECITALS
WHEREAS, the Shareholders currently hold 640 shares of common stock of AMERIGUARD, representing all of the equity of AMERIGUARD and are desirous of relinquishing all of their AMERIGUARD shares so that they, or their assignee(s), are issued an aggregate of 90,000,000 shares of AGSS Common Stock, with 80,578,125 being issued to Garcia in exchange for 573 shares of Ameriguard and 9,421,875 shares being issued to Minority Shareholders in exchange for 67 shares of Ameriguard, representing 100% of the issued and outstanding shares of Common Stock; and that AMERIGUARD would be a wholly-owned subsidiary of AGSS and AMERIGUARD would retire and return all of the Preferred Stock AGSS.
WHEREAS, the Shareholders and the Board of Directors of the AMERIGUARD are desirous of AMERIGUARD becoming a wholly-owned subsidiary of AGSS.
WHEREAS, AGSS and AMERIGUARD are desirous of AGSS acquiring 100% of the outstanding shares of AMERIGUARD, and issuing an aggregate of 90,000,000 shares of AGSS Common Stock in the process, making AMERIGUARD a wholly-owned subsidiary of AGSS, with 80,578,125 shares being issued to Majority Shareholder and 9,421,875 shares being issued to Minority Shareholders.
WHEREAS, AGSS and AMERIGUARD are desirous of AGSS acquiring 100% of the outstanding shares of AMERIGUARD.
WHEREAS, AGSS and Ameriguard are desirous of AMERIGUARD returning and retiring all of the outstanding shares of Preferred Stock of AGSS.
WHEREAS, the Board of Directors and Shareholders of AGSS and AMERIGUARD, respectively, have each agreed to Exchange and issue shares, as necessary to cause the forgoing results, upon the terms, and subject to the conditions, set forth in this Agreement.
WHEREAS, it is intended that, for federal income tax purposes, the Share Exchange shall qualify as a reorganization under the provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the “Code”), and the rules and regulations promulgated thereunder, and be tax-free pursuant to Section 351(a) of the Code.
WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises herein made, and in consideration of the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Parties agree as follows:
INCORPORATION OF RECITALS BY REFERENCE. The Recitals are hereby incorporated herein by this reference, as if fully restated herein.
2
ARTICLE I
DEFINITIONS
I.1 Certain Definitions. The following terms shall, when used in this Agreement, have the following meanings:
“Acquisition” means the acquisition of any businesses, assets or property other than in the ordinary course, whether by way of the purchase of assets or stock, by AGSS acquiring all of the outstanding shares of AMERIGUARD pursuant to this Share Exchange Agreement from the Shareholder and the Shareholders relinquishing and exchanging their shares of AMERIGUARD to AGSS.
“Affiliate” means, with respect to any Person: (i) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding voting securities of such other Person (other than passive or institutional investors); (ii) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; and (iv) any officer, director or partner of such other Person. “Control” for the foregoing purposes shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.
“Business Day” means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York, are required or authorized to be closed.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Collateral Documents” mean the Exhibits and any other documents, instruments and certificates to be executed and delivered by the Parties hereunder or there under.
“Commission” means the Securities and Exchange Commission or any Regulatory Authority that succeeds to its functions.
“Effective Time” means, the moment in time when the shares of the AGSS are exchanged for the shares of AMERIGUARD.
“Encumbrance” means any material mortgage, pledge, lien, encumbrance, charge, security interest, security agreement, conditional sale or other title retention agreement, limitation, option, assessment, restrictive agreement, restriction, adverse interest, restriction on transfer or exception to or material defect in title or other ownership interest (including restrictive covenants, leases and licenses).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations there under.
3
“GAAP” means United States generally accepted accounting principles as in effect from time to time.
“Legal Requirement” means any statute, ordinance, law, rule, regulation, code, injunction, judgment, order, decree, ruling, or other requirement enacted, adopted or applied by any Regulatory Authority, including judicial decisions applying common law or interpreting any other Legal Requirement.
“Losses” shall mean all damages, awards, judgments, assessments, fines, sanctions, penalties, charges, costs, expenses, payments, diminutions in value and other losses, however suffered or characterized, all interest thereon, all costs and expenses of investigating any claim, lawsuit or arbitration and any appeal there from, all actual attorneys’, accountants’ investment bankers’ and expert witness’ fees incurred in connection therewith, whether or not such claim, lawsuit or arbitration is ultimately defeated and, subject to Section 9.4, all amounts paid incident to any compromise or settlement of any such claim, lawsuit or arbitration.
“Liability” means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.
“Material Adverse Effect” means a material adverse effect on (i) the assets, Liabilities, properties or business of the Parties, (ii) the validity, binding effect or enforceability of this Agreement or the Collateral Documents or (iii) the ability of any Party to perform its obligations under this Agreement and the Collateral Documents; provided, however, that none of the following shall constitute a Material Adverse Effect on AGSS: (i) the filing, initiation and subsequent prosecution, by or on behalf of Shareholder of any Party, of litigation that challenges or otherwise seeks damages with respect to the Share Exchange, this Agreement and/or transactions contemplated thereby or hereby, (ii) occurrences due to a disruption of a Party’s business as a result of the announcement of the execution of this Agreement or Changes caused by the taking of action required by this Agreement, (iii) general economic conditions, or (iv) any Changes generally affecting the industries in which a Party operates.
“Exchange Shares” means the issued and outstanding common shares of AMERIGUARD (the “AMERIGUARD Shares”), exchanged by the Shareholders to AGSS, for 80,578,125 fully paid, nonassessable newly issued shares of common stock to Garcia and 9,421,875 fully-paid, nonassessable newly issued shares of common stock to Minority Shareholders (the “AGSS Shares”).
“AGSS Business” means the business conducted by AGSS.
“AGSS Common Stock” means the common shares of AGSS.
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“Permit” means any license, permit, consent, approval, registration, authorization, qualification or similar right granted by a Regulatory Authority.
“Permitted Liens” means (i) liens for Taxes not yet due and payable or being contested in good faith by appropriate proceedings; (ii) rights reserved to any Regulatory Authority to regulate the affected property; (iii) statutory liens of banks and rights of set off; (iv) as to leased assets, interests of the lessors and sub-lessors thereof and liens affecting the interests of the lessors and sub-lessors thereof; (v) inchoate material men’s, mechanics’, workmen’s, repairmen’s or other like liens arising in the ordinary course of business; (vi) liens incurred or deposits made in the ordinary course in connection with workers’ compensation and other types of social security; (vii) licenses of trademarks or other intellectual property rights granted by AGSS, in the ordinary course and not interfering in any material respect with the ordinary course of the business of AGSS; and (viii) as to real property, any encumbrance, adverse interest, constructive or other trust, claim, attachment, exception to or defect in title or other ownership interest (including, but not limited to, reservations, rights of entry, rights of first refusal, possibilities of reversion, encroachments, easement, rights of way, restrictive covenants, leases, and licenses) of any kind, which otherwise constitutes an interest in or claim against property, whether arising pursuant to any Legal Requirement, under any contract or otherwise, that do not, individually or in the aggregate, materially and adversely affect or impair the value or use thereof as it is currently being used in the ordinary course.
“Person” means any natural person, corporation, partnership, trust, unincorporated organization, association, Limited Liability Company, Regulatory Authority or other entity.
“Regulatory Authority” means: (i) the United States of America; (ii) any state, commonwealth, territory or possession of the United States of America and any political subdivision thereof (including counties, municipalities and the like); (iii) Canada and any other foreign (as to the United States of America) sovereign entity and any political subdivision thereof; or (iv) any agency, authority or instrumentality of any of the foregoing, including any court, tribunal, department, bureau, commission or board.
“Representative” means any director, officer, employee, agent, consultant, advisor or other representative of a Person, including legal counsel, accountants and financial advisors.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations there under.
“Subsidiary” of a specified Person means (a) any Person if securities having ordinary voting power (at the time in question and without regard to the happening of any contingency) to elect a majority of the directors, trustees, managers or other governing body of such Person are held or controlled by the specified Person or a Subsidiary of the specified Person; (b) any Person in which the specified Person and its subsidiaries collectively hold a fifty percent (50%) or greater equity interest; (c) any partnership or similar organization in which the specified Person or subsidiary of the specified Person is a general partner; or (d) any Person the management of which is directly or indirectly controlled by the specified Person and its Subsidiaries through the exercise of voting power, by contract or otherwise.
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“Tax” means any U.S. or non U.S. federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, intangible property, recording, occupancy, sales, use, transfer, registration, value added minimum, estimated or other tax of any kind whatsoever, including any interest, additions to tax, penalties, fees, deficiencies, assessments, additions or other charges of any nature with respect thereto, whether disputed or not.
“Tax Return” means any return, declaration, report, claim for refund or credit or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Treasury Regulations” means regulations promulgated by the U.S. Treasury Department under the Code.
ARTICLE II
THE SHARE EXCHANGE
II.1 Share Exchange. In accordance with and subject to the provisions of this Agreement and the Nevada Revised Statutes (the “Code”), at the Effective Time, AMERIGUARD shall become a wholly owned subsidiary of AGSS, and AGSS shall be its only shareholder and shall continue in its existence with one owner, AGSS, until a merger, if any. Pursuant to the Share Exchange, (A) the Shareholders are relinquishing all of 640 AMERIGUARD common shares, constituting all issued and outstanding shares of AMERIGUARD (the “AMERIGUARD Shares”), and are acquiring an aggregate of 90,000,000 AGSS Shares, representing 96.43% of the outstanding Common Stock of AGSS, with 80,578,125 shares being issued to Garcia and 9,421,875 shares being issued to Minority Shareholders, and (B) AMERIGUARD is retiring and returning the Preferred Stock to AGSS.
II.2 Stock Transfer Books. Effective immediately after the Share Exchange, the stock transfer books of AMERIGUARD shall be closed for this transaction.
II.3 Restriction on Transfer. The Exchange Shares may not be sold, transferred, or otherwise disposed of without registration under the Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Share Exchange Shares or any available exemption from registration under the Act, the Share Exchange Shares must be held indefinitely. The Parties are aware that the Share Exchange Shares may not be sold pursuant to Rule 144 promulgated under the Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about AGSS.
II.4 Restrictive Legend. All certificates representing the Exchange Shares shall contain an appropriate restrictive legend.
II.5 Closing. The closing of the transactions contemplated by this Agreement and the Collateral Documents (the “Closing”) shall take place via conference call at the offices of McMurdo law Group, LLC, 1185 Avenue of the Americas, 3rd Floor, NY 10036, or at such other location as the parties may agree concurrent with the signing hereof (the “Closing Date”).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AGSS
AGSS represents and warrants to the Shareholders that the statements contained in this ARTICLE III are correct and complete as of the date of this Agreement and, except as provided in Section 7.1, will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE III, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for Changes contemplated or permitted by this Agreement).
III.1 Organization and Qualification. AGSS is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization. AGSS has all requisite power and authority to own, lease and use its assets as they are currently owned, leased and used and to conduct its business as it is currently conducted. AGSS is duly qualified or licensed to do business in and is in good standing in each jurisdiction in which the character of the properties owned, leased or used by it or the nature of the activities conducted by it make such qualification necessary, except any such jurisdiction where the failure to be so qualified or licensed would not have a Material Adverse Effect on AGSS or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of AGSS to perform its obligations under this Agreement or any of the Collateral Documents.
III.2 Capitalization.
(a) The authorized capital stock and other ownership interests of AGSS, a Nevada corporation, consists of 500,000,000 common shares of Common Stock, of which 3,417,302 were issued and outstanding as of June 30, 2022. AGSS has 25,000,000 shares of Preferred Stock authorized, with 10,000,000 shares of Series A-1 issued and outstanding. All of the outstanding AGSS Common Stock and Preferred Stock have been duly authorized and are validly issued, fully paid and non-assessable.
(b) Other than what has been described herein or in AGSS’s filings via EDGAR, there are no outstanding or authorized options, warrants, purchase rights, preemptive rights or other contracts or commitments that could require AGSS to issue, sell, or otherwise cause to become outstanding any of its capital stock or other ownership interests (collectively “Options”).
(c) All of the issued and outstanding shares of AGSS Common Stock have been duly authorized and are validly issued and outstanding, fully paid and non-assessable and have been issued in compliance with applicable securities laws and other applicable Legal Requirements or transfer restrictions under applicable securities laws.
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III.3 Authority and Validity. AGSS has all requisite corporate power to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement (subject to the receipt of any necessary consents, approvals, authorizations or other matters referred to herein). The execution and delivery by AGSS of, the performance by AGSS of its obligations under, and the consummation by AGSS of the transactions contemplated by, this Agreement have been duly authorized by all requisite action of AGSS (subject to the approval of AGSS Shareholder as contemplated herein). This Agreement has been duly executed and delivered by AGSS and (assuming due execution and delivery by the Shareholder and approval by AGSS Shareholder) is the legal, valid and binding obligation of AGSS, enforceable against it in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles. Upon the execution and delivery of the Collateral Documents by each Person (other than by the Shareholder) that is required by this Agreement to execute, or that does execute, this Agreement or any of the Collateral Documents, and assuming due execution and delivery thereof by the Shareholder, the Collateral Documents will be the legal, valid and binding obligations of AGSS, enforceable against AGSS in accordance with their respective terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles.
III.4 No Breach or Violation. Subject to obtaining the consents, approvals, authorizations, and orders of and making the registrations or filings with or giving notices to Regulatory Authorities and Persons identified herein, the execution, delivery and performance by AGSS of this Agreement and the Collateral Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby in accordance with the terms and conditions hereof and thereof, do not and will not conflict with, constitute a violation or breach of, constitute a default or give rise to any right of termination or acceleration of any right or obligation of AGSS under, or result in the creation or imposition of any Encumbrance upon AGSS, AGSS assets, AGSS Business or AGSS Common Stock by reason of the terms of (i) the articles of incorporation, by laws or other charter or organizational document of AGSS or any Subsidiary of AGSS, (ii) any material contract, agreement, lease, indenture or other instrument to which AGSS is a party or by or to which AGSS, or the assets may be bound or subject and a violation of which would result in a Material Adverse Effect on AGSS, (iii) any order, judgment, injunction, award or decree of any arbitrator or Regulatory Authority or any statute, law, rule or regulation applicable to AGSS or (iv) any Permit of AGSS, which in the case of (ii), (iii) or (iv) above would have a Material Adverse Effect on AGSS or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of AGSS to perform its obligations under this Agreement or any of the Collateral Documents.
III.5 Consents and Approvals. Except for requirements described in Schedule 3.5, no consent, approval, authorization or order of, registration or filing with, or notice to, any Regulatory Authority or any other Person is necessary to be obtained, made or given by AGSS in connection with the execution, delivery and performance by AGSS of this Agreement or any Collateral Document or for the consummation by AGSS of the transactions contemplated hereby or thereby, except to the extent the failure to obtain any such consent, approval, authorization or order or to make any such registration or filing would not have a Material Adverse Effect on AGSS or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of AGSS to perform its obligations under this Agreement or any of the Collateral Documents.
III.6 Intellectual Property. AGSS warrants that it has good title to or the right to use all material company intellectual property rights and all material inventions, processes, designs, formulae, trade secrets and know how necessary for the operation of AGSS Business without the payment of any royalty or similar payment.
III.7 Compliance with Legal Requirements. AGSS has operated its business in compliance with all Legal Requirements applicable to AGSS except to the extent the failure to operate in compliance with all material Legal Requirements would not have a Material Adverse Effect on AGSS or Material Adverse Effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents.
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III.8 Litigation. There are no outstanding judgments or orders against or otherwise affecting or related to AGSS, AGSS Business or AGSS assets and there is no action, suit, complaint, proceeding or investigation, judicial, administrative or otherwise, that is pending or, to AGSS’s knowledge, threatened that, if adversely determined, would have a Material Adverse Effect on AGSS or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents, except as noted in the Company’s financial statements published on OTC Markets or documented by AGSS to the Shareholder.
III.9 Taxes. AGSS has duly and timely filed in proper form all Tax Returns for all Taxes required to be filed with the appropriate Regulatory Authority, and has paid all taxes required to be paid in respect thereof except where such failure would not have a Material Adverse Effect on AGSS, except where, if not filed or paid, the exception(s) have been documented by AGSS to the Shareholder.
III.10 Books and Records. The books and records of AGSS accurately and fairly represent AGSS Business and its results of operations in all material respects.
III.11 Brokers or Finders. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by AGSS and/or its Affiliates/Representatives in connection with the transactions contemplated by this Agreement, neither AGSS, nor any of its Affiliates/Representatives have incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with the transaction contemplated by this Agreement.
III.12 Disclosure. No representation or warranty of AGSS in this Agreement or in the Collateral Documents and no statement in any certificate furnished or to be furnished by AGSS pursuant to this Agreement contained, contains or will contain on the date such agreement or certificate was or is delivered, or on the Closing Date, any untrue statement of a material fact, or omitted, omits or will omit on such date to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
III.13 No Undisclosed Liabilities. AGSS is not subject to any material liability (including unasserted claims), absolute or contingent, which is not shown or which is in excess of amounts shown or reserved for in the balance sheet as of September 30, 2021, other than liabilities of the same nature as those set forth in AGSS’ financial statements and reasonably incurred in the ordinary course of its business after September 30, 2021.
III.14 Disclosed Liabilities. All liabilities disclosed by AGSS shall be paid from AGSS’s accounts receivable when and as is due. Any Liabilities, disclosed or undisclosed, shall be the sole obligation of AGSS.
III.15 Absence of Certain Changes. Since September 30, 2021, AGSS has not: (a) suffered any material adverse change in its financial condition, assets, liabilities or business; (b) contracted for or paid any capital expenditures; (c) incurred any indebtedness or borrowed money, issued or sold any debt or equity securities, declared any dividends or discharged or incurred any liabilities or obligations except in the ordinary course of business as heretofore conducted; (d) mortgaged, pledged or subjected to any lien, lease, security interest or other charge or encumbrance any of its properties or assets; (e) paid any material amount on any indebtedness prior to the due date, forgiven or cancelled any material amount on any indebtedness prior to the due date, forgiven or cancelled any material debts or claims or released or waived any material rights or claims; (f) suffered any damage or destruction to or loss of any assets (whether or not covered by insurance); (g) acquired or disposed of any assets or incurred any liabilities or obligations; (h) made any payments to its affiliates or associates or loaned any money to any person or entity; (i) formed or acquired or disposed of any interest in any corporation, partnership, limited liability company, joint venture or other entity; (j) entered into any employment, compensation, consulting or collective bargaining agreement or any other agreement of any kind or nature with any person. Or group, or modified or amended in any respect the terms of any such existing agreement; (k) entered into any other commitment or transaction or experience any other event that relates to or affect in any way this Agreement or to the transactions contemplated hereby, or that has affected, or may adversely affect AGSS Business, operations, assets, liabilities or financial condition; or (1) amended its Articles of Incorporation or By-laws, except as otherwise contemplated herein.
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III.16 Contracts. A true and complete list of all contracts, agreements, leases, commitments or other understandings or arrangements, written or oral, express or implied, to which AGSS is a party or by which it or any of its property is bound or affected requiring payments to or from, or incurring of liabilities by, AGSS in excess of $10,000 (the “Contracts”). AGSS has complied with and performed, in all material respects, all of its obligations required to be performed under and is not in default with respect to any of the Contracts, as of the date hereof, nor has any event occurred which has not been cured which, with or without the giving of notice, lapse of time, or both, would constitute a default in any respect there under. To the best knowledge of AGSS, no other party has failed to comply with or perform, in all material respects, any of its obligations required to be performed under or is in material default with respect to any such Contracts, as of the date hereof, nor has any event occurred which, with or without the giving of notice, lapse of time or both, would constitute a material default in any respect by such party there under. AGSS knows of and has no reason to believe that there are any facts or circumstances which would make a material default by any party to any contract or obligation likely to occur subsequent to the date hereof.
III.17 Permits and Licenses. AGSS has all certificates of occupancy, rights, permits, certificates, licenses, franchises, approvals and other authorizations as are reasonably necessary to conduct its business and to own, lease, use, operate and occupy its assets, at the places and in the manner now conducted and operated, except those the absence of which would not materially adversely affect its business. AGSS has not received any written or oral notice or claim pertaining to the failure to obtain any material permit, certificate, license, approval or other authorization required by any federal, state or local agency or other regulatory body, the failure of which to obtain would materially and adversely affect its business.
III.18 Assets Necessary to Business. AGSS owns or leases all properties and assets, real, personal, and mixed, tangible and intangible, and is a party to all licenses, permits and other agreements necessary to permit it to carry on its business as presently conducted.
III.19 Labor Agreements and Labor Relations. AGSS has no collective bargaining or union contracts or agreements. AGSS is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practices; there are no charges of discrimination or unfair labor practice charges” or complaints against AGSS pending or threatened before any governmental or regulatory agency or authority; and, there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or affecting AGSS.
III.20 Employment Arrangements. AGSS has no employment or consulting agreements or arrangements, written or oral, which are not terminable at the will of AGSS, or any pension, profit-sharing, option, other incentive plan, or any other type of employment benefit plan as defined in ERISA or otherwise, or any obligation to or customary arrangement with employees for bonuses, incentive compensation, vacations, severance pay, insurance or other benefits. No employee of AGSS is in violation of any employment agreement or restrictive covenant.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders represent and warrant to AGSS that the statements contained in this ARTICLE IV are correct and complete as of the date of this Agreement and, except as provided in Section 8.1, will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE IV, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for Changes contemplated or permitted by the Agreement).
IV.1 Organization and Qualification. AMERIGUARD has all requisite power and authority to own, lease and use AMERIGUARD’ assets as they are currently owned, leased and used and to conduct its business as it is currently conducted. AMERIGUARD is duly qualified or licensed to do business in and are each in good standing in each jurisdiction in which the character of the properties owned, leased or used by it or the nature of the activities conducted by it makes such qualification necessary, except any such jurisdiction where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on AMERIGUARD or a Material Adverse Effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of AMERIGUARD or the Shareholder to perform their obligations under this Agreement or any of the Collateral Documents.
IV.2 Capitalization.
(a) The authorized capital stock of AMERIGUARD is 1,000 shares of common stock. All outstanding shares of AMERIGUARD Common Stock are owned by the Shareholders. AMERIGUARD has no shares of preferred stock authorized. The shares of AMERIGUARD Common Stock are duly issued and outstanding, and have been duly authorized, validly issued and outstanding and fully paid and non-assessable, which shares are Exchanged hereby, as above provided.
(b) There are no outstanding or authorized options, warrants, purchase rights, preemptive rights or other contracts or commitments that could require AMERIGUARD or any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding any of its capital stock or other ownership interests.
(c) All of the issued and outstanding shares of the AMERIGUARD capital stock have been duly authorized and are validly issued and outstanding, fully paid and non-assessable (with respect to Subsidiaries that are corporations) and have been issued in compliance with applicable securities laws and other applicable Legal Requirements.
IV.3 Authority and Validity. The Shareholders have all requisite power to execute and deliver to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and the Collateral Documents. The execution and delivery by the Shareholders and the performance by the Shareholders of their obligations under, and the consummation by the Shareholders of the transactions contemplated by, this Agreement and the Collateral Documents have been duly authorized by all requisite action of the Shareholders. This Agreement has been duly executed and delivered (assuming due execution and delivery by the Shareholders) is the legal, valid and binding obligation of the Shareholders, enforceable in accordance with its terms except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles. Upon the execution and delivery by the Shareholders of the Collateral Documents to which it is a party, if any, and assuming due execution and delivery thereof by the other parties thereto, the Collateral Documents will be the legal, valid and binding obligations, enforceable in accordance with their respective terms except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles.
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IV.4 No Breach or Violation. Subject to obtaining the consents, approvals, authorizations, and orders of and making the registrations or filings with or giving notices to Regulatory Authorities and Persons identified herein, the execution, delivery and performance by the Shareholders of this Agreement and the Collateral Documents to which they are a party and the consummation of the transactions contemplated hereby and thereby in accordance with the terms and conditions hereof and thereof, do not and will not conflict with, constitute a violation or breach of, constitute a default or give rise to any right of termination or acceleration of any right or obligation of the Shareholders under, or result in the creation or imposition of any Encumbrance upon the property of the Shareholders by reason of the terms of (i) the articles of incorporation, by laws or other charter or organizational document of AMERIGUARD, (ii) any contract, agreement, lease, indenture or other instrument to which any the Shareholder or AMERIGUARD are a party or by or to which the Shareholders or AMERIGUARD or their property may be bound or subject and a violation of which would result in a Material Adverse Effect on the Shareholders or AMERIGUARD taken as a whole, (iii) any order, judgment, injunction, award or decree of any arbitrator or Regulatory Authority or any statute, law, rule or regulation applicable to the Shareholders or AMERIGUARD or (iv) any Permit of AMERIGUARD or subsidiary, which in the case of (ii), (iii) or (iv) above would have a Material Adverse Effect on AMERIGUARD or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Shareholders or AMERIGUARD to perform its obligations hereunder or there under.
IV.5 Consents and Approvals. Except for requirements under applicable United States or state securities laws, no consent, approval, authorization or order of, registration or filing with, or notice to, any Regulatory Authority or any other Person is necessary to be obtained, made or given by the Shareholders in connection with the execution, delivery and performance by them of this Agreement or any Collateral Documents or for the consummation by them of the transactions contemplated hereby or thereby, except to the extent the failure to obtain such consent, approval, authorization or order or to make such registration or filings or to give such notice would not have a Material Adverse Effect on the Shareholders, in the aggregate, or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Shareholders to perform their obligations under this Agreement or any of the Collateral Documents.
IV.6 Compliance with Legal Requirements. AMERIGUARD’s business has operated in compliance with all material Legal Requirements including, without limitation, the Securities Act applicable to AMERIGUARD, except to the extent the failure to operate in compliance with all material Legal Requirements, would not have a Material Adverse Effect on AMERIGUARD or a Material Adverse Effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents.
IV.7 Litigation. There are no outstanding judgments or orders against or otherwise affecting or related to AMERIGUARD, or the business or assets; and there is no action, suit, complaint, proceeding or investigation, judicial, administrative or otherwise, that is pending or, to the best knowledge of either of the Shareholders, threatened that, that has not been disclosed and if adversely determined, would have a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents.
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IV.8 Ordinary Course. Since the date of its most recent balance sheet, dated December 31, 2021, there has not been any occurrence, event, incident, action, failure to act or transaction involving AMERIGUARD, which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on AMERIGUARD.
IV.9 Assets and Liabilities. As of the date of this Agreement, neither AMERIGUARD nor any of its Subsidiaries has any Assets or Liability, except for the Liabilities disclosed in the balance sheet disclosed to AGSS through the date hereof.
IV.10 Taxes. AMERIGUARD, and any Subsidiaries, has duly and timely filed in proper form all Tax Returns for all Taxes required to be filed with the appropriate Governmental Authority, except where such failure to file would not have a Material Adverse Effect on AMERIGUARD.
IV.11 Books and Records. The books and records of AMERIGUARD and any Subsidiaries accurately and fairly represent the AMERIGUARD Business and its results of operations in all material respects. All accounts receivable and inventory of the AMERIGUARD Business are reflected properly on such books and records in all material respects.
IV.12 Financial and Other Information. To the knowledge of the Shareholder, AMERIGUARD’s financial statements do not contain (directly or by incorporation by reference) any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (or incorporated therein by reference), in light of the circumstances under which they were or will be made, not misleading.
IV.13 Brokers or Finders. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by AMERIGUARD and/or its Affiliates/Representatives in connection with the transactions contemplated by this Agreement, neither AMERIGUARD, nor any of its Affiliates/Representatives have incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with the transaction contemplated by this Agreement.
IV.14 Disclosure. No representation or warranty of the Shareholders in this Agreement or in the Collateral Documents and no statement in any certificate furnished or to be furnished by the Shareholders pursuant to this Agreement contained, contains or will contain on the date such agreement or certificate was or is delivered, or on the Closing Date, any untrue statement of a material fact, or omitted, omits or will omit on such date to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
IV.15 Filings. AMERIGUARD is not subject to filings required by the Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended.
IV.16 Conduct of Business. Prior to the Closing Date, AMERIGUARD shall conduct its business in the normal course, and shall not sell, pledge, or assign any assets, without the prior written approval of AGSS, except in the regular course of business. Except as otherwise provided herein, AMERIGUARD shall not amend its Articles of Incorporation or By-Laws, declare dividends, redeem or sell stock or other securities, acquire or dispose of fixed assets, change employment terms, enter into any material or long-term contract, guarantee obligations of any third party, settle or discharge any material balance sheet receivable for less than its stated amount, pay more on any liability than its stated amount or enter into any other transaction other than in the regular course of business.
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ARTICLE V
COVENANTS OF AGSS
Between the date of this Agreement and the Closing Date:
V.1 Additional Information. AGSS shall provide to the Shareholders and their Representatives such financial, operating and other documents, data and information relating to AGSS, AGSS Business and AGSS’ assets and liabilities, as the Shareholders or their Representatives may reasonably request. In addition, AGSS shall take all action necessary to enable the Shareholders and their Representatives to review, inspect and review AGSS Assets, AGSS Business and Liabilities of AGSS and discuss them with AGSS’s officers, employees, independent accountants, customers, licensees, and counsel. Notwithstanding any investigation that the Shareholders may conduct of AGSS, AGSS Business, AGSS Assets and the Liabilities of AGSS, the Shareholders may fully rely on AGSS’s warranties, covenants and indemnities set forth in this Agreement.
V.2 Consents and Approvals. As soon as practicable after execution of this Agreement, AGSS shall use commercially reasonable efforts to obtain any necessary consent, approval, authorization or order of, make any registration or filing with or give any notice to, any Regulatory Authority or Person as is required to be obtained, made or given by AGSS to consummate the transactions contemplated by this Agreement and the Collateral Documents.
V.3 Non-circumvention. It is understood that in connection with the transactions contemplated hereby, AGSS will not, and it will cause its directors, officers, employees, agents and representatives not to attempt, directly or indirectly, (i) to contact any party introduced to it by the Shareholders, or (ii) deal with, or otherwise become involved in any transaction with any party which has been introduced to it by the Shareholders, without the express written permission of the introducing party. Any violation of the covenant shall be deemed an attempt to circumvent the Shareholders, and the party so violating this covenant shall be liable for damages in favor of the circumvented party.
V.4 No Solicitations. From and after the date of this Agreement until the Effective Time or termination of this Agreement pursuant to ARTICLE X, AGSS will not nor will it authorize or permit any of its officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by it, directly or indirectly, (i) solicit or initiate the making, submission or announcement of any other acquisition proposal, (ii) participate in any discussions or negotiations reassigning, or furnish to any person any nonpublic information with respect to any other acquisition proposal, (iii) engage in discussions with any Person with respect to any other acquisition proposal, except as to the existence of these provisions, (iv) approve, endorse or recommend any other acquisition proposal or (v) enter into any letter of intent or similar document or any contract agreement or commitment contemplating or otherwise relating to any other acquisition proposal.
V.5 Notification of Adverse Change. AGSS shall promptly notify the Shareholders of any material adverse Change in the condition (financial or otherwise) of AGSS.
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V.6 Notification of Certain Matters. AGSS shall promptly notify the Shareholders of any fact, event, circumstance or action known to it that is reasonably likely to cause AGSS to be unable to perform any of its covenants contained herein or any condition precedent in ARTICLE VII not to be satisfied, or that, if known on the date of this Agreement, would have been required to be disclosed to the Shareholders pursuant to this Agreement or the existence or occurrence of which would cause any of AGSS’s representations or warranties under this Agreement not to be correct and/or complete. AGSS shall give prompt written notice to the Shareholders of any adverse development causing a breach of any of the representations and warranties in ARTICLE III as of the date made.
V.7 The Company Disclosure Schedule. For purposes of determining the satisfaction of any of the conditions to the obligations of the Shareholders in ARTICLE VII, AGSS disclosures shall be deemed to include only (a) the information contained therein on the date of this Agreement and (b) information provided by written supplements delivered prior to Closing by AGSS that (i) are accepted in writing by a majority of the Shareholders, or (ii) reflect actions taken or events occurring after the date hereof prior to Closing.
V.8 State Statutes. AGSS and its Board of Directors shall, if any state takeover statute or similar law is or becomes applicable to the Share Exchange, this Agreement or any of the transactions contemplated by this Agreement, use all reasonable efforts to ensure that the Share Exchange and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Share Exchange, this Agreement and the transactions contemplated hereby.
V.9 Conduct of Business. Prior to the Closing Date, AGSS shall conduct its business in the normal course, and shall not sell, pledge, or assign any assets, without the prior written approval of the Shareholders, except in the regular course of business. Except as otherwise provided herein, AGSS shall not amend its Articles of Incorporation or Bylaws, declare dividends, redeem or sell stock or other securities, acquire or dispose of fixed assets, change employment terms, enter into any material or long-term contract, guarantee obligations of any third party, settle or discharge any material balance sheet receivable for less than its stated amount, pay more on any liability than its stated amount, or enter into any other transaction other than in the regular course of business.
V.10 Filings. Until closing, AGSS will timely file all reports and other documents relating to the operation of AGSS required to be filed, which reports, and other documents do not and will not contain any misstatement of a material fact, and do not and will not omit any material fact necessary to make the statements therein not misleading.
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ARTICLE VI
COVENANTS OF THE SHAREHOLDERS
Between the date of this Agreement and the Closing Date,
VI.1 Additional Information. The Shareholders shall provide to AGSS and its Representatives such financial, operating and other documents, data and information relating to AMERIGUARD, the AMERIGUARD Business and the AMERIGUARD Assets and the Liabilities of the AMERIGUARD and its Subsidiaries, as AGSS or its Representatives may reasonably request. In addition, the Shareholders shall take all action necessary to enable AGSS and its Representatives to review and inspect the AMERIGUARD Assets, the AMERIGUARD Business and the Liabilities of AMERIGUARD and discuss them with AGSS’s officers, employees, independent accountants and counsel. Notwithstanding any investigation that AGSS may conduct of AMERIGUARD, the AMERIGUARD Business, the AMERIGUARD Assets and the Liabilities of the AMERIGUARD, AGSS may fully rely on the Shareholder’s warranties, covenants and indemnities set forth in this Agreement.
VI.2 No Solicitations. From and after the date of this Agreement until the Effective Time or termination of this Agreement pursuant to ARTICLE X, the Shareholders will not nor will it authorize or permit any of AMERIGUARD’s officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by it, directly or indirectly, (i) solicit or initiate the making, submission or announcement of any other acquisition proposal, (ii) participate in any discussions or negotiations reassigning, or furnish to any person any non-public information with respect to any other acquisition proposal, (iii) engage in discussions with any Person with respect to any other acquisition proposal, except as to the existence of these provisions, (iv) approve, endorse or recommend any other acquisition proposal or (v) enter into any letter of intent or similar document or any contract agreement or commitment contemplating or otherwise relating to any other acquisition proposal.
VI.3 Notification of Adverse Change. The Shareholders shall promptly notify AGSS of any material adverse Change in the condition (financial or otherwise) of AMERIGUARD.
VI.4 Consents and Approvals. As soon as practicable after execution of this Agreement, the Shareholders shall use his commercially reasonable efforts to obtain any necessary consent, approval, authorization or order of, make any registration or filing with or give notice to, any Regulatory Authority or Person as is required to be obtained, made or given by the Shareholders to consummate the transactions contemplated by this Agreement and the Collateral Documents.
VI.5 Notification of Certain Matters. The Shareholders shall promptly notify AGSS of any fact, event, circumstance or action known to him that is reasonably likely to cause AMERIGUARD to be unable to perform any of its covenants contained herein or any condition precedent if not to be satisfied, or that, if known on the date of this Agreement, would have been required to be disclosed to AGSS pursuant to this Agreement or the existence or occurrence of which would cause the Shareholders’ representations or warranties under this Agreement not to be correct and/or complete. The Shareholders shall give prompt written notice to AGSS of any adverse development causing a breach of any of the representations and warranties in ARTICLE IV.
VI.6 The AMERIGUARD Executive Summary. The Shareholders shall, from time to time prior to Closing, supplement the AMERIGUARD business plan with additional information that, if existing or known to it on the date of this Agreement, would have been required to be included therein.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF AMERIGUARD AND THE SHAREHOLDERS
All obligations of AMERIGUARD and the Shareholders under this Agreement shall be subject to the fulfillment at or prior to Closing of each of the following conditions, it being understood that the Parties may, in their sole discretion, to the extent permitted by applicable Legal Requirements, waive any or all of such conditions in whole or in part.
VII.1 Accuracy of Representations. All representations and warranties of AGSS contained in this Agreement, the Collateral Documents and any certificate delivered by any of AGSS at or prior to Closing shall be, if specifically qualified by materiality, true in all respects and, if not so qualified, shall be true in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for Changes contemplated or permitted by this Agreement.
VII.2 Covenants. AGSS shall, in all material respects, have performed and complied with each of the covenants, obligations and agreements contained in this Agreement and the Collateral Documents that are to be performed or complied with by them at or prior to Closing.
VII.3 Consents and Approvals. All consents, approvals, permits, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to, any Regulatory Authority or Person as provided herein.
VII.4 Delivery of Documents. AGSS shall have delivered, or caused to be delivered, to the Shareholders the following documents:
(i) Copies of AGSS articles of incorporation and bylaws and resolutions of the board of directors of AGSS authorizing the execution of this Agreement and the Collateral Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby.
(ii) Such other documents and instruments as the Shareholders may reasonably request: (A) to evidence the accuracy of AGSS’s representations and warranties under this Agreement, the Collateral Documents and any documents, instruments or certificates required to be delivered hereunder; (B) to evidence the performance by AGSS of, or the compliance by AGSS with, any covenant, obligation, condition and agreement to be performed or complied with by AGSS under this Agreement and the Collateral Documents; or (C) to otherwise facilitate the consummation or performance of any of the transactions contemplated by this Agreement and the Collateral Documents.
VII.5 No Material Adverse Change. Since the date hereof, there shall have been no material adverse Change in AGSS’s assets, AGSS Business or the financial condition or operations of AGSS, taken as a whole.
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF AGSS
All obligations of AGSS under this Agreement shall be subject to the fulfillment at or prior to Closing of the following conditions, it being understood that AGSS may, in its sole discretion, to the extent permitted by applicable Legal Requirements, waive any or all of such conditions in whole or in part.
VIII.1 Accuracy of Representations. All representations and warranties of AMERIGUARD and the Shareholders contained in this Agreement and the Collateral Documents and any other document, instrument or certificate delivered by AMERIGUARD or the Shareholders at or prior to the Closing shall be, if specifically qualified by materiality, true and correct in all respects and, if not so qualified, shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for Changes contemplated or permitted by this Agreement.
VIII.2 Covenants. AMERIGUARD and the Shareholders shall, in all material respects, have performed and complied with each obligation, agreement, covenant and condition contained in this Agreement and the Collateral Documents and required by this Agreement and the Collateral Documents to be performed or complied with by the Shareholder at or prior to Closing.
VIII.3 Consents and Approvals. All consents, approvals, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to, any Regulatory Authority or Person as provided herein.
VIII.4 Delivery of Documents. AMERIGUARD and the Shareholders shall have executed and delivered, or caused to be executed and delivered, to AGSS the following documents:
Documents and instruments as AGSS may reasonably request: (A) to evidence the accuracy of the representations and warranties of the Shareholders and AMERIGUARD under this Agreement and/or the Collateral Documents and any documents, instruments or certificates required to be delivered hereunder; (B) to evidence the performance by the Shareholders of, or the compliance by the Shareholders with, any covenant, obligation, condition and agreement to be performed or complied with by the Shareholders under this Agreement and the Collateral Documents; or (C) to otherwise facilitate the consummation or performance of any of the transactions contemplated by this Agreement and the Collateral Documents.
VIII.5 No Material Adverse Change. There shall have been no material adverse change in the business, financial condition or operations of AMERIGUARD and its Subsidiaries taken as a whole.
VIII.6 No Litigation. No action, suit or proceeding shall be pending or threatened by or before any Regulatory Authority and no Legal Requirement shall have been enacted, promulgated or issued or deemed applicable to any of the transactions contemplated by this Agreement and the Collateral Documents that would: (i) prevent consummation of any of the transactions contemplated by this Agreement and the Collateral Documents; (ii) cause any of the transactions contemplated by this Agreement and the Collateral Documents to be rescinded following consummation; or (iii) have a Material Adverse Effect on AMERIGUARD.
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ARTICLE IX
INDEMNIFICATION
IX.1 Indemnification by AGSS. AGSS shall indemnify, defend and hold harmless (i) the Shareholders, (ii) any the Shareholders’ assigns and successors in interest to AGSS Shares, and (iii) each of the Shareholders, members, partners, directors, officers, managers, employees, agents, attorneys and representatives, from and against any and all Losses which may be incurred or suffered by any such party and which may arise out of or result from any breach of any material representation, warranty, covenant or agreement of AGSS contained in this Agreement. All claims to be assorted hereunder must be made for the first anniversary of the Closing.
IX.2 Indemnification by the Shareholder. AMERIGUARD and the Shareholders shall indemnify, defend and hold harmless AGSS from and against any and all Losses which may be incurred or suffered by any such party hereto and which may arise out of or result from any breach of any material representation, warranty, covenant or agreement of the Shareholders contained in this Agreement. All claims to be assorted hereunder must be made for the first anniversary of the Closing.
IX.3 Notice to Indemnifying Party. If any party (the “Indemnified Party”) receives notice of any claim or other commencement of any action or proceeding with respect to which any other party (or parties) (the “Indemnifying Party”) is obligated to provide indemnification pursuant to Sections 9.1 or 9.2, the Indemnified Party shall promptly give the Indemnifying Party written notice thereof, which notice shall specify in reasonable detail, if known, the amount or an estimate of the amount of the liability arising here from and the basis of the claim. Such notice shall be a condition precedent to any liability of the Indemnifying Party for indemnification hereunder, but the failure of the Indemnified Party to give prompt notice of a claim shall not adversely affect the Indemnified Party’s right to indemnification hereunder unless the defense of that claim is materially prejudiced by such failure. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld or delayed) unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification thereof as provided in Section 9.4.
IX.4 Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a Person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding (i) if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim (subject to any limitations on such liability contained in this Agreement) and (ii) if it provides assurances, reasonably satisfactory to the Indemnified Party, that it will be financially able to satisfy such claims in full if the same are decided adversely. If the Indemnifying Party assumes the defense of any such claim or legal proceeding, it may use counsel of its choice to prosecute such defense, subject to the approval of such counsel by the Indemnified Party, which approval shall not be unreasonably withheld or delayed. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense; provided, however, that if the Indemnified Party, in its sole discretion, determines that there exists a conflict of interest between the Indemnifying Party (or any constituent party thereof) and the Indemnified Party, the Indemnified Party (or any constituent party thereof) shall have the right to engage separate counsel, the reasonable costs and expenses of which shall be paid by the Indemnified Party. If the Indemnifying Party assumes the defense of any such claim or legal proceeding, the Indemnifying Party shall take all steps necessary to pursue the resolution thereof in a prompt and diligent manner. The Indemnifying Party shall be entitled to consent to a settlement of, or the stipulation of any judgment arising from, any such claim or legal proceeding, with the consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed; provided, however, that no such consent shall be required from the Indemnified Party if (i) the Indemnifying Party pays or causes to be paid all Losses arising out of such settlement or judgment concurrently with the effectiveness thereof (as well as all other Losses theretofore incurred by the Indemnified Party which then remain unpaid or unreimbursed), (ii) in the case of a settlement, the settlement is conditioned upon a complete release by the claimant of the Indemnified Party and (iii) such settlement or judgment does not require the encumbrance of any asset of the Indemnified Party or impose any restriction upon its conduct of business.
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ARTICLE X
TERMINATION
X.1 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to it being fully executed, or thereafter:
(a) by mutual written agreement of the Shareholders and AGSS hereto duly authorized by action taken by or on behalf of the respective Boards of Directors; or
(b) by either AGSS or the Shareholders upon notification to the non-terminating party by the terminating party:
(i) if the terminating party is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement on the part of the non-terminating party set forth in this Agreement such that the conditions will not be satisfied; provided, however, that if such breach is curable by the non-terminating party and such cure is reasonably likely to be completed prior to the Closing Date; or
(ii) if any court of competent jurisdiction or other competent Governmental or Regulatory Authority shall have issued an order making illegal or otherwise permanently restricting, preventing or otherwise prohibiting the Share Exchange and such order shall have become final.
(c) Effect of Termination. If this Agreement is validly terminated by either AGSS or the Shareholders pursuant to Section 10.1, this Agreement will forthwith become null and void and there will be no liability or obligation on the part of the parties hereto, except that nothing contained herein shall relieve any party hereto from liability for willful breach of its representations, warranties, covenants or agreements contained in this Agreement.
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ARTICLE XI
MISCELLANEOUS
XI.1 Parties Obligated and Benefited. This Agreement shall be binding upon the Parties and their respective successors by operation of law and shall inure solely to the benefit of the Parties and their respective successors by operation of law, and no other Person shall be entitled to any of the benefits conferred by this Agreement. Without the prior written consent of the other Party, no Party may assign this Agreement or the Collateral Documents or any of its rights or interests or delegate any of its duties under this Agreement or the Collateral Documents.
XI.2 Publicity. All press release shall be joint press releases between AGSS and AMERIGUARD and each shall consult with each other prior to issuing any press releases or otherwise making public announcements with respect to the Share Exchange and the other transactions contemplated by this Agreement and prior to making any filings with any third party and/or any Regulatory Authorities (including any national securities inter dealer quotation service) with respect thereto, except as may be required by law or by obligations pursuant to any listing agreement with or rules of any national securities inter dealer quotation service.
XI.3 Notices. Any notices and other communications required or permitted hereunder shall be in writing and shall be effective upon delivery by hand or upon receipt if sent by certified or registered mail (postage prepaid and return receipt requested) or by a nationally recognized overnight courier service (appropriately marked for overnight delivery) or upon transmission if sent by telex or facsimile (with request for immediate confirmation of receipt in a manner customary for communications of such respective type and with physical delivery of the communication being made by one or the other means specified in this Section as promptly as practicable thereafter). Notices shall be addressed as follows:
If to the Shareholders or AMERIGUARD:
|
Lawrence Garcia 5470 W. Spruce Avenue, Suite 102 Fresno, CA 93722 | |
| If to AGSS: | Lawrence Garcia 5470 W. Spruce Avenue, Suite 102 Fresno, CA 93722 |
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XI.4 Addresses. Any Party may change the address to which notices are required to be sent by giving notice of such change in the manner provided in this Section.
XI.5 Attorneys’ Fees. In the event of any action or suit based upon or arising out of any alleged breach by any Party of any representation, warranty, covenant or agreement contained in this Agreement or the Collateral Documents, the prevailing Party shall be entitled to recover reasonable attorneys’ fees and other costs of such action or suit from the other Party.
XI.6 Headings. The Article and Section headings of this Agreement are for convenience only and shall not constitute a part of this Agreement or in any way affect the meaning or interpretation thereof.
XI.7 Choice of Law. This Agreement and the rights of the Parties under it shall be governed by and construed in all respects in accordance with the laws of the State of Nevada, without giving effect to any choice of law provision or rule.
XI.8 Rights Cumulative. All rights and remedies of each of the Parties under this Agreement shall be cumulative, and the exercise of one or more rights or remedies shall not preclude the exercise of any other right or remedy available under this Agreement or applicable law.
XI.9 Further Actions. The Parties shall execute and deliver to each other, from time to time at or after Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement.
XI.10 Time of the Essence. Time is of the essence under this Agreement. If the last day permitted for the giving of any notice or the performance of any act required or permitted under this Agreement falls on a day which is not a Business Day, the time for the giving of such notice or the performance of such act shall be extended to the next succeeding Business Day.
XI.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
XI.12 Entire Agreement. This Agreement (including the Exhibits, disclosures made as to AGSS, the AMERIGUARD financial statements and any other documents, instruments and certificates referred to herein, which are incorporated in and constitute a part of this Agreement) contains the entire agreement of the Parties.
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XI.13 Survival of Representations and Covenants. Notwithstanding any right of the Shareholders to fully investigate the affairs of AGSS and notwithstanding any knowledge of facts determined or determinable by the Shareholders pursuant to such investigation or right of investigation, the Shareholders shall have the right to rely fully upon the representations, warranties, covenants and agreements of AGSS contained in this Agreement. Each representation, warranty, covenant and agreement of AGSS contained herein shall survive the execution and delivery of this Agreement and the Closing and shall thereafter terminate and expire on the first anniversary of the Closing Date unless, prior to such date, the Shareholders have delivered to AGSS a written notice of a claim with respect to such representation, warranty, covenant or agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.
| Dated: December 9, 2022 | ||
| AmeriGuard Security Services, Inc. (California) | ||
| By: | ||
| Name: | Lawrence Garcia | |
| Title: | President | |
| Lawrence Garcia | ||
| AmeriGuard Security Services, Inc. (Nevada) | ||
| By: | ||
| Name: | Lawrence Garcia | |
| Title: | Chief Executive Officer | |
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Exhibit 3.1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
AMERIGUARD SECURITY SERVICES, INC.
(hereinafter called the “Corporation”)
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of the corporation shall be established and maintained at the office of NEVADA AGENCY AND TRANSFER COMPANY, at 50 WEST LIBERTY STREET SUITE 880, Reno, NV, 89501, in the State of Nevada; NEVADA AGENCY AND TRANSFER COMPANY shall be the registered agent of the corporation in charge thereof. The registered office and registered agent may be changed from time to time by action of the board of directors of the Corporation (the “Board of Directors”) and the appropriate filing by the corporation in the office of the Secretary of State of the State of Nevada.
Section 1.2 Principal Office. The principal office for the transaction of the business of the Corporation shall be as determined by the Board of Directors. The Board of Directors is hereby granted full power and authority to change said principal office from one location to another.
Section 1.3 Other Offices. The Corporation may also have offices at such other places, both within and without the State of Nevada, as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Annual Meetings. The Annual Meeting of stockholders of the Corporation (“Stockholders”) for purposes of the Nevada Revised Statutes (“NRS”) 78.330 shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. The election of directors and any other proper business may be transacted at the Annual Meeting of Stockholders.
Section 2.2 Special Meetings. A Special meeting of the stockholders (a “Special Meeting”) for any purpose or purposes may be called by the president of the Corporation, the Board of Directors or a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in these by-laws (“By-Laws”), include the power to call such meetings. Such request shall state the purpose or purposes of the proposed meeting. Unless otherwise prescribed by law, the articles of incorporation of the Corporation, as amended and restated from time to time (the “Articles of Incorporation”) or these By-Laws, a Special Meeting may not be called by any other person or persons. No business may be transacted at any Special Meeting other than such business as may be designated in the notice (or any supplement thereto) calling such meeting.
Section 2.3 Place of Meetings. The president, the Board of Directors, or a committee of the Board of Directors, as the case may be, may designate the time and place, either within or without the State of Nevada, for any Annual Meeting or for any Special Meeting of the Stockholders called by the president, the Board of Directors, or a committee of the Board of Directors. The Board of Directors may, in its sole discretion, determine that any meeting of the stockholders shall be held by means of electronic communications or other available technology in accordance with Section 2.17.
Section 2.4 Notice. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, the means of electronic communication, if any, and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, written notice of any meeting 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 notice of and to vote at such meeting, and shall be delivered in accordance with NRS 78.370.
Section 2.5 Adjournments. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place 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. If the adjournment is for more than sixty (60) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 2.4 hereof shall be given to each stockholder of record (including the new record date) entitled to notice of and to vote at the meeting.
Section 2.6 Quorum. Unless otherwise required by applicable law or the Articles of Incorporation, the holders of one-third (1/3) of the Corporation’s capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 2.5 hereof, until a quorum shall be present or represented.
Section 2.7 Voting.
(a) Unless otherwise required by law, the Articles of Incorporation or these By-Laws, any question brought before any meeting of the stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the votes cast on a matter at the meeting at which a quorum is present. Directors shall be elected by a plurality of the votes cast at the election. Broker non-votes and abstentions are considered for purposes of establishing a quorum but not considered as votes cast for or against a proposal or director nominee.
(b) Unless otherwise provided in the Articles of Incorporation, and subject to Section 2.11(a), each stockholder represented at a meeting of the stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 2.8. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 2.8 Proxies. Each stockholder entitled to vote at a meeting of the stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after six months from its date of creation, unless such proxy provides for a longer period, which may not exceed seven years from the date of its creation. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of an electronic record to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive the transmission, provided that any such electronic record must either set forth or be submitted with information from which it can be determined that the electronic record was authorized by the stockholder. If it is determined that such electronic record is valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.
Any copy, facsimile or other electronic telecommunication or other reliable reproduction of the writing or electronic record authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or electronic record for any and all purposes for which the original writing or electronic record could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or electronic record.
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Section 2.9 Consent of Stockholders in Lieu of Meeting.
(a) Unless otherwise provided in the Articles of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, 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 and shall be delivered to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section 2.9 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. 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. 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 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 holders to take the action were delivered to the Corporation as provided above in this Section 2.9.
(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 less 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 of the Corporation, 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’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable 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 date on which the Board of Directors adopts the resolution taking such prior action.
(c) In the event of the delivery, in the manner provided by this Section 2.9, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage independent inspectors of elections for the purpose of performing promptly a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with this Section 2.9 represent at least a minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section 2.9(c) shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
Section 2.10 List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days but not more than sixty (60) days, before every meeting of the stockholders, a complete list of the stockholders of record entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder of record and the number of shares registered in the name of each stockholder of record. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting (i) either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held or (ii) during ordinary business hours, at the principal place of business of the Corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Except as otherwise required by law, such list shall be the only evidence as to who are the stockholders entitled to vote at any meeting of the stockholders. In the event that more than one group of shares is entitled to vote as a separate voting group at the meeting, there shall be a separate listing of the stockholders of each group.
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Section 2.11 Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, 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 record date shall 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 the stockholders shall be at the close of business on the day before the day on which the first notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders 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 record 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. If no record date has been fixed by the Board of Directors, 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’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable 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.
Section 2.12 Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.10 or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.
Section 2.13 Conduct of Meetings. Meetings of stockholders shall be presided over by the chairman of the Board of Directors (the “Chairman”), or, in the absence of the Chairman, by the vice chairman of the Board of Directors, if any, or if there be no vice chairman or in the absence of the vice chairman, by the chief executive officer, if any, or if there be no chief executive officer or in the absence of the chief executive officer, by the president, or, in the absence of the president, or, in the absence of any of the foregoing persons, by a chairman designated by the Board of Directors, or by a chairman chosen at the meeting by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast. The individual acting as chairman of the meeting may delegate any or all of his or her authority and responsibilities as such to any director or officer of the Corporation present in person at the meeting. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, (i) the establishment of procedures for the maintenance of order and safety, (ii) the establishment of an agenda or order of business for the meeting, (iii) limitation on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman of the meeting shall permit, (iv) limitation on the time allotted for consideration of each agenda item and for questions or comments by meeting participants, (v) restrictions on entry to such meeting after the time prescribed for the commencement thereof, and (vi) the opening and closing of the voting polls. The Board of Directors, in its discretion, or the chairman of the meeting, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 2.14 Inspectors of Election. In advance of any meeting of the stockholders, the Board of Directors, by resolution, the Chairman or the president shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector or inspectors may (i) ascertain the number of shares outstanding and the voting power of each; (ii) determine the number of shares represented at a meeting and the validity of proxies or ballots; (iii) count all votes and ballots; (iv) determine any challenges made to any determination made by the inspector(s); and (v) certify the determination of the number of shares represented at the meeting and the count of all votes and ballots.
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Section 2.15 Nature of Business at Meetings of Stockholders. Only such business (other than nominations for election to the Board of Directors and the election of directors, which must comply with the provisions of Section 2.16) may be transacted at an Annual Meeting of Stockholders as is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.15 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 2.15.
In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred and twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information: (a) as to each matter such stockholder proposes to bring before the Annual Meeting, a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, and (b) as to the stockholder giving notice and the beneficial owner, if any, on whose behalf the proposal is being made, (i) the name and address of such person, (ii) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of all stock of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of such shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; (iii) a description of all agreements, arrangements, or understandings (whether written or oral) between or among such person, or any affiliates or associates of such person, and any other person or persons (including their names) in connection with the proposal of such business and any material interest of such person or any affiliates or associates of such person, in such business, including any anticipated benefit therefrom to such person, or any affiliates or associates of such person, (iv) a representation that the stockholder giving notice intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting; and (v) any other information relating to such person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies by such person with respect to the proposed business to be brought by such person before the Annual Meeting pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder.
A stockholder providing notice of business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.15 shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to receive notice of the Annual Meeting.
No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 2.15; provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 2.15 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
Nothing contained in this Section 2.15 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor provision of law).
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Section 2.16 Nomination of Directors. Only natural persons of at least 18 years of age who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Articles of Incorporation with respect to the right of holders of preferred stock, if any, of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.16 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting or Special Meeting and (ii) who complies with the notice procedures set forth in this Section 2.16.
In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than ninety (90) days nor more than one-hundred and twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (b) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting or a Special Meeting called for the purpose of electing directors, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of such person and that such person is a natural person of at least 18 years of age, (ii) the principal occupation or employment of such person, (iii) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of all stock of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of such shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, and the beneficial owner, if any, on whose behalf the nomination is being made, (i) the name and record address of the stockholder giving the notice and the name and principal place of business of such beneficial owner; (ii) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; (iii) a description of all agreements, arrangements, or understandings (whether written or oral) between such person, or any affiliates or associates of such person, and any proposed nominee or any other person or persons (including their names) pursuant to which the nomination(s) are being made by such person, and any material interest of such person, or any affiliates or associates of such person, in such nomination, including any anticipated benefit therefrom to such person, or any affiliates or associates of such person; (iv) a representation that the stockholder giving notice intends to appear in person or by proxy at the Annual Meeting or Special Meeting to nominate the persons named in its notice; and (v) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
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A stockholder providing notice of any nomination proposed to be made at an Annual Meeting or Special Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.16 shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting or Special Meeting, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to receive notice of such Annual Meeting or Special Meeting.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.16. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
Section 2.17 Meetings Through Electronic Communications. Stockholders may participate in a meeting of the stockholders by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other) and utilized by the Corporation. If any such means are utilized, the Corporation shall, to the extent required under the NRS, implement reasonable measures to (a) verify the identity of each person participating through such means as a stockholder and (b) provide the stockholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to communicate, and to read or hear the proceedings of the meeting in a substantially concurrent manner with such proceedings. Participation in a meeting pursuant to this Section 2.17 constitutes presence in person at the meeting.
ARTICLE III
DIRECTORS
Section 3.1 Number, Election and Term of Directors. The Board of Directors shall consist of not less than one nor more than nine members, the exact number of which shall be fixed from time to time by the Board of Directors. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director. Except as provided in Section 3.2, directors shall be elected by a plurality of the votes cast at each Annual Meeting of Stockholders and each director so elected shall hold office until the next Annual Meeting of Stockholders, or until such director’s earlier death, resignation or removal. Despite the expiration of a director’s term, the director shall continue to serve until his or her successor is elected and qualified. Directors must be natural persons of at least 18 years of age but need not be stockholders of the Corporation or residents of the State of Nevada.
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Section 3.2 Vacancies. Unless otherwise required in the Articles of Incorporation, vacancies on the Board of Directors or any committee thereof arising through death, resignation, removal, an increase in the number of directors constituting the Board of Directors or such committee or otherwise may be filled only by a majority of the remaining directors then in office, though less than a quorum, or by a sole remaining director. The directors so chosen shall, in the case of the Board of Directors, hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier death, resignation or removal and, in the case of any committee of the Board of Directors, shall hold office until their successors are duly appointed by the Board of Directors or until their earlier death, resignation or removal.
Section 3.3 Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws required to be exercised or done by the stockholders.
Section 3.4 Meetings. The Board of Directors and any committee thereof may hold meetings, both regular and special, either within or without the State of Nevada. Regular meetings of the Board of Directors or any committee thereof may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors or such committee, respectively. Special meetings of the Board of Directors may be called by the Chairman, if any, or the president. Special meetings of any committee of the Board of Directors may be called by the chairman of such committee, if any, the president, or any director serving on such committee. Notice thereof stating the place, date and hour of the meeting shall be given to each director (or, in the case of a committee, to each member of such committee) either by mail not less than seventy-two (72) hours before the date of the meeting, by telephone or electronic mail on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 3.5 Organization. At each meeting of the Board of Directors or any committee thereof, the Chairman of the Board of Directors or the chairman of such committee, as the case may be, or, in his or her absence or if there be none, a director chosen by a majority of the directors present, shall act as chairman. Except as provided below, the Secretary of the Corporation shall act as secretary at each meeting of the Board of Directors and of each committee thereof. In case the Secretary shall be absent from any meeting of the Board of Directors or of any committee thereof, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting. Notwithstanding the foregoing, the members of each committee of the Board of Directors may appoint any person to act as secretary of any meeting of such committee and the Secretary or any Assistant Secretary of the Corporation may, but need not if such committee so elects, serve in such capacity.
Section 3.6 Resignations and Removals of Directors. Any director of the Corporation may resign from the Board of Directors or any committee thereof at any time, by giving notice in writing to the Chairman of the Board of Directors, if any, the president or the secretary of the Corporation and, in the case of a committee, to the chairman of such committee, if any. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by applicable law and subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire Board of Directors may be removed from office at any time, with or without cause, and only by the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors, voting together as a single class. Any director serving on a committee of the Board of Directors may be removed from such committee at any time by the Board of Directors.
Section 3.7 Quorum and Voting.
(a) Except as otherwise required or permitted by the Articles of Incorporation, the NRS or the rules and regulations of any securities exchange or quotation system on which the Corporation’s securities are listed or quoted for trading, at all meetings of the Board of Directors or any committee thereof, a majority of the entire Board of Directors or a majority of the directors constituting such committee, as the case may be, shall constitute a quorum for the transaction of business and the act of a majority of the directors or committee members present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as applicable. If a quorum shall not be present at any meeting of the Board of Directors or any committee thereof, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.
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(b) Each director shall have one vote for any action required or permitted to be taken at any meeting of the Board or any committee thereof or without a meeting as provided herein. In accordance with NRS 78.330, all directors and classes of directors shall have the same voting rights.
Section 3.8 Actions of the Board by Written Consent. Unless otherwise provided in the Articles of Incorporation or these By-Laws, 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 the members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee.
Section 3.9 Meetings by Means of Conference Telephone. Unless otherwise provided in the Articles of Incorporation or these By-Laws, members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a 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 pursuant to this Section 3.9 shall constitute presence in person at such meeting.
Section 3.10 Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Each member of a committee must meet the requirements for membership, if any, imposed by applicable law and the rules and regulations of any securities exchange or quotation system on which the securities of the Corporation are listed or quoted for trading. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. Subject to the rules and regulations of any securities exchange or quotation system on which the securities of the Corporation are listed or quoted for trading, in the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, 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. Each committee shall keep regular minutes and report to the Board of Directors when required. Notwithstanding anything to the contrary contained in this Article III, the resolution of the Board of Directors establishing any committee of the Board of Directors and/or the charter of any such committee may establish requirements or procedures relating to the governance and/or operation of such committee that are different from, or in addition to, those set forth in these By-Laws and, to the extent that there is any inconsistency between these By-Laws and any such resolution or charter, the terms of such resolution or charter shall be controlling; provided that it complies with the NRS.
Section 3.11 Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for service as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service as committee members.
Section 3.12 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director’s or officer’s vote is counted for such purpose if: (i) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders holding a majority of the voting power (the votes of the common or interested directors may be counted); and (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction as set forth herein.
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ARTICLE IV
OFFICERS
Section 4.1 General. The officers of the Corporation shall consist of a chief executive officer, president, chief operating officer, chief financial officer and a secretary, each of whom shall be elected by the Board. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board. All officers must be natural persons and any natural person may hold two or more offices, except that in the event that the Corporation shall have more than one director, the offices of president and secretary shall be held by different persons.
Section 4.2 Election, Qualification and Term of Office. Each of the officers shall be elected by the Board. None of said officers need be a director. Except as hereinafter provided or subject to the express provisions of a contract authorized by the Board of Directors, each of said officers shall hold office from the date of his/her election until the next annual meeting of the Board and until his/her successor shall have been duly elected and qualified or until his or her removal or resignation.
Section 4.3 Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the president or any vice president or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
Section 4.4 Removal. The Board of Directors shall have the right to remove, with or without cause, any officer of the Corporation.
Section 4.5 Resignation. Any officer may resign at any time by giving notice to the Board, the president or the secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.6 Vacancies. The Board of Directors shall fill any office which becomes vacant with a successor who shall hold office for the unexpired term and until his/her successor shall have been duly elected and qualified or until his or her removal or resignation.
Section 4.7 Powers and Duties. The powers and duties of the respective corporate officers shall be determined by the Board.
Section 4.8 Salaries. The salaries of all executive officers of the Corporation shall be fixed by the Board of Directors or by such committee of the Board of Directors as may be designated from time to time by a resolution adopted by a majority of the Board of Directors.
Section 4.9 Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 5.1 Shares of Stock. The shares of capital stock of the Corporation shall be represented by a certificate, unless and until the Board of Directors adopts a resolution permitting shares to be uncertificated. Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of capital stock of the Corporation theretofore represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate for shares of capital stock of the Corporation signed by, or in the name of the Corporation by, (a) the Chairman, the chief executive officer or the president, and (b) the chief financial officer or the secretary, certifying the number of shares owned by such stockholder in the Corporation.
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Section 5.2 Signatures. Any or all of the signatures on a certificate may be a facsimile. 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 by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
Section 5.3 Lost Certificates. Unless otherwise provided in the Articles of Incorporation or these By-laws, the Board of Directors may direct a new certificate or uncertificated shares be issued in place of any certificate 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. When authorizing such issuance of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner’s legal representative, to identify the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate or uncertificated shares.
Section 5.4 Transfers. Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of stock shall be made only on the books of the Corporation, and in the case of certificated shares of stock, only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer taxes; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such person’s attorney lawfully constituted in writing, and upon payment of all necessary transfer taxes and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. With respect to certificated shares of stock, every certificate exchanged, returned or surrendered to the Corporation shall be marked “Cancelled,” with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
Section 5.5 Regulations. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with these By-Laws, concerning the issue, transfer and registration of certificates for shares or uncertificated shares of the stock of the Corporation.
Section 5.6 Dividend Record Date. Subject to compliance with NRS 78.288 and 78.300, and the Articles of Incorporation, 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 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.
Section 5.7 Record Owners. 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 to hold liable for calls and assessments a person registered on its books as the owner of shares, 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 required by law.
Section 5.8 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.
Section 5.9 Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the Corporation including, without limitation, cash, services performed or other securities of the Corporation. When the Corporation receives the consideration for which the Board of Directors authorized the issuance of shares, such shares shall be fully paid and non-assessable (if non-assessable stock) and the stockholders shall not be liable to the Corporation or to its creditors in respect thereof.
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ARTICLE VI
NOTICES
Section 6.1 Notices. Whenever written notice is required by the NRS, the Articles of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail in accordance with the NRS, and as permitted thereby, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by electronic transmission (by fax, electronic mail, or posting on electronic network).
Section 6.2 Waivers of Notice. Whenever any notice is required by applicable law, the Articles of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, or by transmission of an electronic record by that person, whether before or after the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person 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. Neither the business to be transacted at, nor the purpose of, any Annual or Special Meeting of Stockholders or any regular or special meeting of the directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Articles of Incorporation or these By-Laws.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the NRS and the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 3.8 hereof), and may be paid in cash or in property other than shares. 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 its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
Section 7.2 Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 7.3 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 7.4 Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Nevada”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 8.3 and to the fullest extent permitted by the NRS, the Corporation shall indemnify 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 (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.
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Section 8.2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 8.3 and to the fullest extent permitted by the NRS, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court in which such action or suit was brought deem proper.
Section 8.3 Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as permitted by the NRS and authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 8.1 or Section 8.2, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
Section 8.4 Good Faith Defined. For purposes of any determination under Section 8.3, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 8.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 8.1 or Section 8.2, as the case may be.
Section 8.5 Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 8.3, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Nevada for indemnification to the extent otherwise permissible under Section 8.1 or Section 8.2. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 8.1 or Section 8.2, as the case may be. Neither a contrary determination in the specific case under Section 8.3 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 8.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
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Section 8.6 Expenses Payable in Advance. Expenses (including attorneys’ fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.
Section 8.7 Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 8.1 and Section 8.2 shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 8.1 or Section 8.2 but whom the Corporation has the power or obligation to indemnify under the provisions of the NRS, or otherwise.
Section 8.8 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.
Section 8.9 Certain Definitions. For purposes of this Article VIII, references to “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 or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation 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 Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
The term “another enterprise” as used in this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article VIII, 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 or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person 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 Article VIII.
Section 8.10 Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 8.11 Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 8.5), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors.
Section 8.12 Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Acquisition of Controlling Interest Statute Opt–Out. The provisions of NRS 78.378 to 78.3793, inclusive, shall not apply to the Corporation or to an acquisition of a “controlling interest” (as defined in NRS 78.3785).
Section 9.2 Forum for Adjudication of Disputes. To the fullest extent permitted by law, and unless the Corporation consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, shall, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following: (a) any derivative action or proceeding brought in the name or right of the Corporation or on its behalf, (b) any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92A or any provision of the Articles of Incorporation or these By-laws or (d) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the Articles of Incorporation or these By-laws. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this Section 9.2. Actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, shall not be governed by this provision.
ARTICLE X
AMENDMENTS
Section 10.1 Amendments. These By-Laws may be altered, amended or repealed at any meeting of the Board of Directors, provided notice of the proposed change was given in the notice of the meeting not less than two days prior to the meeting. Notwithstanding the foregoing sentence, these By-laws may be amended or repealed in any respect, and new by-laws may be adopted, in each case by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding voting power of the Corporation, voting together as a single class.
Section 10.2 Entire Board of Directors. As used in this Article X and in these By-Laws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.
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CERTIFICATION
The undersigned, as the duly elected Secretary of Ameriguard Security Services, Inc., a Nevada corporation (the “Corporation”), does hereby certify that the Board of Directors of the Corporation adopted the foregoing Amended and Restated By-laws as of November __, 2022.
AMERIGUARD SECURITY SERVICES, INC.
| /s/ Lawrence Garcia | ||
| By: | Lawrence, CEO, Secretary and Director | |
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Exhibit 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
AMERIGUARD SECURITY SERVICES, INC.
LAWRENCE GARCIA certifies that:
1. He is the Chief Executive Officer and Secretary of AMERIGUARD SECURITY SERVICES, INC., a California corporation, with California Entity Number 2483781.
2. Hereinafter, the Articles of Incorporation of AMERIGUARD SECURITY SERVICES, INC. are amended and restated in their entirety as follows:
I. NAME
The name of the corporation is AMERIGUARD SECURITY SERVICES, INC.
II. PURPOSE
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code.
III. STOCK
The corporation is authorized to issue only one (1) class of shares, which shall be designated “common shares,” having a total number of One Thousand (1,000) shares.
IV. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
V. LIMITATION ON DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
VI. INDEMNIFICATION OF AGENTS
This corporation is authorized to provide indemnification of agents (as defined in §317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by §317 of the California Corporations Code, subject only to the applicable limits set forth in §204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders.
VII. GRANT OF PREEMPTIVE RIGHTS
Each common shareholder of the corporation shall be entitled to full preemptive or preferential rights, as such rights are defined by law, to subscribe for or purchase the shareholder’s proportional part of any shares or securities which may be issued at any time or from time to time by the corporation.
3. The above Amended and Restated Articles of Incorporation have been approved by the Board of Directors of the corporation in accordance with §907 of the Corporations Code.
4. The above Amended and Restated Articles of Incorporation were approved by the required vote of the shareholders of the corporation in accordance with §902 of the Corporations Code; the total number of outstanding shares of each class entitled to vote with respect to the amendment and restatement was 550 common shares; and the number of shares voting in favor of the amendment and restatement equaled or exceeded the vote required, such vote being a majority of the outstanding shares of common stock. There are no shares of preferred stock outstanding.
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The undersigned declares under penalty of perjury under the laws of the state of California that the matters set forth in this Certificate are true and correct of their own knowledge.
| /s/ Lawrence Garcia | ||
| DATED: _________________, 2022 | LAWRENCE GARCIA, | |
| Chief Executive Officer and Secretary |
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Exhibit 3.4
AMENDED AND RESTATED
BYLAWS
OF
AMERIGUARD SECURITY SERVICES, INC.
ARTICLE 1: OFFICES
1. Principal Office. The location of the corporation’s principal executive office shall be as designated at the end of this paragraph. The board of directors may change the location of the principal executive office to any place within or outside of California. If the principal executive office is located outside of California and the corporation has one or more business offices in California, the board of directors shall fix and designate a principal business office in California.
The principal executive office is located at:
5470 W. Spruce #102
Fresno, CA 93722
2. Other Offices. Branch or subordinate offices may be established at any time and at any place by the board of directors.
ARTICLE 2: SHAREHOLDERS
1. Place of Meetings. Meetings of shareholders shall be held at any place within or outside of California designated by the board of directors and stated in the notice of the meeting. If no place is so specified, shareholders’ meetings shall be held at the corporation’s principal executive office.
2. Annual Meeting. The annual meeting of shareholders will be held on the first business day (not a Federal or State holiday or a weekend day) of each year, at such time as the Chairman of the Board shall designate, on said day to elect directors to hold office for the year next ensuring and until their successors shall be elected, and to consider and act upon such other matters as may lawfully be presented to such meeting; provided, however, that should said day fall upon a legal holiday or weekend, then any such annual meeting of shareholders shall be held at such designated time and place on the next day thereafter ensuing which is not a legal holiday or weekend.
3. Special Meetings; How Called. A special meeting of the shareholders may be called at any time by any of the following: The board of directors, the chairman of the board, the president, any vice president, or one (1) or more shareholders holding shares that in the aggregate are entitled to cast no less than ten percent (10%) of the votes at that meeting. For special meetings called by anyone other than the board of directors, the person or persons calling the meeting shall make a request in writing to the chairman of the board, the president, vice president, or secretary, specifying a time and date for the proposed meeting (which is not less than thirty-five (35) nor more than sixty (60) days after receipt of the request) and the general nature of the business to be transacted. Within twenty (20) days after receipt, the officer receiving the request shall cause notice to be given to the shareholders entitled to vote at the meeting. The notice shall state that a meeting will be held at the time requested by the person(s) calling the meeting, and shall state the general nature of the business proposed to be transacted. If notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this paragraph shall limit, fix, or affect the time or notice requirements for shareholder meetings called by the board of directors.
4. Notice of Meetings; Time and Contents. Notice of meetings of shareholders shall be sent or otherwise given not less than ten (10) nor more than sixty (60) days before the meeting date. The notice shall specify the place, date, and hour of the meeting. It shall also state (a) for special meetings, the general nature of the proposed business, or (b) for annual meetings, those matters which the board of directors at the time of giving the notice intends to present for action by the shareholders. If directors are to be elected, the notice shall include the names of all nominees and persons whom the board intends to present for election, as of the date of the notice. The notice shall also state the general nature of any proposed action at the meeting to approve:
| (a) | A transaction in which a director has a financial interest, within the meaning of Section 310 of the California Corporations Code; |
| (b) | An amendment of the Articles of Incorporation under Section 902 of that Code; |
| (c) | A reorganization under Section 1201 of that Code; |
| (d) | A voluntary dissolution of the corporation under Section 1900 of that Code; or |
| (e) | A distribution in dissolution that requires approval of the outstanding shares under Section 2007 of that Code. |
The manner of giving notice and the determination of shareholders entitled to receive notice shall be in accordance with these bylaws.
5. Manner of Giving Notice; Affidavit of Notice. Notice of any shareholders’ meeting shall be given either (a) personally, or (b) by first-class mail or by telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address appearing on the corporation’s books or supplied by the shareholder for purposes of notice. If the corporation has no such address for a shareholder, notice shall be either (a) sent by first- class mail addressed to the shareholder at the corporation’s principal executive office, or (b) published at least once in a newspaper of general circulation in the county where the corporation’s principal executive office is located. Notice is deemed to have been given at the time it was delivered personally, deposited in the mail, or sent by other means of written communication.
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If any notice or report mailed to a shareholder at the shareholder’s address (as specified in the preceding paragraph) is returned marked “unable to deliver” at that address, subsequent notices or reports shall be deemed to have been duly given without further mailing if the corporation holds the document available for the shareholder on written demand at its principal executive office for one year from the date on which the notice or report was sent to the other shareholders.
An affidavit, certificate, or declaration of mailing (or other authorized means of delivery) of any notice of shareholders’ meeting, report, or other document sent to shareholders shall be executed by the corporate secretary, assistant secretary, or transfer agent, and filed in the corporation’s minute book.
6. Adjourned Meetings; Notice. Shareholders’ meetings (either annual or special) may be adjourned from time to time by a vote of the majority of the shareholders represented at that meeting in person or by proxy, whether or not a quorum is present; however, in the absence of a quorum, no other business may be transacted, except as specifically authorized in these bylaws.
If a meeting is adjourned to another time or place, new notice is not required if the new time and place were announced at the original meeting, unless (a) the board sets a new record date for this purpose, or (b) the adjournment is for more than forty-five (45) days from the original meeting date, in which case the board must set a new record date. If a new record date is set, new notice shall be given to the shareholders of record as of that date, in the same manner as other notices of meetings. At an adjourned meeting, the corporation may transact any business that would be proper at the original meeting.
7. Waiver of Notice or Consent by Absentees. The transactions of any shareholders’ meeting, either annual or special, however called and noticed and wherever held, shall be as valid as though they were had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if each person entitled to vote but not present at the meeting signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes. Shareholders’ signatures may be obtained either before or after the meeting. The waiver of notice or consent need not specify either the intended business or the purpose of the meeting, except that if action is taken or proposed to be taken regarding any of the matters specified in Section 601(f) of the California Corporations Code (and listed above in the paragraph on contents of notices of shareholder meetings), the general nature of the action or proposed action must be stated in the waiver of notice or consent. All written waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Notice is also waived by a shareholder’s attendance at the meeting, unless the shareholder at the beginning of the meeting objects to the transaction of any business on the ground that the meeting was not lawfully called or convened. Attendance and failure to object to the validity of the meeting, however, does not constitute a waiver of any right to object expressly, at a meeting, to consideration of matters required by law to be included in the notice of the meeting which were not so included.
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8. Action by Written Consent Without A Meeting. Any action that could be taken at an annual or special meeting of shareholders, except for the election of directors (see following paragraph), may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having at least the minimum number of votes necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voting.
Directors may be elected without a meeting only by the unanimous written consent of all shares entitled to vote for the election of directors, except that vacancies the board is entitled to fill (vacancies other than those caused by removal of a director) may be filled by the written consent of a majority of the outstanding shares entitled to vote.
All written consents shall be filed with the secretary of the corporation and maintained in the corporate records. Anyone who has given a written consent may revoke it by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
Unless the consents of all shareholders entitled to vote have been solicited in writing, the secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous consent, to those shareholders entitled to vote who have not consented in writing. As to approvals required by California Corporations Code Section 310 (transactions in which a director has a financial interest), Section 317 (indemnification of corporate agents), Section 1201 (corporate reorganization), or Section 2007 (certain distributions on dissolution), notice of the approval shall be given at least ten days before the consummation of any action authorized by the approval. Notice shall be given in the manner specified in these bylaws for notice of shareholders’ meetings.
9. Record Date for Shareholder Notice and Voting.
(a) For purposes of determining the shareholders entitled to receive notice of and vote at a shareholders’ meeting or give written consent to corporate action without a meeting, the board may fix in advance a record date that is not more than sixty (60) days nor less than ten (10) days before the date of any such meeting, or not more than sixty (60) days before any such action without a meeting.
(b) If no record date has been fixed:
(i) The record date for determining shareholders entitled to receive notice of and vote at a shareholders’ meeting shall be the business day next preceding the day on which notice is given, or if notice is waived as provided in these bylaws, the business day next preceding the day on which the meeting is held;
(ii) The record date for determining shareholders entitled to give written consent to corporate action without a meeting shall be the day on which the action to be approved was taken by the board, or, if the board has not yet acted, the day on which the first written consent is given; and
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(iii) The record date for any other purpose shall be as set forth in the section of these bylaws regarding record date for purposes other than notice and voting.
(c) A determination of shareholders of record entitled to receive notice of and vote at a shareholders’ meeting shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. However, the board shall fix a new record date if the adjournment is to a date more than forty-five (45) days after the date set for the original meeting.
(d) Except as otherwise required by law, only shareholders of record on the corporation’s books at the close of business on the record date shall be entitled to any of the notice and voting rights listed in subsection (a) of this section, notwithstanding any transfer of shares on the corporation’s books after the record date.
10. Quorum. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum was initially present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum; however, any action taken (other than adjournment) must be approved by at least a majority of the shares required to constitute a quorum.
11. Voting. The corporation shall determine the shareholders entitled to vote at any shareholders’ meeting in accordance with bylaw provisions for record date, subject to Sections 702 through 704 of the California Corporations Code (concerning the voting of shares held by a fiduciary, a corporation, or joint owners). Except as otherwise provided by law or as otherwise provided in the Articles of Incorporation, each outstanding share shall be entitled to one vote on each matter submitted to a vote of the shareholders.
The shareholders may vote by voice vote or by ballot, except that if any shareholder so demands before the voting begins, any election for directors must be by ballot. On any matter other than the election of directors, a shareholder may vote part of his or her shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal. If a shareholder does not specify the number of shares being voted, it will be conclusively presumed that the shareholder’s vote covers all shares which that shareholder is entitled to vote.
If a quorum is present (or if a quorum had been present earlier at the meeting but some shareholders have withdrawn), the affirmative vote of a majority of the shares represented and voting, provided such affirmative vote also constitutes a majority of the number of shares required for a quorum, shall be the act of the shareholders unless the vote of a greater number or voting by classes is required by statute or by the Articles of Incorporation.
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12. Cumulative Voting. Cumulative voting for the election of directors is permitted if one or more shareholders present at the meeting give notice, before the voting begins, of their intention to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which that shareholder would normally be entitled to cast). If any shareholder has given such notice, and if the candidates’ names have been placed in nomination, then all shareholders entitled to vote may cumulate their votes, giving any nominated candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are normally entitled, or distributing the cumulative number of votes among any or all of the candidates. The elected directors shall be those candidates (up to the number of directorships open for election) receiving the most votes.
13. Proxies. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder’s attorney in fact.
A validly executed proxy that does not state that it is irrevocable shall continue in full force and effect unless (a) it is revoked by the person who executed the proxy, either by a writing delivered to the corporation before the proxy has been voted, or by attendance at the meeting; or (b) the corporation receives written notice of the shareholder’s death or incapacity before the vote pursuant to that proxy has been counted; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of the proxy unless the proxy itself provides otherwise.
Proxies stating on their face that they are irrevocable shall be governed by Sections 705(e) and 705(f) of the California Corporations Code.
14. Voting Trusts. If any shareholders file a voting trust agreement with the corporation, the corporation shall take notice of its terms and trustee limitations.
15. Election Inspectors. Before any shareholders’ meeting, the board of directors may appoint any persons other than nominees for office to act as election inspectors. If no election inspectors have been so appointed, the chairman of the meeting may, and on the request of any shareholder or shareholder’s proxy shall, appoint election inspectors at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at the meeting on the request of one or more shareholders or their proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and on the request of any shareholder or shareholder’s proxy shall, appoint a person to fill that vacancy. These inspectors shall (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots, or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.
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ARTICLE 3: DIRECTORS
1. Powers. Subject to the provisions of the California General Corporation Law and any limitations in the Articles of Incorporation and these bylaws relating to actions requiring approval by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
Without prejudice to these general powers, and subject to the same limitations, the board of directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the Articles of Incorporation, and with these bylaws; fix their compensation; and require from them security for faithful service;
(b) Change the principal executive office or the principal business office in the State of California from one location to another; qualify the corporation to do business in any other state, territory, dependency, or country; conduct business within or outside the State of California; and designate any place within or outside the State of California for the holding of any shareholders’ meeting;
(c) Adopt, make and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates;
(d) Authorize the issuance of shares of corporate stock on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities canceled, or tangible or intangible property actually received; and
(e) Borrow money and incur indebtedness on behalf of the corporation, and cause to be executed and delivered for the corporation’s purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities.
2. Number of Directors. The authorized number of directors shall be as set forth below. This number can be changed by an amendment to the Articles of Incorporation or an amendment to this bylaw adopted by the vote or written consent of a majority of the outstanding shares entitled to vote. However, if the number of directors is five (5) or more, an amendment that would reduce the number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting to an action by written consent are equal to more than one sixth (16 2/3 percent) of the outstanding shares entitled to vote.
Number of Directors: 4
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3. Election and Term of Directors. Directors shall be elected at each annual shareholders’ meeting, to hold office until the next annual meeting. Election of directors by written consent without a meeting requires the unanimous written consent of the outstanding shares entitled to vote. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
No reduction of the authorized number of directors shall have the effect of removing any director before his or her term of office expires.
4. Vacancies. A vacancy in the board of directors shall be deemed to exist (a) if a director dies, resigns, or is removed by the shareholders or an appropriate court, as provided in Section 303 or Section 304 of the California Corporations Code; (b) if the board of directors declares vacant the office of a director who has been convicted of a felony or declared of unsound mind by an order of court; (c) if the authorized number of directors is increased; or (d) if at a shareholders’ meeting the shareholders fail to elect the full authorized number of directors. Vacancies (except for those caused by a director’s removal) may be filled by approval of the board, or, if the number of directors then in office is less than a quorum, by (1) the unanimous written consent of the directors then in office, (2) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice complying with section 307 of the Corporations Code, or (3) a sole remaining director.
Vacancies on the board caused by the removal of a director (except for vacancies created when the board declares the office of a director vacant as provided in clause (b) of the first paragraph of this section) may be filled only by the shareholders, either by majority vote of the shares represented and voting at a meeting at which a quorum is present, or by the unanimous written consent of all shares entitled to vote.
Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the board of directors, unless the notice specifies a later effective date. If the resignation is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
The shareholders may elect a director at any time to fill a vacancy not filled by the board of directors.
The term of office of a director elected to fill a vacancy shall run until the next annual shareholders’ meeting, and the director shall hold office until a successor is elected and qualified.
5. Place of Meetings. Regular meetings of the board of directors may be held at any place within or outside the State of California as designated from time to time by the board. In the absence of a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California designated in the notice of the meeting, or if the notice does not state a place, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, provided that all directors participating can hear one another.
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6. Annual Directors’ Meeting. Immediately after each annual shareholders’ meeting, the board of directors shall hold a regular meeting at the same place or at any other place designated by the board, to elect officers and transact other necessary business as desired. Notice of this meeting shall not be required unless some place other than the place of the annual shareholders’ meeting has been designated.
7. Other Regular Meetings. Other regular meetings of the board of directors shall be held without call at times to be fixed by the board of directors from time to time. Such regular meetings may be held without notice.
8. Special Meetings. Special meetings of the board of directors may be called for any purpose or purposes at any time by the chairman of the board, the president, any vice president, the secretary, or any two directors.
Special meetings shall be held on four (4) days’ notice by mail or forty-eight (48) hours’ notice delivered personally or by telephone or telegraph. Oral notice given personally or by telephone may be transmitted either to the director or to a person at the director’s office who can reasonably be expected to communicate it promptly to the director. Written notice, if used, shall be addressed to each director at his or her address shown on the corporate records. The notice need not specify the purpose of the meeting, nor need it specify the place if the meeting is to be held at the principal executive office of the corporation.
9. Waiver of Notice. Notice of a meeting, if otherwise required, need not be given to any director who (a) either before or after the meeting signs a waiver of notice or a consent to holding the meeting without being given notice, (b) signs an approval of the minutes of the meeting, or (c) attends the meeting without protesting the lack of notice before or at the beginning of the meeting. Waivers of notice or consents need not specify the purpose of the meeting. All such waivers, consents, and approvals of the minutes, if written, shall be filed with the corporate records or made a part of the minutes of the meeting.
10. Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except for adjournment.
Except as otherwise required by California Corporations Code Section 310 (approval of contracts or transactions in which a director has a material financial interest), Section 311 (appointment of committees), and Section 317(e) (indemnification of directors), every act done or decision made by a majority of the directors present at a meeting duly held at which a quorum is present shall be deemed the act of the board of directors, unless a different requirement is imposed by the Articles of Incorporation.
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A meeting at which a quorum was initially present may continue to transact business despite the withdrawal of directors, if the action taken is approved by at least a majority of the quorum required for that meeting.
11. Adjournment to Another Time or Place. Whether or not a quorum is present, a majority of the directors present may adjourn any meeting to another time and place.
12. Notice of Adjourned Meeting. Notice of the time and place of resuming an adjourned meeting need not be given if the adjournment is for twenty-four (24) hours or less. If the adjournment is for more than twenty-four (24) hours, notice of the new time and place shall be given, before the time set for resuming the meeting, to any directors who were not present at the time of adjournment, but need not be given to directors who were present at the time of adjournment.
13. Action Without A Meeting by Written Consent. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board individually or collectively consent in writing to that action. Any action by written consent shall have the same effect as a unanimous vote of the board of directors. All such written consents shall be filed with the minutes of the proceedings of the board of directors.
14. Compensation of Directors. Directors and members of committees of the board may be compensated for their services, and shall be reimbursed for expenses, as fixed or determined by resolution of the board of directors. This section shall not preclude any director from serving the corporation as an officer, agent, employee, or in any other capacity, and receiving compensation for those services.
15. Reimbursement of Nondeductible Compensation. If all or part of the compensation, including expenses, paid by the corporation to a director, officer, employee, or agent is finally determined not to be allowable to the corporation as a federal or state income tax deduction, the director, officer, employee, or agent to whom the payment was made shall repay to the corporation the amount disallowed. The board of directors shall enforce repayment of each such amount disallowed by the taxing authorities.
ARTICLE 4: COMMITTEES
1. Executive and Other Committees of the Board. The board of directors, by resolution adopted by a majority of the authorized number of directors, may create one or more committees with the authority of the board (“board committees” or “committees of the board”), including an executive committee. Each board committee shall consist of two or more directors, and may have one or more alternate members, also directors. Appointment of members and alternate members requires the affirmative vote of a majority of the authorized number of directors. Committees of the board, to the extent provided in the board resolution establishing the committee, may be granted any or all of the powers and authority of the board except for the following:
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| (a) | Approving any action for which the California Corporations Code also requires the approval of the shareholders or of the outstanding shares; |
| (b) | Filling vacancies on the board of directors or any committee of the board; |
| (c) | Fixing directors’ compensation for serving on the board or a committee of the board; |
| (d) | Adopting, amending, or repealing bylaws; |
| (e) | Amending or repealing any resolution of the board of directors which by its express terms is not so amendable or repealable; |
| (f) | Making distributions to shareholders, except at a rate or in a periodic amount or within a price range determined by the board of directors; or |
| (g) | Appointing other committees of the board or their members. |
2. Meetings and Actions of Board Committees. Meetings and actions of committees of the board shall be governed by the bylaw provisions applicable to meetings and actions of the board of directors as to place of meetings, regular meetings, special meetings, waiver of notice, quorum, adjournment, notice of adjournment, and action by written consent without a meeting, with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that (a) the time of regular committee meetings may be determined either by resolution of the board of directors or by resolution of the committee; (b) special committee meetings may also be called by resolution of the board of directors; (c) notice of special committee meetings shall also be given to all alternate members; and (d) alternate members shall have the right to attend all meetings of the committee. The board may adopt rules, not inconsistent with the bylaws, for the governance of committees of the board.
3. Non-Board Committees. One or more committees without the power and authority of the board (“non-board” committees) may be created by board resolution, for investigative and other appropriate purposes. Membership on non-board committees is not limited to directors. To bind the corporation, actions of non-board committees must be ratified by the board of directors.
ARTICLE 5: OFFICERS
1. Officers; Election. The corporation shall have a chief executive officer, a secretary, and a chief financial officer and such other offices as may be elected or appointed by the Board. Any number of offices may be held by the same person. The officers of the corporation (except for subordinate officers appointed in accordance with the provisions below) shall be elected annually by the board of directors. All officers shall serve at the pleasure of the board.
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2. Chief Executive Officer. Except to the extent that the bylaws or the board of directors assign specific powers and duties to the chairman of the board, the president shall serve as general manager and chief executive officer of the corporation and shall have general supervision, direction, and control over the corporation’s business and its officers, with all the general powers and duties of management usually vested in a corporation’s chief executive officer.
The president shall preside at all shareholders’ meetings, and shall exercise and perform such other powers and duties as prescribed by the bylaws or by the board of directors. The president shall also preside at board meetings if there is no chairman of the board or if the chairman is absent.
3. Secretary. The secretary shall have the following duties:
(a) Minutes. The secretary shall be present at and take the minutes of all meetings of the shareholders, the board of directors, and committees of the board. If the secretary is unable to be present, the secretary or the presiding officer of the meeting shall designate another person to take the minutes of the meeting. The secretary shall keep, or cause to be kept, at the principal executive office or such other place as designated by the board of directors, a book of minutes of all meetings and actions of the shareholders, the board of directors, and committees of the board. The minutes of each meeting shall state the following: The time and place of the meeting; whether it was regular or special; if special, how it was called or authorized; the notice given or waivers or consents obtained; the names of directors present at board or committee meetings; the number of shares present or represented at shareholders’ meetings, and an accurate account of the proceedings.
(b) Record of Shareholders. The secretary shall keep or cause to be kept, at the principal executive office or at the office of the transfer agent or registrar, a record or duplicate record of shareholders. This record shall show the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of share certificates issued to each shareholder, and the number and date of cancellation of any certificates surrendered for cancellation.
(c) Notice of Meetings. The secretary shall give notice, or cause notice to be given, of all shareholders’ meetings, board meetings, and committee meetings for which notice is required by statute or by the bylaws. If the secretary or other person authorized by the secretary to give notice fails to act, notice of any meeting may be given by any other officer of the corporation. The secretary shall maintain records of the mailing or other delivery of notices and documents to shareholders or directors, as prescribed by the bylaws or by the board of directors.
(d) Other Duties. The secretary shall keep the seal of the corporation, if any, in safe custody. The secretary shall have such other powers and perform such other duties as prescribed by the bylaws or by the board of directors.
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4. Chief Financial Officer. The chief financial officer, who may also be referred to as the treasurer, shall keep or cause to be kept adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall (1) deposit corporate funds and other valuables in the corporation’s name and to its credit with depositories designated by the board; (2) disburse corporate funds as authorized by the board; (3) whenever requested by the board or the chief executive officer, render a statement of the corporation’s financial condition and an account of all transactions he or she has conducted as chief financial officer; and (4) exercise such other powers and perform such other duties as prescribed by the bylaws or by the board of directors.
The chief financial officer shall be deemed the treasurer for any purpose requiring action by the corporation’s treasurer.
5. Vice Presidents. There may be one or more vice presidents, as determined by the board. In the absence or disability of the president, the president’s duties and responsibilities shall be carried out by the highest-ranking available vice president, or if there are two or more unranked vice presidents, by a vice president designated by the board of directors. When so acting, a vice president shall have all the powers of and be subject to all the restrictions on the president. Vice presidents shall have such other powers and perform such other duties as prescribed by the bylaws or assigned from time to time by the board of directors or the chief executive officer.
6. Subordinate Officers. The board of directors may appoint, and may empower the chief executive officer to appoint, subordinate officers as required by the corporation’s business, whose duties shall be as provided in the bylaws or as determined from time to time by the board of directors or the chief executive officer.
7. Removal and Resignation of Officers. Any officer chosen by the board of directors may be removed by the board at any time, with or without cause or notice. Subordinate officers appointed by persons other than the board may be removed at any time, with or without cause or notice, by the board or by the person by whom appointed. A removed officer shall have no claim against the corporation or individual officers or board members arising from such removal (other than any rights he or she may have to monetary compensation or damages under an employment contract).
Any officer may resign at any time by giving the corporation written notice. Unless otherwise specified in the notice, resignations shall take effect on the date the notice is received, and acceptance of the resignation is not necessary to make it effective. An officer’s resignation or its acceptance by the corporation shall not prejudice any rights the corporation may have to monetary damages under an employment contract.
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8. Vacancies in Offices. Vacancies in offices resulting from an officer’s death, resignation, removal, disqualification, or any other cause shall be filled by the board or by the person, if any, authorized by the bylaws or the board to make an appointment to that office.
9. Compensation. Salaries of officers and other shareholders employed by the corporation shall be fixed from time to time by the board of directors or established under employment agreements approved by the board of directors. No officer shall be prevented from receiving this salary because he or she is also a director of the corporation.
10. Reimbursement of Nondeductible Compensation. If all or part of the compensation, including expenses, paid by the corporation to a director, officer, employee, or agent is finally determined not to be allowable to the corporation as a federal or state income tax deduction, the director, officer, employee, or agent to whom the payment was made shall repay to the corporation the amount disallowed. The board of directors shall enforce repayment of each such amount disallowed by the taxing authorities.
ARTICLE 6: INDEMNIFICATION
1. Indemnification of Agents. The corporation, to the maximum extent permitted by the California General Corporation Law, shall have power to indemnify any of its agents against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding or potential proceeding arising out of the relationship, and to the maximum extent permitted by law, the corporation shall have power to advance the agent’s reasonable defense expenses in any such proceeding. For the purposes of this section, “agent” means any person who is or was a director, officer, employee, or other agent of this corporation or its predecessor, and any person who is or was serving as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, at the request of this corporation or its predecessor; “proceeding” means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative; and “expenses” include but are not limited to attorneys’ fees and any expenses of establishing a right to indemnification under this section.
ARTICLE 7: RECORDS AND REPORTS
1. Shareholder Lists; Inspection by Shareholders. The corporation shall keep at its principal executive office or at the office of its transfer agent or registrar, as the board shall determine, a record of the names and addresses of all shareholders and the number and class of shares held by each.
A shareholder or group of shareholders holding five percent (5%) or more of the outstanding voting shares of the corporation may (a) inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours, on five (5) days’ prior written demand on the corporation; and/or (b) obtain from the corporation’s transfer agent, on written demand and tender of the transfer agent’s usual charges for this service, a list of the names and addresses of shareholders entitled to vote for the election of directors and their shareholdings, as of the most recent date for which a record has been compiled or as of a specified date which is later than the date of demand. This list shall be made available within 5 days after demand or within five (5) days after the specified later date as of which the list is to be compiled.
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The record of shareholders shall also be open to inspection during usual business hours, on the written demand of any shareholder or holder of a voting trust certificate, for a purpose reasonably related to the holder’s interest in the corporation. Any inspection or copying under this section may be made in person or by the holder’s agent or attorney.
2. Maintenance of Bylaws. The corporation shall keep at its principal executive office, or if its principal executive office is not in California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside of California and the corporation has no principal business office in this state, the secretary shall, upon a shareholder’s written request, furnish to that shareholder a copy of the bylaws as amended to date.
3. Minutes and Accounting Records. The minutes of proceedings of the shareholders, board of directors, and committees of the board, and the accounting books and records shall be kept at the principal executive office of the corporation, or at such other place or places as designated by the board of directors. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in a form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection during usual business hours on the written demand of any shareholder or holder of a voting trust certificate, for a purpose reasonably related to the holder’s interests in the corporation. The inspection may be made in person or by an agent or attorney, and includes the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary of the corporation.
4. Inspection by Directors. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection may be made by the director in person or by an agent or attorney, and the right of inspection includes the right to copy and make extracts of documents.
5. Annual Report to Shareholders. Inasmuch as, and for as long as, there are less than one hundred (100) shareholders, the requirement of an annual report to shareholders referred to in Section 1501 of the California Corporations Code is expressly waived. However, nothing in this provision shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders, as the board considers appropriate.
6. Financial Statements. The corporation shall keep a copy of any annual financial statement, quarterly or other periodic income statement, and accompanying balance sheets on file in its principal executive office for twelve (12) months; these documents shall be exhibited (or copies provided) to shareholders at all reasonable times. If no annual report for the last fiscal year has been sent to shareholders, on written request of any shareholder made more than one hundred twenty (120) days after the close of the fiscal year, the corporation shall deliver or mail to the shareholder, within thirty (30) days after receipt of the request, a balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial position for that fiscal year.
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A shareholder or shareholders holding five percent (5%) or more of the outstanding shares of any class of stock of the corporation may request in writing an income statement for the most recent three-month, six-month, or nine-month period (ending more than thirty (30) days before the date of the request) of the current fiscal year, and a balance sheet as of the end of that period. If such documents are not already prepared, the chief financial officer shall cause them to be prepared and shall deliver them personally or by mail to the requesting shareholders within thirty (30) days after the receipt of the request. A balance sheet, income statement, and statement of changes in financial position for the last fiscal year shall also be included, unless the corporation has sent the shareholders an annual report for the last fiscal year.
Quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of independent accountants engaged by the corporation, or a certificate by the authorized corporate officer stating that the financial statements were prepared without audit from the corporation’s books and records.
7. Annual Information Statement.
(a) Every year, during the calendar month in which the original Articles of Incorporation were filed with the California Secretary of State or during the preceding five (5) calendar months, the corporation shall file a statement with the Secretary of State on the prescribed form, setting forth the authorized number of directors; the names and complete business or residence addresses of the chief executive officer, the secretary, and the chief financial officer; the street address of the corporation’s principal executive office or principal business office in this state; a statement of the general type of business constituting the principal business activity of the corporation, and a designation of the corporation’s agent for service of process, all in compliance with Section 1502 of the Corporations Code of California.
(b) Notwithstanding the provisions of paragraph (a) of this section, if there has been no change in the information contained in the corporation’s last annual statement on file in the Secretary of State’s office, the corporation may, in lieu of filing the annual statement, advise the Secretary of State, on the appropriate form, that no changes in the required information have occurred during the applicable period.
ARTICLE 8: GENERAL CORPORATE MATTERS
1. Record Date for Dividends and Distributions. For purposes of determining the shareholders entitled to receive payment of dividends or other distributions or allotment of rights, or entitled to exercise any rights in respect of any other lawful action (other than voting at and receiving notice of shareholders’ meetings and giving written consent of the shareholders without a meeting), the board of directors may fix in advance a record date not more than sixty (60) nor less than ten (10) days before the date of the dividend payment, distribution, allotment, or other action. If a record date is so fixed, only shareholders of record at the close of business on that date shall be entitled to receive the dividend, distribution, or allotment of rights, or to exercise the other rights, as the case may be, notwithstanding any transfer of any shares on the corporate books after the record date, except as otherwise provided by statute.
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If the board of directors does not so fix a record date in advance, the record date for these purposes shall be at the close of business on the later of (a) the day on which the board of directors adopts the applicable resolution or (b) the sixtieth (60th) day before the date of the dividend payment, distribution, allotment of rights, or other action.
2. Authorized Signatories for Checks. All checks, drafts, or other orders for payment of money, notes, and other evidences of indebtedness issued in the name of or payable to the corporation shall be signed or endorsed in the manner and by the persons authorized by the board of directors.
3. Executing Contracts and Instruments. The board of directors may authorize any of its officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation. This authority may be general or it may be confined to one or more specific matters. No officer, agent, employee, or other person purporting to act on behalf of the corporation shall have any power or authority to bind the corporation in any way, pledge its credit, or render it liable for any purpose in any amount, unless that person was acting with authority duly granted by the board of directors as provided in these bylaws, or unless an unauthorized act was later ratified by the corporation.
4. Share Certificates. One or more certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of the shareholder’s shares are fully paid.
All certificates shall certify the number of shares and the class or series of shares represented by the certificate. All certificates shall be signed in the name of the corporation by (a) one of the following: the chairman or vice chairman of the board of directors, the president, or any vice president; and (b) one of the following: the chief financial officer, any assistant treasurer, the secretary, or any assistant secretary. Any of the signatures on the certificate may be facsimile. If a party who has signed share certificates ceases to be an officer or other agent before the certificate is issued, the corporation may issue the certificate with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue.
The share certificates shall state, by way of appropriate legend, any restrictions on share ownership or transfer, and any other statements required by applicable federal or state securities regulations.
5. Lost Certificates. Except as provided in this section, no new certificates for shares shall be issued to replace old certificates unless the old certificates are surrendered to the corporation for cancellation at the same time. If share certificates or certificates for any other security have been lost, stolen, or destroyed, the board of directors may authorize the issuance of replacement certificates on terms and conditions as the board may require, which may include a requirement that the owner give the corporation a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it (including any expenses or liability) on account of the alleged loss, theft, or destruction of the old certificate or the issuance of the replacement certificate.
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6. Shares of Other Corporations: How Voted. Shares of other corporations standing in the name of this corporation shall be voted by the chief executive officer or a person designated by the chief executive officer. If neither of them is able to act, the shares may be voted by a person designated by the board of directors. The authority to vote shares includes the authority to execute a proxy in the corporation’s name for purposes of voting the shares.
7. Reimbursement of Nondeductible Compensation. If all or part of the compensation, including expenses, paid by the corporation to a director, officer, employee, or agent is finally determined not to be allowable to the corporation as a federal or state income tax deduction, the director, officer, employee, or agent to whom the payment was made shall repay to the corporation the amount disallowed. The board of directors shall enforce repayment of each such amount disallowed by the taxing authorities.
8. Construction and Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in Sections 100 through 195 of the California Corporations Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes a corporation and a natural person.
9. Transfer Restrictions; Right of First Refusal. Any shareholder wishing to sell or transfer shares of the corporation (“transferring shareholder”) shall, under procedures adopted by the board of directors, disclose to the board the number of shares submitted for sale or transfer, the price per share, the terms and conditions of sale, and the name of any proposed transferee, and shall make those shares available to the corporation and other shareholders under the same terms. If, within a reasonable time or before a reasonable date specified by the transferring shareholder, neither the corporation nor the other shareholders offer to purchase that number of shares under the same terms, the board of directors shall grant the transferring shareholder permission to sell or transfer those shares as specified, but not at terms more favorable to the transferee than those under which the shares were submitted to the corporation and shareholders. In the event that a Buy-Sell Agreement has been entered into by and between the shareholders of this corporation, and to the extent that the Buy-Sell Agreement may be in conflict with this Article, the terms of the Buy-Sell provision shall control the disposition of share transfers.
ARTICLE 9: AMENDMENTS
1. Amendment of Articles of Incorporation. Unless otherwise provided under California Corporations Code Sections 900 through 911, amendments to the Articles of Incorporation may be adopted if approved by the board and approved by a majority of the outstanding shares entitled to vote, either before or after approval by the board. An amendment to the Articles of Incorporation shall be effective as of the date that the appropriate certificate of amendment is filed with the Secretary of State.
2. Amendment of Bylaws. Except as otherwise required by law or by the Articles of Incorporation, these bylaws may be amended or repealed, and new bylaws may be adopted, by the board of directors or by a majority of the outstanding shares entitled to vote.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of AMERIGUARD SECURITY SERVICES, INC., incorporated under the laws of the state of California; and
(2) That the foregoing Bylaws, comprising nineteen (19) pages, constitute the amended and restated Bylaw of said corporation duly adopted by the Board of Directors and shareholder on _____________, 2022.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the corporation this ____ day of ______________, 2022.
| /s/ Lawrence Garcia | |
| Lawrence Garcia, Secretary |
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Exhibit 10.1
PROMISSORY NOTE
(SECURED BY STOCK PLEDGE)
| $3,384,950.00 | July 1, 2022 |
Fresno, California
FOR VALUE RECEIVED, the undersigned (“Maker”), promises to pay to LILLIAN FLORES (“Holder”), or order, at 5111 W. Fir Ave., Fresno, California 93722 (or such other address as Holder may from time to time designate), in lawful currency of the United States, the principal amount of Three Million Three Hundred Eighty-Four Thousand Nine Hundred and Fifty Thousand Dollars ($3,384,950.00) to be paid in five (5) equal annual installments, together with interest on the unpaid balance compounded semi-annually at a per annum rate of 3.11%. The initial payment will be paid within fourteen (14) days of the execution of the Agreement and all others necessary to finalize the terms of this redemption and settlement transaction. The second, third, fourth and fifth installment, which includes the balance due, shall be paid on December 31st of each year commencing December 31, 2023, and continuing each and every year until December 31, 2026, at which time the remaining balance shall be due.
Payments shall be made by regular check and sent to Holder’s address at 5111 W. Fir Ave., Fresno, California 93722, or by wire transfer into Holder’s bank account. Each payment shall be applied first to the payment of accrued interest and second to reduce the principal balance due hereunder. This Promissory Note shall mature and become due and payable in full on the last day of the 2026 fiscal year (“Maturity Date”).
This Promissory Note is secured by a “Stock Pledge Agreement” with Maker, as Pledgor, and Holder, as Pledgee, which is dated on or about the same date as this Promissory Note pursuant to which Maker pledges all of Maker’s shares of stock in AMERIGUARD SECURITY SERVICES, INC., a California corporation, to secure this Promissory Note. Upon the occurrence of an event of default hereunder, Holder may sue Maker for the entire principal and interest due under this Promissory Note and all other liabilities and expenses incurred in connection therewith. Holder, in Holder’s sole discretion, may declare this Promissory Note immediately due and payable upon any unauthorized sale or transfer of any of Maker’s Shares defined in the Pledge Agreement.
Neither the failure to exercise nor any delay on the part of Holder in exercising any right, power or privilege shall constitute a waiver of any such right, power or privilege nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other rights, powers or privileges.
Presentment for payment, notice of dishonor, protest, notice of protest, and rights to setoffs and counter-claims are hereby waived by Maker. Notwithstanding anything to the contrary contained herein or in any document which may be collateral security for this Promissory Note, this Promissory Note is negotiable and may be assigned in whole or in part by Maker with Holder’s written consent; provided, however, that the giving or withholding of consent shall be in Holder’s sole and absolute discretion.
In addition to any other remedy available to Holder, the entire unpaid balance of the principal sum of this Promissory Note and all interest due thereon, including all arrearages thereon, shall at the option of Holder, immediately become due and payable, without further notice or demand, upon the occurrence, with respect to Maker, of any of the following events of default:
(i) any payment of principal or accrued interest that is not paid within ten (10) calendar days of the date when due;
(ii) the occurrence of a material breach or misrepresentation under this Promissory Note or the Pledge Agreement securing this Promissory Note;
(iii) the commencement of a proceeding in bankruptcy, receivership, or insolvency by or against Maker;
(iv) any attempt by Maker to make an assignment of their shares for the benefit of creditors;
(v) a material change in control in the ownership or management structure of Maker; and,
(vi) the occurrence of any event of default under any of the other agreements executed concurrently with this Promissory Note including Settlement Agreement and Stock Redemption Agreement.
In the event of default, Maker agrees to pay all costs, charges and expenses, including reasonable attorneys’ fees, incurred by Holder in any proceedings for collection of this Promissory Note and in the enforcement of any right or remedy hereunder whether or not litigation is instituted. Maker hereby expressly waives all statutes of limitation affecting the enforceability of this Promissory Note. Maker consent to all renewals, indulgences, extensions and modifications by Holder or any holder hereof without notice.
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Despite anything to the contrary in this Promissory Note, the total liability for interest payments shall not exceed the applicable limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Maker by application of the amount of excess interest paid against any sums outstanding in such order as Holder may determine in Holder’s discretion. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to Maker by Holder. To ascertain whether any interest payable exceeds the limits imposed, any non-principal payment, including, without limitation, prepayment fees and late charges, shall be deemed to the extent permitted by law to be an expense, fee, late charge, premium, or penalty rather than interest.
Maker shall have the right to prepay any or all of the promissory note outstanding at any time without penalty.
This Promissory Note and the terms, covenants, conditions and agreements contained herein may not be changed, modified or terminated, except by written instrument signed by the party to be charged. This instrument shall be construed in accordance with the laws of the State of California. Venue shall be proper only in Fresno County, California. Maker agrees that the unenforceability or invalidity of any provision or provisions of this Promissory Note shall not render any other provision or provisions herein contained unenforceable or invalid.
IN WITNESS WHEREOF, this Promissory Note is executed on July 1, 2022, and is effective as of the date first above written.
| MAKER: | ||
| AMERIGUARD SECURITY SERVICES, INC., | ||
| a California corporation | ||
| By: | /s/ Lawrence Garcia | |
| LAWRENCE GARCIA | ||
| President | ||
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| Dated: | /s/ Lillian Flores | ||
| LILLIAN FLORES, an individual |
| Dated: | 7/6/2022 | AMERIGUARD SECURITY SERVICES, INC. |
| By: | /s/ Lawrence Garcia | |
| LAWRENCE GARCIA | ||
| President |
| Dated: | 7/6/2022 | /s/ Lawrence Garcia |
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SPOUSAL CONSENT
For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned, who is the spouse of a shareholder, Lillian Flores of Ameriguard Security Services, Inc. a California corporation (the “Company”), hereby agrees to be bound by the terms and conditions of the Settlement Agreement set forth above.
| Dated: | 7/6/2022 | /s/ Eric Flores | |
| ERIC FLORES, Spouse of Lillian Flores |
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| APPROVED AS TO FORM: | ||||
| COLEMAN & HOROWITT, LLP | FENNEMORE DOWLING AARON | |||
| By: | Darryl J. Horowitt | By: | John W. Phillips | |
| DARRYL J. HOROWITT | JOHN W. PHILLIPS | |||
| Attorneys for AMERIGUARD SECURITY SERVICES, INC | Attorneys for LILLIAN FLORES | |||
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Exhibit 10.2
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT (“Agreement”) is effective as of July 1, 2022 (the “Effective Date”) by and among AMERIGUARD SECURITY SERVICES, INC., a California corporation (“Pledgor”), LILLIAN FLORES, individually (“Pledgee”), and COLEMAN & HOROWITT, LLP, a California limited liability partnership (“Pledge Holder”).
RECITALS
A. Pledgor is the owner of Four Hundred Fifty (450) shares acquired pursuant to the terms and conditions of that certain Stock Redemption Agreement dated July 1, 2022, entered into by Pledgee, as Seller, and Pledgor, as Buyer. It is those Four Hundred Fifty (450) shares that are the subject of this Agreement (the “Shares”).
B. As set forth in the Stock Redemption Agreement, Pledgor agreed to secure Pledgor’s repayment of that certain Promissory Note dated July 1, 2022, and made by Pledgor in favor of Pledgee in the original principal sum $3,384,950.00 (the “Promissory Note”), with a pledge of the Shares.
C. Pledgor further agreed to secure Pledgor’s performance of that certain Settlement Agreement dated July 1, 2022, executed by Pledgor and Pledgee (the “Settlement Agreement”).
AGREEMENT
Pledge; Proxy. Pledgor hereby grants to Pledgee a security interest in the Shares, and further assigns and pledges the Shares to Pledgee as collateral for the payment of the Promissory Note, and performance by Pledgor of the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement and this Agreement. The Shares shall also serve as collateral for the repayment of any and all sums required to be advanced by Pledgee to preserve the Shares or to protect Pledgee’s security interest in the Shares, and, in the event an action or proceeding to enforce the collection or performance of Pledgor’ obligations under the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement, the reasonable expenses of enforcement, including, without limitation, retaking, holding, preparing for sale, selling or otherwise disposing of the Shares, together with reasonable attorney’s fees and costs. Pledgor covenants to deliver the certificate or certificates evidencing the Shares to Pledge Holder to be held hereunder. Pledgor shall also endorse a Stock Assignment Separate from Certificate in substantially the form attached to the Stock Redemption Agreement as Exhibit C, assigning the Shares to Pledge Holder. This Agreement is a Control Agreement as defined in the California Commercial Code.
1. Term of Pledge. Pledge Holder shall hold the Shares as security until the Promissory Note is paid in full and Pledgor has fully performed all of Pledgor’s obligations under the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement.
2. Voting Rights. During the term of this pledge, Pledgor, in accordance with Pledgor’s share ownership, shall have the right to vote Pledgor’s Shares.
3. Adjustments of Capital Structure. In the event that, during the term of this pledge, any reclassification, readjustment or other change is declared or made in the capital structure of the Corporation, or any successor corporation, all new, substituted and/or additional shares, or other securities issued by reason of any such change, shall be held by Pledge Holder under the terms of this Agreement in the same manner as the Shares originally pledged hereunder.
4. Legend on Stock. The certificates of stock for the Shares pledged hereunder shall bear a legend substantially as follows:
“The shares represented by this certificate are subject to the terms and conditions of that certain Stock Pledge Agreement entered into by and among AMERIGUARD SECURITY SERVICES, INC., a California corporation (“Pledgor”), LILLIAN FLORES, individually (“Pledgee”), and COLEMAN & HOROWITT, LLP, a California limited liability partnership (“Pledge Holder”), dated July 1, 2022. A copy of the Stock Pledge Agreement is on file at the principal office of the Corporation. Any prospective transferee of these shares should refer to the Stock Pledge Agreement.”
5. Payment of Promissory Note and Satisfaction of Obligations. At such time as all of Pledgor’s obligations under the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement have been satisfied, the Shares (or so much thereof as remains after the full performance of the obligations) shall be released, the interests created herein shall cease and terminate, and Pledge Holder and Pledgee shall reassign and redeliver the Shares to Pledgor, in accordance with Pledgor’s share ownership, cancel the Promissory Note, and deliver the applicable Shares along with all other necessary or appropriate documents to Pledgor. The delivery to Pledgor of the Shares (or so much thereof as remains after the full performance of the obligations) shall be a complete and full acquittance for the collateral delivered, and Pledge Holder and Pledgee shall thereafter be discharged from any and all liability or responsibility therefor.
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6. Default. A default under the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement by Pledgor shall be deemed to be a default under the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement, entitling Pledgee to accelerate the entire unpaid balance of the Promissory Note. If Pledgor materially defaults in the performance of any of the terms of the Promissory Note, the Stock Redemption Agreement, the Settlement Agreement, or this Agreement, Pledgee shall notify the Corporation, Pledgor, and Pledge Holder in writing of the default. If the default is not cured within ten (10) calendar days of the notice, Pledge Holder shall thereafter terminate and defeat the ownership of the Shares by the Pledgor and vote the Shares on all corporate questions pursuant to the directions of Pledgee.
7. Remedies. When an event of default occurs, without limiting Pledgee’s available remedies, Pledgee may exercise any and all rights and remedies available to a secured creditor after default, including, but not limited to, any and all rights and remedies available under the California Commercial Code. Notwithstanding anything else to the contrary in this Agreement, the Pledge Holder may, with the prior consent of Pledgee, deliver the Shares certificates to Pledgor (instead of holding the Shares certificate) as the Pledge Holder, in which event, the Pledgor shall hold the Shares certificate, in trust, as collateral for performance of the Promissory Note.
8. Notice. All notices, requests, demands, instructions, or other communications to be given to any party hereunder shall be in writing and shall be deemed to have been duly given (i) on the date of service, if personally served on the party to whom notice is to be given; (ii) within seventy-two (72) hours after mailing, if mailed to the party to whom notice is to be given, by first- class mail, registered or certified, postage prepaid; or (iii) within forty-eight (48) hours after being deposited with a recognized private courier service (e.g., Federal Express), if delivered by a private courier service to the party to whom notice is to be given, all charges prepaid. A notice not given as above shall, if it is in writing, be deemed given if and when actually received by the party to whom it is required or permitted to be given.
9. Authorizations to Pledgee. Pledgor authorizes Pledgee, without notice or demand, and without affecting Pledgor’s obligations hereunder, from time to time to compromise, renew or extend the time for payment of the Promissory Note or any part thereof, or any other amounts secured by the Shares or this Agreement.
10. Pledge Holder. COLEMAN & HOROWITT, LLP, a California limited liability partnership (“Pledge Holder”) is hereby appointed Pledge Holder. Except for Pledge Holder’s willful misconduct or gross negligence in carrying out Pledge Holder’s duties hereunder, each of the undersigned hereby waives all claims of any kind against Pledge Holder. Each of the undersigned jointly and severally agrees to indemnify Pledge Holder, defend Pledge Holder, and hold Pledge Holder harmless from and against any and all obligations, liabilities, damages, losses, costs and expenses, including but not limited to, reasonable attorneys’ fees and costs, arising in any way from any claims, demands or actions of any kind, made or taken against Pledge Holder in connection with this Agreement. Should conflicting demands and/or notices be made and/or served on Pledge Holder, with respect to the pledge hereunder, the parties hereto expressly agree that Pledge Holder shall have the option, in Pledge Holder’s sole and absolute discretion, to (i) resign as Pledge Holder and appoint an alternate Pledge Holder for purposes of this Agreement,
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(ii) withhold and stop Pledge Holder’s involvement in any and all proceedings regarding the performance of this Agreement and await settlement of the controversy between Pledgee and Pledgor by final appropriate legal proceedings, and/or (iii) take any other action in Pledge Holder’s sole and absolute discretion. If Pledge Holder resigns and appoints an alternate Pledge Holder, Pledge Holder shall thereupon be fully released and discharged from all obligations to further perform any and all duties and obligations imposed upon Pledge Holder under this Agreement. Pledge Holder’s duties hereunder are limited to the safekeeping of the Shares and for the transfer or other disposition thereof in accordance with the terms of this Agreement. Notwithstanding anything to the contrary in this Pledge Agreement, the Pledge Holder shall retain the right to substitute itself for another Pledge Holder who holds such professional license or licenses as may be necessary to comply with all state and federal rules governing a professional medical corporation.
11. Pledge Holder Fees and Costs. If Pledge Holder is required to take action, Pledge Holder shall be compensated for all time devoted, if any, to the handling of the escrow established hereunder and all related transfers at Pledge Holder’s standard hourly rate(s) which shall be no less than Four Hundred and 00/100 Dollars ($400.00) per hour. Except as may otherwise be provided in this Agreement, Pledgor shall bear the expense of all such fees and costs incurred in connection with this Agreement and the escrow established hereunder. Pledge Holder shall bill Pledgor for such services rendered, if any, on a monthly basis or at the time services are rendered. Pledge Holder, in Pledge Holder’s sole discretion, may resign and appoint an alternate Pledge Holder at any time, including, without limitation, upon the occurrence of an event described in Section 10 above. Any such resignation and appointment shall be effective upon written notice to Pledgee and Pledgor.
12. Representations and Warranties. Pledgor represents and warrants that the Shares are free and clear of any and all liens and encumbrances, including, but not limited to, any pledge, claim, security interest, mortgage, assessment, charge, restriction or limitation of any kind, whether arising by agreement, operation of law or otherwise (collectively “Liens”).
13. Counterparts; Facsimile Signatures. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. For purposes of this Agreement, a facsimile or electronically scanned signature shall be deemed as valid and enforceable as an original.
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14. Entire Agreement. This Agreement, along with the documents referred to herein, sets forth the entire agreement between the parties with respect to the subject matter hereof. All agreements, covenants, representations and warranties, expressed or implied, oral and written, of the parties with respect to the subject matter hereof are contained herein and in the documents referred to herein or implementing the provisions hereof. No other agreements, covenants, representations or warranties, expressed or implied, oral or written, have been made by either party to the other with respect to the subject matter of this Agreement. All prior and contemporaneous conversations, negotiations, possible and alleged agreements and representations, covenants and warranties with respect to the subject matter hereof are waived, merged herein and therein and superseded hereby and thereby. This is an integrated agreement.
15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.
16. Inurement. This Agreement shall inure to the benefit of and be binding upon each party hereto, their heirs, successors, representatives, assigns, agents, employees and personal representatives.
17. Severability. To the extent that any provision here in this Agreement is deemed invalid or unenforceable, the balance of this Agreement shall be enforced to the extent practical and consistent with the spirit and intentions of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Stock Pledge Agreement to be effective as of the date first written above.
| PLEDGOR: | |||
| AMERIGUARD SECURITY SERVICES, INC. | |||
| By: | /s/ Lawrence Garcia | Date: 7/6/2022 | |
| LAWRENCE GARCIA | |||
| President | |||
| PLEDGEE: | |||
| /s/ Lillian Flores | Date: 7/6/2022 | ||
| LILLIAN FLORES | |||
| PLEDGE HOLDER: | |||
| COLEMAN & HOROWITT, LLP | |||
| By: | /s/ Darryl Horowitt | Date: 7/6/2022 | |
| DARRYL HOROWITT | |||
| Partner | |||
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Form 8-K of our report dated April 25, 2022, relating to the financial statements of AmeriGuard Security Services, Inc. as of December 31, 2021 and 2020 and to all references to our firm included in this registration statement.
Certified Public Accountants
Lakewood, CO
December 12, 2022