Clean Vision Corp S-1/A, filed Sep 15, 2023
Clean Vision Corp (CLNV)
As filed with the Securities and Exchange Commission on September 15, 2023
Registration No. 333-274279
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact Name of Registrant as Specified in Its Charter)
| 7389 | 85–1449444 | |||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
2711 N. Sepulveda Blvd. #1051
Manhattan Beach, CA 90266
(424) 835-1845
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Mr. Daniel Bates
Chief Executive Officer
2711 N. Sepulveda Blvd. #1051
Manhattan Beach, CA 90266
(424) 835-1845
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
Joseph M. Lucosky, Esq. Lucosky Brookman LLP 101 Wood Avenue South, 5th Floor Woodbridge, NJ 08830 Tel: (732) 395-4400 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| 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 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED: SEPTEMBER 15, 2023 |
CLEAN VISION CORPORATION
Up to 820,598,246 Shares of Common Stock
This prospectus relates to the resale, from time to time, of up to 820,598,246 shares (the “Shares”) of common stock, par value $0.001 per share (the “Common Stock”), of Clean Vision Corporation, a Nevada corporation (the “Company”, “we”, “us” or “our”), by the selling shareholders identified in this prospectus under “Selling Shareholders” (the “Offering”), comprised of:
| (i) | up to 269,042,604 Shares issuable pursuant to that certain Securities Purchase Agreement dated May 26, 2023 (the “May Purchase Agreement”) between the Company and an accredited investor (the “May Investor”), which includes (a) 180,904,522 Shares issuable upon conversion of a senior convertible note in the aggregate principal amount of $1,714,285.71 (the “May Note”) and (b) 88,138,082 additional Shares that we are required to register pursuant to a registration rights agreement between us and the May Investor obligating us to register 200% of the maximum number of shares of Common Stock issuable upon exercise of warrants (the “May Warrants”) issued pursuant to the May Purchase Agreement; | |
| (ii) | up to 454,166,752 Shares issuable pursuant to that certain Securities Purchase Agreement dated February 17, 2023 (the “February Purchase Agreement”) between the Company and the May Investor which includes (a) 296,840,276 Shares that we are required to register pursuant to a registration rights agreement between us and the May Investor obligating us to register 200% of the maximum number of shares of Common Stock issuable upon conversion of senior convertible notes in the aggregate principal amount of $2,812,915 (the “February and April Notes,” and together with the May Note, the “PIPE Notes”) and (b) 157,326,476 additional shares of Common Stock that we are required to register pursuant to a registration rights agreement between us and the May Investor obligating us to register 200% of the maximum number of shares of Common Stock issuable upon exercise of warrants (the “February and April Warrants,” and together with the May Warrants, the “PIPE Warrants”) issued pursuant to the February Purchase Agreement; and |
| (iii) | up to 97,388,890 Shares issued or issuable pursuant to that certain Securities Purchase Agreement dated July 31, 2023 (the “August Purchase Agreement”) between the Company and an accredited investor (the “August Investor”), which includes (a) 76,388,890 Shares, which represents 250% of the aggregate number of shares of Common Stock issuable upon conversion of a senior convertible promissory note in the original principal amount of $500,000 (the “August Note”) and (b) 21,000,000 Shares issued to the August Investor on August 4, 2023 (the “Inducement Shares”). |
We are not selling any shares of our Common Stock under this prospectus and will not receive any proceeds from the sale of the Shares. We will, however, receive proceeds from any warrants that are exercised through the payment of the exercise price in cash by the Selling Shareholders. The Selling Shareholders will bear all commissions and discounts, if any, attributable to the sale of the Shares. We will bear all costs, expenses and fees in connection with the registration of the Shares.
The Selling Shareholders may sell the shares of Common Stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the Selling Shareholders may sell the Shares being registered pursuant to this prospectus.
The prices at which the Selling Shareholders may sell the Shares in this Offering will be determined by the prevailing market prices for the shares of Common Shares or in negotiated transactions.
Our Common Stock is quoted on the OTCQB Market maintained by OTC Markets Group, Inc. (“OTC Markets”), under the symbol “CLNV”. On September 13, 2023, the last reported sale price of the Common Stock on the OTCQB was $0.0209 per share.
There has been a very limited market for our securities. While our Common Stock is quoted on the OTC Markets, there has been negligible trading volume. There is no guarantee that an active trading market will develop in our securities.
Following the effectiveness of the registration statement of which this prospectus forms a part, the sale and distribution of securities offered hereby may be effected from time to time in one or more transactions that may take place on the OTC Markets (or such other market or quotation system on which our Common Stock is then listed or quoted), including ordinary brokers’ transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Shareholders.
This prospectus describes the general manner in which the Shares may be offered and sold by any Selling Shareholder. When the Selling Shareholders sell Shares under this prospectus, we may, if necessary and required by law, provide a prospectus supplement that will contain specific information about the terms of that offering. Any prospectus supplement may also add to, update, modify or replace information contained in this prospectus. We urge you to read carefully this prospectus, any accompanying prospectus supplement and any documents we incorporate by reference into this prospectus and any accompanying prospectus supplement before you make your investment decision.
Investing in our securities involves risks. See “Risk Factors” beginning on page 13 of this prospectus. We and our board of directors are not making any recommendation regarding the exercise of your rights.
Neither the United States Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
We are an “emerging growth company” under applicable SEC rules and will be subject to reduced public company reporting requirements.
An investment in our Common Stock involves significant risks. You should carefully consider the risk factors set forth under “Risk Factors”, beginning on page 25 of this prospectus before you make your decision to invest in this Offering and in our securities.
The date of this prospectus is _________, 2023
TABLE OF CONTENTS
| Legal Matters | 86 |
| Experts | 86 |
| Where You Can Find More Information | 87 |
i
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. Neither we, nor any of the Selling Shareholders, have authorized any other person, to provide you with information that is different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor any of the Selling Shareholders have taken any action that would permit this Offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the Offering of the securities covered hereby and the distribution of this prospectus outside of the United States.
The information in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.
TRADEMARKS
We own directly, or have rights to, trademarks, service marks, and trade names that we use in the operation of our business, such as AquaHtm. In addition, our names, logos, and website names and addresses are our service marks or trademarks. Other trademarks, service marks, and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks, service marks, trade names, and copyrights referred to in this prospectus are listed without the ©, ®, and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights, the rights of our parent company, or the rights of the applicable licensors to these trademarks, service marks, and trade names.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking statements.” We use words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. All of our forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to the information described under the caption “Risk Factors” and elsewhere in this prospectus.
The forward-looking statements contained in this prospectus are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control), and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this prospectus to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The forward-looking statements contained in this prospectus are set forth principally in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sections in our PERIODIC FILINGS WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and other sections in our Latest Form 10-Q. In addition, there may be events in the future that we are not able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Please consider our forward-looking statements in light of these risks as you read this prospectus.
ii
MARKET, INDUSTRY AND OTHER DATA
Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from third-party industry analysts and publications and our own estimates and research. Some of the industry and market data contained in this prospectus are based on third-party industry publications. This information involves a number of assumptions, estimates and limitations.
The industry publications, surveys and forecasts and other public information generally indicate or suggest that their information has been obtained from sources believed to be reliable. None of the third-party industry publications used in this prospectus were prepared on our behalf. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” in this prospectus. These and other factors could cause results to differ materially from those expressed in these publications.
Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources.
iii
Prospectus Summary
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our securities. You should carefully read the entire prospectus including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Clean Vision,” “the company,” “we,” “us” and “our” in this prospectus refer to Clean Vision Corporation and its consolidated subsidiaries.
Overview
We are a new entrant in the clean energy and waste-to-energy industries focused on clean technology and sustainability opportunities. By leveraging innovative technology, we aim to responsibly resolve environmental challenges by producing valuable products and strive to be recognized as an environmental, social and governance company (“ESG”). Currently, we are focused on providing a solution to the plastic waste problem by converting plastic waste into saleable byproducts, such as precursors used in the production of new plastic products, hydrogen and other clean-burning fuels that can be used to generate clean energy. Using a technology known as pyrolysis, which heats the feedstock (i.e., plastic waste) at high temperatures in the absence of oxygen so that the material does not burn, we are able to convert the plastic feedstock into (i) low-sulfur fuels, (ii) clean hydrogen (specifically, the Company’s branded AquaH™), and (iii) carbon char. As of June 30, 2023, our operations in Morocco had generated $161,297 in revenue, with a gross margin of $127,435 from the provision of pyrolysis services and its sale of byproducts. Our business mode is focused on generating revenue from three sources: (i) service revenue from the recycling services we provide; (ii) revenue generated from the sale of the byproducts; and (iii) revenue generated from the sale of fuel cell equipment. Our mission is to aid in solving the problem of cost-effectively upcycling the vast amount of waste plastic generated on land before it flows into the world’s oceans.
According to analysis and projections reported by the U.S. Energy Information Administration (“EIA”) on April 7, 2022, it is estimated that 98.3 million barrels per day of petroleum and liquid fuels were consumed globally in March 2022, an increase of 2.4 million barrels per day from March 2021. The EIA estimates that global consumption of petroleum and liquid fuels will rise by 1.9 million barrels per day in 2023 to average 101.7 million barrels per day.
In a report published by Markets and Markets Research in February 2021 entitled “Hydrogen Generation Market by Application (Petroleum Refinery, Ammonia & Methanol production, Transportation, Power Generation), Generation & Delivery Mode (Captive, Merchant), Source (Blue, Green & Grey Hydrogen), Technology, and Region-Forecast to 2025,” the global hydrogen generation market is projected to reach $201 billion by 2025 from an estimated $130 billion in 2020, at a compound annual growth rate (CAGR) of 9.2% during the forecast period. While the global green hydrogen market was valued at approximately $0.8 billion in 2021, it is predicted to grow to about $10.2 billion by 2028, with a CAGR of approximately 55.2% over the projection period, according to research and analysis published by Facts and Factors in March 2022 entitled “Green Hydrogen Market By Type (Solid Oxide Electrolyzer, Alkaline Electrolyzer, and Proton Exchange Membrane Electrolyzer), By Use (Transport, Power Generation, and Others) By Customer (Petrochemicals, Glass, Food & Beverages, Chemical, Medical, and Others), and By Region - Global and Regional Industry Overview, Market Intelligence, Comprehensive Analysis, Historical Data, and Forecast 2022–2028.”
We believe that in the near future, a significant growth sector of the economy will be in clean energy and sustainable products and services. This belief was a key factor in our shift in our business focus in May 2020 and our acquisition of Clean-Seas, Inc. (“Clean-Seas”) which became our wholly-owned subsidiary on May 19, 2020. Clean-Seas believes that it has made significant progress in identifying and developing a new business model around the clean energy and waste-to-energy sectors.
Clean Vision was established in 2017 as a company focused on the acquisition of disruptive technologies that will impact the digital economy. The Company, which was formerly known as Byzen Digital Inc., changed its corporate name to Clean Vision on March 12, 2021.
We are now a holding company and currently operate through our wholly-owned subsidiary, Clean-Seas, which we acquired on May 19, 2020. Clean-Seas acquired its first pyrolysis unit in November 2021 for use in a pilot project in India, which began operations in early May 2022. On April 23, 2023, Clean-Seas completed its acquisition of a fifty-one percent (51%) interest in Eco Synergie S.A.R.L., a limited liability company organized under the laws of Morocco (“Ecosynergie”), which changed its name to Clean-Seas Morocco, LLC (“Clean-Seas Morocco”) on such date. Clean-Seas Morocco began operations at its pyrolysis facility in Agadir, Morocco, in April 2023, which currently has capacity to convert 20 tons per day (“TPD”) of waste plastic through pyrolysis.
1
Clean Vision’s Purpose
We believe it is no secret that global plastic waste recycling is facing unprecedented challenges. We believe that inadequate processing infrastructure, fewer processing locales, changing laws and conventions, and political circumstances imperil what is already a deficient response to a global problem. Developed nations, including the United States, the world’s largest generator of plastic waste, are finding disposal of this waste increasingly difficult, due to expensive and inefficient processing capabilities; global conventions responding to environmental implications of international plastic export; and political constraints. In January 2018, the People’s Republic of China, which had been accepting plastic waste from countries including the U.S., implemented its National Sword policy limiting recyclable waste imports. As a result, the worldwide recyclables market experienced drastic limits, fewer options for disposal, resulting in a global backlog of plastic waste. Some of the recyclable material has been rerouted to Southeast Asian countries but the market remains in upheaval, with, at best, plastic waste floating in waiting ships and at worst, illegal dumping into international waters or incinerated.
According to an article published by the United Nations Environment Programme (“UNEP”) on March 2, 2022, entitled “What you need to know about the plastic pollution resolution,” the world currently produces approximately 400 million tons of plastic waste per year, with the rate of plastic production forecasted to double by 2040. It also estimated that by 2050, there will be more plastic in the ocean by weight than fish. According to an article published by National Geographic entitled “A Whopping 91 Percent of Plastic Isn’t Recycled,” plastic takes more than 400 years to degrade, so most of it still exists in some form. It is estimated that only 9% of plastic waste has been recycled to date, while the vast majority (approximately 79%) is accumulating in landfills or ending up as litter in the natural environment, including the oceans.
The waste plastics recycling industry was valued at $55.1 billion in 2020 and is poised to become an $88 billion industry by 2030, as reported in a March 2022 report entitled “Market value of waste recycling services worldwide 2020-2030” published by Statista. Pyrolysis is an invaluable technology that can be used to transform certain materials, which traditional mechanical recycling technologies currently cannot handle, into clean energy and other valuable byproducts. Pyrolysis is also an important alternative solution to handling materials that have exhausted their potential for further traditional mechanical recycling.
The emerging markets of the world are especially critical to the plastic pollution problem, where waste handling and collection are not supported with the same infrastructure as in developed nations. We believe this market condition presents a unique opportunity for us. Clean-Seas intends to leverage its management’s experience of working in the developing nations of the world for the past decade, providing renewable energy products and services to this sector and now will provide recycling solutions and energy generation. As stated by the Organization for Economic Co-operation and Development (“OECD”) in 2021, “The path to net zero requires that emerging markets transform their energy systems, yet reliance on hydrocarbons alongside existing policy barriers pose challenges to the green transition.”
Clean Vision plans to help provide a solution to the plastic waste problem that the world is facing, while simultaneously creating hydrogen and other clean-burning fuels that can be used to generate clean energy.
Our Strengths
We believe that the following are the critical investment attributes of our Company:
| ● | Experienced management team. Members of our management team have significant prior experience in the renewable energy sector and have established relationships with providers of pyrolysis technology that led to the establishment of our first Plastic Conversion Network (“PCN”) in Agadir, Morocco, following our April 25, 2023 acquisition of a 51% interest in Ecosynergie and the establishment of our first revenue source. |
| ● | Pilot Research and Development Project Commenced. We acquired our first pyrolysis unit for use in Hyderabad, India, which began operations in May 2022. We established this project to develop technology focused on optimizing the process of converting waste plastic into the byproducts, including the Company’s branded clean hydrogen, AquaH™, which is our branded name for clean hydrogen we produce from plastic waste that falls between the blue (natural gas) and green (renewable energy resourced) classifications. |
2
| ● | Large market opportunity for effective solution. Renewable energy is a large market we see with an unmet need. Plastic waste disposal affects all countries, including developing nations. With a more recent focus of governments on environmentally friendly waste removal solutions, we believe there is a large opportunity for us. | |
| ● | Unique technology. Pyrolysis technology reduces plastic waste while creating valuable byproducts, such as precursors used in the production of new plastic products, hydrogen (our branded AquaH™) and other clean-burning fuels that can be used to generate clean energy. Our AquaH™ is unique because of how we produce it. Our process is unique in that we use waste plastic and the pyrolysis reaction to create a large volume of synthetic gas (syngas), split that syngas apart, remove the hydrogen and leave the methane, carbon monoxide and carbon dioxide to power the pyrolysis process. We believe our process, including the price, volume and efficiency in which we utilize the pyrolysis process is what differentiates us in the marketplace. Additionally, our relationships with vendors have allowed us to access to pyrolysis technology that is not available to other users of similar technology. | |
| ● | Increased support for clean technologies to protect the environment. In recent years, we have seen an increased focus on environmental sustainability and more investors directing their investments towards companies based on ESG factors. | |
| ● | Experienced management team. Members of our management team have significant prior experience in the renewable energy sector and have established relationships with providers of pyrolysis technology that led to the establishment of our first PCN in Agadir, Morocco, following our April 25, 2023 acquisition of a 51% interest in Ecosynergie Group, a company focused on sustainable products and solutions based in Agadir, Morocco. | |
| ● | New Approach to Vertical Supply Chain. The PCN is a patent-pending software network connecting sources of waste plastic (feedstock) with conversion facilities, which will produce environmentally friendly commodities. We intend to strategically locate the conversion facilities around the world in locations that are easily accessible and in close proximity to countries that produce a large amount of plastic waste. Currently, we have begun operations in Morocco and entered into contracts for the development of facilities in: India, West Virginia, Arizona, Michigan, Massachusetts, Puerto Rico, France, Turkey and Sri Lanka. |
Our Strategies and Competitive Advantages
Our main strategy is to focus on waste-to-energy projects in locations with a close proximity to plastic waste and are a part of municipalities that focus on clean energy projects. Based on this strategy, we are currently focused on waste-to-energy projects in Morocco, India, West Virginia, Arizona, Michigan, Massachusetts, Puerto Rico, France, Turkey and Sri Lanka. We believe there is a large supply of waste plastic for such projects and the demand for our byproducts (particularly plastic precursors) is and will continue to grow consistently.
Another strategy we employ is to develop projects that could generate environmental credits, which is another component of the clean energy and waste-to-energy industry in the United States. Recycling of waste plastic mitigates the need for fossil fuels for energy generation and the production of clean-burning diesel. We plan to aggregate these off-sets and sell them to users of fossil fuels in the form of carbon credits or renewable energy credits depending on the location of the facilities and local market conditions. These can be used as off-set as more governments impose a “Carbon-tax” on the end users of fossil fuels. In addition, we are seeing new exchanges coming online specifically focused on plastic waste, and credits will be sought after, allowing producers of plastic products to off-set their plastic footprint, much like what has happened in the carbon markets.
We believe our network and management’s global relationships give us a competitive advantage by being able to quickly identify sources of land, feedstock, applicable permits, technology, and off-take arrangements for projects in locations we see as valuable. Once a project has been identified, we leverage these relationships to organize and deploy projects in a manner that we believe is more efficient than competitors.
We currently expect our projects to generate revenue in several ways:
| · | Gate Fees or Tipping Fees. We currently estimate that fees will be paid to us to accept plastic waste from a government, municipality, or corporate entity that must dispose of its waste. Fees will be on a per ton basis and are expected to vary in range from approximately $35 to $150 per ton, depending on the jurisdiction, land availability, and daily volumes of waste. |
| · | Sale of Hydrogen and Other Fuels. Our pyrolysis facilities convert waste into gasses, such as AquaHTM, and other clean-burning fuels. The hydrogen and other fuels can be sold to off-takers as a cleaner fuel source for the production of new plastic products, for marine use, electrical generators, or refined into a clean-burning road grade fuel. Depending on the installation, this fuel output product can be sold to a local fuel distributor or used in the generator sets for the generation of electricity as above. |
3
| · | Commodity Sales. Carbon char is an additional byproduct of our pyrolysis technology, which is used for the manufacturing of bonding agents, roadway surfaces, and more. We intend to enter into agreements with consumers of carbon char to serve as an additional revenue stream to us. |
| · | Environmental Credits. Recycling of waste plastic mitigates the need for fossil fuels for energy generation and the production of clean-burning diesel. These off-sets can be aggregated and sold to users of fossil fuels in the form of carbon credits or renewable energy credits depending on the location of the facilities and local market conditions. These can be used as off-set as more governments impose a “Carbon-tax” on the end users of fossil fuels. Additionally, plastic credits may be sold through plastic credit exchanges, such as the Plastic Credit Exchange (PCX), the HOPEx Environment Group, or similar established exchanges, to producers of new plastic products as a means of offsetting their plastic footprint. |
| · | Equipment Sales. Clean Vision has entered into a Licensing Agreement whereby Clean Vision has obtained the exclusive, worldwide rights (exclusive of the United States and Canada) to Kingsberry Fuel Cell Inc.’s fuel cell intellectual property for a term of five years, which Clean Vision intends to sell to third-parties throughout the world. Once established, these sales will provide a revenue stream to us, as well as recurring revenue through a royalty model and ongoing service. |
Summary of Risks
Before you invest in our securities, you should carefully consider all the information in this prospectus, including matters set forth in the section of this prospectus entitled “Risk Factors”. We believe that the following are some of the major risks and uncertainties that may affect us:
| · | Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern |
| · | We have a history of operating losses, will likely continue to generate operating losses, we may not be able to achieve or sustain profitability, and to date we have not generated revenue sufficient to fund our ongoing operations. |
| · | We are at an early stage of development of our current business line and we have a limited operating history, which makes it difficult to evaluate our business and prospects. |
| · | We require additional financing, and we may not be able to raise funds on favorable terms or at all. |
| · | Servicing our debt requires a significant amount of cash. |
| · | Covenant restrictions under our indebtedness may limit our ability to operate our business. |
| · | The equipment that is required for our operations is expensive and to date we have only acquired five pyrolysis units. |
| · | We do not yet have adequate internal controls and our failure to achieve and maintain effective internal control over financial reporting could have a material adverse effect on our business and share price. |
| · | We are a holding company without any operations of our own and depend on our subsidiaries for cash to meet our obligations. |
| · | We have not generated sufficient revenue or cash flow to pay our convertible debt in the principal amount of $4,939,602 as of September 13, 2023. |
| · | Our success depends on the acceptance of our products and services and that our products and services will develop and grow. |
| · | As public awareness of the benefits of fuel converted from waste plastic grows, we expect competition to increase. |
| · | We face risks with obtaining raw materials. |
| · | We do not believe that we will be able to negotiate worldwide exclusive rights to the technology we will need to acquire. |
| · | Project construction and development requires significant outlays of capital and is subject to numerous risks. |
| · | Failure to adequately manage our planned aggressive growth strategy may harm our business or increase our risk of failure. |
| · | Our business model will depend on performance by third parties under contractual arrangements. |
| · | Our operations in foreign markets could cause us to incur additional costs and risks associated with doing business internationally. |
| · | Volatility in foreign exchange currency rates could adversely affect our financial condition and results of operations. |
| · | Operations in the developing world could cause us to incur additional costs and risks associated with doing business in developing markets. |
| · | Our business and reputation could be adversely affected if we or third parties with whom we have a relationship fail to comply with United States or foreign anti-corruption laws or regulations. |
| · | If we are unable to maintain our corporate reputation, our business may suffer. |
4
| · | We will incur significant increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives. |
| · | Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. |
| · | Our stock price has been volatile and may continue to be volatile. |
| · | The price of our Common Stock may have little or no relationship to the historical bid prices of our Common Stock on the OTCQB. |
| · | We have a substantial number of authorized shares of Common Stock available for future issuance that could cause dilution of our stockholders’ interest and adversely impact the rights of holders of our Common Stock. |
| · | The holders of our Series B Convertible Non-Voting Preferred Stock (the “Series B Preferred Stock”) and our Series C Convertible Preferred Stock (the “Series C Preferred Stock”) are protected from dilution upon future issuances of our Common Stock. |
| · | Daniel Bates, our CEO and Chairman, owns 2,000,000 shares of Series C Preferred Stock, which shares of Series C Preferred Stock vote together with our Common Stock on all stockholder matters, and vote one hundred Common Stock votes per share of Series C Preferred Stock owned (the “Series C Preferred Voting Rights”). Such shares of Series C Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023 and on such date the contractual right to vote the shares of Series C Preferred Stock in accordance with the Series C Preferred Voting Rights ceased. The conversion of the Series C Preferred Stock into Common Stock has not been effectuated with the Company’s transfer agent as of the date hereof. |
| · | Ongoing litigation with holders of our Series B Preferred Stock could negatively impact our financial stability and reputation as the outcome of such matter is unknown and cannot be predicted. |
| · | If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Common Stock, its trading price and volume could decline. |
| · | We rely on our management and if they were to leave us or not devote sufficient time to our company, our business plan could be adversely affected. |
| · | Our Bylaws provide for indemnification of officers and directors at our expense. |
| · | Failure to adequately manage our planned aggressive growth strategy may harm our business or increase our risk of failure. |
| · | If we make any acquisitions, they may disrupt or have a negative impact on our business. |
| · | We rely on network and information systems and other technologies for our business activities and certain events, such as computer hackings, viruses or other destructive or disruptive software or activities may disrupt our operations. |
| · | We may apply working capital and future funding to uses that ultimately do not improve our operating results or increase the value of our securities. |
| · | Claims, litigation, government investigations, and other proceedings may adversely affect our business and results of operations. |
| · | We may incur indebtedness in the future which could reduce our financial flexibility, increase interest expense and adversely impact our operations and our costs. |
| · | Our operations could be impacted by natural disaster. |
| · | Delays in collection, or non-collection, of our accounts receivable could adversely affect our business, financial position, results of operations and liquidity. |
| · | Our patent application may not issue as a patent, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours. |
5
| · | We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. |
| · | If we are issued patents for our technology and such patents expire or are not maintained, our patent applications are not granted or our patent rights are contested, circumvented, invalidated or limited in scope, we may not be able to prevent others from selling, developing or exploiting competing technologies or products, which could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows. |
| · | We may become subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets. |
| · | A significant portion of our intellectual property is not protected through patents or formal copyright registration. |
| · | Confidentiality agreements may not adequately prevent disclosure of trade secrets and other proprietary information. |
| · | We may need to defend ourselves against patent, copyright or trademark infringement claims. |
| · | We are subject to extensive government regulation and changes thereto could have a material adverse effect on our business and financial condition, results of operations and cash flows. |
| · | We may be unable to obtain, modify, or maintain the required regulatory permits, approvals and consents for our projects. |
| · | We are subject to environmental laws and potential exposure to environmental liabilities. |
| · | Changes in applicable laws and regulations can adversely affect our business, financial condition and results of operations. |
| · | Anti-takeover provisions in our Bylaws, as well as provisions of Nevada law, might discourage, delay or prevent a change in control of our company or changes in our management. |
| · | The Jumpstart Our Business Startup Act (the “JOBS Act”) allows us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC. |
| · | Our election not to opt out of the JOBS Act extended accounting transition period may not make our financial statements easily comparable to other companies. |
| · | Global, regional and U.S. economic and geopolitical conditions may have adverse effects on our business and financial condition. |
| · | We may not maintain sufficient insurance coverage for the risks associated with our business operations. |
| · | We do not anticipate paying any cash dividends. |
| · | Any failure to protect our intellectual property rights could impair our ability to protect our technology and our brand. |
6
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. As an emerging growth company, we have elected to take advantage of reduced reporting requirements and are relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:
● we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
● we are exempt from the requirement to obtain an attestation and report from our auditors on whether we maintained effective internal control over financial reporting under the Sarbanes-Oxley Act;
● we are permitted to provide less extensive disclosure about our executive compensation arrangements; and
● we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.
We may take advantage of these provisions until December 31, 2028 so long as we continue to be an emerging growth company. We will continue to remain an “emerging growth company” until the earliest of the following: (i) December 31, 2028; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a “smaller reporting company,” including exemption from compliance with the auditor attestation requirements pursuant to SOX and reduced disclosure about our executive compensation arrangements. We will continue to be a “smaller reporting company” until we have $250 million or more in public float (based on our Common Stock) measured as of the last business day of our most recently completed second fiscal quarter or, in the event we have no public float (based on our Common Stock) or a public float (based on our Common Stock) that is less than $700 million, annual revenues of $100 million or more during the most recently completed fiscal year.
We may choose to take advantage of some but not all of these reduced burdens. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
7
Recent Developments
August 2023 Financing
On July 31, 2023, the Company entered into the August Purchase Agreement with the August Investor, pursuant to which the August Investor purchased the August Note in the original principal amount of $500,000. The transactions contemplated under the August Purchase Agreement closed on August 4, 2023.
The maturity date of the August Note is July 31, 2024 (the “August Note Maturity Date”). The August Note bears interest at a rate of 10% per annum (the “August Note Guaranteed Interest”), carries an original issue discount of 15% and has a conversion price of 90% per share of the lowest volume-weighted average price (“VWAP”) of the Common Stock during the 20 Trading Day period before such conversion. “Trading Day” means any day on which the Common Stock is traded on the OTCQB or other national securities exchange. The Company may prepay any portion of the outstanding principal amount and the August Note Guaranteed Interest at any time and from time to time, without penalty or premium, provided that any such prepayment will be applied first to any unpaid collection costs, then to any unpaid fees, then to any unpaid Default Rate (as defined in the August Note) interest, and any remaining amount shall be applied first to any unpaid August Note Guaranteed Interest and then to any unpaid principal amount.
The August Investor was granted a right of first refusal as the exclusive party with respect to any equity line of credit transaction or financing (an “Additional Financing”) that the Company enters into during the 24-month period after the issuance date of the August Note. In the event the Company enters into an Additional Financing, the Company must provide notice to August Investor not less than 10 Trading Days in advance of the proposed entry. If the August Investor accepts all usual and customary terms set forth in the Additional Financing notice, the August Investor must, within 20 Trading Days of receipt of the notice, prepare all relevant documents in respect thereof for execution and delivery by the Company, provided, however, that the Company’s outside counsel must prepare the relevant registration statement to be filed with the SEC no later than 45 days after the Company receives the documents.
The August Note provides that upon an event of default under the August Note, the principal amount and the August Guaranteed Interest then outstanding under the August Note become convertible into shares Common Stock pursuant to a notice provided by the August Investor to the Company. At any time after the occurrence of such an event of default, the outstanding principal amount and the outstanding August Guaranteed Interest then outstanding on the August Note, plus accrued but unpaid Default Rate interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable at the August Investor’s option, in cash or in shares Common Stock at 120% of the outstanding principal amount of the August Note and accrued and unpaid interest, plus other amounts, costs, expenses and liquidated damages due in respect of the August Note.
In connection with the August Purchase Agreement, the Company also entered into a Registration Rights Agreement (the “August RRA”) whereby it agreed to file with the SEC a Registration Statement covering the resale of all of the registrable securities under the August RRA within thirty (30) days of the issuance of the August Note, which is satisfied upon the filing of the registration statement of which this prospectus forms a part.
8
Settlement Agreement
On July 3, 2023, the Company entered into a Settlement Agreement and Mutual Release (the “Percy Settlement Agreement”) with Christopher Percy and Daniel Bates, whereby the parties agreed to a global settlement of the lawsuit filed by the Company against Mr. Percy in September 2022 in Clark County, Nevada in the Eighth Judicial District Court (Case No: A-22-85843-B), with the case being subsequently removed to the United States District Court, District of Nevada (2:22-cv-01862-ART-NJK) and thereafter, Mr. Percy counterclaimed against Clean Vision and brought third-party claims against Mr. Bates (the “Percy Litigation”). Mr. Bates is currently serving as Chief Executive Officer and Chairman of the Company. Mr. Percy is no longer serving as an executive of the Company, and as of February 14, 2023, Mr. Percy no longer served as a director.
The Percy Litigation arose from a dispute between the Company, Mr. Percy and Mr. Bates with respect to the management and operation of the Company, as well as Mr. Percy’s employment and position at the Company. On September 16, 2022, the Company commenced the Percy Litigation against Mr. Percy alleging breach of fiduciary duty, fraud, conversion, business disparagement, declaratory relief, and injunctive relief. Thereafter, Mr. Percy removed the case to the United States District of Nevada (Case No. 2:22-cv-01862-ART-NJK). The Company subsequently filed a motion to remand to state court on November 22, 2022. On December 1, 2022, Mr. Percy filed counterclaims against the Company for breach of contract, wrongful termination, breach of implied covenant of good faith and fair dealing, unjust enrichment, and indemnification. Mr. Percy also filed third-party claims against the Mr. Bates, alleging breach of fiduciary duty, equitable indemnity, and contribution.
Pursuant to the Percy Settlement Agreement, none of the parties admitted to fault or liability, Mr. Percy agreed to pay $150,000 to the Company (the “Percy Payment”) and, within ten (10) business days of the Percy Payment being received, Mr. Bates agreed to remit $25,000 to Mr. Percy (the “Bates Payment”). In addition, the parties agreed to work together to promptly release the $5,000 Temporary Restraining Order/Preliminary Injunction bond currently deposited with the Clerk of the Court for the Eighth Judicial District Court, Clark County, Nevada. Once released, said bond shall be remitted to Mr. Percy.
In addition, pursuant to the Percy Settlement Agreement, the Company agreed to, within ten (10) days of the effective date, instruct its transfer agent to (i) issued 1,500,000 shares of the Common Stock to Mr. Percy, (ii) restore and/or reissue to Mr. Percy the 3,000,000 shares of Common Stock that was previously cancelled by the Company and (iii) withdraw its stop-transfer demand current in place with respect to 4,200,000 shares of Common Stock owned by Mr. Percy (collectively, the “Percy Shares”). Mr. Percy agreed to not sell, on any given trading day, the Percy Shares in an amount that exceeds more than 10% of the daily trading volume of the Common Stock, with such trading volume determined by the trading platform upon which the Common Stock is then traded.
As consideration for entering into the Settlement Agreement, the parties agreed to a customary mutual release of claims agreed submitted a joint stipulation to the United States District Court, District of Nevada, dismissing all claims, crossclaims, counterclaims, and/or third-party claims in the Percy Litigation, with prejudice.
May 2023 Convertible Promissory Note
On May 26, 2023, the Company entered into the May Purchase Agreement with certain institutional investors the May Investor, pursuant to which the May Investor purchased the May Note in the original principal amount of $1,714,285.71 and the May Warrants exercisable up to 44,069,041 shares of the Common Stock.
The May Note matures 12 months after issuance and bear interest at a rate of 5% per annum, as may be adjusted from time to time in accordance with Section 2 of the May Note. The May Note has an original issue discount of 30%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the May Note.
9
At any time, the Company shall have the right to redeem all, but not less than all, of the amount then outstanding under the May Note (the “May Note Company Optional Redemption Amount”) on the May Note Company Optional Redemption Date (as defined in the May Note) (a “May Note Company Optional Redemption”). The portion of the May Note subject to a May Note Company Optional Redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 10% premium to the amount then outstanding under the May Note to be redeemed, and (ii) the equity value of our Common Stock underlying the May Note. The equity value of our Common Stock underlying the May Note is calculated using the greatest closing sale price of our Common Stock on any trading day immediately preceding such redemption and the date we make the entire payment required. The Company may exercise its right to require redemption under the May Note by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of May Note.
The May Note sets forth certain standard events of default, which, upon such an event of default requires the Company within one (1) Business Day to deliver written notice thereof via electronic mail and overnight courier to the May Investor (an “May Note Event of Default Notice”). At any time after the earlier of the Investor’s receipt of a May Note Event of Default Notice and the May Investor becoming aware of the event of default, the May Investor may require the Company to redeem (regardless of whether such May Note Event of Default has been cured) all or any portion of the May Note by delivering written notice thereof.
The May Warrants are exercisable for shares of the Company’s common stock at a price equal to 120% of the closing sale price of the common stock on the trading day ended immediately prior to the Closing Date (the “May Warrant Exercise Price”) and expire five years from the date of issuance. The May Warrant Exercise Price is subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like.
In connection with the May Purchase Agreement, the Company and the May Investor entered into a registration rights agreement (the “May Registration Rights Agreement”), pursuant to which the Company agreed to file with the SEC a registration statement covering the resale of all of the registrable securities issuable pursuant to the May Purchase Agreement within thirty (30) days after the closing date.
Pursuant to the May Purchase Agreement, the lead May Investor (in such capacity, the “May Existing Investor”) agreed to, effective at the time of execution of the May Purchase Agreement, amend Section 2(c) of the February Warrant (as defined herein) and April Warrant (as defined herein) (collectively, the “Prior Warrants”) to replace the reference therein to “Section 2(a)” with “Section 2.” Additionally, the May Existing Investor agreed to waive, in part, Section 2(c) of the Prior Warrants such that after giving effect to adjustments resulting from the execution and delivery of the May Purchase Agreement, (x) the aggregate number of shares of Common Stock issuable upon exercise thereof shall adjust as set forth in Section 1(e)(ii) of the May Purchase Agreement and (y) the exercise price of the Prior Warrants then in effect shall adjust to $0.0389. Such waiver shall only apply to issuances of the applicable notes and warrants and shall not apply to any other Dilutive Issuance (as defined in the Prior Warrants) or other transactions or events. After giving effect to such amendment and waiver, the February Warrant is exercisable into 49,164,524 shares of Common Stock and the April Warrant is exercisable into 29,498,714 shares of Common Stock (in each case, without regard to any limitations on exercise set forth therein).
The Company and the May Existing Investor also amended the February Note and April Note as set forth in Section 1(e)(iii) of the May Purchase Agreement.
10
April Convertible Note
Pursuant to the February Purchase Agreement, on April 10, 2023, an investor (the “April Investor”) purchased a senior convertible promissory note (the “April Note”) in the original principal amount of $1,500,000 and the Company issued warrants for the purchase of up to 17,660,911 shares of the Common Stock to the April Investor (the “April Warrant”). The April Note bears interest at a rate of 5% per annum and carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the April Note. The April Warrants are exercisable for shares of the Common Stock at a price of $0.0389 per share and expire five years from the date of issuance.
Morocco Acquisition
On April 25, 2023 (the “Morocco Closing Date”), Clean-Seas, a wholly owned subsidiary of the Company, completed its acquisition of a fifty-one percent (51%) interest (the “Morocco Acquisition”) in Ecosynergie, pursuant to that certain Notarial Deed dated as of January 23, 2023 (the “Morocco Signing Date”) setting forth the terms and provisions applicable to the Morocco Acquisition (the “Morocco Purchase Agreement”). On the Morocco Closing Date, Ecosynergie’s name was changed to Clean-Seas Morocco. Clean-Seas Morocco is managed by Mrs. Halima Aboudeine and Mr. Daniel C. Harris, the Company’s CRO. Mr. Harris also serves as the Chief Executive Officer of Clean-Seas Morocco.
On the Closing Date, Clean-Seas Morocco increased its bord of directors to five (5) directors (the “Clean-Seas Morocco Board”). The Ecosynergie Group designated Ms. Halima Aboudeine and Mr. Mohammed El Adbassi to serve as directors on the Clean-Seas Morocco Board. The Company’s designees on the Clean-Seas Morocco Board are Mr. Daniel Bates, the Company’s CEO, Mr. Daniel Harris, the Company’s CRO and Dr. Michael Dorsey, a member of the Company’s board of directors.
Pursuant to the Morocco Purchase Agreement, Clean-Seas paid an aggregate purchase price of $6,500,000 for the Morocco Acquisition, of which (i) $2,000,000 was paid on the Morocco Closing Date and (ii) the remaining $4,500,000 is to be paid to Ecosynergie Group over a period of ten (10) months from the Morocco Signing Date. Additionally, Clean-Seas committed to invest up to $50,000,000 in Clean-Seas Morocco over a period of ten (10) months from the Morocco Signing Date based on a schedule and business plan to be mutually agreed to by the parties. As of August 22, 2023, the balance of the amounts owed under the Morocco Purchase Agreement is $4,500,000.
Reg. D Purchase Agreements
On February 22, 2023, the Company entered into and closed on those certain Securities Purchase Agreements with five (5) investors (the “Reg. D Investors”), pursuant to which the Company issued 6,250,000 shares of Common Stock and warrants to purchase up to 6,250,000 additional shares of Common Stock (the “Reg. D Warrants”) for total cash proceeds of $125,000. The Reg. D Warrants are exercisable for shares Common Stock at a price of $0.03 per share and expire three years from the date of issuance.
11
February Convertible Promissory Note
On February 17, 2023, the Company entered into a securities purchase agreement (the “February Purchase Agreement”) with one (1) accredited investor (the “February Investor”), pursuant to which the February Investor purchased a senior convertible promissory note (the “February Note”) in the original principal amount of $2,500,000 and a warrant to purchase 29,434,850 shares of Common Stock (the “February Warrant”). Pursuant to the terms of the February Purchase Agreement, the Company and the February Investor provided customary representations and warranties to each other. The transactions contemplated under the February Purchase Agreement closed on February 21, 2023.
The maturity date of the February Note is February 21, 2024 (the “February Note Maturity Date”). The February Note bears interest at a rate of 5% per annum. The February Note carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the February Note.
At any time, the Company shall have the right to redeem all, but not less than all, of the conversion amount then remaining under the February Note (the “February Note Company Optional Redemption Amount”) on the applicable redemption date (a “February Note Company Optional Redemption”). The portion of the February Note subject to redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 120% of the amount being converted redeemed as of the February Note Company Optional Redemption Date and (ii) the product of (1) the Conversion Rate (as defined in the February Note) with respect to the Conversion Amount being redeemed as of the February Note Company Optional Redemption Date multiplied by (2) the greatest closing price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such February Note Company Optional Redemption Notice Date and ending on the Trading Day immediately prior to the date the Company makes the entire payment required. The Company may exercise its right to require redemption under the February Note by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of February Notes.
The February Note set forth certain standard events of default (such event, a “February Event of Default”), which, upon such February Event of Default requires the Company within one (1) Business Day to deliver written notice thereof via electronic mail and overnight courier to the February Investor (an “February Note Event of Default Notice”). At any time after the earlier of the February Investor’s receipt of an February Note Event of Default Notice and the February Investor becoming aware of an February Note Event of Default, the February Investor may require the Company to redeem (regardless of whether such February Note Event of Default has been cured) all or any portion of the February Note by delivering written notice thereof.
The February Warrant is exercisable for shares of Common Stock at a price of $0.0389 per share (the “February Warrant Exercise Price”) and expires five years from the date of issuance. The February Warrant Exercise Price is subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like.
The Company also entered into a Registration Rights Agreement with the February Investor (the “February Registration Rights Agreement”) to file with the SEC a Registration Statement covering the resale of all of the registrable securities under the February Registration Rights Agreement.
12
Special Share Dividend
On February 16, 2023, the Company’s Board of Directors (the “Board”) approved a special dividend of five shares of Common Stock for every one hundred shares of Common Stock issued and outstanding (the “Share Dividend”), and set the record date for the Share Dividend as February 27, 2023 (the “Share Dividend Record Date”) and the payment date as March 13, 2023. The shares issued pursuant to the Shares Dividend were issued as of March 13, 2023.
Securities Purchase Agreement and Promissory Note
On December 9, 2022, the Company entered into that certain Securities Purchase Agreement (the “December Purchase Agreement”) with Coventry Enterprises, LLC (“Coventry”), pursuant to which the Company issued to Coventry on that date a Promissory Note (the “December Note”) in the principal amount of $300,000 (the “December Note Principal Amount”) in exchange for a purchase price of $255,000. In addition, the Company issued to Coventry 15,500,000 shares of Common Stock (the “December Commitment Stock”), of which 12,500,000 shares of December Commitment Stock were returned to the Company pursuant to the December Purchase Agreement.
The December Note bears guaranteed interest. at the rate of 5% per annum (the “December Guaranteed Interest”) for the 12 months from and after the date of issuance (notwithstanding the 11-month term of the December Note for an aggregate December Guaranteed Interest of fifteen thousand Dollars ($15,000.00), all of which December Guaranteed Interest shall be deemed earned as of the date of the December Note. The principal amount and the December Guaranteed Interest under the December Note are due and payable in seven equal monthly payments of forty-five thousand and 00/100ths Dollars ($45,000.00), commencing on May 6, 2023 and continuing on the 6th day of each month thereafter until paid in full not later than November 6, 2023, or such earlier date as the December Note is required or permitted to be repaid as provided therein, and to pay such other interest to Coventry on the aggregate unconverted and then outstanding principal amount of the December Note in accordance with the provisions thereof.
Corporate Information
Our principal executive offices are located at 2711 N. Sepulveda Blvd., Suite #1051, Manhattan Beach, CA 90266. Our telephone number is (424) 835-1845. Our website address is https://www.cleanvisioncorp.com. The reference to our website is an inactive textual reference only. The information on, or that can be accessed through, our website is not part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our Common Stock.
Clean Vision was initially incorporated in Nevada as China Vitup Health Care Holdings, Inc. on September 15, 2006. Pursuant to an Agreement and Plan of Merger and Reorganization dated September 29, 2006, Tubac Holdings, Inc., a Wyoming corporation and a parent of the Company, was merged with and into the Company on October 2, 2006, with the Company as the surviving entity. On May 5, 2015, the Company changed its name to Emergency Pest Services, Inc. Pursuant to a Plan of Exchange dated August 3, 2015, the Company acquired Emergency Pest Services, Inc., a Florida corporation. Pursuant to a Plan of Exchange dated September 21, 2017, Byzen Digital Inc., a Seychelles corporation, was merged with and into the Company on November 4, 2017, with the Company as the surviving entity. On May 30, 2018, the Company changed its name to Byzen Digital Inc. On May 19, 2020, we changed our focus to clean energy and sustainability when we acquired Clean-Seas, which became our wholly-owned subsidiary. On March 12, 2021, the Company’s corporate name was changed to Clean Vision Corporation to be aligned with our focus on clean energy and sustainability.
13
SUMMARY OF The Offering
| Issuer | Clean Vision Corporation | |
| Shares of Common Stock offered by us | None | |
| Shares of Common Stock offered by the Selling Shareholders | Up to 820,598,246 shares (1) | |
| Shares of Common Stock outstanding before the Offering | 556,603,984 shares (2) | |
| Shares of Common Stock outstanding after completion of this offering, assuming the sale of all shares offered hereby | 1,377,202,230 shares (2) | |
| Offering Price | The Selling Shareholders may sell all or a portion of the Shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices. |
14
| Use of proceeds | We will not receive any proceeds from the resale of the Shares by the Selling Shareholders. | |
| Market for Common Stock | Our Common Stock is quoted on OTCQB under the symbol “CLNV”. | |
| Risk Factors | The purchase of our securities involves a high degree of risk. The securities offered in this prospectus are for investment purposes only. Please refer to the section entitled “Risk Factors“ before making an investment in our Common Stock. |
(1) This amount consists of up to (i) an aggregate of 477,744,799 Shares issuable upon conversion of the PIPE Notes, (ii) an aggregate of 245,464,558 Shares issuable upon exercise of the PIPE Warrants, (iii) 76,388,890 Shares issuable upon conversion of the August Note and (iv) 21,000,000 Inducement Shares issued to the August Investor on August 4, 2023.
(2) The number of shares of our Common Stock to be outstanding after this Offering is based on the 556,603,984 shares of our Common Stock outstanding as of September 13, 2023, and excludes the following:
| ● | 20,000,000 shares of Common Stock issuable upon conversion of the 2,000,000 issued and outstanding shares of Series B Preferred Stock, which shares automatically converted into 20,000,000 shares of Common Stock on January 1, 2023; however, the Company and holders of the Series B Preferred Stock are currently in a dispute and the Company’s Transfer Agent has been instructed to not issue the shares of Common Stock until such dispute has been resolved. Accordingly, although the shares of Common Stock thereunder have not been formally issued as of September 13, 2023, the shares of Series B Preferred Stock are no longer outstanding. On January 30, 2023, Leonard Tucker, LLC (“Tucker”), one of the holders of Series B Preferred Stock filed an action against the Company in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief. The Company is contesting such action and currently anticipates that such dispute will be resolved through binding arbitration in October 2023. |
| ● | 20,000,000 shares of Common Stock issuable upon conversion of the 2,000,000 issued and outstanding shares of Series C Preferred Stock, which shares automatically converted on January 1, 2023, but such conversion has not been effectuated as of September 13, 2023; | |
| ● | up to 20,000,000 shares of Common Stock issuable to Coventry upon a default under the convertible promissory note issued on December 9, 2022 in the principal amount of $300,000; | |
| ● | approximately 218,007,000 shares of Common Stock issuable upon the conversion of outstanding convertible promissory notes in the aggregate principal amount of $4,939,602; and | |
| ● | up to approximately 116,944,802 shares of Common Stock issuable upon exercise of outstanding warrants. |
15
SUMMARY FINANCIAL DATA
The following summary consolidated statements of operations data for the years ended December 31, 2022 and 2021 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2023 and 2022 and the consolidated balance sheets data as of June 30, 2023 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the six months ended June 30, 2023 are not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2023 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Our unaudited consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.
Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year. You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this prospectus.
| Summary Statements of Operations Data | Year
ended December 31, 2022 |
Year
ended December 31, 2021 | ||||||
| Revenue, net | $ | — | $ | — | ||||
| Cost of revenue | — | — | ||||||
| Gross profit | — | — | ||||||
| General and administrative | 1,287,030 | 373,095 | ||||||
| Payroll expense | 829,364 | 824,393 | ||||||
| Officer stock compensation expense | 516,042 | 536,125 | ||||||
| Director fees | 171,000 | 18,500 | ||||||
| Professional fees | 407,501 | 413,479 | ||||||
| Consulting | 2,452,383 | 1,955,213 | ||||||
| Interest expense | 250,404 | 1,187,033 | ||||||
| Loss on investment | — | 150,000 | ||||||
| Change in fair value of derivative | — | 576,573 | ||||||
| Net loss from continuing operations | $ | (5,913,724 | ) | $ | (6,034,411 | ) | ||
16
| Summary Statements of Operations Data | Six
Months ended June 30, 2023 |
Six
Months ended June 30, 2022 | ||||||
| Revenue, net | $ | 161,297 | $ | — | ||||
| Cost of revenue | 33,862 | — | ||||||
| Gross profit | 127,435 | — | ||||||
| Consulting | 694,498 | 782,960 | ||||||
| Professional fees | 541,560 | 126,630 | ||||||
| Payroll expense | 532,264 | 452,289 | ||||||
| Director fees | 88,000 | 9,000 | ||||||
| General and administration expenses | 760,803 | 596,970 | ||||||
| Total operating expense | 2,617,125 | 1,967,849 | ||||||
| Loss from Operations | (2,489,690 | ) | (1,967,849 | ) | ||||
| Interest expense | (1,709,153 | ) | (23,465 | ) | ||||
| Change in fair value of derivative | 1,136,079 | — | ||||||
| Loss on debt issuance | (2,676,526 | ) | (195,483 | ) | ||||
| Gain on conversion of debt | 260,882 | — | ||||||
| Gain on extinguishment of debt | 17,500 | — | ||||||
| Net loss | $ | (5,460,908 | ) | $ | (2,186,797 | ) | ||
| Net loss attributed to non-controlling interest | 33,294 | — | ||||||
| Net loss attributed to Clean Vision Corporation | $ | (5,427,614 | ) | $ | (2,186,797 | ) | ||
| As of June 30, 2023 | ||||||||
| Pro Forma | ||||||||
| Balance Sheet Data | Actual | (1) | ||||||
| Cash | $ | 394,304 | 769,304 | |||||
| Total assets | 9,359,505 | 9,734,505 | ||||||
| Total liabilities | 11,432,548 | 11,932,548 | ||||||
| Working capital (deficit) | (9,338,863 | ) | (9,463,863 | ) | ||||
| Accumulated deficit | (25,989,951 | ) | (26,114,951 | ) | ||||
| Total stockholders’ equity (deficit) | (3,873,043 | ) | (3, 998,043 | ) | ||||
(1) The pro forma balance sheet data reflects (i) our receipt of $375,000 of net proceeds from the issuance of the August Note in the principal amount of $500,000.
17
RISK FACTORS
Any investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. Our Common Stock is quoted on the OTCQB under the symbol CLNV. This market is extremely limited, and the prices quoted are not a reliable indication of the value of our Common Stock. As of the date of this prospectus, there has been very limited trading of shares of our Common Stock. If and when our Common Stock is traded, the trading price could decline due to any of these risks, and an investor may lose all or part of his or her investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this prospectus.
Risks Relating to Our Business and Industry
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
We have insufficient cash on hand, a working capital deficit of $9,338,863 and incurred net losses from operations resulting in an accumulated deficit of $25,989,951, as of June 30, 2023 and had a net loss of $5,913,724 for the year ended December 31, 2022, while we had a net loss of $6,034,411 for the year ended December 31, 2021. We had a working capital deficit of $1,819,013 and incurred net losses from operations resulting in an accumulated deficit of $19,078,809, as of December 31, 2021. As of the date of this prospectus, we anticipate that we will only be able to fund our current operations through April 30, 2024, based upon our current financial standing. As a result, our independent registered public accounting firm has issued a report on our financial statements for the period ended December 31, 2022, that includes an explanatory paragraph referring to our recurring operating losses and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, generate revenue. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need it, we will be required to curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in the Company.
We have a history of operating losses; will likely continue to generate operating losses and we may not be able to achieve or sustain profitability.
We are not profitable and have incurred an accumulated deficit of $25,989,951, as of June 30, 2023 and had a net loss of $5,427,614 for the six months ended June 30, 2023. We have incurred an accumulated deficit of $19,078,809, as of December 31, 2022 and had a net loss of $5,913,724 for the year ended December 31, 2022, while we had a net loss of $6,034,411 for the year ended December 31, 2021. We expect to continue to incur losses for the foreseeable future, and these losses could increase as we continue to work to develop our business. We were previously engaged in the digital currency industries. In May 2020, we identified a new direction for the Company when we acquired Clean-Seas and we adopted a new business strategy focused on clean energy and converting waste to energy. We have yet to commence profitable operations in either of those businesses, therefore, the Company is continuing to incur operating losses. There can be no assurance that we will ever generate significant sales or achieve profitability. Accordingly, the extent of future losses and the time required to achieve profitability, if ever, cannot be predicted.
Even if we achieve profitability in the future by adopting these new business strategies, we may not be able to sustain profitability in subsequent periods.
We also expect to experience negative cash flows for the foreseeable future as we fund our operating losses. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability would likely negatively impact the value of our securities and financing activities.
To date, we have not generated revenue from operations and we may not generate revenue from operations or that sources of revenue from financing will be available in the future.
To date, we have not generated any revenue from operations and have financed our operations through the sale of Common Stock in our Regulation A offering and the proceeds from the sale of convertible notes. There can be no assurance that we will generate revenue from operations or that sources of revenue from financing will be available or if available will be available upon favorable terms. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we may raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders.
18
We are at an early stage of development and we have a limited operating history, which makes it difficult to evaluate our business and prospects.
We are at an early stage of development and we have a limited operating history in our current business line, which can make it difficult for investors to evaluate our operations and prospects and may increase the risks associated with investment into our company. We have insufficient results for investors to use to identify historical trends. Investors should consider our prospects considering the risk, expenses and difficulties we will encounter as an early-stage company. We have yet to demonstrate our ability to overcome the risks frequently encountered in the clean energy and waste to energy industries and are still subject to many of the risks common to early stage companies, including the uncertainty as to our ability to implement our business plan, market acceptance of our proposed business and services, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources and uncertainty of our ability to generate revenues. There is no assurance that our activities will be successful or will result in any revenues or profit, and the likelihood of our success must be considered in light of the stage of our development. There can be no assurance that we will be able to consummate our business strategy and plans, or that financial, technological, market, or other limitations may force us to modify, alter, significantly delay, or significantly impede the implementation of such plans. Our business plan is subject to all business risks associated with new business enterprises, including the absence of any significant operating history upon which to evaluate an investment. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of new strategy and the competitive environment in which we will operate. It is possible that we will incur losses in the future. Our revenue and income potential is unproven and our business model is continually evolving. We are subject to the risks inherent to the operation of a new business enterprise and cannot assure you that we will be able to successfully address these risks. There is no guarantee that we will be profitable, that our business will generate sufficient revenue or that we will have adequate working capital to meet its obligations as they become due.
Additionally, our industry segments are relatively new, and are constantly evolving. As a result, there is a lack of available information with which to forecast industry trends or patterns. There is no assurance that sustainable industry trends or preferences will develop that will lead to predictable growth or earnings forecasts for individual companies or the industry segment as a whole. We are also unable to determine what impact future governmental regulation may have on trends and preferences or patterns within our industry segment.
The equipment that is required for our operations is expensive and to date we have only acquired five pyrolysis units.
To date, we have acquired five pyrolysis units, three of which are operational and two of which are currently being manufactured. In order to implement our business plan, we estimate that we will need to acquire several additional units. We estimate that each unit we will acquire will cost approximately $30 million and will take approximately 6-12 months to receive from time of order, therefore, we will be required to outlay significant funds prior to receipt of units. Pyrolysis equipment could cost as much as $100 million, but we intend to use our efforts to purchase such equipment at the best available prices.
We require additional financing, and we may not be able to raise funds on favorable terms or at all.
We anticipate requiring further funds in the future to grow our operations and complete our business plan. The sources of additional capital are expected to be from the sale of securities. Any future sale of share capital will result in dilution to existing stockholders. Furthermore, we may incur debt in the future, and may not have sufficient funds to repay our future indebtedness or may default on our future debts, jeopardizing our business viability.
We may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to expand our operations and business, which might result in the value of our securities decreasing in value or becoming worthless. Additional financing may not be available to us on terms that are acceptable, or at all. Consequently, we may not be able to proceed with our intended business plans. Obtaining additional financing contains risks, including:
| ● | additional equity financing may not be available to us on satisfactory terms, or at all, and any equity we are able to issue could lead to dilution for current stockholders; |
| ● | loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our directors; |
| ● | the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing; and |
| ● | if we fail to obtain required additional financing to grow our business, we will need to delay or scale back our business plan, reduce our operating costs, or reduce our headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition. |
19
Additionally, we may have difficulty obtaining additional funding, and we may have to accept terms that would adversely affect our stockholders. For example, the terms of any future financings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business. Additionally, lending institutions or private investors may impose restrictions on a future decision by us to make capital expenditures, acquisitions or significant asset sales. If we are unable to raise additional funds, we may be forced to curtail or even abandon our business plan.
Failure to adequately manage our planned aggressive growth strategy may harm our business or increase our risk of failure.
For the foreseeable future, we intend to pursue an aggressive growth strategy for the expansion of our operations. Our ability to rapidly expand our operations will depend upon many factors, including our ability to work in a regulated environment, establish and maintain strategic relationships, and obtain adequate capital resources on acceptable terms. Any restrictions on our ability to expand may have a materially adverse effect on our business, results of operations, and financial condition. Accordingly, we may be unable to achieve our targets for growth, and our operations may not be successful or achieve anticipated operating results.
Additionally, our growth may place a significant strain on our managerial, administrative, operational, and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:
| ● | implement additional management information systems; | |
| ● | further develop our operating, administrative, legal, financial, and accounting systems and controls; | |
| ● | hire additional personnel; | |
| ● | develop additional levels of management within our company; and | |
| ● | maintain close coordination among our operations, legal, finance, sales and marketing, and client service and support personnel. |
Failure to accomplish any of these requirements could impair our ability to grow and expand our operations.
We are a holding company without any operations of our own and depend on our subsidiaries for cash to meet our obligations.
We are a holding company and conduct all of our operations through our subsidiaries. Accordingly, repayment of our indebtedness, including the senior notes, in part, is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by debt repayment, equity financing transactions or otherwise. Unless they are guarantors of the senior notes or other indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the senior notes.
We have not generated sufficient revenue or cash flow to pay our convertible debt, and conversion of such debt into shares of Common Stock, which could cause significant dilution.
As of September 13, 2023, we had outstanding convertible debt in the principal amount of $4,939,602. To date, we have not generated sufficient revenue or cash flows to pay the balances owed under these notes and provide sufficient working capital to run our business. The outstanding principal amount of the notes is convertible at any time and from time to time at the election of the holder after certain periods of time into shares of our Common Stock at discounts to the market price of our Common Stock. In addition, upon the occurrence and during the continuation of an Event of Default (as defined in the notes), the notes each will become immediately due and payable and we have agreed to pay additional default interest rates. We may not have sufficient cash resources or access to funding to repay such notes. Moreover, upon conversion of these notes, our current stockholders will suffer dilution, which could be significant.
20
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash to service our debt depends on many factors beyond our control.
Our ability to make payments on and to refinance our debt, to fund planned capital expenditures and to maintain sufficient working capital depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or from other sources in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to allow us to make scheduled payments on our debt, we may need to seek additional capital or restructure or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that we will be able to obtain any financing when needed.
Covenant restrictions under our indebtedness may limit our ability to operate our business.
Our outstanding convertible notes contain, and our future indebtedness agreements may, contain covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. The notes restrict our ability to:
| ● | incur, assume or guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Permitted Indebtedness (as defined in the notes); | |
| ● | repurchase capital stock; | |
| ● | repay any Indebtedness (as defined in the notes) other than certain secured notes which are no longer outstanding or Permitted Indebtedness or make other restricted payments including, without limitation, paying dividends and making investments; | |
| ● | create liens; | |
| ● | sell or otherwise dispose of assets; and | |
| ● | enter into transactions with affiliates. |
In addition, the notes contain price protection anti-dilution provisions that will discourage financing at prices below the conversion price of the notes and will result in a decrease in the conversion price of the notes if we should issue securities below such price.
Litigation with holders of Series B Preferred Stock could negatively impact our business.
On January 30, 2023, Leonard Tucker, LLC (“Tucker”), one of the holders of the Company’s Series B Preferred Stock, filed an action against the Company in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief (the “Tucker Litigation”). The Tucker Litigation arises from the 3-year Consulting Agreement the Company entered into with Tucker on December 17, 2020 (the “Tucker Agreement”), whereby Tucker agreed to perform certain strategic and business development services to the Company in exchange for 2,000,000 shares of Series B Preferred Stock and a consulting fee of $20,000 per month. The 2,000,000 shares of Series B Preferred Stock held by Tucker automatically converted into 20,000,000 shares of Common Stock on January 1, 2023; however, the conversion of the Series B Preferred Stock into Common Stock has not been effectuated with the Company’ transfer agent as of the date hereof.
While the Company is contesting the allegations in the Tucker Litigation, the matter is set to be finally resolved through arbitration in October 2023. The outcome of such matter is unknown and cannot be predicted. If the Company is found to be liable for the causes of action as specific in the Tucker Litigation, the Company may be required to issue additional securities to Tucker, pay damages to Tucker in an amount that currently be estimated, or such other relief that cannot be determined at this time. A resolution of the Tucker Litigation that is not favorable to the Company could negatively impact the financial stability and reputation of the Company.
Our future success depends on the acceptance of our products and services, which may not happen, and that our products and services will develop and grow.
Our entire business is based on the assumption that the demand for our products and services will develop and grow. We cannot assure you that this assumption is or will be correct. Although the market for clean energy and waste-to-energy is large, the market for fuel converted from waste through pyrolysis is new and currently quite small. As is typical of a new and rapidly evolving industry, the demand for, and market acceptance of, “green-based” products and services is highly uncertain. In order to be successful, we must be able to keep our understandings in place with the suppliers of our products and educate consumers that our products perform as well as the products they currently use. We can provide no assurances that these efforts will be successful. Similarly, we cannot assure you that the demand for our products and services will develop as anticipated. If the market for our products fails to develop or develops more slowly than we anticipate, our business could be adversely affected.
21
As public awareness of the benefits of fuel converted from waste grows, we expect competition to increase, which could make it more difficult for us to grow and achieve profitability.
We expect competition to increase as awareness of the environmental advantages of converting waste into fuel increases. A rapid increase in competition could negatively affect our ability to develop a profitable client base. Many of our competitors and potential competitors may have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. We cannot be sure that we will have the resources or expertise to compete successfully. Compared to us, our competitors may be able to:
| ● | develop and expand their products and services more quickly; | |
| ● | adapt faster to new or emerging technologies and changing customer needs and preferences; | |
| ● | take advantage of acquisitions and other opportunities more readily; | |
| ● | negotiate more favorable agreements with vendors and customers; and | |
| ● | devote greater resources to marketing and selling their products or services. |
Some of our competitors may also be able to increase their market share by providing customers with additional benefits or by reducing their prices. We cannot be sure that we will be able to match price reductions by our competitors. In addition, our competitors may form strategic relationships to better compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contractual arrangements that could increase our competitors’ ability to serve customers. If our competitors are successful in entering our market, our ability to grow or even sustain our current business could be adversely impacted.
Disruptions in the political, regulatory, economic, and social conditions of the countries in which we conduct business could adversely affect our business or results of operations.
Our business model envisions us operating in various countries across the world. Instability and unforeseen changes in any of the markets in which we conduct business, including economically and politically volatile areas or conflict or rumor of conflict could have an adverse effect on the demand for our services and products, our financial condition, or our results of operations. These factors include, but are not limited to, the following:
| ● | nationalization and expropriation; | |
| ● | potentially burdensome taxation; | |
| ● | inflationary and recessionary markets, including capital and equity markets; | |
| ● | civil unrest, labor issues, political instability, disease outbreaks, terrorist attacks, cyber terrorism, military activity, and wars; | |
| ● | increasing attention to global climate change resulting in pressure from stockholders, financial institutions and/or financial markets; | |
| ● | supply disruptions in key oil producing countries; | |
| ● | the ability of OPEC+ to set and maintain production levels and pricing; | |
| ● | trade restrictions, trade protection measures, price controls, or trade disputes; | |
| ● | sanctions, such as prohibitions or restrictions by the United States against countries that are the targets of economic sanctions, or are designated as state sponsors of terrorism; |
22
| ● | foreign ownership restrictions; | |
| ● | import or export licensing requirements; | |
| ● | restrictions on operations, trade practices, trade partners, and investment decisions resulting from domestic and foreign laws, and regulations; | |
| ● | regime changes; | |
| ● | changes in, and the administration of, treaties, laws, and regulations including in response to public health issues; | |
| ● | inability to repatriate income or capital; | |
| ● | reductions in the availability of qualified personnel; | |
| ● | foreign currency fluctuations or currency restrictions; and | |
| ● | fluctuations in the interest rate component of forward foreign currency rates. |
We may apply working capital and future funding to uses that ultimately do not improve our operating results or increase the value of our securities.
In general, we have complete discretion over the use of our working capital and any new investment capital we may obtain in the future. Because of the number and variety of factors that could determine our use of funds, our ultimate expenditure of funds (and their uses) may vary substantially from our current intended operating plan for such funds. Our management has broad discretion to use any or all of our available capital reserves. Our capital could be applied in ways that do not improve our operating results or otherwise increase the value of a stockholder’s investment.
We anticipate incurring indebtedness in the future which could reduce our financial flexibility, increase interest expense and adversely impact our operations and our costs.
We anticipate incurring significant amounts of indebtedness in the future. Our level of indebtedness could affect our operations in several ways, including the following:
| ● | a significant portion of our cash flows is required to be used to service our indebtedness; | |
| ● | a high level of debt increases our vulnerability to general adverse economic and industry conditions; | |
| ● | covenants contained in the agreements governing our outstanding indebtedness limit our ability to borrow additional funds and provide additional security interests, dispose of assets, pay dividends and make certain investments; | |
| ● | a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness may prevent us from pursuing; and | |
| ● | debt covenants may affect our flexibility in planning for, and reacting to, changes in the economy and in our industry. |
A high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.
We face risks relating to our reliance on subcontractors, suppliers, and our joint venture partners.
We generally rely on subcontractors, suppliers, and our joint venture partners for the performance of our contracts. Although we are not dependent upon any single supplier, certain geographic areas of our business or a project or group of projects may depend heavily on certain suppliers for raw materials or semi-finished goods.
23
Any difficulty in engaging suitable subcontractors or acquiring equipment and materials could compromise our ability to generate a significant margin on a project or to complete such project within the allocated time frame. If subcontractors, suppliers or joint venture partners refuse to adhere to their contractual obligations with us, or are unable to do so due to a deterioration of their financial condition, we may be unable to find a suitable replacement at a comparable price, or at all. Moreover, the failure of one of our joint venture partners to perform their obligations in a timely and satisfactory manner could lead to additional obligations and costs being imposed on us as we may be obligated to assume our defaulting partner’s obligations or compensate our customers. Additionally, our supply chain, subcontractors, suppliers, and our joint venture partners may be adversely affected by the COVID-19 pandemic, which has created global shipping and logistics challenges such as extended shipping lead times and pricing pressures on transportation and logistics.
Any delay, failure to meet contractual obligations, or other event beyond our control or not foreseeable by us, that is attributable to a subcontractor, supplier or joint venture partner, could lead to delays in the overall progress of the project and/or generate significant extra costs. Even if we are entitled to make a claim for these extra costs against the defaulting supplier, subcontractor or joint venture partner, we may be unable to recover the entirety of these costs and this could materially adversely affect our business, financial condition or results of operations.
New capital asset construction projects are subject to risks, including delays and cost overruns, which could have a material adverse effect on our financial condition, or results of operations.
From time to time, we may be required to carry out capital asset construction projects to maintain, upgrade, and develop our asset base, and such projects are subject to risks of delay and cost overruns that are inherent in any large construction project, resulting from numerous factors including, but not limited to, the following:
| ● | shortages of key equipment, materials or skilled labor; | |
| ● | delays in the delivery of ordered materials and equipment; | |
| ● | engineering issues; | |
| ● | shipyard delays and performance issues; and | |
| ● | failure to complete construction in time, or the inability to complete construction in accordance with design specifications, may result in the loss of revenue. |
Additionally, capital expenditures for construction projects could materially exceed the initially planned investments, or there could be delays in putting such assets into operation.
We face risks associated with obtaining raw materials.
With regard to our Clean-Seas subsidiary, even though we believe there to be an abundant supply of waste plastic, it is expected that there will be increased competition for these plastic resources, with the result that it could have an effect on our profitability that we do not foresee at this time.
We do not believe that we will be able to negotiate worldwide exclusive rights to the technology we will need to acquire.
Our intent is to use existing pyrolysis technologies and to implement equipment that is available in the industrial marketplace. While we do not believe we will acquire worldwide rights, we expect that we will be able to obtain exclusive rights for specific territories. Accordingly, other competitors may license or otherwise obtain the use of the same technology for different locations.
Project construction and development requires significant outlays of capital and is subject to numerous risks.
The construction and development of our projects involves numerous risks. We are required to outlay significant capital for preliminary engineering, permitting, legal, and other expenses before we can determine whether a project is feasible or economically attractive. In order to successfully construct and develop our projects, we need to negotiate satisfactory engineering, procurement and construction agreements and feedstock supply agreements, receive all required governmental permits and approvals, obtain financing, and timely implement construction and development. Successful completion of a particular project may be adversely affected by numerous factors, including: (i) failure or delay in obtaining required government permits and approvals with acceptable conditions; (ii) unavailability of financing; (iii) uncertainties relating to land costs for projects; (iv) engineering problems; (v) construction delays and contractor performance shortfalls; (vi) work stoppages; (vii) cost overruns; (viii) failure of equipment and materials supply; (ix) adverse weather conditions; and (x) environmental and geological conditions. Our ability to become profitable in the future will not only depend on our ability to complete the construction and development of our projects but also to control our capital expenditures and costs. If we are unable to cost efficiently construct, develop and deploy our projects and provide our products and services, our business, prospects, financial condition, results of operations, and cash flows would be materially and adversely affected.
24
Our business model will depend on performance by third parties under contractual arrangements.
Our businesses will depend on third parties to, among other things, own and/or operate our projects, obtain necessary permits, purchase energy produced by our projects, and supply and deliver the goods and services necessary for the construction and operation of our projects. Further, the design, development and delivery of fuel cells is dependent upon performance by Kingsberry Fuel Cell Corporation pursuant to a Licensing Agreement.
The viability of our projects depends significantly upon the performance of these third parties, and others that we hope to enter into agreements within the near future, in accordance with long-term contracts. If these third parties cannot or will not perform their contractual obligations, whether due to their financial condition, force majeure events, changes in laws or regulations, or otherwise, we may not be able to secure alternate arrangements on substantially the same terms or at all for the goods and services provided under such contracts. In addition, some of the owners and operators of our projects may be smaller companies that are more likely to experience financial and operational difficulties than relatively larger, well-established companies, which could result in interruptions or delays in the operation of our projects. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Our operations in foreign markets could cause us to incur additional costs and risks associated with doing business internationally.
We currently are conducting operations in India and Morocco and we plan to commence operations in France, Turkey, Sri Lanka, Puerto Rico, Michigan, Massachusetts, Arizona and West Virginia. Our operations in markets outside the United States subject us to additional costs and risks, including:
| ● | compliance with foreign requirements regulating the environment and the waste-to-energy market; | |
| ● | difficulties in establishing, staffing and managing international operations; | |
| ● | U.S. laws and regulations related to foreign operations, including tax and anti-corruption laws and regulations; | |
| ● | differing intellectual property laws; | |
| ● | differing contract laws that impact the enforceability of agreements among energy suppliers and energy consumers; | |
| ● | imposition of special taxes; | |
| ● | strong national and international competitors; | |
| ● | currency exchange rate fluctuations; and | |
| ● | political and economic instability in the countries in which we operate. |
Our failure to manage the risks associated with international operations could limit the future growth of our business and adversely affect our business, financial condition and results of operations. We may be required to make a substantial financial investment and expend significant management efforts in connection with our international operations.
Volatility in foreign exchange currency rates could adversely affect our financial condition and results of operations.
We may have significant exposure to revenues, expenses and certain asset and liability balances denominated in currencies other than the U.S. Dollar. In addition, we conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates relative to the U.S. Dollar. Fluctuations in the exchange rates of currencies relative to the U.S. Dollar may significantly affect our operating results and equity earnings. Our operating and equity earnings are adversely affected when the U.S. Dollar strengthens relative to other currencies and are positively affected when the U.S. Dollar weakens. In the future, a larger portion of our international revenue may be denominated in foreign currencies, which will subject us to additional risks associated with fluctuations in those foreign currencies. In addition, we may be unable to successfully hedge against any such fluctuations.
Operations in the developing world could cause us to incur additional costs and risks associated with doing business in developing markets.
We may seek to operate in the developing world, which would make us vulnerable to political, economic and social instability in such areas. Many areas of the developing world have experienced political, economic and social uncertainty in recent years, including an economic crisis characterized in some cases by increased inflation, high domestic interest rates, negative economic growth, reduced consumer purchasing power and high unemployment. Currently, many of the countries in the developing world where we have been or may be pursuing projects have been pursuing economic stabilization policies, including the encouragement of foreign trade and investment and other reforms, but there is no guarantee these policies will be successful or stay in place. Political, economic and social instability in these countries may have an adverse effect on our business, financial condition and results of operations.
25
Our business and reputation could be adversely affected if we or third parties with whom we have a relationship fail to comply with United States or foreign anti-corruption laws or regulations.
Our business and operations may be conducted in countries where corruption has historically penetrated the economy to a greater extent than in the United States. It is our policy to comply, and to require our local partners and those with whom we do business to comply, with all applicable anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and with applicable local laws of the foreign countries in which we operate. Our business and reputation may be adversely affected if we or our local partners fail to comply with such laws.
If we are unable to maintain our corporate reputation, our business may suffer.
Our success depends on our ability to maintain our corporate reputation. Adverse publicity surrounding any aspect of our business, or due to any failure on our part to comply with laws to which we are subject, could negatively affect our Company’s overall reputation.
Our operations could be impacted by natural disaster.
The occurrence of natural disasters in the markets in which we operate could disrupt our business operations and personnel located in the affected areas and, in the case of our corporate office, our ability to provide administrative support services, including billing and collection services.
For example, our operations could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on one of our facilities. The security and other measures we, and the property owners, take to protect against these risks may not be sufficient. Our insurance may not be adequate to cover the losses we suffer as a result of any of these events. In the event of an uninsured loss, including a loss in excess of insured limits, at any of the facilities in our network, such facilities may not be adequately repaired in a timely manner or at all and we may lose some or all of the future revenues anticipated to be derived from such facilities.
Delays in collection, or non-collection, of our accounts receivable could adversely affect our business, financial position, results of operations and liquidity.
Prompt billing and collection are important factors in our liquidity. Billing and collection of our accounts receivable are subject to the complex regulations. Our inability to bill and collect on a timely basis pursuant to these regulations and rules could subject us to payment delays that could have a material adverse effect on our business, financial position, results of operations and liquidity. It is possible that documentation support, system problems, or other payor issues may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
26
Intellectual Property Risks
Our patent application may not issue as a patent, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We currently have one patent application pending with the United States Patent and Trademark Office (“USPTO”), for our PCN, a system and method for securing, storing and converting plastic waste to produce environmentally friendly commodities and clean-fuels, which is able to (i) reduce waste deposited into landfills, (ii) reduce incineration, (iii) mitigate the use of fossil fuel products, and (iv) provide a system useful for establishing plastic waste recycling and collection infrastructure.
There is no guarantee that our pending patent application will be approved. We cannot be certain that we are the first inventor of the subject matter to which we have filed a particular patent application, or that we are the first party to file such a patent application. If another party has filed a patent application for the same subject matter as we have, we may not be entitled to the protection sought by the patent application. Further, the scope of protection of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent application that we have filed for our Plastic Conversion Network will issue, or that our issued patents will afford protection against competitors with similar technology. In addition, our competitors may design around our issued patents, which may adversely affect our business, prospects, financial condition, results of operations, and cash flows.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. We rely on a combination of patent, trade secret (including those in our know-how), and other intellectual property laws, as well as employee and third-party nondisclosure agreements, intellectual property licenses, and other contractual rights to establish and protect our rights in our technology and intellectual property. Our patent or trademark applications may not be granted, any patents or trademark registrations that may be issued to us may not sufficiently protect our intellectual property and any of our issued patents, trademark registrations or other intellectual property rights may be challenged by third parties. Any of these scenarios may result in limitations in the scope of our intellectual property or restrictions on our use of our intellectual property or may adversely affect the conduct of our business. Despite our efforts to protect our intellectual property rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken or will take to prevent misappropriation may not be successful. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
Patent, trademark, and trade secret laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the United States. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition, results of operations, and cash flows.
Any failure to protect our intellectual property rights could impair our ability to protect our technology and our brand.
Our success depends in part on our ability to enforce our intellectual property and other proprietary rights. We have one patent application pending with the USPTO related to our PCN, but no patents currently granted, and rely upon a combination of trademark and trade secret laws, as well as license and other contractual provisions, to protect our intellectual property and other proprietary rights. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties may gain access to our proprietary information, develop and market solutions similar to ours or use trademarks similar to ours, each of which could materially harm our business. The failure to adequately protect our intellectual property and other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.
If any issued patent expires or is not maintained, our patent applications are not granted or our patent rights are contested, circumvented, invalidated or limited in scope, we may not be able to prevent others from selling, developing or exploiting competing technologies or products, which could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows.
We cannot assure you that our pending application will issue as a patent. Even if our patent application issues into a patent, the patents may be contested, circumvented or invalidated in the future. In addition, the rights granted under any issued patent may not provide us with adequate protection or competitive advantages. The claims under any patent that issues from our patent application may not be broad enough to prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual property rights of others could also bar us from licensing and exploiting any patents that issue from our pending applications. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. Many of these existing patents and patent applications might have priority over our patent applications and could subject our patents to invalidation or our patent applications to rejection. Finally, in addition to patents and patent applications that were filed before our patents and patent applications, any of our existing or future patents may also be challenged by others on the basis that they are invalid or unenforceable.
27
We may in the future become, subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.
In the event we hire employees that were previously employed by other companies with similar or related technology, products or services, we may in the future become subject to claims that we or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, we may be forced to pay monetary damages or be enjoined from using certain technology, products, services or knowledge. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.
A significant portion of our intellectual property is not protected through patents or formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating our products, product candidates and brands.
We have not protected certain of our intellectual property rights through patents or formal copyright registration, and we do not currently have any issued patents. There can be no assurance that any patent will issue or if issued that the patent will protect our intellectual property. As a result, we may not be able to protect our intellectual property and trade secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly identical to ours resulting in us selling less products or generating less revenue from our sales.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets, know-how and technology, which are not protected by patents, to protect certain of the intellectual property behind our Plastic Conversion Network. We have recently begun to use confidentiality agreements with our collaborators, employees, consultants, outside collaborators and other advisors to protect our proprietary technology and processes. We intend to use such agreements in the future, but these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may need to defend ourselves against patent, copyright or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
The status of the protection of our intellectual property is unsettled as we do not have any issued patents, registered trademarks or registered copyrights and other than the pending patent application for PCN, we have not applied for the same. Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our projects, products and services, which could make it more difficult for us to operate our business. In the future, we may receive communications from third parties that allege our products or components thereof are covered by their patents or trademarks or other intellectual property rights, we have not received any communication of this kind to date. Companies holding patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined to have infringed upon a third-party’s intellectual property rights, we may be required to do one or more of the following:
| ● | cease making, using, selling or offering to sell processes, goods or services that incorporate or use the third-party intellectual property; | |
| ● | pay substantial damages; |
| ● | seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; |
| ● | redesign our projects or other goods or services to avoid infringing the third-party intellectual property; |
| ● | establish and maintain alternative branding for our products and services; or |
| ● | find-third providers of any part or service that is the subject of the intellectual property claim. |
28
In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
Risks Relating to Governmental Regulation
We are subject to extensive governmental regulation. Any changes to the laws and regulations governing our business, or to the interpretation and enforcement of those laws or regulations, could have a material adverse effect on our business and financial condition, results of operations and cash flows.
Currently there are no federal laws restricting or regulating pyrolysis; however, the Environmental Protection Agency (the “EPA”) has released an advance notice of proposed rulemaking on pyrolysis and gasification units. As of January 2022, twenty-one states have passed legislation that will regulate advanced recycling technologies such as pyrolysis as manufacturing operations rather than waste. Waste handling requirements are much stricter than manufacturing requirements. Michigan and Arizona, where Clean-Seas is currently establishing facilities, have passed such legislation.
Federal and state laws and regulations also impact how we conduct our business, the services we offer and our interactions with customers, our employees and the public and impose certain requirements on us such as:
| ● | licensure and certification; | |
| ● | operating policies and procedures; | |
| ● | emergency preparedness risk assessments and policies and procedures; | |
| ● | policies and procedures regarding employee relations; | |
| ● | addition of facilities and services; | |
| ● | billing for services; | |
| ● | requirements for utilization of services; and | |
| ● | reporting and maintaining records regarding adverse events | |
These laws and regulations, and their interpretations, are subject to change. Changes in existing laws and regulations, or their interpretations, or the enactment of new laws or regulations could have a material adverse effect on our business and financial condition, results of operations and cash flows by:
| ● | increasing our administrative and other costs; | |
| ● | increasing or decreasing mandated services; | |
| ● | causing us to abandon business opportunities we might have otherwise pursued; or | |
| ● | requiring us to implement additional or different programs and systems. |
Due to the associated quantities of hazardous substances and waste, our industry is highly regulated and monitored by various environmental regulatory authorities such as the EPA, federal or state analogs in other countries and the European Union, which promulgated the Industrial Emission Directive. We intend to rely upon our local partners in each jurisdiction in which we operate, including India and Morocco and other jurisdictions to be established in the future, to ensure compliance with the local regulatory authorities. As such, we are subject to extensive international, national, state and local laws, regulations and directives pertaining to pollution and protection of the environment, health and safety, which govern, among other things, emissions to the air, discharges onto land or waters, the maintenance of safe conditions in the workplace, and the generation, handling, storage, transportation, treatment and disposal of waste materials. Some of these laws, regulations and directives are subject to varying and conflicting interpretations. Many of these laws, regulations and directives provide for substantial fines and potential criminal sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions or reduce the likelihood or impact of hazardous substance releases, whether permitted or not. New laws, rules and regulations as well as changes to laws, rules and regulations may also affect us.
29
Local, state, federal and foreign governments have increasingly proposed or implemented restrictions on certain plastic-based products, including single-use plastics and plastic food packaging. Plastics have also faced increased public scrutiny due to negative coverage of plastic waste in the environment. Increased regulation on the use of plastics could cause reduced demand for our polyethylene products, which could adversely affect our business, operating results and financial condition.
We may be unable to obtain, modify, or maintain the regulatory permits, approvals and consents required to construct and operate our projects.
In order to construct and operate our projects, we must obtain and modify numerous environmental and other regulatory permits and certifications from federal, state and local agencies and authorities, including air permits and wastewater discharge permits. A number of these permits and certifications must be obtained prior to the start of a project, while other permits are required to be obtained at or prior to the time of first commercial operation or within prescribed time frames following commencement of commercial operations. Any failure to obtain or modify the necessary environmental and other regulatory permits and certifications on a timely basis could delay the commercial operation of our projects. In addition, once a permit or certification has been issued for a project, we must take steps to comply with each permit’s or certification’s conditions, which can include conditions as to timely commencement of the project. Failure to comply with these conditions could result in revocation or suspension of the permit or certification and/or the imposition of penalties or other consequences. We also may need to modify existing permits to reflect changes in project design or requirements, which could trigger a legal or regulatory review under a standard that may be more stringent than when the permits were originally granted.
Obtaining and modifying necessary permits and certifications is a time-consuming and expensive process, and we may not be able to obtain or modify them on a timely basis or at all. In the event that we fail to obtain or modify all necessary permits and certifications, we may be forced to delay construction or operation of a project or abandon the project altogether, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be required to make capital expenditures on an ongoing basis to comply with increasingly stringent federal, state, provincial and local environmental, health and safety laws, regulations and permits.
We are subject to environmental laws and potential exposure to environmental liabilities.
Because of the nature of our projects, we are subject to various federal, state and local environmental laws and regulations that govern our operations, including the import, handling and disposal of non-hazardous and hazardous wastes, and emissions and discharges into the environment. Failure to comply with these laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating the release or spill of hazardous substances or petroleum products on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, and such owner or operator may incur liability to third parties impacted by such contamination. Failure to comply with applicable environmental laws and regulations and the imposition of environmental liability could have a material adverse effect on our business, financial condition and results of operations.
Changes in applicable laws and regulations can adversely affect our business, financial condition and results of operations.
There has been substantial debate recently in the United States and abroad in the context of environmental and energy policies affecting climate change, the outcome of which could have a positive or negative influence on our existing business and our prospects for growing our business. Governmental entities that regulate our operations or projects may adopt new laws, regulations or policies, or amend or change the interpretation of existing laws, regulations or policies, at any time. We have no control over these changes, which could potentially have an adverse effect on our business, prospects, financial condition and results of operations.
Risks Relating to Tax and Accounting
We do not yet have adequate internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.
As a public company, we will be subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.
30
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting.
We do not yet have effective disclosure controls and procedures, or internal controls over all aspects of our financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and in accordance with GAAP. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
We will be required to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
We have not yet retained sufficient staff or engaged sufficient outside consultants with appropriate experience in GAAP presentation, especially of complex instruments, to devise and implement effective disclosure controls and procedures, or internal controls. We will be required to expend time and resources hiring and engaging additional staff and outside consultants with the appropriate experience to remedy these weaknesses. We cannot assure you that management will be successful in locating and retaining appropriate candidates; that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future; or that appropriate candidates will be located and retained prior to these deficiencies resulting in material and adverse effects on our business.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that we file with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Common Stock.
Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and cause a decline in the market price of our Common Stock.
Our failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act as a public company could have a material adverse effect on our business and share price.
Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. Additionally, once we are no longer an emerging growth company, as defined by the JOBS Act, our independent registered public accounting firm will be required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are in the process of reviewing, documenting, and testing our internal control over financial reporting, but we are not currently in compliance with, and we cannot be certain when we will be able to implement, the requirements of Section 404(a). We may encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, we may encounter problems or delays in completing the implementation of any public accounting firm after we cease to be an emerging growth company. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls after we cease to be an emerging growth company, investors could lose confidence in our financial information and the price of our Common Stock could decline.
31
Additionally, the existence of any material weakness or significant deficiency requires management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and share price.
We incur significant increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, has imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we anticipate that compliance with these rules and regulations will increase our legal, accounting and financial compliance costs substantially. A number of those requirements will require us to carry out activities we have not done previously. For example, we will create new board committees and adopt new internal controls and disclosure controls and procedures. In addition, these rules and regulations may make our activities related to legal, accounting and financial compliance more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources. Furthermore, if we identify any issues in complying with those requirements (for example, if we or our auditors identify a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation or investor perceptions of us. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain our current levels of such coverage. These increased costs will require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase our costs.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. In general, an “ownership change” occurs if the aggregate stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. If it is determined that we have in the past experienced any ownership changes, or if we experience ownership changes as a result of future transactions in our stock, our ability to use our net operating loss carryforwards and other tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
Risks Relating to our Common Stock and Other Securities
Our stock price has been volatile and may continue to be volatile and your investment in our Common Stock could suffer a decline in value.
The dollar volume trading in our stock is low and we cannot assure you that any significant market will develop. As a result, any reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy shares. Further, stocks with a low trading volume may be more subject to manipulation than a stock that has a significant public float. The price of our stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
32
· our low stock price, which may result in a modest dollar purchase or sale of our Common Stock having a disproportionately large effect on the stock price; · the market’s perception as to our ability to generate positive cash flow or earnings; · changes in our or securities analysts’ estimate of our financial performance; · our ability or perceived ability to obtain necessary financing for our operations; · the anticipated or actual results of our operations; · concern about our lack of internal controls; · any discrepancy between anticipated or projected results and actual results of our operations; · actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; · other factors not within our control; · general economic, industry and market conditions; and · other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, such as the recent Russian invasion of Ukraine as well as continued and any new sanctions against Russia by, among others, the E.U., the U.S., and the U.K, which restrict a wide range of trade and financial dealings with Russia and Russian persons, public health issues including health epidemics or pandemics, such as the outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability. |
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the actual or expected operating performance and financial condition of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock and Warrants. As a result, you may be unable to resell your shares of our Common Stock at a desired price and any volatility in our market price, including any stock run-up, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Common Stock.
The price of our Common Stock may have little or no relationship to the historical bid prices of our Common Stock on the OTCQB.
There has been no public market for our capital stock other than the OTCQB. Given the limited history of sales, among other factors, this information may have little or no relation to broader market demand for our Common Stock and thus the price of our Common Stock. As a result, you should not rely on these historical sales prices as they may differ materially from the subsequent prices of our Common Stock.
We have a substantial number of authorized shares of Common Stock available for future issuance that could cause dilution of our stockholders’ interest and adversely impact the rights of holders of our Common Stock.
We have a total of 2,000,000,000 shares of Common Stock authorized for issuance and up to 10,000,000 shares of preferred stock with the rights, preferences and privileges that our Board may determine from time to time. As of September 13, we had 556,603,984 shares of Common Stock issued and outstanding. Of the 10,000,000 shares of authorized preferred stock of the Company, 2,000,000 shares are designated as Series A Redeemable Preferred Stock, of which none are outstanding; 2,000,000 shares are designated as Series B Preferred Stock, of which 2,000,000 were outstanding and converted to 20,000,000 shares of Common Stock automatically on January 1, 2023, but such conversion has not been effected as of the date hereof; and 2,000,000 shares are designated as Series C Preferred Stock, of which 2,000,000 shares were outstanding and automatically converted to 20,000,000 shares of Common Stock automatically on January 1, 2023, but such conversion has not been effected as of the date hereof.
33
The shares of Series B Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023; however, the Company and holders of the Series B Preferred Stock are currently in a dispute and the Company’s Transfer Agent has been instructed not to issue the shares of Common Stock until the dispute has been resolved. Accordingly, although as of September 13, 2023 the shares of Series B Preferred Stock are no longer outstanding, the shares of Common Stock thereunder have not been issued as of September 13, 2023.
On January 30, 2023, Tucker, one of the holders of Series B Preferred Stock filed an action against the Company in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief. The Company is contesting such action.
The shares of Series C Preferred Stock, held by our CEO, Daniel Bates, automatically converted into 20,000,000 shares of Common Stock on January 1, 2023; however as of September 13, 2023 such conversion has not been effectuated.
We may seek financing that could result in the issuance of additional shares of our capital stock and/or rights to acquire additional shares of our capital stock. We may also make acquisitions that result in issuances of additional shares of our capital stock. Those additional issuances of capital stock would result in a significant reduction of your percentage interest in us. Furthermore, the book value per share of our Common Stock may be reduced. This reduction would occur if the exercise price of any issued warrants, the conversion price of any convertible notes is lower than the book value per share of our Common Stock at the time of such exercise or conversion.
The addition of a substantial number of shares of our Common Stock into the market or by the registration of any of our other securities under the Securities Act, may significantly and negatively affect the prevailing market price for our Common Stock. The future sales of shares of our Common Stock issuable upon the exercise of outstanding warrants or convertible securities may have a depressive effect on the market price of our Common Stock, as such warrants would be more likely to be exercised at a time when the price of our Common Stock is greater than the exercise price.
The holders of our Series B Preferred Stock and our Series C Preferred Stock are protected from dilution upon future issuances of our Common Stock.
The Certificate of Designations for our Series B Preferred Stock and our Series C Preferred Stock contain provisions protecting the holders of such shares from dilution upon future issuances of our Common Stock such that for a period of two years after such shares of preferred stock convert to Common Stock they will maintain a twenty percent ownership interest in the common and preferred stock on a fully diluted basis. Accordingly, any future issuances of stock during such two- year period will result in dilution to all stockholders other than the holders of our Series B Preferred Stock and our Series C Preferred Stock. Such provisions may prevent future changes of control that the Board believes are in our best interest and allow the holders of our Series B Preferred Stock and our Series C Preferred Stock to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets.
We do not anticipate paying any cash dividends.
We presently do not anticipate that we will pay any dividends on any of our capital stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Common Stock, its trading price and volume could decline.
We expect the trading market for our Common Stock to be influenced by the research and reports that industry or securities analysts publish about us, our business or our industry. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock may be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and our Common Stock to be less liquid. Moreover, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, or if our results of operations do not meet their expectations, our stock price could decline.
34
Stockholders may face significant restrictions on the resale of our Common Stock due to federal regulations of penny stocks.
Our Common Stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act, commonly referred to as the “penny stock rule.” Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act. The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.
Since our Common Stock is currently deemed to be penny stock, trading in the shares of our Common Stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors. “Accredited investors” are persons with assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks.
Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our Common Stock and may affect the ability of our stockholders to sell their shares of Common Stock.
There can be no assurance that our shares of Common Stock will qualify for exemption from the Penny Stock Rule. In any event, even if our Common Stock was exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.
35
Risks Relating to Management and Directors
Daniel Bates, our Chief Executive Officer, exercises majority voting control of the Company, which would impact your ability to influence corporate matters and could delay or prevent a change in corporate control.
Daniel Bates, our Chief Executive Officer, holds 2,000,000 shares of Series C Preferred Stock of the Company, which shares of Series C Preferred Stock vote together with our Common Stock on all stockholder matters, and have one hundred Common Stock votes per share of Series C Preferred Stock Owned. Such shares of Series C Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023 and on such date the contractual right to vote the shares of Series C Preferred Stock in accordance with the Series C Preferred Voting Rights ceased. In connection with the Tucker Litigation and the dispute giving rise thereto, the conversion of the Series C Preferred Stock into Common Stock has not been effectuated with the Company’ transfer agent as of September 13, 2023. If it is determined that Mr. Bates still holds the contractual right to vote his Series C Preferred Stock in accordance with its terms, Mr. Bates will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets.
We rely on our management and if they were to leave our company or not devote sufficient time to our company, our business plan could be adversely affected.
Our success is heavily dependent upon the continued active participation of Daniel Bates, our current Chief Executive Officer, as well as other key personnel and consultants which we plan to hire. Loss of the services of our top management could have a material adverse effect upon the Company’s business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified scientific, technical, and managerial personnel. Competition for qualified employees and consultants among companies in the applicable industries is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees and consultants required for the initiation and expansion of our activities, could have a materially adverse effect on it. Subject to available capital, we intend to compensate its management with industry standard compensation packages including the granting of stock options. The inability to attract and retain the necessary personnel, consultants and advisors could have a material adverse effect on our business, financial condition or results of operations. We do not maintain key person life insurance policies on our executive officers.
We do not currently employ a full time Chief Financial Officer
Our Chief Financial Officer (“CFO”) is a part-time employee, spending approximately 80% of her time working for the Company. The responsibilities of a public company’s CFO are demanding and require a lot of time and attention, which could be difficult to fulfill by someone in such position part-time. Additionally, there is no assurance that we will be able to retain full-time officers and compensate them at a level acceptable to us, which could materially adversely affect our Company and the trading price of our Common Stock.
Risks Associated with Our Governing Documents and Nevada Law
Our Bylaws provide for indemnification of officers and directors at our expense, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers or directors.
Our Bylaws provide that any person who was or is a party or was or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (whether or not by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee, or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise (including an employee benefit plan), shall be entitled to be indemnified by the Company to the full extent then permitted by the laws of the State of Nevada against expenses of suit, litigation or other proceedings which is specifically permissible under applicable law, and amounts paid in settlement incurred by him in connection with such action, suit, or proceeding and, if so requested, the Company shall advance any and all such expenses to the person indemnified. These indemnification obligations may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers or directors.
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares.
Anti-takeover provisions in our Bylaws, as well as provisions of Nevada law, might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our Common Stock.
Our Bylaws and Nevada law contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our Common Stock. These provisions may also prevent or delay attempts by our stockholders to replace or remove our management. Our corporate governance documents include provisions:
| ● | authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Common Stock; and | |||
| ● | limiting the liability of, and providing indemnification to, our directors and officers. | |||
36
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
Risks Relating to The JOBS Act
The JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our Common Stock less attractive to investors.
We are and we will remain an “emerging growth company” until the earliest to occur of (i) December 31, 2028; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described in further detail in the risk factors below. We cannot predict if investors will find our Common Stock less attractive because we will rely on some or all of these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. If we avail ourselves of certain exemptions from various reporting requirements, as is currently our plan, our reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.
Our election not to opt out of the JOBS Act extended accounting transition period may not make our financial statements easily comparable to other companies.
Pursuant to the JOBS Act, as an “emerging growth company”, we can elect to opt out of the extended transition period for any new or revised accounting standards that may be issued by the Public Company Accounting Oversight Board (PCAOB) or the SEC. Which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an “emerging growth company”, can adopt the standard for the private company. This may make a comparison of our financial statements with any other public company which is not either an “emerging growth company” nor an “emerging growth company” which has opted out of using the extended transition period, more difficult or impossible as possible different or revised standards may be used.
General Risk Factors
Our operations and performance are dependent on U.S., regional and global economic and geopolitical conditions.
Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. While we do not have operations in Russia or China, Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in U.S. trade policy and European policies could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
37
The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
| ● | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes; |
| ● | a global or regional economic slowdown in any of our market segments; |
| ● | changes in government policies and regulations affecting the Company or its significant customers; |
| ● | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether; |
| ● | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs; |
| ● | postponement of spending, in response to tighter credit, financial market volatility and other factors; |
| ● | rapid material escalation of the cost of regulatory compliance and litigation; | |
| ● | difficulties protecting intellectual property; | |
| ● | longer payment cycles; | |
| ● | credit risks and other challenges in collecting accounts receivable; and | |
| ● | the impact of each of the foregoing on outsourcing and procurement arrangements. |
38
We may not maintain sufficient insurance coverage for the risks associated with our business operations.
Risks associated with our business and operations include, but are not limited to, claims for wrongful acts committed by our officers, directors, and other representatives, the loss of intellectual property rights, the loss of key personnel, and risks posed by natural disasters. Any of these risks may result in significant losses. We cannot provide any assurance that our insurance coverage is sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under our insurance policies on a timely basis or at all. If we incur any loss not covered by our insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations could be materially and adversely affected.
If we make any acquisitions, they may disrupt or have a negative impact on our business.
If we make acquisitions in the future, we could have difficulty integrating the acquired company’s assets, personnel and operations with our own. We do not anticipate that any acquisitions or mergers we may enter into in the future would result in a change of control of the Company. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:
| ● | the difficulty of integrating acquired products, services or operations; | |
| ● | the potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies; | |
| ● | difficulties in maintaining uniform standards, controls, procedures and policies; |
| ● | the potential impairment of relationships with employees and members and customers as a result of any integration of new management personnel; | |
| ● | the potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing members and customers; | |
| ● | the effect of any government regulations which relate to the business acquired; | |
| ● | potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or operations, or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition; and | |
| ● | potential expenses under the labor, environmental and other laws of various jurisdictions. |
Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition, many of which cannot be presently identified. These risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.
39
We rely on network and information systems and other technologies for our business activities and certain events, such as computer hackings, viruses or other destructive or disruptive software or activities may disrupt our operations, which could have a material adverse effect on our business, financial condition and results of operations.
Network and information systems and other technologies are important to our business activities and operations. Network and information systems-related events, such as computer hackings, cyber threats, security breaches, viruses, or other destructive or disruptive software, process breakdowns or malicious or other activities could result in a disruption of our services and operations or improper disclosure of personal data or confidential information, which could damage our reputation and require us to expend resources to remedy any such breaches. Moreover, the amount and scope of insurance we maintain against losses resulting from any such events or security breaches may not be sufficient to cover our losses or otherwise adequately compensate us for any disruptions to our businesses that may result, and the occurrence of any such events or security breaches could have a material adverse effect on our business and results of operations. The risk of these systems-related events and security breaches occurring has intensified, in part because we maintain certain information necessary to conduct our businesses in digital form stored on cloud servers. While we intend to develop and maintain systems seeking to prevent systems-related events and security breaches from occurring, the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite these efforts, there can be no assurance that disruptions and security breaches will not occur in the future. Moreover, we may provide certain confidential, proprietary and personal information to third parties in connection with our businesses, and while we obtain assurances that these third parties will protect this information, there is a risk that this information may be compromised.
Likewise, data privacy breaches by employees or others with permitted access to our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. While we have invested in protection of data and information technology, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business. The occurrence of any of such network or information systems-related events or security breaches could have a material adverse effect on our business, financial condition and results of operations.
Claims, litigation, government investigations, and other proceedings may adversely affect our business and results of operations.
We may be subject to actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings relating to products offered by us and by third parties, and other matters. Any of these types of proceedings, may have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity, and other factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. Determining legal reserves and possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material effect on our business, consolidated financial position, results of operations, or cash flows. In addition, it is possible that a resolution of one or more such proceedings, including as a result of a settlement, could require us to make substantial future payments, prevent us from offering certain products or services, require us to change our business practices in a manner materially adverse to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material effect on our operations.
* * * * *
40
Use of Proceeds
All proceeds from the sale of the Shares offered by this prospectus will belong to the Selling Shareholders. We will not receive any proceeds from the resale of the Shares by the Selling Shareholders.
We will receive proceeds from any cash exercise of the PIPE Warrants. If all 245,464,558 of the PIPE Warrants were exercised on a cash basis, the Company would receive gross aggregate cash proceeds of approximately $9,548,571, subject to adjustment upon certain events. We expect to use the proceeds from the exercise of such PIPE Warrants, if any, for general corporate purposes. General corporate purposes may include providing working capital, funding capital expenditures, or paying for acquisitions. We currently do not have any arrangements or agreements for any acquisitions. We cannot precisely estimate the allocation of the net proceeds from any exercise of the PIPE Warrants for cash. Accordingly, in the event such warrants are exercised for cash, our management will have broad discretion in the application of the net proceeds of such exercises. There is no assurance that such PIPE Warrants will ever be exercised for cash.
41
DIVIDEND POLICY
To date, we have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not expect to pay any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our Board, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board may deem relevant.
42
Business
Overview
We are a new entrant in the clean energy and waste-to-energy industries focused on clean technology and sustainability opportunities. By leveraging innovative technology, we aim to responsibly resolve environmental challenges by producing valuable products and strive to be recognized as an environmental, social and governance company (“ESG”). Currently, we are focused on providing a solution to the plastic waste problem by converting plastic waste into saleable byproducts, such as precursors used in the production of new plastic products, hydrogen and other clean-burning fuels that can be used to generate clean energy. Using a technology known as pyrolysis, which heats the feedstock (i.e., plastic waste) at high temperatures in the absence of oxygen so that the material does not burn, we are able to convert the plastic feedstock into (i) low-sulfur fuels, (ii) clean hydrogen (specifically, the Company’s branded AquaH™), and (iii) carbon char. As of June 30, 2023, our operations in Morocco had generated $161,297 in revenue, with a gross margin of $127,435 from the provision of pyrolysis services and its sale of byproducts. Our business mode is focused on generating revenue from three sources: (i) service revenue from the recycling services we provide; (ii) revenue generated from the sale of the byproducts; and (iii) revenue generated from the sale of fuel cell equipment. Our mission is to aid in solving the problem of cost-effectively upcycling the vast amount of waste plastic generated on land before it flows into the world’s oceans.
According to analysis and projections reported by the EIA on April 7, 2022, it is estimated that 98.3 million barrels per day of petroleum and liquid fuels were consumed globally in March 2022, an increase of 2.4 million barrels per day from March 2021. The EIA estimates that global consumption of petroleum and liquid fuels will rise by 1.9 million barrels per day in 2023 to average 101.7 million barrels per day.
In a report published by Markets and Markets Research in February 2021 entitled “Hydrogen Generation Market by Application (Petroleum Refinery, Ammonia & Methanol production, Transportation, Power Generation), Generation & Delivery Mode (Captive, Merchant), Source (Blue, Green & Grey Hydrogen), Technology, and Region-Forecast to 2025,” the global hydrogen generation market is projected to reach $201 billion by 2025 from an estimated $130 billion in 2020, at a compound annual growth rate (CAGR) of 9.2% during the forecast period. While the global green hydrogen market was valued at approximately $0.8 billion in 2021, it is predicted to grow to about $10.2 billion by 2028, with a CAGR of approximately 55.2% over the projection period, according to research and analysis published by Facts and Factors in March 2022 entitled “Green Hydrogen Market By Type (Solid Oxide Electrolyzer, Alkaline Electrolyzer, and Proton Exchange Membrane Electrolyzer), By Use (Transport, Power Generation, and Others) By Customer (Petrochemicals, Glass, Food & Beverages, Chemical, Medical, and Others), and By Region – Global and Regional Industry Overview, Market Intelligence, Comprehensive Analysis, Historical Data, and Forecast 2022–2028.”
We believe that in the near future, a significant growth sector of the economy will be in clean energy and sustainable products and services. This belief was a key factor in our shift in our business focus in May 2020 and our acquisition of Clean-Seas, which became our wholly-owned subsidiary on May 19, 2020. Clean-Seas believes that it has made significant progress in identifying and developing a new business model around the clean energy and waste-to-energy sectors.
Clean Vision was established in 2017 as a company focused on the acquisition of disruptive technologies that will impact the digital economy. The Company, which was formerly known as Byzen Digital Inc., changed its corporate name to Clean Vision on March 12, 2021.
We are now a holding company and currently operate through our wholly-owned subsidiary, Clean-Seas, which we acquired on May 19, 2020. Clean-Seas acquired its first pyrolysis unit in November 2021 for use in a pilot project in India, which began operations in early May 2022. On April 23, 2023, Clean-Seas completed its acquisition of a fifty-one percent (51%) interest in Ecosynergie, which changed its name to Clean-Seas Morocco on such date. Clean-Seas Morocco began operations at its pyrolysis facility in Agadir, Morocco, in April 2023, which currently has capacity to convert 20 TPD of waste plastic through pyrolysis.
43
Our Business Model
Clean-Seas, Inc.
Clean-Seas was incorporated in Delaware on March 20, 2020. Clean-Seas became a wholly-owned subsidiary of Clean Vision on May 19, 2020. Clean-Seas was Clean Vision’s first investment within its newly expanded business strategy of clean energy space. It is management’s belief that Clean-Seas has made significant progress in identifying and developing a new business model around the clean energy and waste-to-energy sectors. Clean-Seas is currently Clean Vision’s sole operating entity.
Clean-Seas was established to solve the problem of cost-effectively upcycling the vast amount of waste plastic generated on-land before it flows into the world’s oceans. As a “solutions provider,” Clean-Seas has identified technologies that are uniquely suited to convert plastic waste into valuable commodities and intends to provide these technologies to its customers. The Clean-Seas team of business development professionals and engineers will use its experience in the sustainable energy space to deliver conversion technologies to its customers and strategic partners. Depending on customer requirements, facilities will be designed to convert waste plastic into precursors, clean-burning fuels, hydrogen, and/or generate electricity. The solutions provided will utilize technologies uniquely designed to the specific waste feedstock available and the customer’s requirements.
System design includes conversion of mixed plastics, typically the more difficult plastic types #4 - #7 (Low Density Polyethylene, Polypropylene, Polystyrene, and others), with a minimal sorting and cleaning requirement.
Technology Overview
Plastics are a group of materials, either synthetic or naturally occurring, that may be shaped when soft and then hardened to retain the given shape. Plastics are polymers. A polymer is a substance made of many repeating units. A polymer can be thought of as a chain in which each link is a single unit, or monomer. The chain is made by joining, or polymerizing, at least 1,000 links together. Polymerization can be demonstrated by making a chain using paper clips or by linking many strips of paper together to form a paper garland.
Recycled plastic waste has the highest calorific value of any waste stream, meaning that it has the greatest amount of heat released per unit of waste during complete combustion. This energy-rich waste material is therefore a good material for energy recovery, which we believe makes it extremely suitable for upcycling, through pyrolysis (described below) or other methods, to recapture the benefit of its stored chemical energy.
For plastics to continue to be accepted in the marketplace, we believe it is essential that appropriate technologies are developed and deployed that can effectively manage the waste plastic at the end of its useful life. We believe that these technologies should maintain as much value in the material as possible, in line with the principles of the circular carbon economy. Pyrolysis provides a solution that fits within these principles and can alleviate global environmental concerns regarding plastic usage and waste disposal.
Pyrolysis: The Solution for Waste Reduction, Hydrogen Production, and Cleaner Fuels
Pyrolysis is the chemical decomposition of organic (carbon-based) materials through the application of heat. Pyrolysis, which is also the first step in gasification and combustion, occurs in the absence or near absence of oxygen, and it is thus distinct from combustion (burning) which can take place only if sufficient oxygen is present and burns materials. The rate of pyrolysis increases with temperature. In industrial applications the temperatures used are often 430 °C (about 800 °F) or higher, whereas in smaller-scale operations the temperature may be much lower.
The pyrolysis of wood is believed to be human’s first chemical process. It is known to have been practiced by the ancient Chinese. As many as 1,500 years ago, tribes from the central Amazon used char derived from animal bone and tree bark to fertilize their soil, which according to scientists remains some of the richest and most fertile soil in the world. Still, we believe there have been relatively few large-scale implementations of this technology to date, which we attribute to the availability of less expensive alternatives and lax environmental regulations in waste management. Recently, with the attention being given to plastic usage and its negative impact on climate change, we anticipate an increase in demand for pyrolysis to remediate plastic waste.
44
Pyrolysis Process
During the primary pyrolysis step, the feedstock is pyrolyzed in a cylindrical chamber at 370ºC – 420ºC, the pyrolysis gasses are then condensed and the resulting liquid is separated, using a distillation process to produce the liquid fuel products, which yields a mixture which is essentially equivalent to petroleum distillate (a petroleum derivative). The essential steps in the pyrolysis process involve:
| · | evenly heating the feedstock to a narrow temperature range without excessive temperature variations |
| · | purging oxygen from pyrolysis chamber, |
| · | managing the carbon black or char by-product before it acts as a thermal insulator and lowers the heat transfer to the plastic |
| · | careful condensation and fractionation of the pyrolysis vapors to produce distillate of good quality and consistency. |
In addition to liquid fuel, pyrolysis can also produce hydrogen and other syngases (primarily carbon monoxide, methane, nitrogen, carbon dioxide, ethane and ethene) along with solid carbon black or char, of which the relative proportions depend upon the method of pyrolysis and the operating conditions of the pyrolysis reactor. This is a function of the rate of heating, the operating temperature, and the amount of time the material stays within the pyrolysis reactor (residence time).
The Hydrogen Economy
Hydrogen is the most abundant element in the universe, but it occurs naturally on earth only in compound form with other elements in liquids, gases or solids (such as water, which is comprised of hydrogen and oxygen). Traditionally, it would take more energy to produce hydrogen (by separating it from other elements in molecules) than hydrogen provides when it is converted to useful energy. Humans are therefore just beginning to take advantage of the many uses of hydrogen in daily life by leveraging technologies such as pyrolysis and gasification. With recent advances in sustainable technologies, we believe that people today can have better access to carbon-neutral sources of hydrogen to meet their energy needs.
Hydrogen is a versatile and flexible energy carrier. Many industries are looking to hydrogen as the fuel to power their energy transitions in the decarbonization of the global economy since it does not produce carbon dioxide or other greenhouse gasses when it is heated. It is our belief that there will be massive potential for end use applications of hydrogen such as transportation, replacement for fossil fuels used in industrial processes, energy generation and residential heating/cooling.
Overview of the Hydrogen Market
In a report published by Markets and Markets Research in February 2021 entitled “Hydrogen Generation Market by Application (Petroleum Refinery, Ammonia & Methanol production, Transportation, Power Generation), Generation & Delivery Mode (Captive, Merchant), Source (Blue, Green & Grey Hydrogen), Technology, and Region-Forecast to 2025,” the global hydrogen generation market is projected to reach $201 billion by 2025 from an estimated $130 billion in 2020, at a compound annual growth rate (CAGR) of 9.2% during the forecast period. The global green hydrogen market was valued at approximately $0.8 billion in 2021. It is predicted to grow to about $10.2 billion by 2028, with a CAGR of approximately 55.2% over the projection period, according to research and analysis published by Facts and Factors in March 2022 entitled “Green Hydrogen Market By Type (Solid Oxide Electrolyzer, Alkaline Electrolyzer, and Proton Exchange Membrane Electrolyzer), By Use (Transport, Power Generation, and Others) By Customer (Petrochemicals, Glass, Food & Beverages, Chemical, Medical, and Others), and By Region - Global and Regional Industry Overview, Market Intelligence, Comprehensive Analysis, Historical Data, and Forecast 2022–2028.”
The movement towards the reduction in greenhouse gas emissions has been a global goal over the past decade and was memorialized in the Paris Climate Accord in 2016, and again in Glasgow in 2021. Hydrogen may be a key component in this transition, as a source of clean and economical energy. Increasing government regulation regarding emissions has created a financial incentive for firms to seek more alternatives to fossil fuel usage. We believe that hydrogen will be a major part of all levels of this decarbonization of the economy by providing an alternative to natural gas. Scaling up existing hydrogen technologies will deliver competitive low-carbon solutions across a wide range of applications by 2030 and may even offer competitive low-carbon alternatives to conventional fuels in some segments. This includes the enabling of distributed power generation, passenger and cargo transportation as well as forklifts and heavy machinery.
45
Renewable energy, such as solar and wind power, is clean and increasingly affordable We believe that storage of energy from intermittent renewable energy sources is an essential component or our current and future energy systems. Hydrogen storage is a key enabling technology for the advancement of hydrogen and fuel cell technologies in applications including stationary power, portable power, and transportation. Fuel cells, which we intend to distribute pursuant to the Licensing Agreement with Kingsberry, are one way in which this excess hydrogen can be stored.
Currently, industrial applications constitute the main usage of hydrogen. Much of this hydrogen is derived from natural gas as the feedstock, so we believe that there is significant potential for reducing greenhouse gas emissions by producing “clean” hydrogen from carbon neutral renewable energy sources.
Hydrogen also may play a significant role for energy use in commercial and multifamily residential buildings. In the near-term hydrogen may be blended into existing natural gas networks, taking advantage of existing infrastructure. We believe that the long-term outlook for hydrogen usage in heating applications is especially promising, due to the potential for hydrogen boilers or fuel cells to be built into commercial and multifamily units.
It is our belief that hydrogen-powered vehicles will make up a significant percentage of zero-emission vehicles over the next decade. In the Stated Policies Scenario released by the International Energy Agency in 2021 as the baseline scenario reflecting all existing policies, policy ambitions and targets that have been legislated for or announced by governments around the world, the global electric vehicle stock across all transport modes (excluding two/three-wheelers) expands from over 11 million in 2020 to almost 145 million vehicles by 2030, an annual average growth rate of nearly 30%.
As the number of hydrogen-powered vehicles increases, we predict that the market for consumer hydrogen will likewise increase. Domestically, most infrastructure for consumer hydrogen is within California, with over 40 hydrogen fueling stations. The foreign market has examples of more advanced development of infrastructure for hydrogen vehicles. Japan has been one of the largest public investors in hydrogen technology and has a publicly stated goal of placing over 200,000 hydrogen-powered vehicles on the road by 2025.
Other By-products of Pyrolysis
Liquid oils from pyrolysis of different plastic waste types contain large numbers of carbon chains with different percentages that can be used as an energy source. Pyrolysis liquid oil utilization as transport fuel may be blended with conventional diesel fuel to improve its quality, as the pyrolysis oils contain a high percentage of aromatic hydrocarbons (like benzene).
Pyrolysis liquid oil has proven usable as a substitute transport fuel in conventional diesel engines. It has also been used successfully when blended with conventional diesel fuel, at ratios up to 30%, without complications. Energy can also be generated by diesel engines, gas turbines, steam turbines and boilers using pyrolysis liquid oil. According to a report published in June 2021 by Grand View Research, the global plastic to fuel market size was valued at USD 231.0 million in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 29.5% from 2021 to 2028. Growing demand for the generation of energy from waste on account of a clean environment has triggered the growth of the market.
In addition, the pyrolysis liquid oil shows the presence of compounds, which can be a source of precursor chemicals in industries for the polymerization (the process by which relatively small molecules, called monomers, combine chemically to produce a large chainlike molecule, called a polymer) of new plastic monomers. These compounds create the circular carbon economy of recycling waste into new forms of hydrocarbons to power engines, generate electricity, or create new types of plastic products.
Char and carbon black are also highly reusable byproducts of the pyrolysis process that have numerous existing applications. Depending on its quality, the solid char can be gasified, used for the production of activated carbons, for the production of graphene, or for soil remediation. Char is highly absorbent and therefore increases the soil's ability to retain water, nutrients and agricultural chemicals, preventing water contamination and soil erosion. Soil application of char may enhance both soil quality and be an effective means of sequestering large amounts of carbon, thereby helping to mitigate global climate change through carbon sequestration.
Carbon black is used in manufacturing tires, plastics, mechanical rubber goods, printing inks, and toners. It can absorb UV light and converts it into heat; hence, it is also used in insulating wires and cables. Moreover, it is used in the production of a wide range of rubber products and pigments. It serves as a cost-effective rubber reinforcing agent used in tires. The global carbon black market was valued at $15 billion in 2021, and is projected to reach $22 billion by 2027, growing at a CAGR of 5.7% from 2022 to 2027, as reported by Research and Markets entitled “Global Carbon Black Market Report and Forecast 2022-2027” released on April 22, 2022.
46
Clean Vision’s Purpose
Global plastic waste recycling is facing unprecedented challenges. Inadequate processing infrastructure, fewer processing locales, changing laws and conventions, and political circumstances imperil what is already a deficient response to a global problem. Developed nations, including the United States, the world’s largest generator of plastic waste, are finding disposal of this waste increasingly difficult, due to expensive and inefficient processing capabilities; global conventions responding to environmental implications of international plastic export; and political constraints. In January 2018, the People’s Republic of China, which had been accepting plastic waste from countries including the U.S., implemented its National Sword policy limiting recyclable waste imports. As a result, the worldwide recyclables market experienced drastic limits, fewer options for disposal, resulting in a global backlog of plastic waste. Some of the recyclable material has been rerouted to Southeast Asian countries but the market remains in upheaval, with, at best, plastic waste floating in waiting ships and at worst, illegal dumping into international waters or incinerated.
According to an article published by the United Nations Environment Programme (“UNEP”) on March 2, 2022, entitled “What you need to know about the plastic pollution resolution,” the world currently produces approximately 400 million tons of plastic waste per year, with the rate of plastic production forecasted to double by 2040. It also estimated that by 2050, there will be more plastic in the ocean by weight than fish. According to an article published by National Geographic entitled “A Whopping 91 Percent of Plastic Isn’t Recycled,” plastic takes more than 400 years to degrade, so most of it still exists in some form. It is estimated that only 9% of plastic waste has been recycled to date, while the vast majority (approximately 79%) is accumulating in landfills or ending up as litter in the natural environment, including the oceans.
The waste plastics recycling industry was valued at $55.1 billion in 2020 and is poised to become an $88 billion industry by 2030, as reported in a March 2022 report entitled “Market value of waste recycling services worldwide 2020-2030” published by Statista. Pyrolysis is an invaluable technology that can be used to transform certain materials, which traditional mechanical recycling technologies currently cannot handle, into clean energy and other valuable byproducts. Pyrolysis is also an important alternative solution to handling materials that have exhausted their potential for further traditional mechanical recycling.
The emerging markets of the world are especially critical to the plastic pollution problem, where waste handling and collection are not supported with the same infrastructure as in developed nations. We believe this market condition presents a unique opportunity for us. Clean-Seas intends to leverage its management’s experience of working in the developing nations of the world for the past decade, providing renewable energy products and services to this sector and now will provide recycling solutions and energy generation. As stated by the Organization for Economic Co-operation and Development (OECD) in 2021, “The path to net zero requires that emerging markets transform their energy systems, yet reliance on hydrocarbons alongside existing policy barriers pose challenges to the green transition.”
Clean Vision plans to help provide a solution to the plastic waste problem that the world is facing, while simultaneously creating hydrogen and other clean-burning fuels that can be used to generate clean energy.
Our Strategy
We plan to establish conversion facilities strategically located as close to the feedstock as possible. We are currently focused on plastic waste-to-energy projects in Morocco, India, West Virginia, Arizona, Massachusetts, Michigan, Puerto Rico, France, Turkey and Sri Lanka due to their proximity to plastic waste as well as business relationships that have been developed by the management team of Clean Vision with entities and/or municipalities in such countries and are in the process of developing a pipeline of similar projects, in the United States and abroad. We believe there is a virtually endless supply of waste for such projects and the demand for clean fuels and clean energy (particularly from such projects) is growing consistently.
Another component of the clean energy and waste-to-energy industry in the United States is environmental credits. Recycling of waste plastic mitigates the need for fossil fuels for energy generation and the production of clean-burning diesel. We plan to aggregate these off-sets and sell them to users of fossil fuels in the form of carbon credits or renewable energy credits depending on the location of the facilities and local market conditions. These can be used as off-set as more governments impose a “Carbon-tax” on the end users of fossil fuels. In addition, new plastic exchanges have been coming online specifically focused on plastic waste, and credits will be sought after, allowing producers of plastic waste to off-set their plastic footprint, much like what has happened in the carbon markets.
47
We expect our projects, through our subsidiaries, including Clean-Seas, to generate revenue in several ways:
| · | Gate Fees or Tipping Fees. These fees will be paid to us to accept waste from a government, municipality, or corporate entity, that must dispose of its waste. Fees are paid to accept this feedstock (which will be waste plastic or tires for our Company) on a per ton basis. Gate fees are expected to vary in range from approximately $35 to $150 per ton, depending on the jurisdiction, land availability, and daily volumes of waste. |
| · | Sale of Hydrogen and Other Fuels. A pyrolysis facility converts waste into gasses such as hydrogen and other clean-burning fuels. The hydrogen and other fuels can be sold to off-takers as a cleaner fuel source for the production of new plastic products, for marine use, electrical generators, or refined into a clean-burning road grade fuel. Depending on the installation, this fuel output product can be sold to a local fuel distributor or used in the generator sets for the generation of electricity as above. |
| · | Commodity Sales. An additional output product of the technologies is carbon char, which is used for the manufacturing of bonding agents, roadway surfaces, and more. We intend to enter into agreements with consumers of carbon char, which, if consummated, will serve as an additional revenue stream to us. |
| · | Environmental Credits. Recycling of waste plastic mitigates the need for fossil fuels for energy generation and the production of clean-burning diesel. These off-sets can be aggregated and sold to users of fossil fuels in the form of carbon credits or renewable energy credits depending on the location of the facilities and local market conditions. These can be used as off-set as more governments impose a “Carbon-tax” on the end users of fossil fuels. Additionally, plastic credits may be sold through plastic credit exchanges, to producers of new plastic products as a means of offsetting their plastic footprint. |
| · | Equipment Sales. Clean-Seas has entered into a Licensing Agreement whereby Clean-Seas has obtained the exclusive, worldwide rights (exclusive of the United States and Canada) to Kingsberry Fuel Cell Inc.’s fuel cell intellectual property for a term of five years, which Clean-Seas intends to distribute to third-parties throughout the world. These sales will provide a revenue stream to us, as well as recurring revenue through a royalty model and ongoing service. |
Technology Development
Plastic Conversion Network (“PCN”)
Clean-Seas has developed a technology solution to address the global crisis of plastic waste pollution. The PCN is a patent-pending software network connecting sources of waste plastic (feedstock) with conversion facilities, which will produce environmentally friendly commodities. We intend to strategically locate the conversion facilities around the world in locations that are easily accessible and in close proximity to countries that produce a large amount of plastic waste. PCN was created in response to the problem created when the People’s Republic of China ceased purchasing the developed world’s recyclable waste streams in 2018. Currently, we have entered into contracts, Letters of Intent or Joint Venture Agreements for development of facilities in numerous host locations, countries, and territories, including Morocco, India, West Virginia, Arizona, Massachusetts, Michigan, Puerto Rico, France, Turkey and Sri Lanka.
Background
Global plastic waste recycling is facing unprecedented challenges. We believe that inadequate processing infrastructure, fewer processing locales, changing laws and conventions, and political circumstances imperil what is already a deficient response to a global problem. According to an article published by National Geographic entitled “A Whopping 91 Percent of Plastic Isn’t Recycled,” it is estimated that since 1950 only 9% of all of the planet’s plastic waste has been recycled. By the same estimates, 79% of plastic waste remains in the world’s landfills and or as litter, meaning that much of it ultimately ends up in the oceans. Discarded plastics are estimated to comprise 12.2% of all landfilled waste and 16% of combusted waste according to the EPA.
48
Developed nations, including the United States, the world’s largest generator of plastic waste, are finding disposal of this waste increasingly difficult, due to expensive and inefficient processing capabilities; global conventions responding to environmental implications of international plastic export; and political constraints. In January 2018 the People's Republic of China, which had been accepting plastic waste from countries including the U.S., implemented its National Sword policy limiting recyclable waste imports. As a result, the worldwide recyclables market experienced drastic limits, fewer options for disposal, resulting in a global backlog of plastic waste. Some of the recyclable material has been rerouted to Southeast Asian countries but the market remains in upheaval, with, at best, plastic waste floating in waiting ships and at worst, illegal dumping into international waters or incinerated.
The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes (“Basel Convention”) is an international treaty aimed at reducing the movement of hazardous waste between nations. In 2019, the Basel Convention amended its treaty to regulate plastic waste exports. As a result, effective January 1, 2021, international shipment of plastic waste became subject to prior written consent between countries party to the convention. The U.S., as a non-party to this convention, is now subject to new liability because most countries will not accept its waste plastic. In order to ship its waste plastic, the U.S. must enter prior written agreements with accepting Basel Convention party countries which meet certain Basel Convention criteria.
Using pyrolysis technologies described above, the PCN is designed to scale, efficiently and cost effectively convert waste plastic into environmentally friendly commodities, including plastic precursors, low sulfur diesel fuel, hydrogen, carbon char and others. The transporting of all plastic waste will be fully compliant with the Basel Convention and the facilities will be strategically located to reduce its carbon footprint. The PCN can connect the developed nations of the world that have robust recycling programs for plastic waste but lack a proper method of disposal, with facilities that will convert their plastic waste into environmentally friendly commodities. The current disposal options are either environmentally hazardous (landfills), environmentally destructive (incineration), or illegal.
AquaHtm
Clean-Seas has developed and is branding its own, unique, type of hydrogen called AquaHTM. Typically, the various types of hydrogen are given a color that differentiates the types and where it was derived from.
There are nine types of hydrogen:
- Green hydrogen is produced through water electrolysis process by employing renewable electricity. The reason it is called green is that there is no CO2 emission during the production process. Water electrolysis is a process which uses electricity to decompose water into hydrogen gas and oxygen.
- Blue hydrogen is sourced from fossil fuel. However, the CO2 is captured and stored underground (carbon sequestration). Companies are also trying to utilize the captured carbon called carbon capture, storage and utilization (CCSU). Utilization is not essential to qualify for blue hydrogen. As no CO2 is emitted, the blue hydrogen production process is categorized as carbon neutral.
- Gray hydrogen is produced from fossil fuel and commonly uses steam methane reforming (SMR) method. During this process, CO2 is produced and eventually released to the atmosphere.
- Black or brown hydrogen is produced from coal. The black and brown colors refer to the type bituminous (black) and lignite (brown) coal. The gasification of coal is a method used to produce hydrogen. However, it is a very polluting process, and CO2 and carbon monoxide are produced as by-products and released to the atmosphere.
- Turquoise hydrogen can be extracted by using the thermal splitting of methane via methane pyrolysis. The process, though at the experimental stage, removes the carbon in a solid form instead of CO2 gas.
- Purple hydrogen is made using nuclear power and heat through combined chemo thermal electrolysis splitting of water.
- Pink hydrogen is generated through electrolysis of water by using electricity from a nuclear power plant.
- Red hydrogen is produced through the high-temperature catalytic splitting of water using nuclear power thermal as an energy source.
- White hydrogen refers to naturally occurring hydrogen.
49
Clean-Seas is seeking to establish a tenth type of hydrogen derived from a plastic waste stream, which we believe falls between Green and Blue hydrogen. We have categorized the hydrogen derived from plastic waste in this manner because while the process does not emit CO2, it is not derived from a naturally occurring material like water, but rather a man-made material (plastic), which caused the emission of CO2 when it was produced. The Company expects to launch the new product in the second quarter of 2024.
Clean-Seas Business Development
Subsidiaries of Clean-Seas
In order to execute our business model, Clean-Seas has established subsidiaries and joint ventures in Morocco, France, Turkey, Sri Lanka, Puerto Rico, Arizona, Massachusetts, Michigan and West Virginia. We chose these locations due to the proximity to an abundant supply of plastic waste as well as because of prior business relationships that had been established by Daniel Bates and his team, throughout his career in the renewable energy industry.
Within the United States, Clean-Seas has developed relationships within environmental and economic development agencies in several states for the remediation and conversion of waste plastic. The Company has entered into contracts for projects in West Virginia, Arizona and Massachusetts and the Company is in negotiations for a PCN facility in Michigan. Clean-Seas West Virginia, Inc., a West Virginia corporation (“Clean-Seas West Virginia”), has begun the process of environmental permitting with the West Virginia Department of Environmental Protection and expects to be completed in October 2023. We also intend to begin the permitting process in Arizona, Michigan and Massachusetts for our local projects under development in each respective state.
United States PCN Locations:
West Virginia: Clean-Seas’ first facility in the United States is expected to be operational in the first quarter of 2024. The facility will be located outside of Charleston, the capital of West Virginia, and is expected to begin operations converting 100 TPD of waste plastic. The Company expects to expand to greater than 500 TPD over the course of the next three years. Clean-Seas has engaged local partners in Massachusetts, Michigan and Texas to secure Mixed Plastic Waste feedstock from Material Recovery Facilities and industrial suppliers, and to develop in-market facilities with local offtake for products, property leases and permits. These projects are all in various stages of development with the first letters of intent to be announced in Q4, 2022.
Arizona:
Clean-Seas’ second facility in the United States will be located in Phoenix, Arizona. Clean-Seas has established Clean-Seas Arizona, Inc. as a joint venture pursuant to a Services Agreement signed on June 12, 2023 with the Rob and Melani Walton Sustainability Solution Service and Arizona State University. The facility is currently intended to source and convert plastic from the Phoenix area and import plastic from California. It is expected that this facility will begin processing waste plastic at 100 TPD and scale up to a maximum of 500 TPD at full capacity. Additionally, the facility may be powered by renewable energy, creating the first completely off grid pyrolysis conversion facility in the world.
Michigan:
On January 17, 2023, Clean-Seas entered into a joint venture agreement with Western Michigan-based NuWay Go Recycle Center LLC to establish Clean-Seas Newaygo ("CSN").
Under the terms of the joint venture agreement, CSN may co-locate at American Classic, Inc.'s recently acquired 313 W. State Road facility in the Newaygo, Michigan. American Classic has committed to supplying the necessary feedstock for CSN operations.
Phase I of the project is currently budgeted at $20 million with currently anticipated funding from debt and equity. Once established, operations are expected to begin in American Classic's 45,000 sq. ft. facility which sits adjacent to a rail line for easy off-loading of waste plastic and pickup of CSN converted commodity products. In addition to anticipated debt and equity funding for the project, additional sources of funding may include Michigan State incentives and grants which are available through the Biden Administration's Inflation Reduction Act (IRA).
In Phase I, CSN projects processing 50 TPD with the expectation to expand the facility in subsequent phases, eventually diverting up to 500 TPD of waste plastic from landfill.
On April 11, 2023, CSN entered into feedstock and site lease agreements for this location.
50
Massachusetts:
On November 11, 2022, Clean-Seas signed Letters of Intent with MacVallee LLC to establish a co-located Clean-Seas facility in Central Massachusetts which will divert post-industrial and ocean-bound plastic from landfill and incineration, and convert it into precursors for new plastics, ultra-low sulfur fuels, pyrolysis oils, and Clean-Seas' branded hydrogen, AquaH™.
On March 21, 2023, Clean-Seas entered into a definitive agreement with MacVallee LLC to supply sufficient quantities of post-industrial waste plastic feedstock to launch its project in Massachusetts, as well as a new Eastern U.S. facility to be announced.
Puerto Rico:
On April 6, 2022, Clean-Seas formed a joint venture with a San Juan based company, Main Line Ventures LLC (“MLV”), to develop a commercial scale waste plastic-to-energy pyrolysis plant in Puerto Rico to serve as a host facility for our PCN. Pursuant to the terms of the joint venture, we agreed to provide lead project funding, the pyrolysis tech sub-contractor and the expertise to develop and manage the project and MLV is responsible for securing legal representation, permitting and government /community relations. The facility is planned to process local waste plastic and waste plastic of neighboring islands as well as the southern United States. Output is expected to include low sulfur diesel fuel, electricity, char and clean hydrogen.
International PCN Locations:
Morocco:
On April 25, 2023, we completed our acquisition of a 51% interest in Ecosynergie, a company focused on sustainable products and solutions based in Agadir, Morocco, establishing our first PCN host. At the closing, we made an initial payment of $2,500,000, with the remaining $4.5 million due within ten (10) months of the closing date.
Established in 1999, Ecosynergie is an operator of pyrolysis waste-plastic conversion technology with a current capacity of 20 TPD. In connection with the acquisition, Ecosynerigie changed its name to Clean-Seas Morocco, LLC, which, as of the closing, became a 51% owned subsidiary of the Company. Additional equipment for two 50 TPD systems has already been ordered for the newly combined company. The first additional 50 TPD system is expected to be installed and operational by the end of 2023, with the second 50 TPD system anticipated to be operational in 2024, increasing the total capacity to 120 TPD. The facility is expected to become a North African regional hub of the PCN, with current plans to add capacity and reach a total 350 TPD or greater within two years.
Clean-Seas Morocco’s current assets include: five hectares of suitably zoned land, licenses/permits to operate pyrolysis facilities, Ecosynergie inventory of equipment and supporting technology which includes two 10 TPD pyrolysis plants as well as two additional units discussed above to be commissioned, totaling 12 0TPD of capacity. Clean-Seas Morocco currently has greater than 10,000 tons of feedstock ready to be converted into clean, low-sulfur fuels, hydrogen, and it has an off-take agreement with a local oil and gas distributor.
Since commencing operations at our Morocco facility in April 2023, Clean-Seas Morocco has generated $161,297 in revenue, with a gross margin of $127,435 from the provision of pyrolysis services and its sale of byproducts.
India:
Clean-Seas India Private Limited (“Clean-Seas India”), a wholly-owned subsidiary of Clean Seas, has entered into a development agreement with the Council of Scientific and Industrial Research (“CSIR”), acting through CSIR-Indian Institute of Chemical Technology (IICT) in Hyderabad. This agreement provides that the IICT development team will evaluate the performance of the Clean-Seas pyrolysis technology, which has already been installed at the Hyderabad location, to improve, productize and scale the technologies for the benefit of sales directly to the third parties, which we anticipate will include the Indian Government as well as the private sector. Our pilot project in India is designed to showcase our ability to pyrolyze waste plastic and generate saleable byproducts, including clean hydrogen, AquaHTM, which can then be used in fuel cells to generate clean energy. This completes the value chain from an unused waste stream through to clean usable electricity.
Clean-Seas India’s pilot project began operations in May 2022.
We expect to sign contracts for our technologies with cities and states in India including Goa, Kerala and Telangana. Clean-Seas India has secured Research and Development space near the IICT campus in Hyderabad for ongoing technology development.
51
France:
We have current plans to establish an entity in France to be called “Clean-Seas Brittany” with our partner, Jalaber Diffusion, to establish a 100TPD facility in the region of Brittany, France. Current plans for this facility are to service waste plastic from the northern part of France and to eventually extend its reach throughout the European Union. Land has been identified and permits are in the process of being secured.
Turkey:
On June 14, 2022, Clean-Seas signed a binding term sheet with the Turkish company, Pax Petroklmya Sanayi Ve Dis Ticaret Limited, Sirketi (“PPI”) to jointly pursue the development of a commercial-scale waste plastic-to-energy plant in Turkey. Current plans are to establish an entity with PPI called “Clean-Seas Turkey” for this project. Clean-Seas Turkey plans to establish a 100TPD facility in Istanbul, Turkey. The facility will convert waste plastic from the European Union and Turkey. PPI is in the process of securing the required land and government permits in order to establish operations and scale the facility.
Sri Lanka:
On March 16, 2022, we signed a binding term sheet with Arinma Holdings (pvt) Ltd. (“Arinma Holdings”), a company based in Columbo, Sri Lanka, to develop a commercial scale waste plastic-to-energy pyrolysis plant to serve as a south-Asia host facility within the PCN network. Focused on prosperity, social justice and sustainability, Arinma Holdings has completed over 350 large multifaceted projects throughout Sri Lanka. The agreement provides for the parties to establish a new U.S. company through which they will operate, but this entity has not yet been formed.
EcoCell:
EcoCell, Inc. (“EcoCell”) is our wholly-owned subsidiary that was incorporated in Nevada on March 4, 2022. EcoCell does not currently have any operations, but we intend to use EcoCell for the purpose of licensing fuel cell patented technology developed and manufactured by Kingsberry Fuel Cell, Inc. and Dr. K. Joel Berry (collectively, “Kingsberry”) pursuant to the Kingsberry Licensing Agreement described below, which we intend to sell and install in India through Clean-Seas India, as well as other regions as yet to be determined.
EcoCell has recently commissioned the construction of a five-kilowatt hydrogen fuel cell, but experienced delays due to supply chain issues. The raw materials for the project have been received and development is currently progressing, with expectations for demonstration to being by the end of 2023. The commissioning of the fuel cell triggered the option within the Kingsberry Licensing Agreement, described below.
Endless Energy:
Endless Energy, Inc. (“Endless Energy”) is our wholly-owned subsidiary, incorporated in Nevada on December 10, 2021. Endless Energy was originally formed by the Company with the intent to acquire the assets of WindStream Technologies, Inc. (“WS USA”). WS USA was delisted from Nasdaq on March 6, 2019 and currently has no operations. WS USA also owns approximately 26% of the issued and outstanding equity of WindStream Energy Technology, an Indian company (“WS India”).
Daniel Bates, the Company’s CEO, is an equity owner of WS USA and has served as its President and CEO. Daniel Bates is also a member of the board of directors of WS India. On August 18, 2021, the United States filed a lawsuit against Windstream and Daniel Bates over Windstream’s default on a $2,000,000 loan that Windstream had with GBC International Bank and which loan Mr. Bates personally guaranteed as Windstream’s President and CEO (United States of America v. Windstream Technologies, Inc. and Daniel Bates, Case No. 1:2021cv2269). On October 13, 2022, a judgment was entered in this matter that ordered defendants to pay the plaintiff the principal sum of $1,982,570.22, plus $842,536.13 ordinary interest accrued through May 31, 2022, and $1,735,299.76 late interest accrued through May 31, 2022.
Endless Energy’s intended acquisition WS USA’s assets has not occurred as of August 9, 2023, but such transaction is still currently being explored.
52
Intellectual Property
Clean-Seas filed for intellectual property protection of its technology entitled "Method and Apparatus for Plastic Waste Recycling" with the United States Patent and Trademark Office covering its global PCN. PCN is a patent-pending software network connecting sources of waste plastic with “conversion” facilities strategically located around the world. PCN was created to solve the problem created when China closed its borders to the importation of the developed world’s recyclable waste streams. There can be no assurance that the patent will issue or if issued that the patent will protect our intellectual property.
Material Agreements
Licensing Agreement with Kingsberry Fuel Cell, Inc.
On December 6, 2021, we entered into a Licensing Agreement (the “Kingsberry Licensing Agreement”) with Kingsberry. Pursuant to the terms of the Kingsberry Licensing Agreement, Kingsberry has granted us a six month option, through June 6, 2022, for an exclusive, worldwide right (exclusive of the United States and Canada) to Kingsberry’s fuel cell intellectual property (the “Option”) for a term of five years, with the right to renew the License Agreement for additional five-year periods. In consideration for the Option, we paid Kingsberry $10,000.00. On April 8, 2022, we exercised the option. The Kingsberry Licensing Agreement also provides that Kingsberry will provide consulting services to the Company. In consideration for the Kingsberry Licensing Agreement, the Company has agreed to pay Kingsberry 5% of net operating profit from sales (as defined in the Kingsberry Licensing Agreement) of all products related to the license, as well as 100,000 shares of restricted Common Stock of the Company per year, with stock grants to be capped at five years. The Initial Project contemplated to be completed pursuant to the Kingsberry Licensing Agreement is in India.
In April 2022, EcoCell commissioned Kingsberry to build and deliver a five-kilowatt fuel cell prototype in India pursuant to a licensing agreement. We intend to sell this fuel cell developed by Kingsberry, and others that we anticipate commissioning Kingsberry to build in the future, to third-parties as a source of revenue. The fuel cell technology will be demonstrated to India's Ministry of Defense, Ministry of Railways, and executives of an electric vehicle charging station project, among others, as potential clients for this fuel cell technology. The fuel cells can be used by potential purchasers to produce clean power using hydrogen from independent sources.
Competition
The clean energy and waste-to-energy industries are very competitive. We will compete with other companies offering pyrolysis solutions in addition to many other clean energy solutions. We expect competition to increase as awareness of the environmental advantages of converting waste plastic and tires into fuel increases. A rapid increase in competition could negatively affect our ability to develop a profitable client base. Many of our competitors and potential competitors may have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. We cannot be sure that we will have the resources or expertise to compete successfully. Our failure to compete effectively with our current and future competitors would adversely affect our business, financial condition, and results of operations.
Although there seems to be an abundant supply of waste plastic and tires, it is expected that there will be increased competition for these plastic resources, with the result that it could have an effect on our profitability that we do not foresee at this time.
We also face competition for qualified employees and consultants among companies in the applicable industries. Competition for individuals with experience in the clean energy and waste-to-energy industries is intense. The loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees and consultants required for the initiation and expansion of our activities, could have a materially adverse effect on our business.
53
Our Strengths and Competitive Advantages
We believe that the following are the critical investment attributes of our company:
| · | Experienced management team. Members of our management team have significant prior experience in the renewable energy sector and have established relationships with providers of pyrolysis technology that led to the establishment of our first PCN in Agadir, Morocco, following our April 25, 2023 acquisition of a 51% interest in Ecosynergie and the establishment of our first revenue source. |
| · | Pilot Research and Development Project Commenced. We acquired our first pyrolysis unit for use in Hyderabad, India, which began operations in May 2022. We established this project to develop technology focused on optimizing the process of converting waste plastic into the byproducts, including clean Hydrogen, the Company’s branded, AquaH™. AquaH™ is our branded name for clean hydrogen we produce from plastic waste that falls between the blue (natural gas) and green (renewable energy resourced) classifications. Our AquaH™ is unique because of how we produce it. Our process is unique in that we use waste plastic and the pyrolysis reaction to create a large volume of synthetic gas (syngas), split that syngas apart, remove the hydrogen and leave the methane, carbon monoxide and carbon dioxide to power the pyrolysis process. |
| · | Established Revenue Stream. On April 25, 2023, we completed our acquisition of a 51% interest in Ecosynergie, a company focused on sustainable products and solutions based in Agadir, Morocco, establishing our first PCN host country. In connection with this PCN host facility, we intend to purchase two additional pyrolysis units, which are capable of processing up to 20 tons of plastic waste per day. We anticipate that this Moroccan facility will process up to 350 tons of plastic waste per day within the next 24 months, which would make it the largest plastic pyrolysis facility in the world. Since commencing operations in April 2023, Clean-Seas Morocco has generated $161,297 in revenue, with a gross margin of $127,435 from the provision of pyrolysis services and its sale of byproducts. |
| · | West Virginia State Incentive Package. On June 12, 2023, Clean-Seas announced that it secured $12M in state incentives, which include $1.75 million in cash to establish a PCN facility outside of Charleston, West Virginia. Clean-Seas West Virginia has an existing feedstock supply agreement for 100TPD of post-industrial plastic waste and is planned to be a PCN hub servicing the Mid-Atlantic states. The project will commence in phases, Phase 1 being 100 TPB, scaling up to 500TPD. Addition project finance capital is in the process of being secured. |
| · | Clean-Seas Arizona. Officially established in September 2022, Clean-Seas Arizona announced a Services Agreement with the Rob and Melani Walton Sustainability Solutions Service and Arizona State University to commission a PCN facility to service the Western United States, starting at 100TPD and scaling to 500TPD. The facility is currently planned to produce plastic precursors and clean fuels with the intent to transition to AquaH™. |
| · | New Approach to Vertical Supply Chain. Our PCN is a patent-pending software network connecting sources of waste plastic (feedstock) with conversion facilities, which will produce environmentally friendly commodities. We intend to strategically locate the conversion facilities around the world in locations that are easily accessible and in close proximity to countries that produce a large amount of plastic waste. Currently, we have entered into Contracts and/or Letters of Intent or Joint Venture Agreements for development of facilities in the following host countries/territories: Morocco, India, West Virginia, Arizona, Massachusetts, Michigan, Puerto Rico, France, Turkey and Sri Lanka. |
| · | Large market opportunity for effective solution. Renewable energy is a large market with an unmet need. Plastic and tire waste disposal affects all countries of the world, including those of developing nations. With a more recent focus of governments on environmentally friendly waste removal solutions, we believe there is a large opportunity for us. |
| · | Unique technology. Pyrolysis technology reduces plastic waste while creating valuable byproducts, such as precursors used in the production of new plastic products, hydrogen (our branded AquaH™) and other clean-burning fuels that can be used to generate clean energy. Our AquaH™ is unique because of how we produce it. Our process is unique in that we use waste plastic and the pyrolysis reaction to create a large volume of synthetic gas (syngas), split that syngas apart, remove the hydrogen and leave the methane, carbon monoxide and carbon dioxide to power the pyrolysis process. We believe our process, including the price, volume and efficiency in which we utilize the pyrolysis process is what differentiates us in the marketplace. Additionally, our relationships with vendors have allowed us to access to pyrolysis technology that is not available to other users of similar technology. |
| · | Increased support for clean technologies to protect the environment. In recent years, we have seen an increased focus on environmental sustainability and more investors directing their investments towards companies based on ESG factors. |
54
Government Regulation
Our industry is subject to extensive federal and state laws and regulations in the United States as well as each country in which we perform services. Federal and state laws and regulations impact how we conduct our business and the services we offer and impose certain requirements on us such as:
• licensure and certification;
• operating policies and procedures;
• emergency preparedness risk assessments and policies and procedures;
• policies and procedures regarding employee relations;
• addition of facilities and services;
• billing for services;
•requirements for utilization of services; and
• reporting and maintaining records regarding adverse events.
Permitting
Each of our projects in development requires certain government approvals. In the United States, the standard required environmental permits relate to solid waste composting and air quality. The Clean Air Act establishes a number of permitting programs designed to carry out the goals of the Act. Some of these programs are directly implemented by EPA through its Regional Offices but most are carried out by states, local agencies and approved tribes.
Regulatory Changes and Compliance
Many aspects of our operations and facilities are affected by political developments and are subject to both domestic and foreign governmental regulations, including those relating to:
| ● | constructing and equipping facilities; | |
| ● | workplace health and safety; | |
| ● | currency conversions and repatriation; | |
| ● | taxation of foreign earnings and earnings of expatriate personnel; and | |
| ● | protecting the environment. |
We cannot determine the extent to which new legislation, new regulations or changes in existing laws or regulations may affect our future operations.
55
Environmental
Our operations and properties upon which we perform our pyrolysis services are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Such laws and regulations may also expose us to liability for the conduct of or conditions caused by others or for our acts that were in compliance with all applicable laws at the time such acts were performed.
In the United States, these laws and regulations include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, The Toxic Substances Control Act administered by the U.S. Environmental Protection Agency, and similar laws that provide for responses to, and liability for, releases of hazardous substances into the environment. These laws and regulations also include similar foreign, state or local counterparts to these federal laws, which regulate air emissions, water discharges, hazardous substances and waste and require public disclosure related to the use of various hazardous substances. Our operations are also governed by laws and regulations relating to workplace safety and worker health, including the U.S. Occupational Safety and Health Act and regulations promulgated thereunder.
Effect of Existing or Probable Government Regulations on Our Business
Our business is affected by numerous laws and regulations on the international, federal, state and local levels, including energy, environmental, conservation, tax and other laws and regulations relating to our industry. Failure to comply with any laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.
We believe that our operations comply in all material respects with applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive an effect on our operations than on other similar companies in our industry. We do not anticipate any material capital expenditures to comply with international, federal and state environmental requirements. However, we can provide no assurance that we will not incur significant environmental compliance costs in the future.
Government Regulation Outside the United States
In Morocco, India and other projects conducted outside of the United States, we intend to rely upon our partners within those jurisdictions to ensure compliance with local government regulation, permitting requirements, and environmental laws.
Employees and Human Capital
We believe that our success depends upon our ability to attract, develop and retain key personnel. As of September 13, 2023, we employed fifteen (15) individuals, of which four (4) are part time. Four (4) of our employees reside in India. A significant number of our management and professional employees have had prior experience in the clean energy and sustainable energy sector. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be in good standing. Although we continually seek to add additional talent to our work force, management believes that it has sufficient human capital to operate its business successfully.
56
Corporate Information
Our principal executive offices are located at 2711 N. Sepulveda Blvd., Suite #1051, Manhattan Beach, CA 90266. Our telephone number is (424) 835-1845. Our website address is https://www.cleanvisioncorp.com. The reference to our website is an inactive textual reference only. The information on, or that can be accessed through, our website is not part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our Common Stock.
Clean Vision was initially incorporated in Nevada as China Vitup Health Care Holdings, Inc. on September 15, 2006. Pursuant to an Agreement and Plan of Merger and Reorganization dated September 29, 2006, Tubac Holdings, Inc., a Wyoming corporation and a parent of the Company, was merged with and into the Company on October 2, 2006, with the Company as the surviving entity. On May 5, 2015, the Company changed its name to Emergency Pest Services, Inc. Pursuant to a Plan of Exchange dated August 3, 2015, the Company acquired Emergency Pest Services, Inc., a Florida corporation. Pursuant to a Plan of Exchange dated September 21, 2017, Byzen Digital Inc., a Seychelles corporation, was merged with and into the Company on November 4, 2017, with the Company as the surviving entity. On May 30, 2018, the Company changed its name to Byzen Digital Inc. On May 19, 2020, we changed our focus to clean energy and sustainability when we acquired Clean-Seas, which became our wholly-owned subsidiary. On March 12, 2021, the Company’s corporate name was changed to Clean Vision Corporation.
Facilities
Our corporate headquarters located at 2711 N. Sepulveda Blvd., Suite #1051, Manhattan Beach, CA 90266, which is a virtual office that is used solely as a mailing address. All of our operations are conducted by our officers, directors, consultants, employees and otherwise are conducted remotely. We believe that this arrangement is adequate for our current operations and needs, but we will secure a physical location for our operations if and when we believe that it becomes necessary.
Legal Proceedings
Presently, except as descried below, there are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
July 2023 Litigation Settlement
On July 3, 2023, the Company entered into the Percy Settlement Agreement by and between the Company, Christopher Percy and Daniel Bates whereby the parties agreed to a global settlement of the Percy Litigation. Mr. Bates is currently serving as Chief Executive Officer and Chairman of the Company. Mr. Percy is no longer serving as an executive of the Company, and as of February 14, 2023, Mr. Percy no longer served as a director.
The Percy Litigation arose from a dispute between the Company, Mr. Percy and Mr. Bates with respect to the management and operation of the Company, as well as Mr. Percy’s employment and position at the Company. On September 16, 2022, the Company commenced the Percy Litigation against Mr. Percy alleging breach of fiduciary duty, fraud, conversion, business disparagement, declaratory relief, and injunctive relief. Thereafter, Mr. Percy removed the case to the United States District of Nevada (Case No. 2:22-cv-01862-ART-NJK). The Company subsequently filed a motion to remand to state court on November 22, 2022. On December 1, 2022, Mr. Percy filed counterclaims against the Company for breach of contract, wrongful termination, breach of implied covenant of good faith and fair dealing, unjust enrichment, and indemnification. Mr. Percy also filed third-party claims against the Mr. Bates, alleging breach of fiduciary duty, equitable indemnity, and contribution.
Pursuant to the Percy Settlement Agreement, none of the parties admitted to fault or liability, Mr. Percy agreed to pay the $150,000 Percy Payment and, within ten (10) business days of the Percy Payment being received, Mr. Bates agreed to remit the $25,000 Bates Payment to Mr. Percy. In addition, the parties agreed to work together to promptly release the $5,000 Temporary Restraining Order/Preliminary Injunction bond currently deposited with the Clerk of the Court for the Eighth Judicial District Court, Clark County, Nevada. Once released, said bond shall be remitted to Mr. Percy.
In addition, pursuant to the Percy Settlement Agreement, the Company agreed to, within ten (10) days of the effective date, instruct its transfer agent to (i) issued 1,500,000 shares of Common Stock to Mr. Percy, (ii) restore and/or reissue to Mr. Percy the 3,000,000 shares of Common Stock that was previously cancelled by the Company and (iii) withdraw its stop-transfer demand current in place with respect to 4,200,000 Percy Shares. Mr. Percy agreed to not sell, on any given trading day, the Percy Shares in an amount that exceeds more than 10% of the daily trading volume of the Common Stock, with such trading volume determined by the trading platform upon which the Common Stock is then traded.
As consideration for entering into the Settlement Agreement, the parties agreed to a customary mutual release of claims agreed submitted a joint stipulation to the United States District Court, District of Nevada, dismissing all claims, crossclaims, counterclaims, and/or third-party claims in the Percy Litigation, with prejudice.
57
Tucker Dispute
On January 30, 2023, Tucker, one of the holders of the Company’s Series B Series B Preferred Stock commenced the Tucker Litigation against the Company in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief. This matter arises from the Tucker Agreement entered into on December 17, 2020, whereby Tucker agreed to perform certain strategic and business development services to the Company in exchange for 2,000,000 shares of Series B Preferred Stock and a consulting fee of $20,000 per month. The 2,000,000 shares of Series B Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023.
However the Company’s Transfer Agent was instructed to not issue the shares of Common Stock due to the Tucker Litigation, stemming from an ongoing dispute between the Company and Tucker regarding Tucker’s ability to perform the services under the Tucker Agreement due to the action filed by the SEC against Profile Solutions, Inc., Dan Oran and Leonard M. Tucker on September 9, 2022 in the United States District Court Southern District of Florida (Case No. 1:22-cv-22881) alleging, among other things, that Leonard Tucker violated Section 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) and Rule 10-b5. Accordingly, although as of September 13, 2023 the shares of Series B Preferred Stock are no longer outstanding, the shares of Common Stock thereunder have not been issued as of September 13, 2023.
In the Tucker Litigation, Tucker is seeking, among other things, that the Company issue the shares of Common Stock due pursuant to the Tucker Agreement. The Company is contesting all of the allegations set forth in the Tucker Litigation.
Pursuant to the terms of the Company’s agreement with Tucker, Tucker and the Company will have the Tucker Litigation resolved through binding arbitration at the end of October 2023.
58
Management’s
Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and accompanying notes included elsewhere in this prospectus. The following discussion contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this prospectus, particularly under “Risk Factors,” and in other reports we file with the SEC. See also “Cautionary Note Regarding Forward-Looking Statements”. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus.
The following discussion is based upon our financial statements included elsewhere in this prospectus, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. Each of these decisions has some impact on the financial results for any given period.
Overview
Clean Vision is a new entrant in the clean energy and waste-to-energy industries focused on clean technology and sustainability opportunities. By leveraging innovative technology, we aim to responsibly resolve environmental challenges by producing valuable products. Through our initiatives, we strive to be recognized as an environmental, social and governance company (“ESG”). Currently, we are focused on providing a solution to the plastic waste problem by converting the waste into saleable byproducts, such as precursors for new plastic products, hydrogen and other clean-burning fuels that can be used to generate clean energy. Using a technology known as pyrolysis, which heats the feedstock (i.e., plastic) at high temperatures in the absence of oxygen so that the material does not burn, we are able to convert the feedstock into (i) low-sulfur fuels, (ii) clean hydrogen, and (iii) carbon black or carbon char (carbon char is created when plastic is used as feedstock). We intend to generate revenue from three sources: revenue generated from the sale of the byproducts, revenue generated from the sale of environmental credits (carbon and plastic credits) revenue generated from the sale of fuel cell equipment. Our mission is to aid in solving the problem of cost-effectively upcycling the vast amount of waste plastic generated on land before it flows into the world’s oceans.
According to analysis and projections reported by the EIA on April 7, 2022, it is estimated that 98.3 million barrels per day of petroleum and liquid fuels was consumed globally in March 2022, an increase of 2.4 million barrels per day from March 2021. They estimate that global consumption of petroleum and liquid fuels will rise by 1.9 million barrels per day in 2023 to average 101.7 million barrels per day.
In a report published by Markets and Markets Research in February 2021 entitled “Hydrogen Generation Market by Application (Petroleum Refinery, Ammonia & Methanol production, Transportation, Power Generation), Generation & Delivery Mode (Captive, Merchant), Source (Blue, Green & Grey Hydrogen), Technology, and Region-Forecast to 2025,” the global hydrogen generation market is projected to reach $201 billion by 2025 from an estimated $130 billion in 2020, at a compound annual growth rate (CAGR) of 9.2% during the forecast period. While the global green hydrogen market was valued at approximately $0.8 billion in 2021, it is predicted to grow to about $10.2 billion by 2028, with a CAGR of approximately 55.2% over the projection period, according to research and analysis published by Facts and Factors in March 2022 entitled “Green Hydrogen Market By Type (Solid Oxide Electrolyzer, Alkaline Electrolyzer, and Proton Exchange Membrane Electrolyzer), By Use (Transport, Power Generation, and Others) By Customer (Petrochemicals, Glass, Food & Beverages, Chemical, Medical, and Others), and By Region - Global and Regional Industry Overview, Market Intelligence, Comprehensive Analysis, Historical Data, and Forecast 2022–2028.”
59
We believe that in the near future, a significant growth sector of the economy will be in clean energy and sustainable products and services. This belief was a key factor in our shift in our business focus in May 2020 and our acquisition of Clean-Seas, which became our wholly-owned subsidiary on May 19, 2020. Clean-Seas believes that it has made significant progress in identifying and developing a new business model around the clean energy and waste-to-energy sectors.
Clean Vision was established in 2017 as a company focused on the acquisition of disruptive technologies that will impact the digital economy. The Company, which was formerly known as Byzen Digital Inc., changed its corporate name to Clean Vision on March 12, 2021.
We are now a holding company, with all operations currently being conducted through Clean-Seas. Clean-Seas acquired its first pyrolysis unit in November 2021 for use in a pilot project in India, which began operations in early May 2022. On April 23, 2023, Clean-Seas completed its acquisition of a fifty-one percent (51%) interest in Ecosynergie, which changed its name to Clean-Seas Morocco on such date. Clean-Seas Morocco began operations at its pyrolysis facility in Agadir, Morocco, in April 2023, which currently has capacity to convert 20 TPD of waste plastic through pyrolysis.
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2023 and June 30, 2022
Revenue
For the Six months ended June 30, 2023, the Company recognized revenue of $161,297 and cost of revenue of $33,862, from our new subsidiary Clean-Seas Morocco. Revenue from operations is generated from the processing of plastic waste material ("feedstock") at our plant in Agadir, Morocco. The plastic feedstock is put through a pyrolysis system which applies pressure and heat, in the absence of oxygen (no incineration), converting the plastic back to its petroleum form. The revenue was generated from selling the output product, "pyrolysis oil," to a local oil and gas wholesaler in Morocco, called the "off-taker". We receive the plastic feedstock in Agadir at $0 cost, but variable expenses include labor, land lease, and overhead such as insurance.
We recognized no revenue for six months ended June 30, 2022.
Operating Expenses
| Six months ended June 30, 2023 | Six months ended June 30, 2022 | Change ($) | Change (%) | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Consulting | $ | 694,498 | $ | 782,960 | $ | (88,462 | ) | (11.3 | %) | |||||||
| Professional fees | 541,560 | 126,630 | 414,930 | 327.7 | % | |||||||||||
| Payroll expense | 532,264 | 452,289 | 79,975 | 17.7 | % | |||||||||||
| Director fees | 88,000 | 9,000 | 79,000 | 877.8 | % | |||||||||||
| General and administration expenses | 760,803 | 596,970 | 163,833 | 27.4 | % | |||||||||||
| Total operating expenses | $ | 2,617,125 | $ | 1,967,849 | $ | 649,276 | 33 | % | ||||||||
Consulting Expense
For the six months ended June 30, 2023 and 2022, we had consulting expenses of $694,498 and $782,960 respectively, a decrease of $88,462 or 11.3%. The decrease is mainly due to a decrease in the amortized stock compensation expense for the Series B preferred stock ($210,000), offset by an increase in the Common Stock issued for services for non-cash compensation expense of approximately $198,000 and additional expense incurred for new consultants. In the prior period we had $334,800 of stock compensation expense and $146,700 of consulting expense incurred by our Clean-Seas India subsidiary.
60
Professional Fees
For the six months ended June 30, 2023 and 2022, we incurred professional fees of $541,560 and $126,630, respectively, an increase of $414,930 or 327.7%. In the current period we had additional legal expense of approximately $332,000 related to both the filing of our Regulation A Offering Statements and ongoing litigation.
Payroll Expense
For the six months ended June 30, 2023 and 2022, we had payroll expenses of $532,264 and $452,289, respectively, an increase of $79,975 or 17.7%. In the current period we recognized payroll expense from Clean-Seas Morocco of approximately $98,000. In addition, payroll increased due to salary increases for some of our employees.
Director Fees
For the six months ended June 30, 2023 and 2022, we had director fees of $88,000 and $9,000, respectively, an increase of $79,000. Our directors are compensated $4,500 per quarter. In the prior period expense was incurred for just one director. In the current period we have three directors. In addition, we issued 500,000 shares of Common Stock to a new director for total non-cash compensation expense of $61,000.
General and Administrative expense
For the six months ended June 30, 2023 and 2022, we had G&A expense of $760,803 and $596,970, respectively, an increase of $163,833 or 27.4%. In the current period we recognized (which is not included in the Company’s corporate Payroll Expense account discussed above) expense from Clean-Seas Morocco of approximately $97,500. Some of our larger G&A expenses were for promotional expense (~$157,500), transfer agent fees (~$22,000) and public company fees (~$22,100). Our Clean-Seas India subsidiary also incurred $82,000 of G&A expense during the period. We’ve seen an overall increase of our G&A as the Company seeks new business opportunities and expansion.
Other Income and Expense
For the six months ended June 30, 2023, we had total other expense of $2,971,218 compared to $218,948 for the six months ended June 30, 2022. In the current period we recognized $1,709,153 of interest expense, of which $1,636,939 was amortization of debt discount and a loss on debt issuance of $2,676,526. This was offset with a gain of $260,882 for the conversion of debt, $17,500 from extinguishment of debt and a gain in the change in fair value of derivative of $1,136,079. In the prior year we recognized $195,483 for debt issuance costs for the fair value of the warrants issued with convertible debt. We also had $23,465 of interest expense, of which $15,000 was amortization of debt discount.
61
Net Loss
Net loss for the six months ended June 30, 2023, was $5,427,614, after deducting $33,294 for the non-controlling interest, and $2,186,797, respectively. Our net loss increased mainly due to non-cash expense associated with our convertible debt.
Year ended December 31, 2022 compared to the year ended December 31, 2021
The Company had no revenue for the twelve months ended December 31, 2022 and 2021.
Operating Expenses
| Year ended December 31, 2022 | Year ended December 31, 2021 | Change ($) | Change (%) | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Consulting | $ | 2,452,383 | $ | 1,955,213 | $ | 497,170 | 25.4 | % | ||||||||
| Professional fees | 407,501 | 413,479 | (5,978 | ) | (1.4 | )% | ||||||||||
| Payroll expense | 829,364 | 824,393 | 4,971 | 0.6 | % | |||||||||||
| Officer stock compensation expense | 516,042 | 536,125 | (20,083 | ) | (3.7 | )% | ||||||||||
| Director fees | 171,000 | 18,500 | 152,500 | 824.3 | % | |||||||||||
| General and administration expenses | 1,287,030 | 373,095 | 913,935 | 245.0 | % | |||||||||||
| Total operating expenses | $ | 5,663,320 | $ | 4,120,805 | $ | 1,542,515 | 37.4 | % | ||||||||
Consulting Expense
For the twelve months ended December 31, 2022 and 2021, we had consulting expenses of $2,452,383 and $1,955,213, respectively, an increase of $497,170 or 25.4%. In the current period we had approximately $1,144,000 of stock compensation expense and $198,000 and $223,000 of consulting expense incurred by our Clean Seas India and Clean Seas subsidiaries, respectively. In the prior period we had $1,574,000 of stock compensation expense. In the current year we hired additional consultants in conjunction with our increased activity, primarily with Clean Seas.
Professional Fees
For the twelve months ended December 31, 2022 and 2021, we incurred professional fees of $407,501 and $413,479, respectively, a decrease of $5,978 or 1.4%. Although, our overall expense has not changed significantly, a large portion of the expense in the current period is related to ongoing litigation whereas, in the prior period we incurred additional legal and audit expense related to the filing of our Regulation A Offering Statement
Payroll Expense
For the twelve months December 31, 2022 and 2021, we had payroll expense of $829,364 and $824,393, respectively, an increase of $4,971 or 0.61%.
Officer Stock Compensation
For the twelve months December 31, 2022 and 2021, we had officer stock compensation expense of $516,042 and $536,125, respectively, a decrease of $20,083 or 3.75%. In the current period we issued 10,000,000 shares of Common Stock to our CEO for total non-cash expense of $350,000, 2,000,000 shares to our CFO for total non-cash expense of $70,000 and 2,708,340 shares to our CRO for total non-cash expense of $96,042. In the prior year we issued preferred stock for services to our CEO for total non-cash compensation expense of $359,800. We also issued 500,000 shares to our CFO and 3,680,000 shares to former officers for total non-cash expense of $194,055.
Director Fees
For the twelve months December 31, 2022 and 2021, we had director fees of $171,000 and $18,500, respectively, an increase of $152,500 or 824%. Our directors are compensated $4,500 per quarter. In the current year we also issued a total of 4,500,000 shares of Common Stock to two of our directors for total non-cash compensation expense of $148,500. In the prior year we issued 500,000 shares of Common Stock to two of our directors for total non-cash compensation expense of $14,000.
General and Administrative Expense
For the twelve months December 31, 2022 and 2021, we had G&A expense of $1,287,030 and $373,095, respectively, an increase of $913,935 or 245.0%. Some of our larger G&A expenses, and the increases over prior period are investor relations (~$387,000), development expense (~$35,500) and travel (~$58,500). Our Clean Seas India subsidiary also incurred $124,000 of G&A expense during the period.
62
Other Income and Expenses
For the twelve months December 31, 2022, we had total other expense of $250,404 compared to $1,913,606 for the twelve months December 31, 2021. In the current year we recognized $250,404 of interest expense, of which $200,273 was amortization of debt discount. In the prior period we recognized $1,187,033 of interest expense, $1,162,996 of which was amortization of debt discounts, a loss in the change of the fair value of derivative of $576,573 and a loss on investment of $150,000.
Net Loss
We had a net loss of $5,913,724 for the year ended December 31, 2022, compared to a net loss of $6,034,411 for the year ended December 31, 2021, a decrease in net loss of $120,687 or 1.9% from the prior year. The decrease in net loss was mainly due to the decrease in amortization expense, recorded as part of interest expense, from the prior year.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have funded our operations through the issuance of equity securities and debt securities. We are not profitable, have not generated any revenue and have incurred an accumulated deficit of $25,989,951 as of June 30, 2023. For the six months ended June 30, 2023, we had a net loss of $5,427,614, and we had a net loss of $5,913,724 for the year ended December 31, 2022. At June 30, 2023, we had cash of $394,304 and cash of $10,777 at December 31, 2022. We expect to continue to incur losses for the foreseeable future, and these losses could increase as we continue to work to develop our business. We also expect our capital needs to increase as we purchase additional pyrolysis equipment. We expect that the proceeds of this Offering together with our cash on hand will be sufficient to meet our capital needs for at least the next twelve months. Our future capital needs will be dependent upon our ability to generate significant revenue from operations. Our ability to raise additional capital through the future issuances of Common Stock and/or debt financing is unknown. The obtainment of additional financing, the successful development of our contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for us to continue operations. These conditions and the ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern.
Working Capital
| Six Months Ended June 30, 2023 | Year Ended December 31, 2022 | |||||||
| Cash | $ | 394,304 | $ | 10,777 | ||||
| Other Current Assets | 1,699,381 | 125,000 | ||||||
| Total Current Assets | 2,093,685 | 135,777 | ||||||
| Total Current Liabilities | 11,432,548 | 1,954,790 | ||||||
| Working Capital / (Deficit) | $ | (9,338,863 | ) | $ | (1,819,013 | ) | ||
As of June 30, 2023, our cash balance was $394,304 and total current assets were $2,093,685. As of December 31, 2022, our cash balance was $10,777 and total current assets were $135,777.
As of June 30, 2023, we had total current liabilities of $11,432,548. As of December 31, 2022, we had total current liabilities of $1,954,790.
As of June 30, 2023, we had a working capital deficit of $9,338,863, compared with a working capital deficit of $1,819,013 as of December 31, 2022.
Cash Flows
The following table sets forth the significant sources and uses of cash for the six months ended June 30, 2023 and 2022.
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||
| Cash Flows Used in Operating Activities | $ | (2,239,317 | ) | $ | (1,718,319 | ) | ||
| Cash Flows Used in Investing Activities | $ | (2,000,000 | ) | $ | (80,346 | ) | ||
| Cash Flows Provided by Financing Activities | $ | 4,639,902 | $ | 1,011,879 | ||||
| Net Change in Cash During the period end | $ | 400,585 | $ | (786,786 | ) | |||
The following table sets forth the significant sources and uses of cash for the years ended December 31, 2022 and 2021.
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||
| Cash Flows Used in Operating Activities | $ | (2,029,096 | ) | $ | (1,801,078 | ) | ||
| Cash Flows Used in Investing Activities | $ | (90,871 | ) | $ | (300,505 | ) | ||
| Cash Flows Provided by Financing Activities | $ | 1,278,417 | $ | 2,936,500 | ||||
| Net Change in Cash During the period end | $ | (841,550 | ) | $ | 834,917 | |||
63
Cash Flow from Operating Activities
For the six months ended June 30, 2023, we used $2,239,317 of cash in operating activities, which included $3,431,853 for non-cash items and $117,644 for operating activities. For the six months ended June 30, 2022, we used $1,718,319 of cash in operating activities.
During the twelve months ended December 31, 2022, we incurred a net loss of $5,913,724, adjusted by $3,064,138 for non-cash expenses and $820,490 in adjustments for changes in assets and liabilities for net cash of $2,029,096 used in operating activities. During the year ended December 31, 2021, we had a net loss of $6,034,411 adjusted by $2,142,235 for non-cash expenses and $2,091,098 in adjustments for changes in assets and liabilities, for net cash of $1,801,078 used in operating activities.
Cash Flow from Investing Activities
During the twelve months ended December 31, 2022, we purchased equipment in the amount of $90,871. During the year ended December 31, 2021, we purchased equipment in the amount of $150,505 and used $150,000 to repurchase shares sold to 100Bio.
For the six months ended June 30, 2023 and 2022, we used $2,000,000 for the acquisition of Clean-Seas Morocco and $80,346 for the purchase of property and equipment, respectively.
Cash Flow from Financing Activities
During the twelve months ended December 31, 2022, we received $555,000 proceeds from convertible notes, $600,000 proceeds from the sale of Common Stock, $154,000 from other notes payable and $46,917 from a related party loan. Cash received was offset by repayment of $57,500 of notes payable and $20,000 of related party notes. During the year ended December 31, 2021, we received $3,244,000 from proceeds from the sale of Common Stock, $300,000 proceeds from the sale of notes payable, $686,500 from the proceeds of the sale of convertible notes, which was partially offset by repayment of $594,000 of convertible notes and $700,000 for notes.
For the six months ended June 30, 2023 and 2022, we received net cash of $4,639,902 and $1,011,879, respectively, from financing activities. In the current period we received $4,434,500 from a convertible note payable, $42,500 from a note payable, $5,000 from our CEO, and $335,000 from the sale of our common stock. We repaid $10,000 of the loan owed to our CEO, $135,000 of a convertible note and $21,005 on other notes payable. In the prior period, we received $300,000 from a convertible note payable, $600,000 from the sale of common stock and $126,381 from other notes, $14,402 of which was repaid.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
“Note 2– Summary of Significant Accounting Policies” in the audited financial statements and included in this prospectus under “Index to Financial Statements” describe the significant accounting policies and methods used in the preparation of the Company’s financial statements.
Controls and Procedures
We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We will be required to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act for the twelve-month period ending December 31, 2023. Only in the event that we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, would we be required to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.
JOBS Act and Recent Accounting Pronouncements
The JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
64
Management
The following sets forth information regarding individuals who are currently serving as directors and/or executive officers as of September 13, 2023.
| Name | Age | Position | ||
| Daniel Bates | 65 | Chairman, Chief Executive Officer, President and Director | ||
| Rachel Boulds | 53 | Chief Financial Officer | ||
| Daniel Harris | 60 | Chief Revenue Officer | ||
| Dr. Michael Dorsey | 51 | Independent Director | ||
| Gregg Michael Boehmer | 55 | Independent Director | ||
| Bart Fisher | 79 | Independent Director |
Our directors are elected annually and will hold office until our next annual meeting of the stockholders and until their successors are elected and qualified. Officers hold their positions at the pleasure of the Board of Directors and pursuant to any employment agreement entered into. Our officers and directors may receive compensation as determined by us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Directors may be reimbursed by the Company for expenses incurred in attending meetings of the Board of Directors. Vacancies in the Board of Directors are filled by majority vote of the remaining directors.
Executive Officers and Directors
The following is a brief description of the education and business experience of our directors and executive officers.
Daniel Bates
Mr. Bates has been our Chief Executive Officer and has served on our Board of Directors since May 27, 2020. Mr. Bates was appointed as our President, Secretary and Treasurer on July 20, 2022. Previously, from June 2014 to August 2019, Mr. Bates served as the CEO and President of ImpactPPA, an innovative renewable energy company providing blockchain technologies to solve the challenging problems commonly seen in the environment of distributed energy solutions globally. Mr. Bates has spent more than a decade in the renewable energy industry serving as the CEO of WindStream.
Prior to starting WindStream, Mr. Bates spent 15 years in the technology sector and has launched successful technology ventures in both hardware and software. Mr. Bates’ first technology venture, Extreme Audio Reality (EAR), which was formed in 1990, developed and patented the first interactive audio API for game developers, designed for the PC, and set-top box gaming arena. EAR successfully licensed its products to all major game publishers including Electronic Arts, Activision, Id Software, Ubisoft and many others. After EAR, Mr. Bates founded Avant Interactive (“Avant”) in 1997, which developed a neural net and AI based technology for object recognition, creating a patented interactive video solution for content owners, publishers, and advertisers. Avant was the market leader in this emerging sector, holding licenses and/or contracts with many of the Fortune 100 companies, television and cable networks, ad agencies as well as developing proprietary applications for the U.S. Army. Mr. Bates earned an Associates of Arts degree in Business Administration from Humboldt State University in 1979.
We believe that Mr. Bates is highly qualified to serve as a member of the Board of Directors and our management team due to his significant experience in the renewable energy industry and understanding of emerging markets and finance.
Rachel Boulds
Ms. Boulds has served as the Company’s Chief Financial Officer since May 1, 2022. Ms. Boulds currently works for the Company on a part-time basis (spending approximately 80% of her time working for the Company) while also operating her sole accounting practice which she has led since 2009 and which provides all aspects of consulting and accounting services to clients, including the preparation of full disclosure financial statements for public companies to comply with GAAP and SEC requirements. Ms. Boulds also currently provides outsourced chief financial officer services for two other companies. From August 2004 through July 2009, she was employed as a Senior Auditor for HJ & Associates, LLC, where she performed audits and reviews of public and private companies, including the preparation of financial statements to comply with GAAP and SEC requirements. From 2003 through 2004, Ms. Boulds was employed as a Senior Auditor at Mohler, Nixon and Williams. From September 2001 through July 2003, Ms. Boulds worked as an ABAS Associate for PriceWaterhouseCoopers LLP. From April 2000 through February 2001, Ms. Boulds was employed as an e-commerce Accountant for the Walt Disney Group’s GO.com. Ms. Boulds earned a B.S. in Accounting from San Jose University in 2001 and is licensed as a CPA in the state of Utah.
Daniel C. Harris
Mr. Harris has served as the Company’s Chief Revenue Officer since June 2022 and has served as the VP of Business Development of the Company’s subsidiary, Clean-Seas, since October 2021. From 2013 through 2017, Mr. Harris served as the Executive Vice President of Windstream Technologies, Inc., and from 2017 through 2019, Mr. Harris was a franchisee of Patrice & Associates. Mr. Harris is currently dedicated to the global expansion efforts of Clean-Seas’ Plastic Conversion Network by focusing on establishing new locations and partnerships for its pyrolysis facilities. Mr. Harris has over 20 years of experience in the competitive energy space. Prior to his roles with the Company, Mr. Harris served as Executive Vice President of Global Sales at WindStream, focusing on large commercial installations of renewable energy systems (integrated wind and solar). Preceding his tenure at WindStream, Mr. Harris served as Executive Vice President of Sales at Glacial Energy, a nationwide provider of retail electricity and natural gas for commercial, industrial, and institutional customers. In addition to his experience in the energy field, he had a successful 20 year career in the telecommunications industry, holding numerous high level positions in General Management and Sales and Operations Management with telecommunications service providers such as Winstar Communications, Telseon, and Teleport Communications. Mr. Harris holds a Bachelor of Arts degree in both Telecommunications Management and Marketing from Syracuse University.
65
Dr. Michael Dorsey
Dr. Dorsey has served as a member of our Board of Directors since September 2021. He is a recognized expert on global energy, environment, finance and sustainability matters, having worked with governments and heads of state around the world. Dr. Dorsey was appointed to the EPA’s National Advisory Committee (NAC) in 2010, 2012 and 2014. Further, in 2014, a specialized unit of the United Nations Conference on Trade and Development (UNCTAD) designated Dr. Dorsey advisor on “climate, energy sustainability and SIDS (Small Island Developing States).”
Dr. Dorsey has published dozens of scholarly and lay articles on a variety of environment, development, pollution prevention and sustainability matters, and has appeared in multiple TV and radio shows and print publications. Dr. Dorsey is a member of several non-profit boards and was a faculty member in various universities around the world.
Dr. Dorsey presently serves as a director at Michigan Environmental Council, where he has served since 2019, as well as at Univergy Solar since 2017, where he is also a partner. Dr. Dorsey’s employment history also includes: a limited partner at Ibursun, 2019 to present; co-founder and treasurer at Sunrise Movement, 2017 to present; partner at Pahal Solar, 2019 to present; advisor at ImpactPPA 2018 to 2020; full member at Club of Rome, 2013 to present; member at Progress with Friends, 2006 to present; and co-founder at DetroitxPAC, 2013 to present. Dr. Dorsey holds a Master of Forest Science from Yale University.
We believe that Dr. Dorsey is highly qualified to serve as a member of the Board of Directors due to his significant experience in global renewable energy markets and government policy sectors.
Gregg Michael Boehmer
Mr. Boehmer has served as a member of the Board of Directors since October 3, 2022 and has been supporting the Clean Vision Corp. as a consultant since 2021.Mr. Boehmer has over 12 years of experience helping public companies with their fiscal, compliance and regulatory needs. He has a B.S. degree from the University of Dayton (OH) and a Master’s Degree in Human Resource Management from Towson University (MD).
After achieving success with a few OTC Pink Sheet companies in 2009-10, Mr. Boehmer opened his consulting firm, Layne Michael Consulting, LLC, in 2011, where he currently still works, in an effort to provide general public company management, investor relations, corporate communications and compliance services to companies struggling with compliance and or public relations issues at rates far more affordable than larger firms were able to offer.
We believe that Mr. Boehmer is highly qualified to serve as a member of our Board of Directors due to his years of experience and expertise in working with publicly traded companies and building development stage companies.
Bart Fisher
Mr. Fisher has served as a member of our Board of Directors since January 18, 2023. Mr. Fisher brings 50 years' experience as an attorney and investment banker specializing in high profile international corporate litigation and complex transnational financial transactions. As an attorney, Mr. Fisher serves as Managing Partner of the Law Office of Bart S. Fisher and is a member of the District of Columbia Bar. From 1972 through April, 1994, he practiced law with Patton Boggs LLP in Washington, D.C., where he was a partner as of January 1, 1978. He has also been a partner at Arent Fox Kintner Plotkin & Kahn (1994-1995), and Of Counsel with Porter, Wright, Morris & Arthur (1996-2001), Bryan Cave (2002) and Dorsey & Whitney (2003-2004). In his dual career as an investment banker, he serves as Managing Partner of JJ&B, LLC, a boutique investment bank located in Washington, D.C., Chairman of Omni Advisors LLC, a D.C. and NY-based investment bank, and Chairman of Capital Commodities, LLC.
Mr. Fisher graduated from Harvard Law School, and earned a Ph.D. in International Studies from Johns Hopkins School of Advanced International Studies in Washington, D.C. He has been nominated twice for the Nobel Prizes in Peace (2019) and Medicine (2020). Throughout his career, Mr. Fisher has been a prolific published author, frequent teacher and university lecturer, and a force for successfully advancing health care and philanthropy.
We believe that Mr. Fisher is highly qualified to serve as a member of the Board of Directors due to his significant experience in the legal and investment banking industries.
Corporate Governance
Family Relationships amongst Directors and Officers
There are no family relationships among our directors and executive officers.
66
Arrangements between Officers and Directors
To our knowledge, there is no arrangement or understanding between any of our officers and directors and any other person, including officers and directors, pursuant to which the officer was selected to serve as an officer or director.
Involvement in Certain Legal Proceedings
None of our executive officers or directors has been involved in any of the following events during the past ten years, except as described under “Business Experience”, above: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being a named subject to a pending criminal proceeding (excluding traffic violations and minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law; (5) being 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, relating to an alleged violation of (i) any Federal or State securities or commodities law or regulation; (ii) 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 (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or (6) being 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 (1a)(40) 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.
Board Leadership Structure
Our Board of Directors has the responsibility for selecting our appropriate leadership structure. In making leadership structure determinations, the Board of Directors considers many factors, including the specific needs of our business and what is in the best interests of our stockholders. Mr. Daniel Bates serves as Chairman and CEO. The Board of Directors does not have a policy as to whether the Chairman should be an independent director, an affiliated director, or a member of management. The Board of Directors believes that its programs for overseeing risk, as described below, would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of structure.
67
Risk Oversight
Effective risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision, the Board of Directors discusses risk throughout the year generally or in connection with specific proposed actions. The Board of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy, evaluating the Company’s risk management processes, allocating responsibilities for risk oversight, and fostering an appropriate culture of integrity and compliance with legal responsibilities. The directors exercise direct oversight of strategic risks to the Company.
Once established, our Audit Committee will review and assess the Company’s processes to manage business and financial risk and financial reporting risk. It will also review the Company’s policies for risk assessment and assesses steps management has taken to control significant risks.
Other Directorships
No director of the Company is also a director of an issuer with a class of securities registered under Section 12 of the Exchange Act (or which otherwise are required to file periodic reports under the Exchange Act).
Committees of the Board
The Company’s Board of Directors does not currently have any committees established.
Controlled Company
Daniel Bates, our CEO and Chairman, owns 2,000,000 shares of Series Preferred Stock, which shares of Series C Preferred Stock, vote together with our Common Stock on all stockholder matters, and vote one hundred Common Stock votes per share of Series C Preferred Stock owned. Such shares of Series C Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023 and on such date the contractual right to vote the shares of Series C Preferred Stock in accordance with its terms ceased. The conversion of the Series C Preferred Stock into Common Stock has not been effectuated with the Company’ transfer agent as of the date hereof.
Code of Ethics
We have adopted a Code of Ethical Business Conduct (“Code of Ethics”) that applies to all of our directors, officers and employees. Following the effective time of the registration statement of which this prospectus forms a part, the Code of Ethics will be available on our website at https://www.cleanvisioncorp.com. We intend to disclose any amendments to our Code of Ethics and any waivers with respect to our Code of Ethics granted to our principal executive officer, our principal financial officer, or any of our other employees performing similar functions in a Current Report on Form 8-K.
There have been no waivers granted with respect to our Code of Ethics to any such officers or employees.
68
Executive OFFICER and Director Compensation
Executive Compensation Table
The following table sets forth information concerning the compensation of (i) all individuals serving as our principal executive officer or acting in a similar capacity for the years ended December 31, 2022 and 2021 (“PEO”), regardless of compensation level; (ii) our two most highly compensated executive officers other than the PEO who were serving as executive officers for the period ended December 31, 2022 and 2021, if any (subject to the limitations below); and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to paragraph (ii) but for the fact that the individual was not serving as an executive officer at December 31, 2022 (collectively, the “Named Executive Officers”).
Our Board of Directors does not have a Compensation Committee. In its absence, compensation was determined by the majority of the Board Members.
Summary Compensation Table
| Name and Principal Position | Year | Salary
($) | Bonus
($) | Stock
Awards ($)(2) | Option
Awards ($) | Non-Equity
Incentive Plan Compensation ($) | Nonqualified
Deferred Compensation Earnings ($) | All
Other Compensation ($)(3) | Total | |||||||||||||||||||||||||||
| Daniel Bates | 2022 | $ | 240,000 | $ | 0 | $ | 350,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 590,000 | |||||||||||||||||||
| CEO | 2021 | $ | 240,000 | $ | 0 | $ | 359,800 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 599,800 | |||||||||||||||||||
| Chris Percy(1) | 2022 | $ | 57,750 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 57,750 | |||||||||||||||||||
| 2021 | $ | 231,000 | $ | 0 | $ | 59,375 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 290,375 | ||||||||||||||||||||
| John Owen (4) | 2022 | $ | 131,250 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 131,250 | |||||||||||||||||||
| COO | 2021 | $ | 80,000 | $ | 0 | $ | 14,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 94,000 | |||||||||||||||||||
| Rachel Boulds | 2022 | $ | 60,000 | $ | 0 | $ | 70,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 130,000 | |||||||||||||||||||
| CFO | 2021 | $ | 47,000 | $ | 0 | $ | 102,950 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 149,950 | |||||||||||||||||||
| Daniel Harris | 2022 | $ | 90,000 | $ | 0 | $ | 94,792 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 184,792 | |||||||||||||||||||
| CRO | 2021 | $ | 22,500 | $ | 0 | $ | 17,750 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 40,250 | |||||||||||||||||||
(1) Effective as of July 30, 2022, Mr. Percy was terminated as the Company’s Chief Commercial Officer, President, Treasurer and Secretary. Effective as of February 14, 2023, Mr. Percy was removed as a director.
(2) In accordance with SEC rules, this column reflects the aggregate fair value of the stock awards granted during the respective fiscal year computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note 8 to our consolidated financial statements included elsewhere in this prospectus.
(3) Does not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than $10,000. No executive officer earned any non-equity incentive plan compensation, nonqualified deferred compensation, or other compensation, during the periods reported above.
(4) Mr. Owen resigned from the Company effective November 21, 2022.
Outstanding Equity Awards at Fiscal Year-End
The Company: (i) did not grant any stock options to its executive officers or directors during the years ended December 31, 2022 and December 31, 2021; (ii) did not have any outstanding equity awards as of December 31, 2022; and (iii) had no options exercised by its Named Executive Officers in the fiscal years ending December 31, 2022 and December 31, 2021.
Compensation of Directors
The following table sets forth summary information concerning the compensation we paid to non-executive directors during the years ended December 31, 2022 and December 31, 2021.
69
| Name and Principal Position | Year | Fees
Earned or Paid in Cash ($) | Stock
Awards ($) | Non-Equity
Incentive Plan Compensation ($) | Nonqualified
Deferred Compensation Earnings ($) | All
Other Compensation ($) | Total | |||||||||||||||||||||
| Dr. Michael Dorsey | 2022 | $ | 9,000 | $ | 70,000 | $ | 0 | $ | 0 | $ | 0 | $ | 97,000 | |||||||||||||||
| 2021 | $ | 0 | $ | 14,000 | $ | 0 | $ | 0 | $ | 0 | $ | 14,000 | ||||||||||||||||
| Greg Boehmer | 2022 | $ | 4,500 | $ | 78,500 | $ | 0 | $ | 0 | $ | 0 | $ | 83,000 | |||||||||||||||
| 2021 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
| Bart Fisher | 2022 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
| 2021 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
The table above does not include the amount of any expense reimbursements paid to the above directors. No directors received any Non-Equity Incentive Plan Compensation, Change in Pension Value and Nonqualified Deferred Compensation Earnings during the period presented. Does not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than $10,000.
Outstanding Equity Awards at the End of the Fiscal Year
We do not currently have any equity compensation plans and therefore no equity awards were outstanding as of December 31, 2022.
Stock Option Grants
We have not granted any stock options to our executive officers or directors.
Employment Agreements
Daniel Bates
We entered into an employment agreement with Daniel Bates (the “Bates Employment Agreement”) on May 27, 2020 for a term of three years. Under the Bates Employment Agreement, Mr. Bates serves as our Chief Executive Officer and President. He receives a monthly base salary of $20,000, provided that $7,500 per month is deferred until we raise a minimum of $250,000 in a financing, which financing was raised in February 2021. Mr. Bates is also eligible to receive a quarterly revenue bonus of 10% of our consolidated gross revenue for such quarter, which shall be paid in cash or Common Stock, as determined by the Board (“Revenue Bonus”).
The Bates Employment Agreement provides that Mr. Bates is eligible to participate in our employee stock option plan, life, health, accident, disability insurance plans, pension plans and retirement plans, in effect from time to time, to the extent and on such terms and conditions as we customarily make such plans available to our senior executives. In addition, he is entitled to three weeks of paid vacation per year.
The Bates Employment Agreement provides that it shall continue until terminated (i) upon the death of Mr. Bates; (ii) upon the delivery to Mr. Bates of written notice of termination by us if Mr. Bates suffers a physical or mental disability rendering, in the Board’s reasonable judgment, Mr. Bates unable to perform his duties and obligations under the Bates Employment Agreement for either 90 consecutive days or 190 days in any 12-month period; (iii) upon delivery to Mr. Bates of written notice of termination by us for Cause, as such term is defined in the Bates Employment Agreement; or (iv) upon delivery of written notice from Mr. Bates to us for Good Reason, as such term is defined in the Bates Employment Agreement. The Bates Employment Agreement also provided that until we have obtained $2,000,000 in gross proceeds from a financing or series of financings the Bates Employment Agreement may be terminated by either party on thirty (30) days’ notice, which financing was obtained and therefore the Bates Employment Agreement can no longer be terminated on thirty (30) days’ notice.
70
Mr. Bates is bound by certain confidentiality provisions pursuant to the Bates Employment Agreement.
If Mr. Bates’ employment is terminated for Good Reason, in addition to paying Mr. Bates all outstanding sums due and owing to him at the time of separation, we are also required to pay Mr. Bates an amount equal to six (6) months of his then-current Base Salary in the form of salary continuation (the “Severance Payments”), plus payment of the medical insurance premium for Mr. Bates and his family.
Notwithstanding the reason for Mr. Bates’ termination he is entitled to: (i) all benefits payable under the applicable benefit plans through the date of termination, (ii) any accrued but unused vacation earned by Mr. Bates through the date of termination; (iii) reimbursement for any business expenses incurred by Mr. Bates prior to the date of termination; and (iv) the prorated portion of any Revenue Bonus to which he is entitled.
The receipt of any termination benefits described above is subject to Mr. Bates’ execution of a release of claims in favor of us.
In the event of Mr. Bates’ termination due to death or disability, Mr. Bates or his estate shall be entitled to all severance benefits (including, without limitation, the Severance Payments) as well as retaining any options vested as of the date of termination.
Effective as of February 9, 2021, the Bates Employment Agreement was amended for purposes of extending the term to five years, expiring on May 27, 2025, and issuing Mr. Bates 2,000,000 shares of our Series C Preferred Stock.
Rachel Boulds
The Company entered into a consulting agreement with Rachel Boulds, effective as of May 1, 2021, (“Boulds Consulting Agreement”) to serve as part-time Chief Financial Officer for compensation of $5,000 per month. On February 22, 2021, Ms. Boulds was granted 500,000 shares of Common Stock for her services. On December 14, 2022, Ms. Boulds was granted 2,000,000 shares of Common Stock for her services.
71
Certain Relationships and Related Party Transactions
Except as discussed below or otherwise disclosed above under “Executive and Director Compensation”, which information is incorporated by reference where applicable in this “Certain Relationships and Related Transactions” section, the following sets forth a summary of all transactions since January 1, 2021, or any currently proposed transaction, in which the Company was to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at the fiscal year-end for December 31, 2022 and December 31, 2021, and in which any officer, director, or any stockholder owning greater than five percent (5%) of our outstanding voting shares, nor any member of the above referenced individual’s immediate family, had or will have a direct or indirect material interest (other than compensation described above under “Executive and Director Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
The Company issued to Mr. Bates three separate promissory notes, 1) on August 1, 2022, for $1,000, 2) on September 15, 2022, for $35,040, and 3) on October 6, 2022, for $1,000. The notes bear interest at 8% and are due on demand. As of December 31, 2022, the Company repaid $20,000, for a balance due of principal and interest of $26,040 and $977. During the six months ended June 30, 2023, Mr. Bates loaned the Company an additional $5,000 and was repaid $10,000. As of June 30, 2023, the balance due of principal and interest of $21,040 and $1,869.
72
Review, Approval and Ratification of Related Party Transactions
Our Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof). Our board of directors currently plans to adopt a written policy on transactions with related persons that is in conformity with the requirements for issuers having publicly held Common Stock that is listed on Nasdaq. We anticipate that under the new policy:
| ● | any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by the Audit Committee; and | |
| ● | any employment relationship or transaction involving an executive officer and any related compensation must be approved by the compensation committee of the board of directors or recommended by the compensation committee to the board of directors for its approval. |
In connection with the review and approval or ratification of a related person transaction:
| ● | management must disclose to the committee or disinterested directors, as applicable, the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; | |
| ● | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction complies with the terms of our agreements governing our material outstanding indebtedness that limit or restrict our ability to enter into a related person transaction; | |
| ● | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction will be required to be disclosed in our applicable filings under the Securities Act or the Exchange Act, and related rules, and, to the extent required to be disclosed, management must ensure that the related person transaction is disclosed in accordance with the Securities Act and the Exchange Act and related rules; and | |
| ● | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act. |
In addition, the related person transaction policy provides that the committee or disinterested directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee director, should consider whether such transaction would compromise the director’s status as an “independent,” “outside,” or “non-employee” director, as applicable, under the rules and regulations of the SEC, the Nasdaq Stock Market, and the Code.
In addition, our Code of Business Conduct and Ethics (described above under “Management—Code of Ethics”), which is applicable to all of our employees, officers and directors, requires that all employees, officers and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests.
Conflicts Related to Other Business Activities
The persons serving as our officers and directors have existing responsibilities and, in the future, may have additional responsibilities, to provide management and services to other entities in addition to us. As a result, conflicts of interest between us and the other activities of those persons may occur from time to time.
We will attempt to resolve any such conflicts of interest in our favor. Our officers and directors are accountable to us and our stockholders as fiduciaries, which requires that such officers and directors exercise good faith and integrity in handling our affairs. A stockholder may be able to institute legal action on our behalf or on behalf of that stockholder and all other similarly situated stockholders to recover damages or for other relief in cases of the resolution of conflicts in any manner prejudicial to us.
73
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of September 13, 2023 with respect to the beneficial ownership of the outstanding Common Stock by (i) any holder of more than five (5%) percent of our Common Stock; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. These rules generally provide that shares of Common Stock subject to options, warrants or other convertible securities that are currently exercisable or convertible, or exercisable or convertible within 60 days of the Date of Determination, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.
To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, as of the Date of Determination, (a) the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to applicable community property laws; and (b) no person owns more than 5% of our Common Stock. Unless otherwise indicated, the address for each of the officers or directors listed in the table below is 2711 N. Sepulveda Blvd., Suite #1051, Manhattan Beach, California 90266.
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Exchange Act.
| Shares Beneficially Owned(1) | Percentage Ownership | |||||||
| 5% Beneficial Owners | ||||||||
| Holder of Series B Preferred Stock(2) | 20,000,000 | 3.9 | % | |||||
| Executive Officers and Directors | ||||||||
| Daniel Bates(3) | 33,125,000 | 6.4 | % | |||||
| Rachel Boulds | 2,625,000 | * | % | |||||
| Dr. Michael Dorsey | 2,625,000 | * | % | |||||
| Greg Boehmer | 3,125,000 | * | % | |||||
| Daniel Harris | 3,368,757 | * | % | |||||
| Bart Fisher | 525,000 | * | % | |||||
| All current directors and officers as a group (6 persons) | 45,393,757 | 8.2 | % | |||||
| *Less than 1% | ||
| (1) | Based on 556,603,984 shares of Common Stock outstanding as of September 13, 2023. Under the rules of the SEC, a person is deemed to be the beneficial owner of a security if such person has or shares the power to vote or direct the voting of such security or the power to dispose or direct the disposition of such security. Unless otherwise indicated by footnote, the named entities or individuals have sole voting and investment power with respect to the shares of Common Stock beneficially owned. | |
| (2) | Includes 20,000,000 shares of Common Stock issuable to Tucker upon conversion of the 2,000,000 issued and outstanding shares of Series B Preferred Stock, which shares automatically converted into 20,000,000 shares of Common Stock on January 1, 2023; however, the Company and Tucker, and the Company’s Transfer Agent has been instructed to not issue the shares of Common Stock until the Tucker Litigation has been resolved. Accordingly, although the shares of Common Stock thereunder have not been formally issued as of September 13, 2023, the shares of Series B Preferred Stock are no longer outstanding. | |
| (3) | Includes 20,000,000 shares of Common Stock to be issued upon conversion of the Series C Preferred Stock owned by Mr. Bates, which conversion automatically occurred on January 1, 2023, but has not been effectuated as of September 13, 2023. |
Change of Control
The Company is not aware of any arrangements which may at a subsequent date result in a change of control of the Company.
74
Description of Capital Stock
The following description of our capital stock and provisions of our certificate of incorporation and by-laws are summaries and are qualified by reference to the certificate of incorporation and by-laws. We urge you to read our certificate and our by-laws, as in effect immediately following the closing of this Offering, which are included as exhibits to the registration statement of which this prospectus forms a part.
Certain provisions of our certificate and our by-laws summarized below may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares of Common Stock.
Authorized Capitalization
The total number of authorized shares of our capital stock is 2,010,000,000 shares, $0.001 par value per share, of which 2,000,000,000 shares are Common Stock, and 10,000,000 shares are preferred stock.
Common Stock
Shares of our Common Stock have the following rights, preferences, and privileges:
Voting
Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Any action at a meeting at which a quorum is present will be decided by a majority of the voting power present in person or represented by proxy, except in the case of any election of directors, which will be decided by a plurality of votes cast. There is no cumulative voting.
Dividends
Holders of our Common Stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for payment, subject to the rights of holders, if any, of any class of stock having preference over the Common Stock. Any decision to pay dividends on our Common Stock will be at the discretion of our board of directors. Our board of directors may or may not determine to declare dividends in the future. See “Dividend Policy.” The board’s determination to issue dividends will depend upon our profitability and financial condition, any contractual restrictions, restrictions imposed by applicable law and the SEC, and other factors that our board of directors deems relevant.
Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the company, the holders of our Common Stock will be entitled to share ratably on the basis of the number of shares held in any of the assets available for distribution after we have paid in full, or provided for payment of, all of our debts and after the holders of all outstanding series of any class of stock have preference over the Common Stock, if any, have received their liquidation preferences in full.
Other
Our issued and outstanding shares of Common Stock are fully paid and nonassessable. Holders of shares of our Common Stock are not entitled to preemptive rights. Shares of our Common Stock are not convertible into shares of any other class of capital stock, nor are they subject to any redemption or sinking fund provisions.
Preferred Stock
Convertible Preferred Series A Stock
On May 5, 2015, the Company created a series of preferred stock, designating 1,000,000 shares as Convertible Preferred Series A Stock, which ranks senior to the Company’s Common Stock upon the liquidation, dissolution or winding up of the Company. The Convertible Preferred Series A Stock does not bear a dividend. The holders of the Convertible Preferred Series A Stock are entitled to 100 votes and shall vote together with the holders of Common Stock. Each share of the Convertible Preferred Series A Stock is convertible into one hundred shares of Common Stock. Common Stock subject to adjustment for stock splits and stock combinations. No shares of Convertible Preferred Series A Stock are outstanding.
Series A Redeemable Preferred Stock
On September 21, 2020, the Company created a series of preferred stock, designating 2,000,000 shares as Series A Redeemable Preferred Stock, which ranks senior to the Company’s Common Stock upon the liquidation, dissolution or winding up of the Company. The Series A Redeemable Preferred Stock does not bear a dividend or have voting rights and is not convertible into shares of our Common Stock. No shares of Series A Redeemable Preferred Stock are outstanding.
75
Series B Convertible Non-Voting Preferred Stock
On December 14, 2020, the Company designated 2,000,000 shares of its authorized preferred stock as Series B Series B Preferred Stock. The Series B Preferred Stock does not bear a dividend or have voting rights. Each share of Series B Preferred Stock initially converts into 10 shares of Common Stock, subject to adjustment for stock splits and stock combinations. The Series B Preferred Stock automatically converted on January 1, 2023 into shares of Common Stock; however, due to the ongoing dispute with Tucker and the Tucker Litigation, the Company’s Transfer Agent was instructed to not issue the shares of Common Stock until the Tucker Litigation has been resolved. Accordingly, although the shares of Common Stock thereunder have not been formally issued as of September 13, 2023, the shares of Series B Preferred Stock are no longer outstanding.
Holders of our Series B Preferred Stock have anti-dilution rights protecting their interests in the Company from the issuance of any additional shares of capital stock for a two year period following conversion of the Preferred Stock calculated at the rate of 20% on a fully diluted basis.
Series C Preferred Stock
On February 19, 2021, the Company amended its Articles of Incorporation whereby 2,000,000 shares of preferred stock were designated Series C Preferred Stock. The Series C Preferred Stock does not bear a dividend. The holders of the Series C Preferred Stock are entitled to 100 votes per share of Common Stock and shall vote together with the holders of Common Stock. Each share of the Series C Preferred Stock is convertible into ten shares of Common Stock. Common Stock subject to adjustment for stock splits and stock combinations. The Series C Preferred Stock automatically converted on January 1, 2023 into shares of Common Stock; however, although the shares of Common Stock thereunder have not been formally issued as of September 13, 2023, the shares of Series C Preferred Stock are no longer outstanding.
The holders of the Series C Preferred Stock shall have anti-dilution rights during the two-year period after the Series C Preferred has been converted into shares of Common Stock at its then effective Conversion Rate such that they maintain in Series C Preferred Stockholders, a 20% interest in the Common Stock and preferred stock of the Company, calculated on a fully-diluted basis.
Daniel Bates owned all of the outstanding shares of Series C Preferred Stock.
Outstanding Convertible Notes
April 2023 Note
Pursuant to the February Purchase Agreement, on April 10, 2023, the April Investor purchased the April Note in the original principal amount of $1,500,000 and the Company issued the April Warrant of up to 17,660,911 shares of the Company’s common stock to the April Investor. The April Note bears interest at a rate of 5% per annum and carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the April Note.
May 2023 Note
On May 26, 2023, the Company entered into the May Purchase Agreement, pursuant to which the May Investor purchased the May Note in the aggregate original principal amount of $1,714,285.71 and May Warrants exercisable for the purchase of up to 44,069,041 shares Common Stock.
The May Note matures 12 months after issuance and bear interest at a rate of 5% per annum, as may be adjusted from time to time in accordance with Section 2 of the May Note. The May Note has an original issue discount of 30%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the May Note.
At any time, the Company shall have the right to redeem all, but not less than all, of the amount then outstanding under the May Note (the “Company Optional Redemption Amount”) on the Company Optional Redemption Date (as defined in the May Note) (a “Company Optional Redemption”). The portion of the May Note subject to a Company Optional Redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 10% premium to the amount then outstanding under the May Note to be redeemed, and (ii) the equity value of our Common Stock underlying the May Note. The equity value of our Common Stock underlying the May Note is calculated using the greatest closing sale price of our Common Stock on any trading day immediately preceding such redemption and the date we make the entire payment required. The Company may exercise its right to require redemption under the May Note by delivering a written notice thereof by electronic mail and overnight courier to the May Investor.
August 2023 Note
On July 31, 2023, the Company entered into the August Purchase Agreement with the August Investor, pursuant to which the August Investor purchased the August Note in the original principal amount of $500,000. In addition, as an additional inducement to the August Investor for purchasing the August Note, the Company issued 21,000,000 shares of its Common Stock to the August Investor at the closing. The transactions contemplated under the August Purchase Agreement closed on August 4, 2023.
The August Note matures on July 31, 2024 and bears interest at a rate of 10% per annum, carries an original issue discount of 15% and has a conversion price of 90% per share of the lowest VWAP during the 20 trading day period before the conversion. The Company may prepay any portion of the outstanding principal amount and the guaranteed interest under the August Note at any time and from time to time, without penalty or premium, provided that any such prepayment will be applied first to any unpaid collection costs, then to any unpaid fees, then to any unpaid Default Rate (as defined in the August Note) interest, and any remaining amount shall be applied first to any unpaid guaranteed interest, and then to any unpaid principal amount
Outstanding Warrants
March 2022 Warrants
On March 31, 2022, the Company issued a promissory note in the original amount of $360,000 (the “Silverback Note”) to Silverback Capital Corporation (“Silverback”) and warrants to purchase up to 9,000,000 shares of Common Stock (the “Silverback Warrant”) for gross proceeds of $300,000. Silverback fully converted the outstanding principal and interest into 19,286,137 shares of Common Stock on February 21, 2023. The Silverback Warrant is exercisable for 3 years at a 25% premium of a “Qualified Public Offering” in the event of the sale of our Company prior to a Qualified Public Offering. A Qualified Public Offering is defined as a public offering pursuant to a registration statement declared effective by the SEC with minimum gross proceeds of $10 million pursuant to which our Common Stock is listed for trading on Nasdaq or a similar nationally recognized exchange. The Silverback Warrant is exercisable on a cashless basis if after the six-month anniversary of the issue date there is no effective registration statement for the resale of the shares underlying the warrant. The warrant provides for adjustment upon subdivisions and combinations.
Reg. D Warrants
On February 22, 2023, the Company entered into and closed on those certain Securities Purchase Agreements with five (5) investors (the “Reg. D Investors”), pursuant to which the Company issued 6,250,000 shares of common stock and warrants to purchase up to 6,250,000 additional shares of common stock (the “Reg. D Warrants”) for total cash proceeds of $125,000. The Reg. D Warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $193,063 which has been accounted for in additional paid in capital.
April 2023 Warrants
Pursuant to the February Purchase Agreement, on April 10, 2023, the April Investor purchased the April Note in the original principal amount of $1,500,000 and the Company issued the April Warrant of up to 17,660,911 shares of the Company’s common stock to the April Investor.
May 2023 Warrants
On May 26, 2023, the Company entered into the May Purchase Agreement, pursuant to which the May Investor purchased the May Note in the aggregate original principal amount of $1,714,285.71 and May Warrants, exercisable for the purchase of up to 44,069,041 shares Common Stock. The May Warrants are exercisable for shares of Common Stock at a price equal to 120% of the closing sale price of the Common Stock on the trading day ended immediately prior to the closing date, or $0.0389 per share (the “May Warrant Exercise Price”) and expire five years from the date of issuance. The May Warrant Exercise Price is subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like.
76
Common Stock
Anti-Takeover Provisions
Some of the provisions of Nevada law, our Articles of Incorporation and our Bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company or removing our incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection against an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals. Among other things, negotiation of such proposals could result in an improvement of their terms.
Nevada Revised Statutes (“NRS”) Sections 78.411 to 78.444 inclusive apply to combinations between resident domestic corporations (defined as a Nevada domestic corporation that has 200 or more stockholders of record) and certain affiliated stockholders (collectively, the “Interested Shareholder Combination Statutes”). We have elected not to be governed by the Interested Shareholder Combination Statutes in the future. We do not anticipate this election to have any immediate effect on the rights of existing stockholders. To the extent that we qualify as a resident domestic corporation in the future, the Board will be able to enter into acquisitions and combinations with entities affiliated with its executive officer, directors and control stockholders with greater ease, including without limitation, without the requirement of obtaining the approval of the stockholders in certain instances.
The Nevada Interested Shareholder Combination Statutes generally prohibit a Nevada corporation, with shares registered under section 12 of the Exchange Act and with 200 or more stockholders of record, from engaging in a combination (defined in the statute to include a variety of transactions, including mergers, asset sales, issuance of stock and other actions resulting in a financial benefit to the Interested Stockholder) with an Interested Stockholder (defined in the statute generally as a person that is the beneficial owner of 10% or more of the voting power of the outstanding voting shares), for a period of three years following the date that such person became an Interested Stockholder unless the board of directors of the corporation first approved either the combination or the transaction that resulted in the stockholder's becoming an Interested Stockholder. If this approval is not obtained, the combination may be consummated after the three year period expires if either (a) (1) the board of directors of the corporation approved the combination or the purchase of the shares by the Interested Stockholder before the date that the person became an Interested Stockholder, (2) the transaction by which the person became an Interested Stockholder was approved by the board of directors of the corporation before the person became an interested stockholder, or (3) the combination is approved by the affirmative vote of holders of a majority of voting power not beneficially owned by the Interested Stockholder at a meeting called no earlier than three years after the date the Interested Stockholder became such; or (b) the aggregate amount of cash and the market value of consideration other than cash to be received by all holders of Common Stock and holders of any other class or series of shares not beneficially owned by an Interested Stockholder meets the minimum requirements set forth in NRS Sections 78.441 through 78.444.
The NRS also limits the acquisition of a controlling interest in a Nevada corporation with 200 or more stockholders of record, at least 100 of whom have Nevada addresses appearing on the stock ledger of the corporation, and that does business in Nevada directly or through an affiliated corporation. According to the NRS, an acquiring person who acquires a controlling interest in an issuing corporation may not exercise voting rights on any control shares unless such voting rights are conferred by a majority vote of the disinterested stockholders of the issuing corporation at a special or annual meeting of the stockholders. In the event that the control shares are accorded full voting rights and the acquiring person acquires control shares with a majority or more of all the voting power, any stockholder, other than the acquiring person, who does not vote in favor of authorizing voting rights for the control shares is entitled to demand payment for the fair value of such person's shares.
Under the NRS, a controlling interest means the ownership of outstanding voting shares of an issuing corporation sufficient to enable the acquiring person, individually or in association with others, directly or indirectly, to exercise (1) one-fifth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority or more of the voting power of the issuing corporation in the election of directors. Outstanding voting shares of an issuing corporation that an acquiring person acquires or offers to acquire in an acquisition and acquires within 90 days immediately preceding the date when the acquiring person became an acquiring person are referred to as control shares.
Board of Directors. Our by-laws provide for the election of directors to one-year terms at each annual meeting of the stockholders. All directors elected to our board of directors will serve until the election and qualification of their respective successors or their earlier resignation or removal. The board of directors is authorized to create new directorships, and to fill such positions so created by a majority vote of the directors or a majority of the stockholders.
Special Meetings of Stockholders. Special meetings of the stockholders may be called only by our president or the board of directors pursuant to the requirements of our by-laws or by the president if holders representing 10% of all votes entitled to be cast on any issue proposed to be considered at the meeting.
Blank-Check Preferred Stock. Our board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve.
77
Limitations on Liability and Indemnification of Officers and Directors
Our bylaws provide that we may indemnify our directors, officers and employees to the fullest extent permitted by the laws of the State of Nevada. As authorized by Section 78.751 of the Nevada Revised Statutes, we may indemnify our officers and directors against expenses incurred by such persons in connection with any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, involving such persons in their capacities as officers and directors, so long as such persons acted in good faith and in a manner which they reasonably believed to be in our best interests. If the legal proceeding, however, is by or in our right, the director or officer may not be indemnified in respect of any claim, issue or matter as to which he is adjudged to be liable for negligence or misconduct in the performance of his duty to us unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director or officer (or is serving at our request as a director or officer of another corporation) for any liability asserted against such person and any expenses incurred by him in his capacity as a director or officer. These financial arrangements may include trust funds, self-insurance programs, guarantees and insurance policies.
Additionally, our Articles of Incorporation provide that any person who was or is a party or was or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (whether or not by or in the right of the Company) by reason of the fact that he is or was a director, officer, incorporator, employee, or agent of the Corporation, or is or was serving at the request of the Company as a director, officer, incorporator, employee, partner, trustee, or agent of another corporation, partnership, joint venture, trust, or other enterprise (including an employee benefit plan), is entitled to be indemnified by the Company to the full extent then permitted by law against expenses (including counsel fees and disbursements), judgments, fines (including excise taxes assessed on a person with respect to an employee benefit plan), and amounts paid in settlement incurred by him in connection with such action, suit, or proceeding and, if so requested, the Company is required to advance (within two business days of such request) any and all such expenses to the person indemnified; provided, however, that (i) the foregoing obligation of the Company does not apply to a claim that was commenced by the person indemnified without the prior approval of the Board of Directors.
Such right of indemnification continues as to a person who has ceased to be a director, officer, incorporator, employee, partner, trustee, or agent and inures to the benefit of the heirs and personal representatives of such a person. The indemnification provided by the Articles of Incorporation is not exclusive of any other rights which may be provided now or in the future under any provision of the bylaws, by any agreement, by vote of stockholders, by resolution of disinterested directors, by provisions of law, or otherwise.
Neither our Bylaws nor our Articles of Incorporation, as amended, include any specific indemnification provisions for our officers or directors against liability under the Securities Act. Additionally, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Trading Symbol
Our Common Stock is traded on the OTCQB maintained by OTC Markets, Inc. under the symbol “CLNV”.
Transfer Agent
The transfer agent and registrar for our Common Stock is EQ by Equiniti, 1110 Centre Point Curve, Suite 101, Mendota Heights, Minnesota 55120.
78
SELLING SHAREHOLDERS
The Selling Shareholders identified in this prospectus may offer and sell up to an aggregate amount of up to 820,598,246 Shares, comprised of:
| (i) | up to 477,744,798 Shares issuable upon conversion the PIPE Notes; |
| (ii) | up to 245,464,558 Shares issuable upon exercise of the PIPE Warrants; |
| (iii) | up to 76,388,890 Shares issuable upon conversion the August Note; and | |
| (iv) | 21,000,000 Shares of Inducement Shares. |
We are registering the Shares in order to permit the Selling Shareholders to offer the shares for resale from time to time. Except as otherwise described in the footnotes to the table below and for the ownership of the registered Shares issued pursuant to the PIPE Notes, the PIPE Warrants and the August Note, neither the Selling Shareholders nor any of the persons that control them has had any material relationships with us or our affiliates within the past three (3) years.
The Selling Shareholders may from time to time offer and sell under this prospectus any or all of the Shares described under the column “Shares to be Offered” in the table below.
In accordance with the terms of the each applicable registration rights agreement entered into with the May Investor, this prospectus generally covers the resale of 200% of the sum of (i) the maximum number of Shares of our Common stock issued or issuable pursuant to the PIPE Notes, including payment of interest on the notes through the applicable maturity date and (ii) the maximum number of Shares of our Common stock issued or issuable upon exercise of the PIPE Warrants, in each case, determined as if the outstanding applicable PIPE Note (including interest on such PIPE Note through the applicable maturity date) and PIPE Warrants were converted or exercised (as the case may be) in full (without regard to any limitations on conversion or exercise contained therein solely for the purpose of such calculation) at an alternate conversion price or exercise price (as the case may be) calculated as of the trading day immediately preceding the date this registration statement was initially filed with the SEC. Because the conversion price and alternate conversion price of the PIPE Notes and the exercise price of the PIPE Warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus.
Under the terms of the PIPE Notes, the PIPE Warrants and the August Note, a Selling Shareholder may not convert a PIPE Note, the August Note, or exercise the PIPE Warrants, as applicable, to the extent (but only to the extent) such Selling Shareholder or any of its affiliates would beneficially own a number of shares of our Common Stock which would exceed 4.99% of the outstanding shares of the Company (the “Maximum Percentage”). The number of shares in the second column reflects these limitations.
We cannot give an estimate as to the number of shares of Common Stock that will actually be held by the Selling Shareholders upon termination of this offering, because the Selling Shareholders may offer some or all of the Shares being registered on their behalf under the offering contemplated by this prospectus or acquire additional shares of Common Stock. The total number of Shares that may be sold hereunder will not exceed the number of Shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.
The following table sets forth the name of each Selling Shareholders, the number of Shares beneficially owned by such Selling Shareholder before this Offering, the number of Shares to be offered for such Selling Shareholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such Selling Shareholder after completion of the Offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our Common Stock as to which a person has sole or shared voting power or investment power and any shares of Common Stock which the person has the right to acquire within 60 days of the date as of which the information is provided, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 556,603,984 shares of our Common Stock outstanding as of September 13, 2023.
79
Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the Selling Shareholder’s name, subject to community property laws, where applicable, and (b) no Selling Shareholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.
| Name of Selling Shareholder | Common Stock Owned Prior to Offering(1)(9) |
Shares to be Offered |
Common Stock Owned After Offering(2) | |||||||||||
| Shares | Percent | Shares | Percent | |||||||||||
| Walleye Opportunities Master Fund Ltd(3) | 28,944,415 | (4) | 4.99% | 739,262,033 | (5) | 16,052,676 | 2.88 | % | ||||||
| Coventry Enterprises, LLC(6) | 21,150,000 | (7) | 4.99% | 97,388,890 | (8) | 0 | 0 | % | ||||||
| * | Less than one percent (1%). |
Notes:
| (1) | Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to shares of Common Stock. Shares of Common Stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of Common Stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table. |
| (2) | Because the Selling Shareholders may offer and sell all, only some portion or none of the shares of our Common Stock being offered pursuant to this prospectus and may acquire additional shares of our Common Stock in the future, we can only estimate the number and percentage of shares of our Common Stock that the Selling Shareholders will hold upon termination of the offering. The column titled “Common Stock Owned After Offering” assumes that the Selling Shareholders will sell all of its respective shares and no other shares of our Common Stock are acquired or sold by the Selling Shareholders prior to completion of this offering. |
| (3) | Walleye Capital LLC is the investment manager of Walleye Opportunities Master Fund Ltd (the “Walleye Fund”) and may be deemed to beneficially own the securities owned by the Walleye Fund. William England is the Chief Executive Officer of Walleye Capital LLC and may be deemed to have voting and dispositive power over the securities owned by the Walleye Fund. Walleye Capital LLC and William England each disclaim any beneficial ownership of these securities. The address for Walleye Fund is 2800 Niagara Lane N, Plymouth MN 55447. |
| (4) | This column lists the number of shares of our Common Stock beneficially owned by this Selling Shareholder as of September 13, 2023 after giving effect to the Maximum Percentage (as defined in above). Without regard to the Maximum Percentage, as of September 13, 2023, this Selling Shareholder would beneficially own an aggregate of 723,209,357 shares of our Common Stock, consisting of (i) 16,052,676 shares of our Common Stock held by this Selling Shareholder that were previously acquired, none of which are being registered for resale under this prospectus, (ii) 477,744,798 shares of our Common Stock underlying the PIPE Notes, Alternate Conversion Price of $0.0199, all of which shares are being registered for resale under this prospectus, and (iii) 245,464,558 shares underlying the PIPE Warrants held by this Selling Shareholder, currently exercisable at a price of $0.0389 per share, all of which are being registered for resale under this prospectus. | |
| (5) | For the purposes of the calculations of Common Stock to be sold pursuant to the prospectus we are assuming (i) an event of default under the PIPE Notes has not occurred, and the issuance of 200% of the shares of Common Stock underlying the PIPE Notes at the Alternate Conversion of $0.0199per share without regard to any limitations set forth therein, and (ii) the issuance of 200% of the shares of Common Stock underlying the PIPE Warrants and that the PIPE Warrants are exercised in full at an exercise price of $0.0389 per share without regard to any limitations set forth therein. | |
| (6) | Jack Bodenstein is the Managing Member of Coventry and may be deemed to have voting and dispositive power over the securities owned by Coventry. Jack Bodenstein disclaims any beneficial ownership of these securities. The address for Coventry is 80 SW 8th Street, Suite 2000, Miami, Florida 33130. | |
| (7) | This column lists the number of shares of our Common Stock beneficially owned by this Selling Shareholder as of September 13, 2023 after giving effect to the Maximum Percentage (as defined in above). Without regard to the Maximum Percentage, as of September 13, 2023, this Selling Shareholder would beneficially own an aggregate of 97,538,890 shares of our Common Stock, consisting of (i) 21,150,000 shares of Common Stock owned by the August Investor as of September 13, 2023 (of which 21,000,000 shares are the Inducement Shares and 150,000 shares were previously issued to this Selling Shareholder pursuant to the December Purchase Agreement), and (ii) 76,388,890 shares of our Common Stock issuable pursuant to the August Note, which represents 250% of the shares of Common Stock issuable upon full conversion of the August Note with a current conversion price of $0.018 per share, all of which shares are being registered for resale under this prospectus, and (ii) 21,000,000 Inducement Shares that were issued on August 4, 2023. | |
| (8) | Includes (i) 76,388,890 shares of Common Stock issuable upon conversion of the August Note and (ii) 21,000,000 Inducement Shares issued to the August Investor on August 4, 2023. | |
| (9) | Applicable percentage ownership is based on 556,603,984 shares of our Common Stock outstanding as of September 13, 2023. |
80
Selling Shareholders’ Agreements
May Investor
On February 17, 2023, the Company entered into the February Purchase Agreement with the May Investor, pursuant to which the May Investor purchased the February Note in the original principal amount of $2,500,000 and the February Warrant exercisable for up to 29,434,850 shares of Common Stock. The transactions contemplated under the February Purchase Agreement closed on February 21, 2023.
The February Note matures on February 21, 2024, bears interest at a rate of 5% per annum and carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the February Note.
At any time, the Company shall have the right to redeem all, but not less than all, of the conversion amount then remaining under the February Note on the applicable redemption date. The portion of the February Note subject to redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 120% of the amount being converted redeemed as of the February Note Company Optional Redemption Date and (ii) the product of (1) the Conversion Rate (as defined in the February Note) with respect to the Conversion Amount being redeemed as of the February Note Company Optional Redemption Date multiplied by (2) the greatest closing price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such February Note Company Optional Redemption Notice Date and ending on the Trading Day immediately prior to the date the Company makes the entire payment required. The Company may exercise its right to require redemption under the February Note by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of February Notes.
The February Warrant is exercisable for shares of Common Stock at a price of $0.0389 per share (the “February Warrant Exercise Price”) and expires five years from the date of issuance. The February Warrant Exercise Price is subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like.
Pursuant to the February Purchase Agreement, on April 10, 2023, the May Investor the April Note in the original principal amount of $1,500,000 and the Company issued for the April Warrant to the May Investor exercisable for up to 17,660,911 shares of Common Stock. The April Note bears interest at a rate of 5% per annum and carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the April Note. The April Warrants are exercisable for shares of the Common Stock at a price of $0.0389 per share and expire five years from the date of issuance.
On May 26, 2023, the Company entered into the May Purchase Agreement, pursuant to which the May Investor purchased the May Note in the aggregate original principal amount of $1,714,285.71 and the May Warrant exercisable for the purchase of up to 44,069,041 shares Common Stock.
The May Note matures 12 months after issuance and bear interest at a rate of 5% per annum, as may be adjusted from time to time in accordance with Section 2 of the May Note. The May Note has an original issue discount of 30%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the May Note.
At any time, the Company shall have the right to redeem all, but not less than all, of the amount then outstanding under the May Note (the “Company Optional Redemption Amount”) on the Company Optional Redemption Date (as defined in the Note) (a “Company Optional Redemption”). The portion of the May Note subject to a Company Optional Redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 10% premium to the amount then outstanding under the May Note to be redeemed, and (ii) the equity value of our Common Stock underlying the May Note. The equity value of our Common Stock underlying the May Note is calculated using the greatest closing sale price of our Common Stock on any trading day immediately preceding such redemption and the date we make the entire payment required. The Company may exercise its right to require redemption under the May Note by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of May Note.
The May Warrant is exercisable for shares of Common Stock at a price equal to 120% of the closing sale price of the Common Stock on the trading day ended immediately prior to the closing date, or $0.0389 per share, subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like. The May Warrant expires five years from the date of issuance.
For the avoidance of doubt, the February Note, April Note and May Note are collectively referred to herein as the “PIPE Notes,” and the February Warrant, April Warrant and May Warrant are collectively referred to herein as the “PIPE Warrants.”
August Investor
On July 31, 2023 (the “August Note Original Issue Date”), the Company entered into the August Purchase Agreement with the August Investor, pursuant to which the August Investor purchased the August Note in the original principal amount of $500,000. In addition, as an additional inducement to the August Investor for purchasing the August Note, the Company issued 21,000,000 shares of its Common Stock to the August Investor at the closing. The transactions contemplated under the August Purchase Agreement closed on August 4, 2023.
The August Note matures on July 31, 2024 and bears interest at a “Guaranteed Interest” rate of 10% per annum, carries an original issue discount of 15% and has a conversion price of 90% per share of the lowest VWAP during the 20 trading day period before the conversion. The Company may prepay any portion of the outstanding principal amount and the guaranteed interest at any time and from time to time, without penalty or premium, provided that any such prepayment will be applied first to any unpaid collection costs, then to any unpaid fees, then to any unpaid Default Rate interest (as defined in the August Note), and any remaining amount shall be applied first to any unpaid guaranteed interest, and then to any unpaid principal amount.
The August Investor was granted a right of first refusal as the exclusive party with respect to any Additional Financing that the Company enters into during the 24-month period after the August Note Original Issue Date. In the event the Company enters into an Additional Financing, the Company must provide notice to the August Investor not less than 10 trading days in advance of the proposed entry. If the August Investor accepts all usual and customary terms set forth in the Additional Financing notice, the August Investor must, within 20 trading days of receipt of the notice, prepare all relevant documents in respect thereof for execution and delivery by the Company, provided, however, that the Company’s outside counsel must prepare the relevant registration statement to be filed with the SEC no later than 45 days after the Company receives the documents.
The August Note sets forth certain standard events of default (each such event, an “August Note Event of Default”), which, upon such August Note Event of Default, the principal amount and the guaranteed interest then outstanding under the August Note becomes convertible into shares of Common Stock pursuant to a notice provided by the August Investor to the Company. At any time after the occurrence of an August Note Event of Default, the outstanding principal amount and the outstanding guaranteed interest then outstanding on the August Note, plus accrued but unpaid Default Rate (as defined in the August Note) interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable at the August Investor’s option, in cash or in shares of Common Stock at 120% of the outstanding principal amount of the August Note and accrued and unpaid interest, plus other amounts, costs, expenses and liquidated damages due in respect of the August Note.
81
PLAN OF DISTRIBUTION
We are registering the Shares to permit the resale of those Shares under the Securities Act from time to time after the date of this Prospectus at the discretion of the Selling Shareholders. We will not receive any of the proceeds from the sale by the Selling Shareholders of the Shares. We will receive proceeds from any cash exercise of the PIPE Warrants. If all 245,464,558 of the PIPE Warrants are exercised on a cash basis, the Company would receive gross cash proceeds of approximately $9,548,571, subject to adjustment upon certain events. We will bear all fees and expenses incident to our obligation to register the Shares.
Each Selling Shareholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of its Shares on the OTCQB, or any other stock exchange, market, quotation service or trading facility on which the Shares are traded or in private transactions, provided that all applicable laws are satisfied. The Selling Shareholders may also sell their Shares directly or through one or more underwriters, broker-dealers, or agents. If the Shares are sold through underwriters or broker-dealers, the Selling Shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling its Shares:
| ● | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; |
| ● | in the over-the-counter market; |
| ● | in transactions otherwise than on these exchanges or systems or in the over-the-counter market; |
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | settlement of short sales entered into after the effective date of the registration statement of which this Prospectus is a part; | |
| ● | broker-dealers may agree with the Selling Shareholder to sell a specified number of such Shares at a stipulated price per share; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; and | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Shareholders may also sell the Shares pursuant to Rule 144 under the Securities Act, if available, rather than under this Prospectus. In addition, the Selling Shareholders may transfer the Shares by other means not described in this prospectus.
If the Selling Shareholders effect such transactions by selling Common Stock to or through underwriters, broker-dealers, or agents, such underwriters, broker-dealers, or agents may receive commissions in the form of discounts, concessions, or commissions from the Selling Shareholders or commissions from purchasers of the Common Stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to particular underwriters, broker-dealers, or agents may be in excess of those customary in the types of transactions involved). Broker-dealers engaged by any Selling Shareholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of Shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
82
In connection with sales of Common Stock or interests therein, a Selling Shareholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging in positions they assume. The Selling Shareholders may also sell Common Stock short and deliver Common Stock covered by this Prospectus to close out its short positions and to return borrowed shares in connection with such short sales. The Selling Shareholders may also loan or pledge Common Stock to broker-dealers that in turn may sell such Common Stock. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of Common Stock offered by this Prospectus, which Common Stock such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
The Selling Shareholders may pledge or grant a security interest in some or all of the notes, warrants or Shares of owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Shares from time to time pursuant to this Prospectus or any amendment to this Prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this Prospectus. The Selling Shareholders also may transfer and donate the Shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this Prospectus.
To extent required by the Securities Act and the rules and regulations thereunder, the Selling Shareholders and any broker-dealers or agents that are involved in selling the Shares may be deemed to be “underwriters” within the meaning of the Securities Act, in connection with such sales. In such event, any commissions received by, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of any Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Shares is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions, and other terms constituting compensation from the Selling Shareholders and any discounts, commissions, or concessions allowed or re-allowed or paid to broker-dealers.
Each Selling Shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Shares.
Once this registration statement becomes effective, we intend to file the final prospectus with the SEC in accordance with SEC Rules 172 and 424. Provided we are not the subject of any SEC stop orders and we are not subject to any cease and desist proceedings, the obligation to deliver a final prospectus to a purchaser will be deemed to have been met.
There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale Shares by the Selling Shareholders.
Under the securities laws of some states, the Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Shares may not be sold unless such shares have been registered or qualified for sale in such state, or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any Selling Shareholder will sell any or all of the Shares registered pursuant to the registration statement of which this Prospectus forms a part.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Shares may not simultaneously engage in market making activities with respect to the Shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of Shares by the Selling Shareholders or any other person. All of the foregoing provisions may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
83
We will pay all expenses of the registration of the Shares, estimated to be approximately $ in total, including, without limitation, SEC filing fees, expenses of compliance with state securities or “blue sky” laws, and legal and accounting fees; provided, however, that a Selling Shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the Selling Shareholders against liabilities, including some liabilities under the Securities Act, in accordance with applicable registration rights agreements, if any, or the Selling Shareholders will be entitled to contribution. We may be indemnified by the Selling Shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the Selling Shareholders specifically for use in this Prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the Common Stock may be resold by the Selling Shareholders without registration and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all of the Shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect.
Once sold under the registration statement of which this prospectus forms a part, the Shares will be freely tradable in the hands of persons other than our affiliates.
Legal Proceedings
Presently, except as described below, there are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
July Settlement Agreement
On July 3, 2023, the Company entered into the Percy Settlement Agreement by and between the Company, Christopher Percy and Daniel Bates whereby the parties agreed to a global settlement of the Percy Litigation. Mr. Bates is currently serving as Chief Executive Officer and Chairman of the Company. Mr. Percy is no longer serving as an executive of the Company, and as of February 14, 2023, Mr. Percy no longer served as a director.
The Percy Litigation arose from a dispute between the Company, Mr. Percy and Mr. Bates with respect to the management and operation of the Company, as well as Mr. Percy’s employment and position at the Company. On September 16, 2022, the Company commenced the Percy Litigation against Mr. Percy alleging breach of fiduciary duty, fraud, conversion, business disparagement, declaratory relief, and injunctive relief. Thereafter, Mr. Percy removed the case to the United States District of Nevada (Case No. 2:22-cv-01862-ART-NJK). The Company subsequently filed a motion to remand to state court on November 22, 2022. On December 1, 2022, Mr. Percy filed counterclaims against the Company for breach of contract, wrongful termination, breach of implied covenant of good faith and fair dealing, unjust enrichment, and indemnification. Mr. Percy also filed third-party claims against the Mr. Bates, alleging breach of fiduciary duty, equitable indemnity, and contribution.
Pursuant to the Percy Settlement Agreement, none of the parties admitted to fault or liability, Mr. Percy agreed to pay the $150,000 Percy Payment and, within ten (10) business days of the Percy Payment being received, Mr. Bates agreed to remit the $25,000 Bates Payment to Mr. Percy. In addition, the parties agreed to work together to promptly release the $5,000 Temporary Restraining Order/Preliminary Injunction bond currently deposited with the Clerk of the Court for the Eighth Judicial District Court, Clark County, Nevada. Once released, said bond shall be remitted to Mr. Percy.
In addition, pursuant to the Percy Settlement Agreement, the Company agreed to, within ten (10) days of the effective date, instruct its transfer agent to (i) issued 1,500,000 shares of Common Stock to Mr. Percy, (ii) restore and/or reissue to Mr. Percy the 3,000,000 shares of Common Stock that was previously cancelled by the Company and (iii) withdraw its stop-transfer demand current in place with respect to 4,200,000 Percy Shares. Mr. Percy agreed to not sell, on any given trading day, the Percy Shares in an amount that exceeds more than 10% of the daily trading volume of the Common Stock, with such trading volume determined by the trading platform upon which the Common Stock is then traded.
As consideration for entering into the Settlement Agreement, the parties agreed to a customary mutual release of claims agreed submitted a joint stipulation to the United States District Court, District of Nevada, dismissing all claims, crossclaims, counterclaims, and/or third-party claims in the Percy Litigation, with prejudice.
Tucker Litigation
On January 30, 2023, Tucker, one of the holders of the Company’s Series B Preferred Stock, commenced the Tucker Litigation in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief. This matter arises from the Tucker Agreement entered into on December 17, 2020, whereby Tucker agreed to perform certain strategic and business development services to the Company in exchange for 2,000,000 shares of Series B Preferred Stock and a consulting fee of $20,000 per month. The 2,000,000 shares of Series B Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023.
However, at that time, the Company’s Transfer Agent was instructed to not issue the shares of Common Stock due to an ongoing dispute between the Company and Tucker regarding Tucker’s ability to perform the services under the Tucker Agreement due to the action filed by the SEC against Profile Solutions, Inc., Dan Oran and Leonard M. Tucker on September 9, 2022 in the United States District Court Southern District of Florida (Case No. 1:22-cv-22881) alleging, among other things, that Leonard Tucker violated Section 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) and Rule 10-b5. Accordingly, although as of September 13, 2023 the shares of Series B Preferred Stock are no longer outstanding, the shares of Common Stock thereunder have not been issued as of September 13, 2023.
Pursuant to the Tucker Litigation, Tucker is seeking, among other things, that the Company issue the shares of Common Stock due pursuant to the Tucker Agreement. The Company is contesting all of the allegations set forth in the Tucker Litigation and currently expect to fully resolve the Tucker Litigation through arbitration in October 2023.
84
Market for Common Equity and Related Stockholder Matters
Market Information
Our Common Stock is quoted on the OTC Market maintained by OTC Markets, Inc. under the symbol ”CLNV.” The OTC Market is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks”, as well as volume information. There can be infrequent trading volume, which precipitates wide spreads in the quotes for our Common Stock, on any given day. On September 13, 2023, the last reported sale price of our Common Stock on the OTC Market was $0.0209 per share.
The following table sets forth the range of high and low sales prices for our Common Stock for each of the periods indicated as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| HIGH | LOW | |||||||
| Year Ended December 31, 2020 | ||||||||
| First Quarter | $ | 0.11 | $ | 0.03 | ||||
| Second Quarter | $ | 0.36 | $ | 0.05 | ||||
| Third Quarter | $ | 0.29 | $ | 0.09 | ||||
| Fourth Quarter | $ | 0.11 | $ | 0.07 | ||||
| Year Ending December 31, 2021 | ||||||||
| First Quarter | $ | 0.21 | $ | 0.09 | ||||
| Second Quarter | $ | 0.17 | $ | 0.06 | ||||
| Third Quarter | $ | 0.07 | $ | 0.02 | ||||
| Fourth Quarter | $ | 0.05 | $ | 0.02 | ||||
| Year Ending December 31, 2022 | ||||||||
| First Quarter | $ | 0.10 | $ | 0.02 | ||||
| Second Quarter | $ | 0.07 | $ | 0.02 | ||||
| Third Quarter | $ | 0.02 | $ | 0.02 | ||||
| Fourth Quarter | $ | 0.07 | $ | 0.02 | ||||
| Year Ending December 31, 2023 | ||||||||
| First Quarter | $ | 0.13 | $ | 0.01 | ||||
| Second Quarter | $ | 0.06 | $ | 0.02 | ||||
Stockholders
As of September 13, 2023, we had approximately 171 stockholders of record of our Common Stock. The number of stockholders of record does not include beneficial owners of our Common Stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
We have never declared or paid a cash dividend on our Common Stock. We do not expect to pay cash dividends on our Common Stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board and subject to any restrictions that may be imposed by our lenders.
85
Penny Stock Regulation
Shares of our Common Stock will probably be subject to rules adopted by the SEC that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the SEC, which contains the following:
| • | a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
| • | a description of the broker’s or dealer’s duties to the customer and of the rights and remedies; |
| • | a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the “bid” and “ask” price; |
| • | a toll-free telephone number for inquiries on disciplinary actions; |
| • | definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
| • | such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation. |
Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
| 1. | the bid and offer quotations for the penny stock; |
| 2. | the compensation of the broker-dealer and its salesperson in the transaction; |
| 3. | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and |
| 4. | monthly account statements showing the market value of each penny stock held in the customer’s account. |
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our Common Stock may have difficulty selling those shares because our Common Stock will probably be subject to the penny stock rules.
Legal Matters
The validity of the securities offered by this prospectus will be passed upon for us by Lucosky Brookman LLP.
Experts
The audited financial statements of Clean Vision Corporation as of December 31, 2022 and 2021 and for the years then ended, included in this prospectus and the registration statement have been audited by Fruci & Associates II, PLLC, Spokane, Washington, independent registered public accounting firm, as stated in their as stated in their reports. Such financial statements have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
86
Where You Can Find More Information
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and these securities, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The SEC maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website at www.chromocell.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
87
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
F-1
CLEAN VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaids and other assets | ||||||||
| Accounts receivable | ||||||||
| Total Current Assets | ||||||||
| Property and equipment | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Lines of credit | ||||||||
| Convertible note payable, net of discount of $ | ||||||||
| Derivative liability | ||||||||
| Loans payable | ||||||||
| Loans payables – related party | 4,522,909 | 27,017 | ||||||
| Liabilities of discontinued operations | ||||||||
| Total current liabilities |
| |||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Mezzanine Equity: | ||||||||
| Series B Preferred stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
Series A Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Series C Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ||||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended
June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross margin | $ | $ | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Consulting | $ | $ | $ | $ | ||||||||||||
| Professional fees | ||||||||||||||||
| Payroll expense | ||||||||||||||||
| Director fees | ||||||||||||||||
| General and administration expenses | ||||||||||||||||
| Total operating expense | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative | ( | ) | ||||||||||||||
| Loss on debt issuance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on conversion of debt | ||||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before provision for income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributed to non-controlling interest | ||||||||||||||||
| Net loss attributed to Clean Vision Corporation | ( | ) | ( | ) | ( | ) | ( | |||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended June 30, 2023
(Unaudited)
| Series
A Preferred Stock | Series
C Preferred Stock | Common Stock | Additional paid | Common Stock to be | Accumulated
Other Comprehensive | Accumulated | Minority | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Issued | Loss | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock dividend | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for services – related party | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Stock issued for cash | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for debt conversion | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Debt issuance cost – warrants issued | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares cancelled | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Adjust stock dividend shares | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issued for debt conversion | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Debt issuance cost – warrants issued | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Settlement of debt-related party | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended June 30, 2022
(Unaudited)
| Series A Preferred Stock | Series C Preferred Stock | Common Stock | Additional paid | Common Stock To be | Other Comprehensive | Accumulated | Total Stockholders' | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Issued | Loss | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||
| Cancellation of preferred | ( |
) | ( |
) | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Debt issuance cost | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
| Stock issued for cash | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Debt issuance cost | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | — | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-5
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Stock issued for services | ||||||||
| Stock issued for services – related party | ||||||||
| Debt discount amortization | ||||||||
| Loss on issuance of debt | ||||||||
| Change in fair value of derivative | ( | ) | ||||||
| Gain on conversion of debt | ( | ) | ||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accruals | ( | ) | ||||||
| Accrued compensation | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of 51% interest in Clean-Seas Morocco, LLC | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Cash overdraft acquired in acquisition | ( | ) | ||||||
| Proceeds from convertible notes payable | ||||||||
| Payments-convertible notes payable | ( | ) | ||||||
| Proceeds from the sale of common stock | ||||||||
| Proceeds from notes payable - related party | ||||||||
| Repayment of related party loans | ( | ) | ( | ) | ||||
| Proceeds from notes payable | ||||||||
| Payments - notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Effects of currency translation | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | |||||||
| Supplemental schedule of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental non-cash disclosure: | ||||||||
| Common stock issued for conversion of debt | $ | $ | ||||||
| Preferred stock issued for prepaid services | $ | $ | ||||||
| Common stock issued for prepaid services | $ | $ | ||||||
| Note payable issued for acquisition | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-6
CLEAN VISION CORPORATION
Notes to Unaudited Consolidated Financial Statements
June 30, 2023
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Clean Vision Corporation (“Clean Vision,” “we,” “us,” or the “Company”) is a new entrant in the clean energy and waste-to-energy industries focused on clean technology and sustainability opportunities. Currently, we are focused on providing a solution to the plastic and tire waste problem by recycling the waste and converting it into saleable byproducts, such as hydrogen and other clean-burning fuels that can be used to generate clean energy. Using a technology known as pyrolysis, which heats the feedstock (i.e., plastic) at high temperatures in the absence of oxygen so that the material does not burn, we are able to turn the feedstock into (i) low sulfur fuel, (ii) clean hydrogen and (iii) carbon black or char (char is created when plastic is used as feedstock). Our goal is to generate revenue from three sources: (i) service revenue from the recycling services we provide (ii) revenue generated from the sale of the byproducts; and (iii) revenue generated from the sale of fuel cell equipment. Our mission is to aid in solving the problem of cost-effectively upcycling the vast amount of waste plastic generated on land before it flows into the world’s oceans.
We currently operate through our wholly-owned subsidiary, Clean-Seas, Inc. (“Clean-Seas”), which we acquired on May 19, 2020. Clean-Seas acquired its first pyrolysis unit in November 2021 for use in a pilot project in India, which began operations in early May 2022. On April 23, 2023, Clean-Seas completed its acquisition of a fifty-one percent (51%) interest in Eco Synergie S.A.R.L., a limited liability company organized under the laws of Morocco, which changed its name to Clean-Seas Morocco, LLC (“Clean-Seas Morocco”) on such date. Clean-Seas Morocco began operations at its pyrolysis facility in Agadir, Morocco, in April 2023, which currently has capacity to convert 20 tons per day of waste plastic.
We believe that our projects in India and Morocco will showcase our ability to pyrolyze waste plastic (using pyrolysis), which will generate three byproducts: (i) low sulfur fuel, (ii) clean hydrogen, AquaHtm, and (iii) char. We intend to sell the majority of the byproducts, while retaining a small amount of the low sulfur fuels and/or hydrogen to power our facilities and equipment. To date, our operations in India have not generated any revenue. However, since commencing operations at our Morocco facility in April 2023, Clean-Seas Morocco has generated $161,297 in revenue, with a gross margin of $127,435 from the provision of pyrolysis services and its sale of byproducts.
Clean-Seas India Private Limited was incorporated on November 17, 2021 as a wholly owned subsidiary of Clean-Seas.
Clean-Seas, Abu Dhabi PVT. LTD was incorporated in Abu Dhabi on December 9, 2021 as a wholly owned subsidiary of the Company. On January 19, 2022, the Company changed the name of its wholly owned subsidiary, Clean-Seas, Abu Dhabi PVT. LTD, to Clean-Seas Group. As of July 4, 2022, the Clean-Seas Group ceased operations and is in the process of dissolving.
Endless Energy, Inc. (“Endless Energy”) was incorporated in Nevada on December 10, 2021 as a wholly owned subsidiary of the Company. EndlessEnergy does not currently have any operations, but it was incorporated for the purpose of investing in wind and solar energy projects.
EcoCell, Inc. ("EcoCell”) was incorporated on March 4, 2022 as a wholly owned subsidiary of the Company. EcoCell does not currently have any operations, but we intend to use EcoCell for the purpose of licensing fuel cell patented technology.
Clean-Seas Arizona, Inc. ("Clean-Seas Arizona”) was incorporated in Arizona on September 19, 2022 as a wholly owned subsidiary of Clean-Seas. Clean-Seas Arizona was formed pursuant to a Memorandum of Understanding (the “MOU”) signed on November 4, 2022 with Arizona State University and the Rob and Melani Walton Sustainability Solution Service. Pursuant to the MOU, the parties intend to establish a 100 ton per day waste plastic to clean hydrogen conversion facility in Arizona.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the six month period ending June 30, 2023 and not necessarily indicative of the results to be expected for the full year ending December 31, 2023. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s financial statements for the year ended December 31, 2022.
F-7
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentrations of Credit Risk
We
maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor
our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may be in excess
of the Federal Deposit Insurance Corporation insurable amount (“FDIC”). As of June 30, 2023, the Company had $
Cash equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There
were
Principles of Consolidation
The accompanying consolidated financial statements for the quarter ended June 30, 2023, include the accounts of the Company and its wholly owned subsidiaries, Clean-Seas, Inc., Clean-Seas India Private Limited, Clean-Seas Group, Endless Energy, Inc., EcoCell, Inc., Clean-Seas Arizona, Inc., and our 51% owned subsidiary, Clean-Seas Morocco, LLC. As of June 30, 2023, there was no activity in Clean-Seas Group, Endless Energy or Clean-Seas Arizona.
Translation Adjustment
The accounts of the Company’s subsidiary Clean-Seas India are maintained in Rupees and the accounts of Clean-Seas Morocco in Moroccan dirham. In accordance with the Codification, all assets and liabilities were translated at the current exchange rate at respective balance sheets dates, members’ capital are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the Codification (ASC 220), as a component of members’ capital. Transaction gains and losses are reflected in the income statement.
Comprehensive Income
The Company uses SFAS 130 “Reporting Comprehensive Income” (ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of members’ capital, except those due to investments by members, changes in paid-in capital and distributions to members. Comprehensive income is included in net loss and foreign currency translation adjustments.
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period presented. As of June 30, 2023, there are warrants to purchase up to 116,944,802 shares of common stock and approximately 153,000,000 dilutive shares of common stock from a convertible notes payable. As of June 30, 2023 and 2022, there are 20,000,000 and 20,000,000 potentially dilutive shares of common stock, respectively, if the Series C preferred stock were to be converted. There are 2,000,000 shares of Series B preferred stock outstanding. The Series B Preferred Stock can automatically be converted on January 1, 2023, into shares of common stock at the rate of 10 shares of Common Stock for each share of Preferred Stock. As of June 30, 2023 and 2022, the Company’s diluted loss per share is the same as the basic loss per share, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
F-8
Stock-based Compensation
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We adopted this ASU on January 1, 2019.
Goodwill
The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
In accordance with ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company will test for indefinite-lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.
Derivative Financial Instruments
The Company evaluates its convertible notes to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable represents the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2023:
F-9
Fair Value Measurements, hierarchy
| Description | Level 1 | Level 2 | Level 3 | ||||||||
| Derivative | $ | $ | $ | ||||||||
| Total | $ | $ | $ | ||||||||
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; | |
| ● | Identification of the performance obligations in the contract; | |
| ● | Determination of the transaction price; | |
| ● | Allocation of the transaction price to the performance obligations in the contract; and | |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Shipping and handling activities associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment activity and recognized as revenue at the point in time at which control of the goods transfers to the customer. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
Recently issued accounting pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established a source of revenue
sufficient to cover its operating costs, had an accumulated deficit of $
Management plans to continue to implement its business plan and to fund operations by raising additional capital through the issuance of debt and equity securities. The Company’s existence is dependent upon management's ability to implement its business plan and/or obtain additional funding. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company's liquidity problems. Even if the Company is able to obtain additional financing, it may include undue restrictions on our operations in the case of debt or cause substantial dilution for our stockholders in the case of equity financing.
NOTE 4 — BUSINESS COMBINATIONS
On April 25, 2023 (the “Morocco Closing Date”), Clean-Seas, a wholly owned subsidiary of the Company, completed its acquisition of a fifty-one percent (51%) interest (the “Morocco Acquisition”) in Eco Synergie S.A.R.L., a limited liability company organized under the laws of Morocco (“Ecosynergie”), pursuant to that certain Notarial Deed (the “Morocco Purchase Agreement”) dated as of January 23, 2023 (the “Signing Date”) setting forth the terms and provisions applicable to the Morocco Acquisition (the “Purchase Agreement”). On the Morocco Closing Date, Ecosynergie’s name was changed to Clean-Seas Morocco, LLC. Clean-Seas Morocco is managed by Mrs. Halima Aboudeine and Mr. Daniel C. Harris, the Company’s CRO. Mr. Harris also serves as the Chief Executive Officer of Clean-Seas Morocco.
F-10
Pursuant to the Morocco Purchase Agreement, Clean-Seas paid an aggregate purchase price of $6,500,000 for the Morocco Acquisition, of which (i) $2,000,000 was paid on the Morocco Closing Date and (ii) the remaining $4,500,000 is to be paid to Ecosynergie Group over a period of ten (10) months from the Signing Date. Additionally, Clean-Seas committed to invest up to $50,000,000 in Clean-Seas Morocco over a period of ten (10) months from the Signing Date based on a schedule and business plan to be mutually agreed to by the parties.
The Company accounted for the transaction as a business combination under ASC 805 and as a result, allocated the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date as outlined in the table below. Although the accounting for operations is not yet complete, the results of operations of the business acquired by the Company have been included in the consolidated statements of operations since the date of acquisition. All amounts are considered provisional until a more thorough analysis of the books and records and the accounting for the acquisition can be completed. Per ASC 805-10-25-13, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.
The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired, liabilities assumed, and non-controlling interest was allocated to goodwill. The provisional estimated fair value of the noncontrolling interest was based on the price the Company paid for their 51% of their controlling interest. The goodwill represents expected synergies from the combined operations.
The allocation of the purchase price and the estimated fair market values of the assets acquired and liabilities assumed are shown below:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
| Consideration | ||||
| Consideration issued | $ | |||
| Identified assets and liabilities | ||||
| Cash | ||||
| Prepaid and other assets | ||||
| Accounts receivable | ||||
| Property and equipment, net | ||||
| Accounts payable | ( | ) | ||
| Accrued Expenses | ( | ) | ||
| Loans payable | ( | ) | ||
| Lines of credit | ( | ) | ||
| Total identified assets and liabilities | ||||
| Excess purchase price allocated to goodwill | $ | |||
NOTE 5 - PROPERTY & EQUIPMENT
Property and equipment are recorded at cost. The Company capitalizes purchases of property and equipment over $5,000. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets as follows between three and five years.
Long lived assets, including property and equipment, to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Maintenance and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included as income.
Clean-Seas, Inc. has purchased a pyrolysis unit for piloting and demonstration purposes which has been commissioned in Hyderabad, India as of May 2022. The unit will be used to showcase the Company’s technology and services, turning waste plastic into environmentally friendly commodities, to potential customers.
F-11
Property and equipment stated at cost, less accumulated depreciation consisted of the following:
Schedule of Property and Equipment
| June
30, 2023 | December
31, 2022 | |||||||
| Pyrolysis unit | $ | $ | ||||||
| Equipment | ||||||||
| Clean-Seas Morocco | ||||||||
| Less: accumulated depreciation | ||||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense
As of June 30, 2023, the Company’s fixed assets have not yet been placed into service. Depreciation will begin on the date the assets are placed into service.
NOTE 6 – LOANS PAYABLE
As of December 31, 2020, a third party loaned the Company a total of $114,500. The loan was used to cover general operating expenses, is non-interest bearing and due on demand. During the year ended December 31, 2021, the Company repaid $100,000 of the loan. During the year ended December 31, 2022, the same individual provided consulting/IR services to the Company valued at $100,000. The amount due was added to the note payable for a balance due of $114,500 as of June 30, 2023 and December 31, 2022, respectively.
Effective
January 1, 2023, the Company acquired a financing loan for its Director and Officer Insurance for $42,500. The loan bears interest at
7.75%, requires monthly payments of $4,402.42 and is due within one year. As of June 30, 2023, the balance due is $
NOTE 7 – CONVERTIBLE NOTES
Silverback Capital Corporation
On March 31, 2022, the Company issued a Promissory Note to Silverback Capital Corporation (“Silverback”) in the amount of $360,000. The Company received $300,000, net of a $60,000 OID. The note bears interest at 8% per annum and matures in one year. The note may be converted to shares of common stock at $0.02 per share, provided, that if the Company effects a Qualified Offering (as defined in the note) the conversion price will be such price that represents a 20% discount to the offering price of the Company’s common Stock in the Offering. In the event of a default Silverback will have the option to convert at the lower of 1) .02 per share, or 2) a 20% discount to the five day trailing VWAP of the common stock. On February 21, 2023, Silverback fully converted the $360,000 note and $25,723 of interest into 19,286,137 shares of common stock.
Coventry Enterprises, LLC
On December 9, 2022, the Company entered into the Purchase Agreement (the “Coventry Purchase Agreement”) with Coventry Enterprises, LLC (“Coventry”), pursuant to which the Company issued to Coventry a Promissory Note (the “Coventry Note”) in the principal amount of $300,000 in exchange for a purchase price of $255,000, net of a discount of $45,000. In addition, the Company issued to Coventry 15,500,000 shares of Common Stock (the “Commitment Stock”), of which 12,500,000 shares of Commitment Stock were returned to the Company pursuant to the terms of the Coventry Purchase Agreement in the first quarter of 2023.
The Coventry Note bears guaranteed interest at the rate of 5% per annum for the 12 months from and after the date of issuance (notwithstanding the 11-month term of the Coventry Note for aggregate guaranteed interest of fifteen thousand Dollars ($15,000), all of which Guaranteed Interest shall be deemed earned as of the date of the Coventry Note. The principal amount and the Guaranteed Interest are due and payable in seven equal monthly payments of $45,000, commencing on May 6, 2023, and continuing on the 6th day of each month thereafter until paid in full not later than November 6, 2023. During the six months ended June 30, 2023, the Company repaid $135,000 of the principal amount.
February Convertible Notes
On February 17, 2023, the Company entered into a securities purchase agreement (the “February Purchase Agreement”) with certain institutional buyers. Pursuant to the February Purchase Agreement, the Company issued senior convertible notes in the aggregate principal amount of $4,080,000, which notes shall be convertible into shares of common stock at the lower of (a) 120% of the closing price of the common stock on the day prior to closing, or (b) a 10% discount to the lowest daily volume weighted average price (“VWAP”) reported by Bloomberg of the common stock during the 10 trading days prior to the conversion date.
F-12
On February 17, 2023, the initial investor under the February Purchase Agreement purchased a senior convertible promissory note (the “February Note”) in the original principal amount of $2,500,000 and a warrant to purchase 29,434,850 shares of the Company’s common stock. The maturity date of the February Note is February 21, 2024 (the “Maturity Date”). The February Note bears interest at a rate of 5% per annum. The February Note carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the February Note. The Company also issued a warrant to the initial investor that is exercisable for shares of the Company’s common stock at a price of $0.845 per share and expires five years from the date of issuance. See Note 14 – Subsequent Events for additional information.
April Convertible Note
Pursuant to the February Purchase Agreement, on April 10, 2023, an investor purchased a senior convertible promissory note (the “April Note”) in the original principal amount of $1,500,000 and the Company issued warrants for the purchase of up to 17,660,911 shares of the Company’s common stock to the investor. The April Note bears interest at a rate of 5% per annum. The April Note carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the April Note.
May Convertible Notes
On May 26, 2023, the Company entered into that certain Securities Purchase Agreement (the “May Purchase Agreement”) with certain institutional investors (the “May Investors”), pursuant to which the May Investor purchased a senior convertible promissory note in the aggregate original principal amount of $1,714,285.71 (the “May Note”) and warrants to purchase 44,069,041 shares of the Company’s common stock (the “May Warrants”).
The May Note matures 12 months after issuance and bear interest at a rate of 5% per annum, as may be adjusted from time to time in accordance with Section 2 of the May Note. The May Note have an original issue discount of 30%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the May Note.
At any time, the Company shall have the right to redeem all, but not less than all, of the amount then outstanding under the May Note (the “Company Optional Redemption Amount”) on the Company Optional Redemption Date (as defined in the Note) (a “Company Optional Redemption”). The portion of the May Note subject to a Company Optional Redemption shall be redeemed by the Company in cash at a price equal to the greater of (i) 10% premium to the amount then outstanding under the May Note to be redeemed, and (ii) the equity value of our common stock underlying the May Note. The equity value of our common stock underlying the May Note is calculated using the greatest closing sale price of our common stock on any trading day immediately preceding such redemption and the date we make the entire payment required. The Company may exercise its right to require redemption under the May Note by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of May Note.
The May Warrants are exercisable for shares of the Company’s common stock at a price equal to 120% of the closing sale price of the common stock on the trading day ended immediately prior to the closing date (the “May Warrant Exercise Price”) and expire five years from the date of issuance. The May Warrant Exercise Price is subject to customary adjustments for stock dividends, stock splits, recapitalizations and the like.
From April 2023 through June 30, 2023, Walleye Opportunities Master Fund Ltd., converted $737,684 of the principal amount of the February Note into 25,450,000 shares of our common stock.
The following table summarizes the convertible notes outstanding as of June 30, 2023:
Convertible Debt
| Note Holder | Date | Maturity Date | Interest | Balance December 31, 2022 |
Additions | Conversions / Repayments | Balance June 30, 2023 | |||||||||||||||
| Silverback Capital Corporation | $ | $ | $ | ( |
$ | |||||||||||||||||
| Coventry Enterprises, LLC | ( |
|||||||||||||||||||||
| Walleye Opportunities Fund | ( |
|||||||||||||||||||||
| Walleye Opportunities Fund | ||||||||||||||||||||||
| Walleye Opportunities Fund | 1,714,286 | |||||||||||||||||||||
| Total | $ | $ | $ | ( |
$ | |||||||||||||||||
| Less debt discount | $ | ( |
( | |||||||||||||||||||
| Convertible note payable, net | $ | $ | ||||||||||||||||||||
F-13
A summary of the activity of the derivative liability for the notes above is as follows:
Schedule of Derivative Instruments
| Balance at December 31, 2022 | $ | |||
| Increase to derivative due to new issuances | ||||
| Decrease to derivative due to conversions | ( | ) | ||
| Decrease to derivative due to mark to market | ( | ) | ||
| Balance at June 30, 2023 | $ | |||
The Company uses the Black Scholes pricing model to estimate the fair value of its derivatives. A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy, as of June 30, 2023 is as follows:
Schedule of Derivative Assets at Fair Value
| Inputs | June 30, 2023 | Initial Valuation | ||||||
| Stock price | $ | $ | - | |||||
| Conversion price | $ | $ | ||||||
| Volatility (annual) | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend rate | — | |||||||
| Years to maturity | . | |||||||
NOTE 8 – RELATED PARTY TRANSACTIONS
Dan Bates, CEO
On February 21, 2021, the Company amended the employment agreement with Dan Bates, CEO. The amendment extended the
term of his agreement from three years commencing May 27, 2020, to expire on May 27, 2025.
As of June 30, 2023 and December 31, 2022, the Company owed Mr. Bates $240,000 and $220,000, respectively, for accrued compensation.
The Company issued to Mr. Bates three separate promissory notes, 1) on August 1, 2022, for $1,000, 2) on September 15, 2022, for $35,040, and 3) on October 6, 2022, for $1,000. The notes bear interest at 8% and are due on demand. As of December 31, 2022, the Company repaid $20,000, for a balance due of principal and interest of $26,040 and $977. During the six months ended June 30, 2023, Mr. Bates loaned the Company an additional $5,000 and was repaid $10,000. As of June 30, 2023, the balance due of principal and interest of $21,040 and $1,869.
Rachel Boulds, CFO
The Company entered into a consulting agreement with Rachel Boulds, effective as of May 1, 2021, to serve as part-time Chief Financial Officer for compensation of $5,000 per month, which increased to $7,500 in June 2023. As of June 30, 2023 and December 31, 2022, the Company owes Ms. Boulds $7,500 and $25,000 for accrued compensation, respectively.
Daniel Harris, Chief Revenue Officer
As of June 30, 2023 and December 31, 2022, the Company owed Mr. Harris, $17,500 and $37,500, respectively, for accrued compensation.
John Owen
Mr. Owen’s consulting agreement and his role as Chief Operating Officer were terminated effective as of November 21, 2022. Per the terms of the separation agreement with Mr. Owen, the Company acknowledges past due salary of $62,500. The Company made an initial payment of $2,500 and agreed to pay $5,000 a month beginning in January 2023. As of June 30, 2023, the Company owed Mr. Owen $25,000.
F-14
Erfran Ibrahim, former CTO
As of June 30, 2023 and December 31, 2022, the Company owed Mr. Ibrahim, $60,000 and $60,000, respectively, for accrued compensation.
Michael Dorsey, Director
As of June 30, 2023 and December 31, 2022, the Company owed Mr. Dorsey, $4,500 and $9,000, respectively, for accrued director fees.
Greg Boehmer, Director
As of June 30, 2023 and December 31, 2022, the Company owed Mr. Boehmer, $2,000 and $4,500, respectively, for accrued director fees. In addition, the Company owes Mr. Boehmer $0 and $7,000, for consulting services as of June 30, 2023 and December 31, 2022.
Bart Fisher, Director
On February 23, 2023. Mr. Fisher was granted 500,000 shares of common stock. The shares were valued at $0.122, the closing stock price on the date of grant, for total non-cash stock compensation of $61,000.
NOTE 9 – COMMON STOCK
The Company has entered into three consulting agreements that required the issuance of a total of 31,251 shares of common stock per month through May 2023. For the six months ended June 30, 2023, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $9,172. As of June 30, 2023, the shares due have not been issued by the transfer agent and are included in common stock to be issued.
The Company has entered into a consulting agreement that requires the issuance of 5,000 shares of common stock per month beginning February 2022. For the six months ended June 30, 2023, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $1,537. As of June 30, 2023, the shares due have not been issued by the transfer agent and are included in common stock to be issued.
In addition to the monthly shares granted the Company also granted the following:
On January 26, 2023, the Company issued a total of 10,500,000 shares of common stock and warrants to purchase up to 10,500,000 additional shares of common stock, to four individuals pursuant to the Signed Securities Purchase Agreements on January 26, 2023, for total cash proceeds of $210,000. The Warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance.
On January 30, 2023, the Company granted 1,000,000 shares of common stock for services. The shares were valued at $0.063, the closing stock price on the date of grant, for total non-cash compensation expense of $62,800.
On February 16, 2023, the Board of Directors approved a special dividend of five shares of the Company's common stock for every one hundred shares of common stock issued and outstanding (the "Dividend"). The record date for the Dividend is February 27, 2023, and the payment date is March 13, 2023. The shares were valued at $0.068, for a total value of $1,483,528, which has been debited to the accumulated deficit.
On February 21, 2023, Silverback Capital Corporation, fully converted its note dated March 31, 2022, with principal and interest of $360,000 and $25,723, respectively, into 19,286,137 shares of common stock.
On February 22, 2023, the Company issued 6,250,000 shares of common stock and warrants to purchase up to 6,250,000 additional shares of common stock, to an individual pursuant to the Signed Securities Purchase Agreement, for total cash proceeds of $125,000. The Warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance.
F-15
On February 23, 2023, the Company granted 600,000 shares of common stock for services. The shares were valued at $0.122, the closing stock price on the date of grant, for total non-cash compensation expense of $73,200.
On March 7, 2023, the Company granted 850,000 shares of common stock for services. The shares were valued at $0.068, the closing stock price on the date of grant, for total non-cash compensation expense of $57,375.
On March 17, 2023, the Company granted 3,000,000 shares of common stock for services. The shares were valued at $0.065, the closing stock price on the date of grant, for total non-cash compensation expense of $194,400.
Refer to Note 8 for shares issued to related parties.
NOTE 10 – PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock at $0.001 par value per share with the following designations.
Series A Redeemable Preferred Stock
On September 21, 2020, the Company created a series of Preferred Stock designating 2,000,000 shares as Series A Redeemable Preferred Stock ranks senior to the Company’s Common Stock upon the liquidation, dissolution or winding up of the Company. The Series A Preferred Stock does not bear a dividend or have voting rights and is not convertible into shares of our Common Stock.
Series B Preferred Stock
On December 14, 2020, the Company designated 2,000,000 shares of its authorized preferred stock as Series B Convertible, Non-voting Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock does not bear a dividend or have voting rights. The Series B Preferred Stock automatically converted into shares of common stock on January 1, 2023, at the rate of 10 shares of common stock for each share of Series B Preferred Stock; however, due to an ongoing dispute with certain holders of the Series B Preferred Stock, which is expected to be resolved through binding arbitration at the end of October 2023, such conversion has not been effectuated as of the date hereof. Holders of our Series B Preferred Stock have anti-dilution rights protecting their interests in the Company from the issuance of any additional shares of capital stock for a two year period following conversion of the Series B Preferred Stock calculated at the rate of 20% on a fully diluted basis.
On December 17, 2020, the Company entered into a three-year consulting agreement with Leonard Tucker LLC. Per the terms of the agreement, Leonard Tucker LLC received 2,000,000 shares of Series B Preferred Stock for services provided, which shares of Series B Preferred Stock is to be classified as mezzanine equity until they are fully issued.
Series C Preferred Stock
On February 19, 2021, the Company amended its Articles of Incorporation whereby 2,000,000 shares of preferred stock were designated Series C Convertible Preferred Stock. The holders of the Series C Convertible Preferred Stock are entitled to 100 votes and shall vote together with the holders of common stock. Each share of the Series C Convertible Preferred Stock automatically converted into ten shares of common stock on January 1, 2023; however, such conversion has not been effectuated as of the date hereof.
NOTE 11 – WARRANTS
On October 6, 2022, the Company issued warrants to purchase up to 40,000 shares of common stock in conjunction with the issuance of a note payable. The warrants are exercisable for 3 years with an exercise price of $0.01. The warrants were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require a liability classification and are therefore considered equity.
January 26, 2023, the Company issued a total of 10,500,000 shares of common stock and warrants to purchase up to 10,500,000 additional shares of common stock, to four individuals pursuant to a Securities Purchase Agreement signed on January 26, 2023, for total cash proceeds of $210,000. The warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expire three years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $134,836, which has been accounted for in additional paid in capital.
F-16
On February 17, 2023, the investor under that certain Securities Purchase Agreement (the “February Purchase Agreement”) purchased a senior convertible promissory note in the original principal amount of $2,500,000 and a warrant to purchase 29,424,850 shares of the Company’s common stock (the “February Warrant”). The February Warrant is exercisable for shares of the Company’s common stock at a price of $0.0389 per share and expires five years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $1,381,489 which has been accounted for in additional paid in capital.
On February 22, 2023, the Company entered into and closed on those certain Securities Purchase Agreements with five (5) investors (the “Reg. D Investors”), pursuant to which the Company issued 6,250,000 shares of common stock and warrants to purchase up to 6,250,000 additional shares of common stock (the “Reg. D Warrants”) for total cash proceeds of $125,000. The Reg. D Warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $193,063 which has been accounted for in additional paid in capital.
Pursuant to the February Purchase Agreement, on April 10, 2023, the Company issued a senior convertible promissory note in the original principal amount of $1,500,000 and warrants to purchase 17,660,911 shares of the Company’s common stock (the “April Warrants”). The April Warrants are exercisable for shares of the Company’s common stock at a price of $0.0389 per share and expire five years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $587,384 which has been accounted for in additional paid in capital.
On May 26, 2023, the Company entered into that certain Securities Purchase Agreement (the “May Purchase Agreement”) with certain institutional investors (the “May Investors”), pursuant to which the May Investors purchased senior convertible promissory notes in the aggregate original principal amount of $1,714,285.71 and warrants to purchase 44,069,041 shares of the Company’s common stock (the “May Warrants”). The May Warrants are exercisable for shares of the Company’s common stock at a price of $0.0389 per share and expire five years from the date of issuance. Using the fair value calculation, the relative fair value for the warrants was calculated to determine the warrants recorded equity amount of $760,980 which has been accounted for in additional paid in capital.
| Number
of Warrants |
Weighted Average Exercise Price |
Weighted
Average Remaining Contract Term |
Intrinsic Value | |||||||||||
| Outstanding, December 31, 2021 | — | |||||||||||||
| Issued | $ | |||||||||||||
| Cancelled | $ | — | ||||||||||||
| Exercised | $ | — | ||||||||||||
| Outstanding, December 31, 2022 | $ | |||||||||||||
| Issued | $ | |||||||||||||
| Cancelled | $ | — | ||||||||||||
| Exercised | $ | — | ||||||||||||
| Outstanding, June 30, 2023 | $ | $ | ||||||||||||
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Project Finance Arrangement
On November 4, 2022, the Company entered into a consulting agreement (the “Agreement”) with Edge Management, LLC (“Edge”), a services firm based in New York City. Under the Agreement, Edge will assist us to develop, structure and implement project finance strategies (“Project Finance”) for our clean energy installations around the world. Financing strategies will be in amounts and upon terms acceptable to us, and may include, without limitation, common and preferred equity financing, mezzanine and other junior debt financing, and/or senior debt financing, including but not limited to one or more bond offerings (“Project Financing(s)”). Under the Agreement, Edge is engaged as our exclusive representative for Project Financing matters. Edge is entitled to receive a cash payment for any Project Financing involving as follows: 5% of the gross amount of the funding facilities (up to $500 million) of all forms approved by the lender (“Lender”) introduced by Edge and or its affiliates and accepted by the Company on closing (“Closing”), 4% of the gross amount of the funding facilities (for the tranche of funding ranging from $500,000,001 to $1,000,000,000) approved by the Lender introduced by Edge and or its affiliates and accepted by the Company on Closing, and 3% of the subsequent gross amount ($1,000,000,001 and greater) of the funding facilities of all forms approved by the Lender introduced by Edge and/or its affiliates and accepted by the Company on Closing. In addition to the cash consulting fee, Edge shall be issued cashless, five-year warrants equal to: 2% (at a strike price to be mutually determined by the Parties for the first tranche of funding, up to $500 million), 1% (at a strike price to be mutually determined by the Parties for the tranche of funding ranging from $500,000,001 to $1,000,000,000), and 1% (at a strike price to be mutually determined by the Parties for any and all subsequent Debt Funding ($1,000,000,001 and greater)) of the outstanding common and preferred shares, warrants, options, and other forms of participation in the our Company on Closing.. The Agreement has an initial term of one (1) year and is cancellable by either party on ninety (90) days written notice. There is no guarantee that Edge will be successful in helping us obtain Project Financing.
F-17
Legal Proceedings
Presently, except as described below, there are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
On January 30, 2023, Leonard Tucker, LLC (“Tucker”), one of the holders of the Company’s Series B Convertible Non-Voting Preferred Stock (the “Series B Preferred Stock”) filed an action against the Company (the “Tucker Litigation”) in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief (the “Tucker Complaint”). The Tucker Litigation arises from the 3-year Consulting Agreement the Company entered into with Tucker on December 17, 2020 (the “Tucker Agreement”), whereby Tucker agreed to perform certain strategic and business development services to the Company in exchange for 2,000,000 shares of Series B Preferred Stock and a consulting fee of $20,000 per month.
The 2,000,000 shares of Series B Preferred Stock automatically converted into 20,000,000 shares of the Company’s common stock (the “Common Stock”) on January 1, 2023. However, the Company’s Transfer Agent was instructed to not issue the shares of Common Stock because of the ongoing dispute between the Company and Tucker regarding Tucker’s ability to perform under the Tucker Agreement due to the action filed by the United States Securities and Exchange Commission against Profile Solutions, Inc., Dan Oran and Tucker on September 9, 2022 in the United States District Court Southern District of Florida (Case No. 1:22-cv-22881) alleging, among other things, that Tucker violated Section 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) and Rule 10-b5.
Tucker is seeking, among other things, that the Company issue the shares of Common Stock issuable upon conversion of the Series B Preferred Stock pursuant to the Tucker Agreement. The Company is contesting all of the allegations set forth in the Tucker Complaint.
Pursuant to the terms of the Tucker Agreement, the Company expects to have the Tucker Litigation resolved through binding arbitration at the end of October 2023.
Non-Related Party Consulting Agreements
The following is a summary of compensation related to consulting agreements in 2023.
| Stock Compensation | |||||||||||||
| Consultant | Current Contract Date | # Shares | Value | 2023 Compensation | Owed
as of 6/30/2023 | ||||||||
| John Shaw | — | $ | — | $ | $ | ||||||||
| Chris Galazzi | $ | $ | $ | ||||||||||
| Venkat Kumar Tangirala | — | $ | — | $ | $ | ||||||||
| Alpen Group LLC | $ | $ | $ | ||||||||||
| Strategic Innovations | — | — | $ | $ | |||||||||
| Fraxon Marketing | — | — | $ | $ | |||||||||
NOTE 13 - DISCONTINUED OPERATIONS
In accordance with the provisions of ASC 205-20, Presentation of Financial Statements, we have separately reported the liabilities of the discontinued operations in the consolidated balance sheets. The liabilities have been reflected as discontinued operations in the consolidated balance sheets as of June 30, 2023 and December 31, 2022, and consist of the following:
F-18
Disposal Groups, Including Discontinued Operations
| June 30, 2023 | December 31, 2022 | |||||||
| Current Liabilities of Discontinued Operations: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Loans payable | ||||||||
| Total Current Liabilities of Discontinued Operations: | $ | $ | ||||||
NOTE 14 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date of this Quarterly Report on Form 10-Q and has determined that it does not have any material subsequent events to disclose in
these consolidated financial statements.
On July 3, 2023, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) by and between the Company, Christopher Percy and Daniel Bates, whereby the parties agreed to a global settlement to a lawsuit filed by the Company against Mr. Percy in September 2022 in Clark County, Nevada in the Eighth Judicial District Court (Case No: A-22-85843-B), with the case being subsequently removed to the United States District Court, District of Nevada (2:22-cv-01862-ART-NJK). Thereafter, Mr. Percy counterclaimed against the Company and brought third-party claims against Mr. Bates (the “ Percy Litigation”). Pursuant to the Settlement Agreement, none of the parties admitted to fault or liability, Mr. Percy agreed to pay $150,000 to the Company (the “Percy Payment”) and, within ten (10) business days of the Percy Payment being received, Mr. Bates agreed to remit $25,000 to Mr. Percy (the “Bates Payment”). In addition, the parties agreed to work together to promptly release the $5,000 Temporary Restraining Order/Preliminary Injunction bond currently deposited with the Clerk of the Court for the Eighth Judicial District Court, Clark County, Nevada. Once released, said bond shall be remitted to Mr. Percy. In addition, pursuant to the Settlement Agreement, the Company agreed to, within ten (10) days of the effective date, instruct its transfer agent to (i) issue 1,500,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) to Mr. Percy, (ii) restore and/or reissue to Mr. Percy the 3,000,000 shares of Common Stock that was previously cancelled by the Company and (iii) withdraw its stop-transfer demand current in place with respect to 4,200,000 shares of Common Stock owned by Mr. Percy (collectively, the “Percy Shares”). Mr. Percy agreed to not sell, on any given trading day, the Percy Shares in an amount that exceeds more than 10% of the daily trading volume of the Common Stock, with such trading volume determined by the trading platform upon which the Common Stock is then traded. As consideration for entering into the Settlement Agreement, the parties agreed to a customary mutual release of claims. Within five (5) business dates of the Bates Payment being remitted, the parties agreed to submit a joint stipulation to the United States District Court, District of Nevada, dismissing all claims, crossclaims, counterclaims, and/or third-party claims in the Litigation, with prejudice.
On July 7, 2023, Walleye Opportunities Master Fund Ltd, converted $532,500 of the promissory notes it purchased pursuant to the February Purchase Agreement into 25,000,000 shares of common stock.
On July 6, 2023, the Company issued Brad Listermann 430,000 shares of common stock. The shares were issued per the terms of a Settlement Agreement effective June 13, 2023.
On July 24, 2023, the Company issued 6,000,000 shares of common stock for services.
On July 24, 2023, the Company issued 5,725,000 shares of common stock for conversion of a loan payable in the amount $114,500.
F-19
On July 31, 2023 (the “August Note Original Issue Date”), the Company entered into a securities purchase agreement (the “August Purchase Agreement”) with an accredited investor (the “August Investor”), pursuant to which the August Investor purchased a senior convertible promissory note in the original principal amount of $500,000 (the “August Note”). In addition, as an additional inducement to the August Investor for purchasing the August Note, the Company issued 21,000,000 shares of its common stock to the August Investor at the closing. The transactions contemplated under the August Purchase Agreement closed on August 4, 2023.
The August Note matures on July 31, 2024 and bears interest at a rate of 10% per annum (the “Guaranteed Interest”), carries an original issue discount of 15% and has a conversion price of 90% per share of the lowest VWAP during the 20 trading day period before the conversion. The Company may prepay any portion of the outstanding principal amount and the guaranteed interest at any time and from time to time, without penalty or premium, provided that any such prepayment will be applied first to any unpaid collection costs, then to any unpaid fees, then to any unpaid Default Rate interest (as defined in the August Note), and any remaining amount shall be applied first to any unpaid guaranteed interest, and then to any unpaid principal amount.
The August Investor was granted a right of first refusal as the exclusive party with respect to any Equity Line of Credit transaction or financing (an “Additional Financing”) that the Company enters into during the 24-month period after the August Note Original Issue Date. In the event the Company enters into an Additional Financing, the Company must provide notice to the August Investor not less than 10 trading days in advance of the proposed entry. If the August Investor accepts all usual and customary terms set forth in the Additional Financing notice, the August Investor must, within 20 trading days of receipt of the notice, prepare all relevant documents in respect thereof for execution and delivery by the Company, provided, however, that the Company’s outside counsel must prepare the relevant registration statement to be filed with the United States Securities and Exchange Commission no later than 45 days after the Company receives the documents.
The August Note sets forth certain standard events of default (each such event, an “August Note Event of Default”), which, upon such August Note Event of Default, the principal amount and the guaranteed interest then outstanding under the August Note becomes convertible into shares of the Company’s common stock pursuant to a notice provided by the August Investor to the Company. At any time after the occurrence of an August Note Event of Default, the outstanding principal amount and the outstanding guaranteed interest then outstanding on the August Note, plus accrued but unpaid Default Rate (as defined in the August Note) interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become immediately due and payable at the August Investor’s option, in cash or in shares of the Company’s common stock at 120% of the outstanding principal amount of the August Note and accrued and unpaid interest, plus other amounts, costs, expenses and liquidated damages due in respect of the August Note.
F-20
Index to Financial Statements
Audited Financial Statements
F-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Clean Vision Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clean Vision Corp. and Subsidiaries (“the Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2022 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has an accumulated deficit, not established revenue, and recurring losses from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-22
Disclosure of Related-Party Transactions — Refer to Note 7 to the financial statements
Critical Audit Matter Description
The Company experienced a significant increase in consulting expenses and transactions during 2021, including those to related parties and stock issuances. There is judgment regarding valuation of stock compensation and accuracy of accounts and disclosures in relation to written terms and verbal adjustments.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluating the Company’s accounting for related-party transactions included the following, among others:
| · | Substantive testing to verify the completeness and accuracy of transactions. |
| · | Independent calculation of stock compensation to consultants (including related parties) and comparison to amounts per the Company. |
| · | Prepared a summary of related party transactions based on our audit and compared to financial statement disclosures to verify accuracy and completeness. |
We have served as the Company’s auditor since 2020.
Spokane, Washington | |
| April 2, 2023 | |
F-23
CLEAN
VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
| December 31, 2022 | December 31, 2021 | |||||||
ASSETS
| ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaids | 125,000 | 54,000 | ||||||
| Total Current Assets | ||||||||
| Property and equipment | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Convertible note payable, net of discount of $ | ||||||||
| Loan payable | ||||||||
| Loans payable – related party | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Mezzanine Equity: | ||||||||
| Series B Preferred stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders' Deficit: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Series A Preferred stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Series C Preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-24
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating Expenses: | ||||||||
| Consulting | $ | $ | ||||||
| Professional fees | ||||||||
| Payroll expense | ||||||||
| Officer stock compensation expense | ||||||||
| Director fees | ||||||||
| General and administration expenses | ||||||||
| Total operating expense | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative | ( | ) | ||||||
| Loss on investment | ( | ) | ||||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss before provision for income tax | ( | ) | ( | ) | ||||
| Provision for income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income: | ||||||||
| Foreign currency translation adjustment | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-25
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Years Ended December 31, 2022 and 2021
| Series A Preferred Stock | Series C Preferred Stock | Common Stock | Additional paid | Common Stock | Accumulated Other Comprehensive | Accumulated | Total Stockholders' | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | To be Issued | Loss | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Redemption of preferred | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock issued for services – related party | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued for Conversion of debt | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued for cash | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Cancellation of preferred | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock issued for services | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock issued for services – related party | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued for cash | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Debt issuance cost – warrants issued | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
T-he accompanying notes are an integral part of these consolidated financial statements.
F-26
CLEAN VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Stock issued for services | ||||||||
| Stock issued for services – related party | ||||||||
| Preferred stock compensation expense | ||||||||
| Debt discount amortization | ||||||||
| Loss on investment | ||||||||
| Change in fair value of derivative | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid | (71,000 | ) | (34,000 | ) | ||||
| Accounts payable | ||||||||
| Accruals | ||||||||
| Accrued compensation | ||||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment in 100Bio | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Proceeds from the sale of common stock | ||||||||
| Payments on convertible notes payable | — | (594,000 | ) | |||||
| Proceeds from notes payable - related party | ||||||||
| Repayment of related party loans | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Payments - notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Effects of currency translation | ||||||||
| Cash at beginning of year | ||||||||
| Cash at end of year | $ | |||||||
| Supplemental schedule of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental non-cash disclosure: | ||||||||
| Common stock issued for conversion of debt | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-27
CLEAN VISION CORPORATION
Notes to Consolidated Financial Statements
December 31, 2022
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Clean Vision Corporation (“Clean Vision,” “we,” “us,” or the “Company”) is a new entrant in the clean energy and waste-to-energy industries focused on clean technology and sustainability opportunities. Currently, we are focused on providing a solution to the plastic and tire waste problem by recycling the waste and converting it into saleable byproducts, such as hydrogen and other clean-burning fuels that can be used to generate clean energy. Using a technology known as pyrolysis, which heats the feedstock (i.e., plastic or tires) at high temperatures in the absence of oxygen so that the material does not burn, we are able to turn the feedstock into i) low sulfur fuel, ii) clean hydrogen and iii) carbon black or char (char is created in the pyrolysis of plastic, while carbon black is created when tires are pyrolyzed). We intend to generate revenue from three sources: service revenue from the recycling services we provide, revenue generated from the sale of the byproducts, and revenue generated from the sale of fuel cell equipment. Our mission is to aid in solving the problem of cost-effectively upcycling the vast amount of waste plastic generated on land before it flows into the world’s oceans, as well as to reduce the amount of tire waste.
We currently operate through our wholly-owned subsidiary, Clean-Seas, Inc. (“Clean-Seas”), which we acquired on May 19, 2020. Clean-Seas acquired its first pyrolysis unit in November 2021 for use in a pilot project in India, which began operations in early May 2022. We believe that this pilot project will showcase our ability to pyrolyze waste plastic (using pyrolysis), which will generate three byproducts: i) low sulfur fuel, ii) clean hydrogen, AquaHtm, and iii) char. We intend to sell the majority of the byproducts, while retaining a small amount of the low sulfur fuels and/or hydrogen to power our facilities and equipment. To date we have not generated any revenue from the provision of pyrolysis services nor have we generated any revenue from the sale of byproducts from our operations in India or fuel cell equipment and we do not currently have any contracts in place to sell these byproducts or fuel cell equipment. However, we believe that there is a strong market for low sulfur fuel and clean hydrogen, upon which we intend to focus our byproduct sales.
Clean-Seas, Inc. is Clean Vision Corporation’s first investment within its newly expanded scope. The acquisition of 100% of Clean Seas is Clean Vision Corporation’s first entrance into the clean energy space. Clean Seas has made significant progress in identifying and developing a new business model around the clean energy and waste to energy sectors. Clean Vision Corporation’s management team will incorporate the two companies into a single-minded, clean energy-focused entity.
Clean-Seas India Private Limited which was incorporated on November 17, 2021, as a wholly owned subsidiary of Clean-Seas, Inc.
Clean-Seas, Abu Dhabi PVT. LTD was incorporated in Abu Dhabi on December 9, 2021, as a wholly owned subsidiary of the Company. On January 19, 2022, the Company changed the name of its wholly owned subsidiary, Clean-Seas, Abu Dhabi PVT. LTD, to Clean-Seas Group. As of July 4, 2022, the Company ceased operations and is in the process of dissolving the corporation.
EndlessEnergy was incorporated in Nevada on December 10, 2021, as a wholly owned subsidiary of the Company. EndlessEnergy does not currently have any operations, but it was incorporated for the purpose of investing in wind and solar energy projects.
EcoCell was incorporated on March 4, 2022, as a wholly owned subsidiary of CVC. EcoCell does not currently have any operations, but we intend to use EcoCell for the purpose of licensing fuel cell patented technology.
Clean-Seas Arizona was incorporated on September 19, 2022, as a wholly owned subsidiary of Clean-Seas.
Clean-Seas, Inc. has established Clean-Seas Arizona as a joint venture pursuant to a Memorandum of Understanding (the “MOU”) signed on November 4, 2022, with Arizona State University and the Rob and Melani Walton Sustainability Solution Service. Pursuant to the MOU, the parties intend to establish a 100 ton per day waste plastic to clean hydrogen conversion facility in Arizona.
F-28
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount (“FDIC”).
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents for the periods ended December 31, 2022 and 2021.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended December 31, 2022, include the accounts of the Company and its wholly owned subsidiaries, Clean-Seas, Inc and Clean-Seas India Private Limited, Clean-Seas Group, EndlessEnergy, EcoCell, Clean-Seas Arizona and Clean-Seas Morocco. As of December 31, 2022, there was no activity in Clean-Seas Group, EndlessEnergy or Clean-Seas Arizona.
Reclassifications
Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the year ended December 31, 2022.
Translation Adjustment
For the year ended December 31, 2022, the accounts of the Company’s subsidiary Clean-Seas India Private Limited, are maintained in Rupees. According to the Codification, all assets and liabilities were translated at the current exchange rate at respective balance sheets dates, members’ capital are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the Codification (ASC 220), as a component of members’ capital. Transaction gains and losses are reflected in the income statement.
Comprehensive Income
The Company uses SFAS 130 “Reporting Comprehensive Income” (ASC Topic 220). Comprehensive income is comprised of net income and all changes to the statements of members’ capital, except those due to investments by members, changes in paid-in capital and distributions to members. Comprehensive income for the year ended December 31, 2022, is included in net loss and foreign currency translation adjustments.
Investments
The Company follows ASC subtopic 321-10, Investments-Equity Securities which requires the accounting for an equity security to be measured at fair value with changes in unrealized gains and losses included in current period operations. Where an equity security is without a readily determinable fair value, the Company may elect to estimate its fair value at cost minus impairment plus or minus changes resulting from observable price changes. As of December 31, 2021, the Company determined that its investment in 100Bio was fully impaired; therefore, the investment was written down to $0 and a $150,000 loss on investment was recognized.
F-29
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of Common Stock outstanding and potentially outstanding Common Stock assumes that the Company incorporated as of the beginning of the first period presented. As of December 31, 2022, there are warrants to purchase up to 9,040,000 shares of common stock and 18,000,000 dilutive shares of common stock from a convertible note payable. As of December 31, 2022 and 2021, there are 20,000,000 and 20,000,000 potentially dilutive shares of common stock, respectively, if the Series C preferred stock were to be converted. There are 2,000,000 shares of Series B preferred stock outstanding. The Series B Preferred Stock will automatically be converted on January 1, 2023 into shares of common stock at the rate of 10 shares of Common Stock for each share of Preferred Stock. As of December 31, 2022 and 2021, the Company’s diluted loss per share is the same as the basic loss per share, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
Stock-based Compensation
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We adopted this ASU on January 1, 2019.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable represents the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
F-30
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2022, and 2021, no liability for unrecognized tax benefits was required to be reported.
Recently issued accounting pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The Company has not yet established a source of revenue, had an
accumulated deficit of $
Management plans to continue to implement its business plan and to fund operations by raising additional capital through the issuance of debt and equity securities. The Company’s existence is dependent upon management's ability to implement its business plan and/or obtain additional funding. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company's liquidity problems. Even if the Company is able to obtain additional financing, it may include undue restrictions on our operations in the case of debt or cause substantial dilution for our stockholders in the case of equity financing.
NOTE 4 - PROPERTY & EQUIPMENT
Property and equipment are recorded at cost. The Company capitalizes purchases of property and equipment over $5,000. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets as follows between three and five years.
Long lived assets, including property and equipment, to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Maintenance and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included as income.
Clean-Seas, Inc. has purchased a pyrolysis unit for piloting and demonstration purposes which has been commissioned in Hyderabad, India as of May 2022. The unit will be used to showcase the Company’s technology and services, turning waste plastic into environmentally friendly commodities, to potential customers.
Property and equipment stated at cost, less accumulated depreciation consisted of the following:
F-31
Schedule of Property and Equipment
| December 31, 2022 | December 31, 2021 | |||||||
| Pyrolysis unit | $ | $ | ||||||
| Equipment | ||||||||
| Less: accumulated depreciation | ||||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense
As of December 31, 2022, the Company’s fixed assets have not yet been placed into service. Depreciation will begin on the date the assets are placed into service.
NOTE 5 – LOANS PAYABLE
As of December 31, 2020, a third party loaned the Company a total of $114,500. The loan was used to cover general operating expenses, is non-interest bearing and due on demand. During the year ended December 31, 2021, the Company repaid $100,000 of the loan. During the year ended December 31, 2022, the same individual provided consulting/IR services to the Company valued at $100,000. The amount due was added to the note payable for a balance due of $114,500 as of December 31, 2022.
Effective January 1, 2022, the Company acquired a financing loan for its Director and Officer Insurance for $26,381. The loan bears interest at 10.45%, requires monthly payments of $3,060.36 and is due within one year. As of December 31, 2022, the balance due is $0.
On August 17, 2022, a third party loaned the Company $14,000. The loan has an original issue discount of $3,500, for a total note payable of $17,500. The note bears interest at 8% and is due in one year. This loan was repaid in full on December 15, 2022.
NOTE 6 – CONVERTIBLE NOTES
Silverback Capital Corporation
On March 31, 2022, the Company issued a Promissory Note to Silverback Capital Corporation (“Silverback”) in the amount of $360,000. The Company received $300,000, net of a $60,000 OID. The note bears interest at 8% per annum and matures in one year. The note may be converted to shares of common stock at $0.02 per share, provided, that if the Company effects a Qualified Offering (as defined in the note) the conversion price will be such price that represents a 20% discount to the offering price of the Company’s common Stock in the Offering. In the event of a default Silverback will have the option to convert at the lower of 1) .02 per share, or 2) a 20% discount to the five day trailing VWAP of the common stock. As of December 31, 2022, there is $21,698 of accrued interest on the loan.
Coventry Enterprises, LLC
On December 9, 2022, the Company entered into the Purchase Agreement with Coventry Enterprises, LLC (“Coventry”), pursuant to which the Company issued to Coventry a Promissory Note (the “Note”) in the principal amount of $300,000 in exchange for a purchase price of $255,000, net of a discount of $45,000. In addition, the Company issued to Coventry 15,500,000 shares of Common Stock (the “Commitment Stock”), of which 12,500,000 shares of Commitment Stock are to be returned to the Company upon the Company’s filing of the registration statement on or before 45 calendar days after the date of the Note. The 12,500,000 shares of common stock were returned to the Company in Q1 2023.
The Note bears “Guaranteed Interest” at the rate of 5% per annum for the 12 months from and after the date of issuance (notwithstanding the 11-month term of the Note for an aggregate Guaranteed Interest of fifteen thousand Dollars ($15,000), all of which Guaranteed Interest shall be deemed earned as of the date of the Note. The Principal Amount and the Guaranteed Interest are due and payable in seven equal monthly payments of $45,000, commencing on May 6, 2023 and continuing on the 6th day of each month thereafter until paid in full not later than November 6, 2023.
F-32
NOTE 7 – RELATED PARTY TRANSACTIONS
Daniel Bates, CEO
On February 21, 2021, the Company amended the employment agreement with Daniel Bates, CEO. The amendment extended the term of his agreement from three years commencing May 27, 2020, to expire on May 27, 2025.
On December 14, 2022, the Company granted Mr. Bates, 10,000,000 shares of common stock for services. The shares were valued at $0.035, the closing stock price on the date of grant, for total non-cash expense of $350,000.
As of December 31, 2022 and 2021, the Company owed Mr. Bates, $220,000 and $90,000, respectively, for accrued compensation.
Mr. Bates, loaned the Company $100 to be used to open the Company’s bank account and such amount was repaid on May 26, 2022.
In addition, the Company issued to Mr. Bates three separate promissory notes, 1) on August 1, 2022, for $1,000, 2) on September 15, 2022, for $35,040, and 3) on October 6, 2022, for $1,000. The notes bear interest at 8% and are due on demand. As of December 31, 2022, the Company repaid $20,000, for a balance due of principal and interest of $26,040 and $977.
Rachel Boulds, CFO
The Company entered into a consulting agreement with Rachel Boulds, effective as of May 1, 2021, to serve as part-time Chief Financial Officer for compensation of $5,000 per month. On February 22, 2021, Ms. Boulds was granted 500,000 shares of Common Stock for her services. The shares were valued at $0.206, the closing stock price on the date of grant, for total non-cash expense of $102,950. On December 14, 2022, Ms. Boulds was granted 2,000,000 shares of Common Stock for her services. The shares were valued at $0.035, the closing stock price on the date of grant, for total non-cash expense of $70,000. As of December 31, 2022, the Company owes Ms. Boulds $25,000 for accrued compensation.
Daniel Harris, Chief Revenue Officer
During the year ended December 31, 2022, Mr. Harris was issued 2,708,340 shares of common stock for services. The shares were valued at the closing stock price on the date of grant, for total non-cash expense of $96,042. As of December 31, 2022 and 2021, the Company owed Mr. Harris, $37,500 and $0, respectively, for accrued compensation.
John Owen
We entered into a consulting agreement with John Owen, effective as of July 1, 2021, (“Owen Consulting Agreement”) to serve as our Chief Operating Officer. Mr. Owen’s compensation is $12,500 per month. On December 16, 2021, we granted 500,000 shares of Common Stock to Mr. Owen for his services. The shares were valued at $0.028, the closing stock price on the date of grant, for total non-cash expense of $14,000. Mr. Owen’s consulting agreement and his role as Chief Operating Officer were terminated effective as of November 21, 2022. Per the terms of the separation agreement with Mr. Owen, the Company acknowledges past due salary of $62,500. The Company made an initial payment of $2,500 and agreed to pay $5,000 a month beginning in January 2023.
Chris Percy, a former Director
As of December 31, 2022 and 2021, the Company owed Chris Percy, a former Director, $96,250 and $158,500, respectively, for accrued compensation.
Erfran Ibrahim, former CTO
On February 1, 2021, the Company granted 20,000 shares of Common Stock to Mr. Ibrahim for services. The shares were valued at $0.14, the closing stock price on the date of grant, for total non-cash expense of $2,800. On September 30, 2021, the Company granted 160,000 shares of Common Stock to Mr. Ibrahim for services. The shares were valued at $0.10, the closing stock price on the date of grant, for total non-cash expense of $14,930. As of December 31, 2022, the shares have not yet been issued by the transfer agent and are disclosed as Common Stock to be issued.
As of December 31, 2022 and 2021, the Company owed Mr. Ibrahim, $60,000 and $60,000, respectively, for accrued compensation.
F-33
Michael Dorsey, Director
On December 16, 2021, the Company granted Michael Dorsey, Director, 500,000 shares of Common Stock. The shares were valued at $0.028, the closing stock price on the date of grant, for total non-cash expense of $14,000. On December 14, 2022, the Company granted Mr. Dorsey, Director, 2,000,000 shares of Common Stock. The shares were valued at $0.035, the closing stock price on the date of grant, for total non-cash expense of $70,000. As of December 31, 2022 and 2021, the Company owed Mr. Dorsey, $9,000 and $0, respectively, for accrued director fees.
Greg Boehmer, Director
On December 14, 2022, the Company granted Greg Boehmer, Director, 2,000,000 shares of Common Stock. The shares were valued at $0.035, the closing stock price on the date of grant, for total non-cash expense of $70,000. As of December 31, 2022 and 2021, the Company owed Mr. Boehmer, $4,500 and $0, respectively, for accrued director fees. In addition, the Company owes Mr. Boehmer $7,000, for consulting services.
NOTE 8 – COMMON STOCK
The Company amended its Articles of Incorporation, effective June 29, 2021, to increase its authorized shares of common stock to 2,000,000,000.
During the year ended December 31, 2021, the Company issued 7,250,000 shares of common stock for services, for total non-cash compensation expense of $757,240.
During the year ended December 31, 2021, the Company granted 1,391,688 shares of common stock for services, for total non-cash compensation expense of $169,140. These shares have not yet been issued as of December 31, 2021 and are included in common stock to be issued.
During the year ended December 31, 2021, the Company sold 162,200,000 shares of common stock for total cash proceeds of $3,244,000. The shares were sold at $0.02, pursuant to the Company’s Regulation A Offering Statement qualified on June 21, 2021.
During the year ended December 31, 2021, the Company issued 41,701,860 shares of common stock for conversion of approximately $1,231,461 of debt.
The Company has entered into two consulting agreements that require the issuance of 20,834 shares of common stock per month through May 2023. During Q1 2022, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $1,771. During Q2 2022, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $2,246. During Q3 2022, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $1,085. During Q4 2022, the shares were valued at the closing stock price on the date of grant for total non-cash stock compensation of $860. On December 14, 2022, the Company issued all shares due as well as an additional 2,000,000 shares each. The additional shares were valued at $0.035, the closing stock price on the date of grant, for total non-cash expense of $140,000.
The Company has entered into a consulting agreement that requires $3,000 per month be paid with shares of common based on the closing stock price of the applicable date each month. During Q1 2022, the Company issued 525,016 shares of common stock that were granted and accounted for in the prior period pursuant to the terms of this agreement. For Q1 2022, there are 292,861 shares of common stock due. For Q2 2022, there are approximately 306,000 shares of common stock due. For Q3 2022, there are approximately 553,000 shares of common stock due. As of December 31, 2022, not all shares due have not been issued by the transfer agent. $18,000 is included in common stock to be issued.
The Company has entered into a consulting agreement that require the issuance of 5,000 shares of common stock per month beginning February 2022. As of December 31, 2022, 555,000 shares were issued for total non-cash compensation expense of $1,793.
In addition to the monthly shares granted the Company also granted the following:
During Q1 2022, the Company granted 1,000,000 shares of common stock for services, for total non-cash compensation expense of $30,800.
F-34
On April 1, 2022, the Company sold 30,000,000 shares of common stock to Silverback for total proceeds of $600,000.
During Q2 2022, the Company issued 5,000,000 shares of common stock for services. The shares were valued based on the closing stock price on the date of grant for total non-cash compensation expense of $148,800.
During Q3 2022, the Company issued 5,000,000 shares of common stock for services. The shares were valued based on the closing stock price on the date of grant for total non-cash compensation expense of $82,500.
During Q3 2022, the Company granted 2,500,000 shares of common stock pursuant to the terms of a new joint venture agreement. The shares were valued based on the closing stock price on the date of grant for total non-cash compensation expense of $35,500.
During Q4 2022, the Company issued 3,238,000 shares of common stock, that had been granted and accounted for in common stock to be issued in prior years.
During Q4 2022, the Company issued 21,600,000 shares of common stock for services. The shares were valued based on the closing stock price on the date of grant for total non-cash compensation expense of $664,200.
Refer to Note 7 for shares issued to related parties.
NOTE 9 – PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock at $0.001 par value per share with the following designations.
Series A Redeemable Preferred Stock
On September 21, 2020, the Company created a series of Preferred Stock designating 2,000,000 shares as Series A Redeemable Preferred Stock ranks senior to the Company’s Common Stock upon the liquidation, dissolution or winding up of the Company. The Series A Preferred Stock does not bear a dividend or have voting rights and is not convertible into shares of our Common Stock.
Series B Preferred Stock
On December 14, 2020, the Company designated 2,000,000 shares of its authorized preferred stock as Series B convertible, non-voting preferred Stock. The Series B Preferred Stock does not bear a dividend or have voting rights. The Series B Preferred Stock will automatically be converted on January 1, 2023 into shares of common stock at the rate of 10 shares of Common Stock for each share of Preferred Stock. Holders of our Series B Preferred Stock have anti-dilution rights protecting their interests in the Company from the issuance of any additional shares of capital stock for a two year period following conversion of the Preferred Stock calculated at the rate of 20% on a fully diluted basis.
On December 17, 2020, the Company entered into a three-year consulting agreement with Leonard Tucker LLC. Per the terms of the agreement, Leonard Tucker LLC received 2,000,000 shares of Series B Preferred Stock for services provided. The preferred stock to be issued are classified as mezzanine equity until they are fully issued.
Series C Preferred Stock
On February 19, 2021, the Company amended its Articles of Incorporation whereby 2,000,000 shares of preferred stock were designated Series C Convertible Preferred Stock. The holders of the Series C preferred stock are entitled to 100 votes and shall vote together with the holders of common stock. Each share of the Series C preferred stock is convertible in ten shares of common stock.
NOTE 10 – WARRANTS
On October 6, 2022, the Company issued warrants to purchase up to 40,000 shares of common stock in conjunction with the issuance of a note payable. The warrants are exercisable for 3 years with an exercise price of $0.01. The warrants were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require a liability classification and are therefore considered equity.
F-35
Using the fair value calculation, the relative fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $593, accounted for in additional paid in capital.
The Black Scholes pricing model was used to estimate the fair value of the warrants issued to purchase up to 40,000 shares of common stock with the following inputs:
Fair value of the warrants issued
| Common Stock available to purchase | ||||
| Share price | $ | |||
| Exercise Price | $ | |||
| Term | ||||
| Volatility | % | |||
| Risk Free Interest Rate | % | |||
| Dividend rate | — | |||
| Intrinsic value | $ |
On March 31, 2022, the Company issued warrants to purchase up to 9,000,000 shares of common stock to Silverback Capital Corporation in conjunction with convertible debt (Note 6). The warrants are exercisable for 3 years at a 25% premium to a Qualified Offering price. The warrants were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require a liability classification and are therefore considered equity.
Using the fair value calculation, the relative fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $195,482 , accounted for in additional paid in capital.
The Black Scholes pricing model was used to estimate the fair value of the warrants issued to purchase up to 9,000,000 shares of common stock with the following inputs:
Fair value of the warrants issued one
| Common Stock available to purchase | ||||
| Share price | $ | |||
| Exercise Price | $ | |||
| Term | ||||
| Volatility | % | |||
| Risk Free Interest Rate | % | |||
| Dividend rate | — | |||
| Intrinsic value | $ |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Project Finance Arrangement
On November 4, 2022, the Company entered into a consulting agreement (the “Agreement”) with Edge Management, LLC (“Edge”), a services firm based in New York City. Under the Agreement, Edge will assist us to develop, structure and implement project finance strategies (“Project Finance”) for our clean energy installations around the world. Financing strategies will be in amounts and upon terms acceptable to us, and may include, without limitation, common and preferred equity financing, mezzanine and other junior debt financing, and/or senior debt financing, including but not limited to one or more bond offerings (“Project Financing(s)”). Under the Agreement, Edge is engaged as our exclusive representative for Project Financing matters. Edge is entitled to receive a cash payment for any Project Financing involving as follows: 5% of the gross amount of the funding facilities (up to $500 million) of all forms approved by the lender (“Lender”) introduced by Edge and or its affiliates and accepted by the Company on closing (“Closing”), 4% of the gross amount of the funding facilities (for the tranche of funding ranging from $500,000,001 to $1,000,000,000) approved by the Lender introduced by Edge and or its affiliates and accepted by the Company on Closing, and 3% of the subsequent gross amount ($1,000,000,001 and greater) of the funding facilities of all forms approved by the Lender introduced by Edge and/or its affiliates and accepted by the Company on Closing. In addition to the cash consulting fee, Edge shall be issued cashless, five-year warrants equal to: 2% (at a strike price to be mutually determined by the Parties for the first tranche of funding, up to $500 million), 1% (at a strike price to be mutually determined by the Parties for the tranche of funding ranging from $500,000,001 to $1,000,000,000), and 1% (at a strike price to be mutually determined by the Parties for any and all subsequent Debt Funding ($1,000,000,001 and greater)) of the outstanding common and preferred shares, warrants, options, and other forms of participation in the our Company on Closing.. The Agreement has an initial term of one (1) year and is cancellable by either party on ninety (90) days written notice. There is no guarantee that Edge will be successful in helping us obtain Project Financing.
F-36
Legal Proceedings
Presently, except as descried below, there are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
On September 16, 2022, the Company filed action against Christopher Percy (“Percy”) in the Eighth Judicial District of Nevada (Case No. A-22-858543-B) for breach of fiduciary duty, fraud, conversion, business disparagement, declaratory relief, and injunctive relief. This case arose out of a control dispute regarding certain actions taken by Percy while an officer and director of the Company in July 2022. The Nevada State Court granted the Company a temporary restraining order against Percy and granted the Company’s request for a preliminary injunction on November 2, 2022. Thereafter, Percy removed the case to the United States District of Nevada (Case No. 2:22-cv-01862-ART-NJK). The Company filed a motion to remand to state court on November 22, 2022 which is pending with the federal court. In December 2022, the federal court entered a preliminary injunction in favor of the Company, and ordered, in relevant part, that that Percy not take any action on behalf of the Company, unless said action is expressly authorized by the Board pursuant to the procedures set forth in the Company’s bylaws, and restored control the Company’s board. On December 1, 2022, Percy filed counterclaims against the Company for breach of contract, wrongful termination, breach of implied covenant of good faith and fair dealing, unjust enrichment, and indemnification. Percy also filed third-party claims against the Company’s CEO and director, Daniel Bates (“Bates”), for breach of fiduciary duty, equitable indemnity, and contribution. On December 22, 2022, the Company filed a partial motion to dismiss Percy’s counterclaims for indemnification and wrongful termination, which is pending with the federal court. On February 1, 2023, Bates filed a motion to dismiss all of Percy’s third-party claims, which is pending with the federal court.
On January 30, 2023, Leonard Tucker, LLC (“Tucker”), one of the holders of the Company’s Series B Convertible Non-Voting Preferred Stock (the “Series B Preferred Stock”) filed an action against the Company in the Second Judicial District Court of the State of Nevada (Case No. CV23-00188) alleging breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, specific performance and declaratory relief (the “Tucker Complaint”). This matter arises from the 3-year Consulting Agreement the Company entered into with Tucker on December 17, 2020 (the “Tucker Agreement”), whereby Tucker agreed to perform certain strategic and business development services to the Company in exchange for 2,000,000 shares of Series B Preferred Stock and a consulting fee of $20,000 per month. The 2,000,000 shares of Series B Preferred Stock automatically converted into 20,000,000 shares of Common Stock on January 1, 2023.
However the Company’s Transfer Agent was instructed to not issue the shares of Common Stock due to an ongoing dispute between the Company and Tucker regarding Tucker’s ability to perform the services under the Consulting Agreement due to the action filed by the United States Securities and Exchange Commission against Profile Solutions, Inc., Dan Oran and Leonard M. Tucker on September 9, 2022 in the United States District Court Southern District of Florida (Case No. 1:22-cv-22881) alleging, among other things, that Leonard Tucker violated Section 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) and Rule 10-b5.
Pursuant to the Tucker Complaint, Tucker is seeking, among other things, that the Company issue the shares of Common Stock due pursuant to the Tucker Agreement. The Company is contesting all of the allegations set forth in the Tucker Complaint.
F-37
Non-Related Party Consulting Agreements
The following is a summary of compensation related to consulting agreements in 2022.
| Stock Compensation | |||||||||||||
| Consultant | Original Contract Date | # Shares | Value | 2022 Cash Compensation | Owed as of 12/31/2022 | ||||||||
| Leonard Tucker LLC | — | $ | — | $ | $ | ||||||||
| John Shaw | $ | $ | $ | ||||||||||
| Strategic Innovations First, Inc | $ | $ | $ | ||||||||||
| Chris Galazzi | $ | $ | $ | ||||||||||
| Venkat Kumar Tangirala | $ | $ | $ | ||||||||||
| Alpen Group LLC | $ | $ | $ | ||||||||||
Leonard Tucker LLC and Strategic innovations contracts have expired in 2022. All other consulting contracts continue to be active into 2023.
NOTE 11 – INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has evaluated Staff Accounting Bulletin No. 118 regarding the impact of the decreased tax rates of the Tax Cuts & Jobs Act. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate of 21% is being used.
Net deferred tax assets consist of the following components as of December 31:
Schedule of Deferred Tax Assets and Liabilities
| 2022 | 2021 | |||||||
| Deferred Tax Assets: | ||||||||
| NOL Carryover | $ | ( | ) | $ | ( | ) | ||
| Payroll accrual | ||||||||
| Deferred tax liabilities: | ||||||||
| Less valuation allowance | ||||||||
| Net deferred tax assets | $ | $ | ||||||
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the period ended December 31, due to the following:
| 2022 | 2021 | |||||||
| Book loss | $ | ( | ) | $ | ( | ) | ||
| Other nondeductible expenses | ||||||||
| Related party accrual | ||||||||
| Valuation allowance | ||||||||
| $ | $ | |||||||
At December 31, 2022, the Company had net operating loss carry forwards of approximately $3,444,000 that may be offset against future taxable income. NOLs from tax years up to 2017 can be carried forward twenty years. Under the CARES Act, the Company can carry forward NOLs indefinitely for NOLs generated in a tax year beginning after 2017, that remain after they are carried back to tax years in the five-year carryback period. No tax benefit has been reported in the December 31, 2022, financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2016.
F-38
NOTE 12 - DISCONTINUED OPERATIONS
In accordance with the provisions of ASC 205-20, Presentation of Financial Statements, we have separately reported the liabilities of the discontinued operations in the consolidated balance sheets. The liabilities have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2022 and 2021, and consist of the following:
Disposal Groups, Including Discontinued Operations
| December 31, 2022 | December 31, 2021 | |||||||
| Current Liabilities of Discontinued Operations: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Loans payable | ||||||||
| Total Current Liabilities of Discontinued Operations: | $ | $ | ||||||
NOTE 13 – SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
On January 18, 2023, the Company appointed Bart Fisher as an independent member of the Board of Directors.
January 26, 2023, the Company issued a total of 10,500,000 shares of common stock and warrants to purchase up to 10,500,000 additional shares of common stock, to four individuals pursuant to the Signed Securities Purchase Agreements on January 26, 2023, for total cash proceeds of $210,000. The Warrants are exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance.
On February 16, 2023, the Board of Directors approved a special dividend of five shares of the Company's common stock for every one hundred shares of common stock issued and outstanding (the "Dividend"). The record date for the Dividend is February 27, 2023, and the payment date is March 13, 2023.
On February 17, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with a Schedule of Buyers. The Company has authorized a new series of senior convertible notes in the aggregate principal amount of $4,080,000, which Notes shall be convertible into shares of common stock at the lower of (a)120% of the closing price on the day prior to closing, (the “Fixed Conversion Price”) or (b) a 10% discount to the lowest daily volume weighted average price reported by Bloomberg (“VWAP”) of the Common Stock during the 10 trading days prior to the conversion date(collectively, the “Conversion Price”)
On February 17, 2023, the initial Investor of the Purchase Agreement purchased a senior convertible promissory note (the “Note”) in the original principal amount of $2,500,000 and a warrant to purchase 29,434,850 shares of the Company’s common stock. The maturity date of the Note is February 21, 2024 (the “Maturity Date”). The Note bears interest at a rate of 5% per annum. The Note carries an original issue discount of 2%. The Company may not prepay any portion of the outstanding principal amount, accrued and unpaid interest or accrued and unpaid late charges on principal and interest, if any, except as specifically permitted by the terms of the Note. The Warrant is exercisable for shares of the Company’s common stock at a price of $0.845 per share and expires five years from the date of issuance.
On February 21, 2023, Silverback Capital Corporation, fully converted its note dated March 31, 2022, with principal and interest of $360,000 and $25,723, respectively, into 19,286,137 shares of common stock.
F-39
On February 22, 2023, the Company issued 6,250,000 shares of common stock and a warrant to purchase up to an additional 6,250,000 shares of common stock, pursuant to a Signed Securities Purchase Agreement, for total cash proceeds of $125,000. The Warrant is exercisable for shares of the Company’s common stock at a price of $0.03 per share and expires three years from the date of issuance.
On February 23, 2023, the Company issued 500,000 shares of common stock to Bart Fisher, Director, for services.
On February 23, 2023, the Company issued 600,000 shares of common stock to an individual for services.
F-40
CLEAN VISION CORPORATION
Up to 820,598,246 Shares of Common Stock
The date of this prospectus is _____, 2023
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an itemized statement of the estimated amounts of all expenses payable by us in connection with the registration of the Common Stock, other than underwriting discounts and commissions. All amounts are estimates except the SEC registration fee and FINRA filing fee.
| SEC Registration Fee | $ | 2,361.04 | ||
| Accounting Fees and Expenses | $ | 5,000 | * | |
| Legal Fees and Expenses | $ | 25,000 | * | |
| Total | $ | 32,361.04 |
* Estimates.
Item 14. Indemnification of Directors and Officers.
Our bylaws provide that we may indemnify our directors, officers and employees to the fullest extent permitted by the laws of the State of Nevada. As authorized by Section 78.751 of the Nevada Revised Statutes, we may indemnify our officers and directors against expenses incurred by such persons in connection with any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, involving such persons in their capacities as officers and directors, so long as such persons acted in good faith and in a manner which they reasonably believed to be in our best interests. If the legal proceeding, however, is by or in our right, the director or officer may not be indemnified in respect of any claim, issue or matter as to which he is adjudged to be liable for negligence or misconduct in the performance of his duty to us unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director or officer (or is serving at our request as a director or officer of another corporation) for any liability asserted against such person and any expenses incurred by him in his capacity as a director or officer. These financial arrangements may include trust funds, self-insurance programs, guarantees and insurance policies.
Additionally, our Articles of Incorporation provide that any person who was or is a party or was or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (whether or not by or in the right of the Company) by reason of the fact that he is or was a director, officer, incorporator, employee, or agent of the Corporation, or is or was serving at the request of the Company as a director, officer, incorporator, employee, partner, trustee, or agent of another corporation, partnership, joint venture, trust, or other enterprise (including an employee benefit plan), is entitled to be indemnified by the Company to the full extent then permitted by law against expenses (including counsel fees and disbursements), judgments, fines (including excise taxes assessed on a person with respect to an employee benefit plan), and amounts paid in settlement incurred by him in connection with such action, suit, or proceeding and, if so requested, the Company is required to advance (within two business days of such request) any and all such expenses to the person indemnified; provided, however, that (i) the foregoing obligation of the Company does not apply to a claim that was commenced by the person indemnified without the prior approval of the Board of Directors.
Such right of indemnification continues as to a person who has ceased to be a director, officer, incorporator, employee, partner, trustee, or agent and inures to the benefit of the heirs and personal representatives of such a person. The indemnification provided by the Articles of Incorporation is not exclusive of any other rights which may be provided now or in the future under any provision of the bylaws, by any agreement, by vote of stockholders, by resolution of disinterested directors, by provisions of law, or otherwise.
Neither our Bylaws nor our Articles of Incorporation, as amended, include any specific indemnification provisions for our officers or directors against liability under the Securities Act. Additionally, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
II-1
Item 15. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three years, which would be required to be disclosed pursuant to Item 701 of Regulation S-K, except for the following:
On April 10, 2019, we issued 3,000,000 shares of Common Stock in connection with the conversion of a $250,500 loan payable.
During the year ended December 31, 2019, we issued 3,000,000 shares of Common Stock to Christopher Percy for services rendered.
During the year ended December 31, 2019, we issued 300,000 shares of Common Stock to PCG Advisory Inc. for services. The shares were valued at the closing stock price on the date of grant for total non-cash stock compensation expense of $125,500.
On April 20, 2020, we issued 2,000,000 shares of Common Stock to a consultant. The shares were valued at $0.05 for total non-cash compensation of $100,000.
On May 19, 2020, we issued 2,500,000 shares of Common Stock as consideration for an Exchange Agreement we entered into with Clean-Seas and Daniel Bates, the sole shareholder of Clean-Seas and our Chief Executive Officer.
On August 19, 2020, we issued 5,000,000 shares of Common Stock for conversion of $250,000 of a loan payable.
On July 1, 2020, we issued 3,000,000 shares of Common Stock for services. The shares were valued at $0.19 for total non-cash compensation of $380,000.
On September 17, 2020, we issued 500,000 shares of Common Stock for services. The shares were valued at the closing stock price on the date of grant of $0.11, for total non-cash compensation of $55,000.
On September 21, 2020, we issued 2,000,000 shares of Series A Redeemable Preferred Stock to 100BIO, LLC. As of March 31, 2022, all of the issued shares of Series A Redeemable Preferred Stock were cancelled and returned to the Company.
On October 20, 2020, we issued 500,000 shares of Common Stock for services. The shares were valued at the closing stock price on the date of grant of $0.105, for total non-cash compensation of $52,500.
On December 17, 2020, the Company entered into a three-year consulting agreement with Leonard Tucker LLC. Per the terms of the agreement, Leonard Tucker LLC received 2,000,000 shares of Series B Preferred Stock for services provided. The shares were valued at $0.90 for a total non-cash expense of $1,800,000.
On December 17, 2020, we issued 2,000,000 shares of Series B Preferred Stock for services provided by a consultant.
On February 1, 2021, we granted 20,000 shares of Common Stock to Mr. Ibrahim, our former Chief Technology Officer, for services. The shares were valued at $0.14 for total non-cash expense of $2,800.
On February 21, 2021, we issued 2,000,000 shares of Series C Preferred Stock to Mr. Bates for services, which shares were valued at $0.18 per share, for a total non-cash expense of $359,800.
On February 22, 2021, we issued 500,000 shares of Common Stock to Ms. Boulds for services. The shares were valued at $0.2059 for total non-cash expense of $102,950.
On September 30, 2021, we granted 160,000 shares of Common Stock to Mr. Ibrahim, former Chief Technology Officer, for services. The shares were valued at $0.10 for total non-cash expense of $14,930.
On December 16, 2021, the Company granted Michael Dorsey, Director, 500,000 shares of common stock. The shares were valued at $0.028, the closing stock price on the date of grant, for total non-cash expense of $14,000.
On December 16, 2021, the Company granted 500,000 shares of common stock to John Owen for services. The shares were valued at $0.028, the closing stock price on the date of grant, for total non-cash expense of $14,000.
II-2
During the year ended December 31, 2021, the Company issued 7,250,000 shares of Common Stock for services, for total non-cash compensation expense of $807,240.
During the year ended December 31, 2021, the Company granted 1,391,688 shares of Common Stock for services, for total non-cash compensation expense of $169,140. These shares have not yet been issued as of December 31, 2021 and are included in Common Stock to be issued.
During the year ended December 31, 2021, the Company sold 150,000,000 shares of Common Stock for total cash proceeds of $3,000,000. The shares were sold at $0.02, pursuant to the Company’s Regulation A Offering Statement qualified on June 21, 2021.
During the year ended December 31, 2021, the Company issued 53,901,860 shares of Common Stock for conversion of approximately $1,391,000 of debt.
During Q1 2022, the Company granted 1,000,000 shares of Common Stock for services, for total non-cash compensation expense of $30,800.
On April 1, 2022, the Company sold 30,000,000 shares of Common Stock to Silverback Capital Corporation for total proceeds of $600,000.
During Q2 2022, the Company issued 10,000,000 shares of Common Stock for services. The shares were valued based on the closing stock price on the date of grant for total non-cash compensation expense of $148,800.
During Q3 2022, the Company issued an aggregate of 7,500,000 shares of Common Stock for services. The shares were valued based on the closing stock price on the date of grant for an aggregate total non-cash compensation expense of $118,000.
During Q4, 2022, the Company granted 16,500,000 shares of Common Stock to officers and directors for serviced rendered.
During Q4, 2022, the Company granted 20,785,842 shares of Common Stock to various consultants and other service providers for serviced rendered.
During Q4, 2022, the Company’s transfer agent issued 3,925,039 shares of Common Stock that had been granted and accounted for prior to Q4 2022.
Pursuant to the terms of a securities purchase agreement, the Company issued 15,500,000 shares of its Common Stock to an accredited investor December 9, 2022.
On January 26, 2023, the Company issued a total of 10,500,000 shares of Common Stock and warrants to purchase up to 10,500,000 additional shares of Common Stock, to four individuals pursuant to the Signed Securities Purchase Agreements on January 26, 2023, for total cash proceeds of $210,000. The Warrants are exercisable for shares of the Company’s Common Stock at a price of $0.03 per share and expires three years from the date of issuance.
On February 22, 2023, the Company issued 6,250,000 shares of Common Stock and warrants to purchase up to 6,250,000 additional shares of Common Stock, to an individual pursuant to the Signed Securities Purchase Agreement, for total cash proceeds of $125,000. The Warrants are exercisable for shares of the Company’s Common Stock at a price of $0.03 per share and expires three years from the date of issuance.
On January 30, 2023, the Company granted 1,000,000 shares of Common Stock for services. The shares were valued at $0.063, the closing stock price on the date of grant, for total non-cash compensation expense of $62,800.
On February 16, 2023, the Board of Directors approved a special dividend of five shares of Common Stock for every one hundred shares of Common Stock issued and outstanding (the "Dividend"). The record date for the Dividend is February 27, 2023, and the payment date is March 13, 2023. The shares were valued at $0.068, for a total value of $1,483,582, which has been debited to the accumulated deficit.
II-3
On February 21, 2023, Silverback Capital Corporation, fully converted its note dated March 31, 2022, with principal and interest of $360,000 and $25,723, respectively, into 19,286,137 shares of Common Stock.
On February 23, 2023, the Company granted 600,000 shares of Common Stock for services. The shares were valued at $0.122, the closing stock price on the date of grant, for total non-cash compensation expense of $73,200.
On February 23, 2023. Mr. Fisher was granted 500,000 shares of Common Stock. The shares were valued at $0.122, the closing stock price on the date of grant, for total non-cash stock compensation of $61,000.
On March 7, 2023, the Company granted 850,000 shares of Common Stock for services. The shares were valued at $0.068, the closing stock price on the date of grant, for total non-cash compensation expense of $57,375.
On March 17, 2023, the Company granted 3,000,000 shares of Common Stock for services. The shares were valued at $0.065, the closing stock price on the date of grant, for total non-cash compensation expense of $194,400.
From April 2023 through July 7, 2023, Walleye Opportunities Master Fund Ltd, converted $1,270,184 of the principal into 50,450,000 shares of Common Stock.
On July 6, 2023, the Company issued 430,000 shares of Common Stock for services.
On July 7, 2023, Walleye Opportunities Master Fund Ltd, converted $532,500 of the promissory notes it purchased pursuant to the February Purchase Agreement into 25,000,000 shares of Common Stock.
On July 24, 2023, the Company issued 6,000,000 shares of Common Stock for services.
On July 24, 2023, the Company issued 5,725,000 shares of Common Stock for conversion of a loan payable in the amount $114,500.
On July 31, 2023 the Company entered into August Purchase Agreement, pursuant to which the August Investor purchased the August Note in the original principal amount of $500,000 August Note. In addition, as an additional inducement to the August Investor for purchasing the August Note, the Company issued 21,000,000 Inducement Shares to the August Investor at the closing on August 4, 2023.
The use of proceeds associated with the above listed sales of unregistered securities was for general working capital purposes.
The issuances and grants described above were exempt from registration pursuant to Section 4(a)(2), and/or Rule 506 of Regulation D of the Securities Act, since the foregoing issuances and grants did not involve a public offering, the recipients took the securities for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients were (a) “accredited investors”; (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act; and/or (c) were officers or directors of the Company. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
The issuance of Common Stock upon conversion of notes described above were exempt pursuant to Section 3(a)(9) of the Securities Act, as no commission or other remuneration was paid or given directly or indirectly for soliciting the exchanges and the Company did not receive any compensation for the issuance of the shares of Common Stock in connection with such conversions.
II-4
Item 16. Exhibits
(a) The exhibits listed in the following Exhibit Index are filed as part of this Registration Statement.
II-5
| * | Filed herewith |
| ** | To be filed by amendment. |
| † | Management contract or compensatory plan or arrangement. |
| + | Previously filed. |
II-6
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers, or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(6) That, for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
II-7
(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(7) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Manhattan Beach, California on September 15, 2023.
|
CLEAN VISION CORPORATION
| ||
| By: | /s/ Daniel Bates | |
| Name: | Daniel Bates | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Daniel Bates | Chief Executive Officer, President and Director | September 15, 2023 | ||
| Daniel Bates | (Principal Executive Officer) | |||
| * | Chief Financial Officer | September 15, 2023 | ||
| Rachel Boulds | (Principal Financial Officer) | |||
| * | Director | September 15, 2023 | ||
| Dr. Michael Dorsey | ||||
| * | Director | September 15, 2023 | ||
| Gregg Michael Boehmer | ||||
| * | Director | September 15, 2023 | ||
| Bart Fisher |
| * By: | /s/ Daniel Bates | |
| Daniel Bates, Attorney-in-fact |
II-9
Exhibit 4.6
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 17(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”). PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), DANIEL BATES, A REPRESENTATIVE OF THE COMPANY HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUANCE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i). DANIEL BATES MAY BE REACHED AT TELEPHONE NUMBER (424) 835-1845.
Clean Vision Corporation
Senior Convertible Note
| Issuance Date: April 10, 2023 | Original Principal Amount: U.S. $1,500,000 |
FOR VALUE RECEIVED, Clean Vision Corporation, a Nevada corporation (the “Company”), hereby promises to pay to the order of Walleye Opportunities Master Fund Ltd. or its registered assigns (“Holder”) the amount set forth above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date, or upon acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set forth above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date or upon acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Senior Convertible Note (including all Senior Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior Convertible Notes issued pursuant to the Securities Purchase Agreement, dated as of February 17, 2023 (the “Subscription Date”), by and among the Company and the investors (the “Buyers”) referred to therein, as amended from time to time (collectively, the “Notes”, and such other Senior Convertible Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 30.
1. PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 23(c)) on such Principal and Interest. Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.
2. INTEREST; INTEREST RATE.
(a) Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day months and shall be payable in arrears for on the first calendar day of each calendar month (each, an “Interest Date”) with the first Interest Date being 30 days after the Issuance Date. Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable Interest Date, in shares of Common Stock (“Interest Shares”) so long as there has been no Equity Conditions Failure; provided however, that the Company may, at its option following notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in a combination of Cash Interest and Interest Shares. The Company shall deliver a written notice (each, an “Interest Election Notice”) to each holder of the Notes on or prior to the Interest Notice Due Date (the date such notice is delivered to all of the holder, the “Interest Notice Date”) which notice (i) either (A) confirms that Interest to be paid on such Interest Date shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination of Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash Interest and the amount of Interest, if any, that shall be paid in Interest Shares and (ii) certifies that there has been no Equity Conditions Failure. If an Equity Conditions Failure has occurred as of the Interest Notice Date, then unless the Company has elected to pay such Interest as Cash Interest, the Interest Notice shall indicate that unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Notwithstanding anything herein to the contrary, if no Equity Conditions Failure has occurred as of the Interest Notice Date but an Equity Conditions Failure occurs at any time prior to the Interest Date, (A) the Company shall provide the Holder a subsequent notice to that effect and (B) unless the Holder waives the Equity Conditions Failure, the Interest shall be paid in cash. Interest to be paid on an Interest Date in Interest Shares shall be paid in a number of fully paid and nonassessable shares (rounded to the nearest whole share in accordance with Section 3(a)) of Common Stock equal to the quotient of (1) the amount of Interest payable on such Interest Date less any Cash Interest paid and (2) the Alternate Conversion Price in effect on the applicable Interest Date.
(b) When any Interest Shares are to be paid on an Interest Date, the Company shall (i) (A) provided that the Company’s transfer agent (the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of Interest Shares to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver on the applicable Interest Date, to the address set forth in the register maintained by the Company for such purpose pursuant to the Securities Purchase Agreement or to such address as specified by the Holder in writing to the Company at least two (2) Business Days prior to the applicable Interest Date, a certificate, registered in the name of the Holder or its designee, for the number of Interest Shares to which the Holder shall be entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash by wire transfer of immediately available funds, the amount of any Cash Interest.
(c) Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amount on each Conversion Date in accordance with Section 3(b)(i) or upon any redemption in accordance with Section 10 or any required payment upon any Bankruptcy Event of Default. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate shall automatically be increased to fifteen percent (15.0%) per annum (the “Default Rate”). In the event that such Event of Default is subsequently cured (and no other Event of Default then exists, including, without limitation, for the Company’s failure to pay such Interest at the Default Rate on the applicable Interest Date), the adjustment referred to in the preceding sentence shall cease to be effective as of the calendar day immediately following the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default.
3. CONVERSION OF NOTES. At any time after the Issuance Date, this Note shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock (as defined below), on the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into validly issued, fully paid and non-assessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance and similar taxes, costs and expenses (including, without limitation, fees and expenses of the Transfer Agent (as defined below)) that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).
(i) “Conversion Amount” means the sum of ( portion of the Principal of this Note to be converted, redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal of this Note, (D) accrued and unpaid Late Charges with respect to such Principal of this Note and Interest, and (E) any other unpaid amounts pursuant to the Transaction Documents, if any.
(ii) “Conversion Price” means, as of any Conversion Date or other date of determination, $0.78, subject to adjustment as provided herein.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall deliver (whether via electronic mail or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (each, a “Conversion Notice”) to the Company. If required by Section 3(c)(iii), within two (2) Trading Days following a conversion of this Note as aforesaid, the Holder shall surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction as contemplated by Section 18(b)). On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by electronic mail an acknowledgment, in the form attached hereto as Exhibit II, of confirmation of receipt of such Conversion Notice and representation as to whether such shares of Common Stock may then be resold pursuant to Rule 144 or an effective and available registration statement (each, an “Acknowledgement”) to the Holder and the Transfer Agent which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. On or before the second (2nd) Trading Day following the date on which the Company has received a Conversion Notice (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade initiated on the applicable Conversion Date of such shares of Common Stock issuable pursuant to such Conversion Notice) (the “Share Delivery Deadline”), the Company shall (1) provided that the Transfer Agent is participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program (“FAST”), credit such aggregate number of shares of Common Stock to which the Holder shall be entitled pursuant to such conversion to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not participating in FAST, upon the request of the Holder, issue and deliver (via reputable overnight courier) to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled pursuant to such conversion. If this Note is physically surrendered for conversion pursuant to Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than two (2) Business Days after receipt of this Note and at its own expense, issue and deliver to the Holder (or its designee) a new Note (in accordance with Section 17(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. Notwithstanding anything to the contrary contained in this Note or the Registration Rights Agreement, after the effective date of the Registration Statement (as defined in the Registration Rights Agreement) and prior to the Holder’s receipt of the notice of a Grace Period (as defined in the Registration Rights Agreement), the Company shall cause the Transfer Agent to deliver unlegended shares of Common Stock to the Holder (or its designee) in connection with any sale of Registrable Securities (as defined in the Registration Rights Agreement) with respect to which the Holder has entered into a contract for sale, and delivered a copy of the prospectus included as part of the particular Registration Statement to the extent applicable, and for which the Holder has not yet settled.
(ii) Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, on or prior to the applicable Share Delivery Deadline, either (I) if the Transfer Agent is not participating in FAST, to issue and deliver to the Holder (or its designee) a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in FAST, to credit the balance account of the Holder or the Holder’s designee with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of this Note (as the case may be) or (II) if the Registration Statement covering the resale of the shares of Common Stock that are the subject of the Conversion Notice (the “Unavailable Conversion Shares”) is not available for the resale of such Unavailable Conversion Shares and the Company fails to promptly, but in no event later than as required pursuant to the Registration Rights Agreement (x) so notify the Holder and (y) deliver the shares of Common Stock electronically without any restrictive legend by crediting such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such conversion to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a “Notice Failure” and together with the event described in clause (I) above, a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (1) the Company shall pay in cash to the Holder on each day after such Share Delivery Deadline that the issuance of such shares of Common Stock is not timely effected an amount equal to 2% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Deadline and to which the Holder is entitled, multiplied by (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the applicable Conversion Date and ending on the applicable Share Delivery Deadline and (2) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any portion of this Note that has not been converted pursuant to such Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if on or prior to the Share Delivery Deadline either (A) if the Transfer Agent is not participating in FAST, the Company shall fail to issue and deliver to the Holder (or its designee) a certificate and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in FAST, the Transfer Agent shall fail to credit the balance account of the Holder or the Holder’s designee with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder or pursuant to the Company’s obligation pursuant to clause (II) below or (B) a Notice Failure occurs, and if on or after such Share Delivery Deadline the Holder acquires (in an open market transaction, stock loan or otherwise) shares of Common Stock corresponding to all or any portion of the number of shares of Common Stock issuable upon such conversion that the Holder is entitled to receive from the Company and has not received from the Company in connection with such Conversion Failure or Notice Failure, as applicable (a “Buy-In”), then, in addition to all other remedies available to the Holder, the Company shall, within two (2) Business Days after receipt of the Holder’s request and in the Holder’s discretion, either: (I) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, stock loan costs and other out-of-pocket expenses, if any) for the shares of Common Stock so acquired (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate (and to issue such shares of Common Stock) or credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (II) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (x) such number of shares of Common Stock multiplied by (y) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (II) (the “Buy-In Payment Amount”). Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the conversion of this Note as required pursuant to the terms hereof.
(iii) Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of each Note and the principal amount of the Notes held by such holders (the “Registered Notes”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes (including, without limitation, the right to receive payments of Principal and Interest hereunder) notwithstanding notice to the contrary. A Registered Note may be assigned, transferred or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a written request to assign, transfer or sell all or part of any Registered Note by the holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 17, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of all or part of any Registered Note within two (2) Business Days of such a request, then the Register shall be automatically deemed updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary set forth in this Section 3, following conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted (in which event this Note shall be delivered to the Company following conversion thereof as contemplated by Section 3(c)(i)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges converted and/or paid (as the case may be) and the dates of such conversions, and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. If the Company does not update the Register to record such Principal, Interest and Late Charges converted and/or paid (as the case may be) and the dates of such conversions, and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence.
(iv) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted on such date a pro rata amount of such holder’s portion of its Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 22.
(d) Limitations on Conversions. The Company shall not effect the conversion of any portion of this Note, and the Holder shall not have the right to convert any portion of this Note pursuant to the terms and conditions of this Note and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion, the Holder together with the other Attribution Parties collectively would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants, including, without limitation, the Warrants) beneficially owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 3(d)(i). For purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the conversion of this Note without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice by the Company or the Transfer Agent, if any, setting forth the number of shares of Common Stock outstanding (the “Reported Outstanding Share Number”). If the Company receives a Conversion Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise cause the Holder’s beneficial ownership, as determined pursuant to this Section 3(d)(i), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of shares of Common Stock to be purchased pursuant to such Conversion Notice. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon conversion of this Note results in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which the Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase (with such increase not effective until the sixty-first (61st) day after delivery of such notice) or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of Notes that is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this Note in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to convert this Note pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d)(i) to the extent necessary to correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 3(d)(i) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Note.
(e) Right of Alternate Conversion.
(i) General.
(1) Alternate Optional Conversion. Subject to Section 3(d), at any time, at the option of the Holder, the Holder may convert (each, an “Alternate Optional Conversion”, and the date of such Alternate Optional Conversion, an “Alternate Optional Conversion Date”) all, or any part, of this Note into shares of Common Stock (such portion of the Conversion Amount subject to such Alternate Optional Conversion, the “Alternate Optional Conversion Amount”) at the Alternate Conversion Price.
(2) Alternate Conversion Upon an Event of Default. Subject to Section 3(d), at any time after the occurrence of an Event of Default (regardless of whether such Event of Default has been cured, or if the Company has delivered an Event of Default Notice to the Holder or if the Holder has delivered an Event of Default Redemption Notice to the Company or otherwise notified the Company that an Event of Default has occurred), the Holder may, at the Holder’s option, convert (each, an “Alternate Event of Default Conversion” and together with each Alternate Optional Conversion, each, an “Alternate Conversion”, and the date of such Alternate Event of Default Conversion, each, an “Alternate Event of Default Conversion Date”, and together with each Alternate Optional Conversion Date, each, an “Alternate Conversion Date”) all, or any part of, the Conversion Amount (such portion of the Conversion Amount subject to such Alternate Conversion, the “Alternate Event of Default Conversion Amount” and together with each Alternate Optional Conversion Amount, each, an “Alternate Conversion Amount”) into shares of Common Stock at the Alternate Conversion Price.
(ii) Mechanics of Alternate Conversion. On any Alternate Conversion Date, the Holder may voluntarily convert any Alternate Conversion Amount pursuant to Section 3(c) (with “Alternate Conversion Price” replacing “Conversion Price” for all purposes hereunder with respect to such Alternate Conversion and, solely with respect to the calculation of the number of shares of Common Stock issuable upon conversion of any Conversion Amount in an Alternate Event of Default Conversion, with “Redemption Premium of the Conversion Amount” replacing “Conversion Amount” in clause (x) of the definition of Conversion Rate above with respect to such Alternate Conversion) by designating in the Conversion Notice delivered pursuant to this Section 3(e) of this Note that the Holder is electing to use the Alternate Conversion Price for such conversion; provided that in the event of the Conversion Floor Price Condition, on the applicable Alternate Conversion Date the Company shall also deliver to the Holder the applicable Alternate Conversion Floor Amount. Notwithstanding anything to the contrary in this Section 3(e), but subject to Section 3(d), until the Company delivers shares of Common Stock representing the applicable Alternate Conversion Amount to the Holder, such Alternate Conversion Amount may be converted by the Holder into shares of Common Stock pursuant to Section 3(c) without regard to this Section 3(e).
4. RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. The occurrence and continuance of each of the following events shall constitute an “Event of Default” and each of the events in clauses (ix), (x) and (xi) shall constitute a “Bankruptcy Event of Default”:
(i) the failure of the applicable Registration Statement (as defined in the Registration Rights Agreement) to be filed with the SEC on or prior to the date that is five (5) days after the applicable Filing Deadline (as defined in the Registration Rights Agreement) or the failure of the applicable Registration Statement to be declared effective by the SEC on or prior to the date that is five (5) days after the applicable Effectiveness Deadline (as defined in the Registration Rights Agreement);
(ii) while the applicable Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the applicable Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or such Registration Statement (or the prospectus contained therein) is unavailable to any holder of Registrable Securities (as defined in the Registration Rights Agreement) for sale of all of such holder’s Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive days or for more than an aggregate of ten (10) days in any 365-day period (excluding days during an Allowable Grace Period (as defined in the Registration Rights Agreement));
(iii) the suspension (or threatened suspension) from trading or the failure (or threatened failure) of the Common Stock to be trading or listed (as applicable) on an Eligible Market for a period of five (5) consecutive Trading Days;
(iv) the Company’s (A) failure to cure a Conversion Failure or a Delivery Failure (as defined in the Warrants) by delivery of the required number of shares of Common Stock within five (5) Trading Days after the applicable Conversion Date or exercise date (as the case may be) or (B) notice, written or oral, to any holder of the Notes or Warrants, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of any Notes into shares of Common Stock that is requested in accordance with the provisions of the Notes, other than pursuant to Section 3(d), or a request for exercise of any Warrants for shares of Common Stock in accordance with the provisions of the Warrants;
(v) except to the extent the Company is in compliance with Section 9(b) below, at any time following the tenth (10th) consecutive day that the Holder’s Authorized Share Allocation (as defined in Section 9(a) below) is less than the sum of (A) the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise), and (B) the number of shares of Common Stock that the Holder would be entitled to receive upon exercise in full of the Holder’s Warrants (without regard to any limitations on exercise set forth in the Warrants);
(vi) the Company’s or any Subsidiary’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note (including, without limitation, the Company’s or any Subsidiary’s failure to pay any redemption payments or amounts hereunder) or any other Transaction Document (as defined in the Securities Purchase Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure remains uncured for a period of at least two (2) Trading Days;
(vii) the Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the Holder upon conversion or exercise (as the case may be) of any Securities (as defined in the Securities Purchase Agreement) acquired by the Holder under the Securities Purchase Agreement (including this Note) as and when required by such Securities or the Securities Purchase Agreement, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) days;
(viii) the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $100,000 of Indebtedness (as defined in the Securities Purchase Agreement) of the Company or any of its Subsidiaries, other than with respect to any Other Notes;
(ix) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed within thirty (30) days of their initiation;
(x) the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;
(xi) the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;
(xii) a final judgment or judgments for the payment of money aggregating in excess of $100,000 are rendered against the Company and/or any of its Subsidiaries and which judgments are not, within forty-five (45) days after the entry thereof, bonded, discharged, settled or stayed pending appeal, or are not discharged within forty-five (45) days after the expiration of such stay; provided, however, any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $100,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within forty-five (45) days of the issuance of such judgment;
(xiii) the Company and/or any Subsidiary, individually or in the aggregate, either (i) fails to pay, when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $100,000 due to any third party (other than, with respect to unsecured Indebtedness only, payments contested by the Company and/or such Subsidiary (as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $100,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely to have a material adverse effect on the business, assets, operations (including results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate;
(xiv) other than as specifically set forth in another clause of this Section 4(a), the Company or any Subsidiary breaches any representation or warranty, or any covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of two (2) consecutive Trading Days;
(xv) a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that either (A) the Equity Conditions are satisfied, (B) there has been no Equity Conditions Failure, or (C) as to whether any Event of Default has occurred;
(xvi) any breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 12 of this Note;
(xvii) any Material Adverse Effect (as defined in the Securities Purchase Agreement) occurs;
(xviii) any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes.
(b) Notice of an Event of Default; Redemption Right. Upon the occurrence of an Event of Default with respect to this Note or any Other Note, the Company shall within one (1) Business Day deliver written notice thereof via electronic mail and overnight courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder.
At any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem (regardless of whether such Event of Default has been cured) all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) the Redemption Premium and (ii) the product of (X) the Conversion Rate with respect to the Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice multiplied by (Y) the product of (1) the Redemption Premium multiplied by (2) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Event of Default and ending on the date the Company makes the entire payment required to be made under this Section 4(b) (the “Event of Default Redemption Price”). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 3(e), but subject to Section 3(d), until the Event of Default Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) (together with any Late Charges thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to the terms of this Note. In the event of the Company’s redemption of any portion of this Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty. Any redemption upon an Event of Default shall not constitute an election of remedies by the Holder, and all other rights and remedies of the Holder shall be preserved.
(c) Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Event of Default, whether occurring prior to or following the Maturity Date, the Company shall immediately pay to the Holder an amount in cash representing (i) all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges on such Principal and Interest, multiplied by (ii) the Redemption Premium, in addition to any and all other amounts due hereunder, without the requirement for any notice or demand or other action by the Holder or any other person or entity, provided that the Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Event of Default, in whole or in part, and any such waiver shall not affect any other rights of the Holder hereunder, including any other rights in respect of such Bankruptcy Event of Default, any right to conversion, and any right to payment of the Event of Default Redemption Price or any other Redemption Price, as applicable.
5. RIGHTS UPON FUNDAMENTAL TRANSACTION.
(a) Assumption. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of the Notes held by such holder, having similar conversion rights as the Notes and having similar ranking and security to the Notes, and satisfactory to the Holder and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of such Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 6 and 14, which shall continue to be receivable thereafter)) issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note), as adjusted in accordance with the provisions of this Note. Notwithstanding the foregoing, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 5(a) to permit the Fundamental Transaction without the assumption of this Note. The provisions of this Section 5 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.
(b) Notice of a Change of Control; Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control (the “Change of Control Date”), but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via electronic mail and overnight courier to the Holder (a “Change of Control Notice”). At any time during the period beginning after the Holder’s receipt of a Change of Control Notice or the Holder becoming aware of a Change of Control if a Change of Control Notice is not delivered to the Holder in accordance with the immediately preceding sentence (as applicable) and ending on twenty (20) Trading Days after the later of (A) the date of consummation of such Change of Control or (B) the date of receipt of such Change of Control Notice or (C) the date of the announcement of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the Company in cash at a price equal to the greatest of (i) the product of (w) the Change of Control Redemption Premium multiplied by (y) the Conversion Amount being redeemed, (ii) the product of (x) the Change of Control Redemption Premium multiplied by (y) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable Change of Control and (2) the public announcement of such Change of Control and ending on the date the Holder delivers the Change of Control Redemption Notice by (II) the Conversion Price then in effect and (iii) the product of (y) the Change of Control Redemption Premium multiplied by (z) the product of (A) the Conversion Amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to the holders of the shares of Common Stock upon consummation of such Change of Control (any such non-cash consideration constituting publicly-traded securities shall be valued at the highest of the Closing Sale Price of such securities as of the Trading Day immediately prior to the consummation of such Change of Control, the Closing Sale Price of such securities on the Trading Day immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of such securities on the Trading Day immediately prior to the public announcement of such proposed Change of Control) divided by (II) the Conversion Price then in effect (the “Change of Control Redemption Price”). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders in connection with such Change of Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with any Late Charges thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. In the event of the Company’s redemption of any portion of this Note under this Section 5(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.
6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) Purchase Rights. In addition to any adjustments pursuant to Sections 7 or 15 below, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note and assuming for such purpose that the Note was converted at the Alternate Conversion Price as of the applicable record date) immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to the extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to the extent of any such excess) and such Purchase Right to such extent shall be held in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable) for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable)) to the same extent as if there had been no such limitation).
(b) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to ensure that the Holder will thereafter have the right to receive upon a conversion of this Note, at the Holder’s option (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Holder. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.
7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Subscription Date the Company grants, issues or sells (or enters into any agreement to grant, issue or sell), or in accordance with this Section 7(a) is deemed to have granted, issued or sold, any shares of Common Stock (including the granting, issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities granted, issued or sold or deemed to have been granted, issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such granting, issuance or sale or deemed granting, issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Conversion Price and the New Issuance Price under this Section 7(a)), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants, issues or sells (or enters into any agreement to grant, issue or sell) any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting, issuance or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration (including, without limitation, consideration consisting of cash, debt forgiveness, assets or any other property) received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells (or enters into any agreement to issue or sell) any Convertible Securities and the lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale (or the time of execution of such agreement to issue or sell, as applicable) of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale (or pursuant to the agreement to issue or sell, as applicable) of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale (or the agreement to issue or sell, as applicable) of such Convertible Security plus the value of any other consideration received or receivable (including, without limitation, any consideration consisting of cash, debt forgiveness, assets or other property) by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 7(b) below), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security (including, without limitation, any Option or Convertible Security that was outstanding as of the Subscription Date) are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Holder, the “Primary Security”, and such Option and/or Convertible Security and/or Adjustment Right, the “Secondary Securities”), together comprising one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued (or was deemed to be issued pursuant to Section 7(a)(i) or 7(a)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 7(a)(iv). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Section 6, Section 14 or Section 7(a), if the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Section 6, Section 14 or Section 7(a), if the Company at any time on or after the Subscription Date combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(b) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(b) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
(c) Holder’s Right of Adjusted Conversion Price. In addition to and not in limitation of the other provisions of this Section 7, if the Company in any manner issues or sells or enters into any agreement to issue or sell, any Common Stock, Options or Convertible Securities (any such securities, “Variable Price Securities”), after the Subscription Date that are issuable pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock at a price which varies or may vary with the market price of the shares of Common Stock, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution provisions (such as share splits, share combinations, share dividends and similar transactions) (each of the formulations for such variable price being herein referred to as, the “Variable Price”), the Company shall provide written notice thereof via electronic mail and overnight courier to the Holder on the date of such agreement and the issuance of such Common Stock, Convertible Securities or Options. From and after the date the Company enters into such agreement or issues any such Variable Price Securities, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Conversion Price upon conversion of this Note by designating in the Conversion Notice delivered upon any conversion of this Note that solely for purposes of such conversion the Holder is relying on the Variable Price rather than the Conversion Price then in effect. The Holder’s election to rely on a Variable Price for a particular conversion of this Note shall not obligate the Holder to rely on a Variable Price for any future conversion of this Note.
(d) Stock Combination Event Adjustments. If at any time and from time to time on or after the Subscription Date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (each, a “Stock Combination Event”, and such date thereof, the “Stock Combination Event Date”) and the Event Market Price is less than the Conversion Price then in effect (after giving effect to the adjustment in Section 7(b) above), then on the sixteenth (16th) Trading Day immediately following such Stock Combination Event Date, the Conversion Price then in effect on such sixteenth (16th) Trading Day (after giving effect to the adjustment in Section 7(b) above) shall be reduced (but in no event increased) to the Event Market Price. For the avoidance of doubt, if the adjustment in the immediately preceding sentence would otherwise result in an increase in the Conversion Price hereunder, no adjustment shall be made.
(e) Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 7(e) will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error and whose fees and expenses shall be borne by the Company.
(f) Calculations. All calculations under this Section 7 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
(g) Voluntary Adjustment by Company. Subject to the rules and regulations of the Principal Market, the Company may at any time during the term of this Note, with the prior written consent of the Required Holders (as defined in the Securities Purchase Agreement), reduce the then current Conversion Price of each of the Notes to any amount and for any period of time deemed appropriate by the board of directors of the Company.
8. REDEMPTIONS AT THE COMPANY’S ELECTION.
(a) Company Optional Redemption. At any time, the Company shall have the right to redeem all, but not less than all, of the Conversion Amount then remaining under this Note (the “Company Optional Redemption Amount”) on the Company Optional Redemption Date (each as defined below) (a “Company Optional Redemption”). The portion of this Note subject to redemption pursuant to this Section 7(h) shall be redeemed by the Company in cash at a price (the “Company Optional Redemption Price”) equal to the greater of (i) 120% of the Conversion Amount being redeemed as of the Company Optional Redemption Date and (ii) the product of (1) the Conversion Rate with respect to the Conversion Amount being redeemed as of the Company Optional Redemption Date multiplied by (2) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Company Optional Redemption Notice Date and ending on the Trading Day immediately prior to the date the Company makes the entire payment required to be made under this Section 7(h). The Company may exercise its right to require redemption under this Section 7(h) by delivering a written notice thereof by electronic mail and overnight courier to all, but not less than all, of the holders of Notes (the “Company Optional Redemption Notice” and the date all of the holders of Notes received such notice is referred to as the “Company Optional Redemption Notice Date”). The Company may deliver only one Company Optional Redemption Notice hereunder and such Company Optional Redemption Notice shall be irrevocable. The Company Optional Redemption Notice shall (x) state the date on which the Company Optional Redemption shall occur (the “Company Optional Redemption Date”) which date shall not be less than ten (10) Trading Days nor more than thirty (30) Trading Days following the Company Optional Redemption Notice Date, and (y) state the aggregate Conversion Amount of the Notes which is being redeemed in such Company Optional Redemption from the Holder and all of the other holders of the Notes pursuant to this Section 7(h) (and analogous provisions under the Other Notes) on the Company Optional Redemption Date). Notwithstanding anything herein to the contrary, at any time prior to the date the Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part, by the Holder into shares of Common Stock pursuant to Section 3. All Conversion Amounts converted by the Holder after the Company Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of this Note required to be redeemed on the Company Optional Redemption Date. Redemptions made pursuant to this Section 7(h) shall be made in accordance with Section 10. In the event of the Company’s redemption of any portion of this Note under this Section 7(h), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 7(h) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty. Notwithstanding the foregoing, the Company shall have no right to effect a Company Optional Redemption if any Event of Default has occurred and continuing, but any Event of Default shall have no effect upon the Holder’s right to convert this Note in its discretion.
(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption of this Note pursuant to Section 7(h), then it must simultaneously take the same action with respect to all of the Other Notes.
9. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. Without limiting the generality of the foregoing or any other provision of this Note or the other Transaction Documents, the Company (a) shall not increase the par value of any shares of Common Stock receivable upon conversion of this Note above the Conversion Price then in effect, and (b) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the conversion of this Note. Notwithstanding anything herein to the contrary, if after the sixty (60) calendar day anniversary of the Issuance Date, the Holder is not permitted to convert this Note in full for any reason (other than pursuant to restrictions set forth in Section 3(d) hereof), the Company shall use its best efforts to promptly remedy such failure, including, without limitation, obtaining such consents or approvals as necessary to permit such conversion into shares of Common Stock.
10. RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. So long as any Notes remain outstanding, the Company shall at all times reserve at least 200% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion, including without limitation, Alternate Conversions, of all of the Notes then outstanding (without regard to any limitations on conversions and assuming such Notes remain outstanding until the Maturity Date) at the Alternate Conversion Price then in effect (the “Required Reserve Amount”). The Required Reserve Amount (including, without limitation, each increase in the number of shares so reserved) shall be allocated pro rata among the holders of the Notes based on the original principal amount of the Notes held by each holder on the Closing Date or increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer any of such holder’s Notes, each transferee shall be allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If, notwithstanding Section 9(a), and not in limitation thereof, at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. In the event that the Company is prohibited from issuing shares of Common Stock pursuant to the terms of this Note due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorized Failure Shares”), in lieu of delivering such Authorized Failure Shares to the Holder, the Company shall pay cash in exchange for the redemption of such portion of the Conversion Amount convertible into such Authorized Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorized Failure Shares and (y) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date the Holder delivers the applicable Conversion Notice with respect to such Authorized Failure Shares to the Company and ending on the date of such issuance and payment under this Section 9(a); and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorized Failure Shares, any brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith. Nothing contained in Section 9(a) or this Section 9(b) shall limit any obligations of the Company under any provision of the Securities Purchase Agreement.
11. REDEMPTIONS.
(a)
Mechanics. The Company shall deliver the applicable Event of Default Redemption Price to the Holder in cash within five (5) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change of Control Redemption Price to the Holder in cash concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company’s receipt of such notice otherwise. The Company shall deliver the applicable Company Optional Redemption Price to the Holder in cash on the applicable Company Optional Redemption Date. Notwithstanding anything herein to the contrary, in connection with any redemption hereunder at a time the Holder is entitled to receive a cash payment under any of the other Transaction Documents, at the option of the Holder delivered in writing to the Company, the applicable Redemption Price hereunder shall be increased by the amount of such cash payment owed to the Holder under such other Transaction Document and, upon payment in full or conversion in accordance herewith, shall satisfy the Company’s payment obligation under such other Transaction Document. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 17(d)), to the Holder, and in each case the principal amount of this Note or such new Note (as the case may be) shall be increased by an amount equal to the difference between (1) the applicable Redemption Price (as the case may be, and as adjusted pursuant to this Section 10, if applicable) minus (2) the Principal portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of this Note or such new Notes (as the case may be) shall be automatically adjusted with respect to each conversion effected thereafter by the Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided and (C) 75% of the quotient of (I) the sum of the five (5) lowest VWAPs of the Common Stock during the twenty (20) consecutive Trading Day period ending and including the applicable Conversion Date divided by (II) five (5) (it being understood and agreed that all such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period). The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company’s receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile or electronic mail a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is two (2) Business Days prior to the Company’s receipt of the Holder’s applicable Redemption Notice and ending on and including the date which is two (2) Business Days after the Company’s receipt of the Holder’s applicable Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven (7) Business Day period.
12. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation, Chapter 78 of the Nevada Revised Statute) and as expressly provided in this Note.
13. COVENANTS. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms:
(a) Rank. All payments due under this Note (a) shall rank pari passu with all Other Notes and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries (other than Permitted Senior Indebtedness secured by Permitted Liens).
(b) Incurrence of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by this Note and the Other Notes and (ii) other Permitted Indebtedness).
(c) Existence of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.
(d) Restricted Payments and Investments. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than the Notes) whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness or make any Investment, as applicable, if at the time such payment with respect to such Indebtedness and/or Investment, as applicable, is due or is otherwise made or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing or (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing.
(e) Restriction on Redemption and Cash Dividends. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or cash distribution on any of its capital stock.
(f) Restriction on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close, convey or otherwise dispose of any assets or rights of the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Company and its Subsidiaries in the ordinary course of business consistent with its past practice and (ii) sales of inventory and product in the ordinary course of business.
(g) Maturity of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, permit any Indebtedness of the Company or any of its Subsidiaries to mature or accelerate prior to the Maturity Date.
(h) Change in Nature of Business. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Company and each of its Subsidiaries on the Subscription Date or any business substantially related or incidental thereto. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, modify its or their corporate structure or purpose.
(i) Preservation of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
(j) Maintenance of Properties, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.
(k) Maintenance of Intellectual Property. The Company will, and will cause each of its Subsidiaries to, take all action necessary or advisable to maintain all of the Intellectual Property Rights (as defined in the Securities Purchase Agreement) of the Company and/or any of its Subsidiaries that are necessary or material to the conduct of its business in full force and effect.
(l) Maintenance of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated.
(m) Transactions with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any affiliate, except transactions in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm’s length transaction with a Person that is not an affiliate thereof.
(n) Restricted Issuances. The Company shall not, directly or indirectly, without the prior written consent of the holders of a majority in aggregate principal amount of the Notes then outstanding, (i) issue any Notes (other than as contemplated by the Securities Purchase Agreement and the Notes) or (ii) issue any other securities that would cause a breach or default under the Notes or the Warrants.
(o) Stay, Extension and Usury Laws. To the extent that it may lawfully do so, the Company (A) agrees that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law (wherever or whenever enacted or in force) that may affect the covenants or the performance of this Note; and (B) expressly waives all benefits or advantages of any such law and agrees that it will not, by resort to any such law, hinder, delay or impede the execution of any power granted to the Holder by this Note, but will suffer and permit the execution of every such power as though no such law has been enacted.
(p) Taxes. The Company and its Subsidiaries shall pay when due all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against the Company and its Subsidiaries or their respective assets or upon their ownership, possession, use, operation or disposition thereof or upon their rents, receipts or earnings arising therefrom (except where the failure to pay would not, individually or in the aggregate, have a material effect on the Company or any of its Subsidiaries). The Company and its Subsidiaries shall file on or before the due date therefor all personal property tax returns (except where the failure to file would not, individually or in the aggregate, have a material effect on the Company or any of its Subsidiaries). Notwithstanding the foregoing, the Company and its Subsidiaries may contest, in good faith and by appropriate proceedings, taxes for which they maintain adequate reserves therefor in accordance with GAAP.
(q) Independent Investigation. At the request of the Holder either (x) at any time when an Event of Default has occurred and is continuing, (y) upon the occurrence of an event that with the passage of time or giving of notice would constitute an Event of Default or (z) at any time the Holder reasonably believes an Event of Default may have occurred or be continuing, the Company shall hire an independent, reputable investment bank selected by the Company and approved by the Holder to investigate as to whether any breach of this Note has occurred (the “Independent Investigator”). If the Independent Investigator determines that such breach of this Note has occurred, the Independent Investigator shall notify the Company of such breach and the Company shall deliver written notice to each holder of a Note of such breach. In connection with such investigation, the Independent Investigator may, during normal business hours, inspect all contracts, books, records, personnel, offices and other facilities and properties of the Company and its Subsidiaries and, to the extent available to the Company after the Company uses reasonable efforts to obtain them, the records of its legal advisors and accountants (including the accountants’ work papers) and any books of account, records, reports and other papers not contractually required of the Company to be confidential or secret, or subject to attorney-client or other evidentiary privilege, and the Independent Investigator may make such copies and inspections thereof as the Independent Investigator may reasonably request. The Company shall furnish the Independent Investigator with such financial and operating data and other information with respect to the business and properties of the Company as the Independent Investigator may reasonably request. The Company shall permit the Independent Investigator to discuss the affairs, finances and accounts of the Company with, and to make proposals and furnish advice with respect thereto to, the Company’s officers, directors, key employees and independent public accountants or any of them (and by this provision the Company authorizes said accountants to discuss with such Independent Investigator the finances and affairs of the Company and any Subsidiaries), all at such reasonable times, upon reasonable notice, and as often as may be reasonably requested.
14. DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Sections 6(a) or 7, if the Company shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note and assuming for such purpose that the Note was converted at the Alternate Conversion Price as of the applicable record date) immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions (provided, however, that to the extent that the Holder’s right to participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to the extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to the extent of any such excess) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
15. AMENDING THE TERMS OF THIS NOTE. Except for Section 3(d), which may not be amended, modified or waived by the parties hereto, the prior written consent of the Holder shall be required for any change, waiver or amendment to this Note.
16. TRANSFER. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(g) of the Securities Purchase Agreement.
17. REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 17(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 17(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 17(d) and in principal amounts of at least $1,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 17(a) or Section 17(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date.
18. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. No failure on the part of the Holder to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Holder of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. In addition, the exercise of any right or remedy of the Holder at law or equity or under this Note or any of the documents shall not be deemed to be an election of Holder’s rights or remedies under such documents or at law or equity. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note (including, without limitation, compliance with Section 7).
19. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price paid for this Note was less than the original Principal amount hereof.
20. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and the initial Holder and shall not be construed against any such Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Note instead of just the provision in which they are found. Unless expressly indicated otherwise, all section references are to sections of this Note. Terms used in this Note and not otherwise defined herein, but defined in the other Transaction Documents, shall have the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.
21. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. Notwithstanding the foregoing, nothing contained in this Section 21 shall permit any waiver of any provision of Section 3(d).
22. DISPUTE RESOLUTION.
(a) Submission to Dispute Resolution.
(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, an Alternate Conversion Price, a Black-Scholes Consideration Value, a VWAP or a fair market value or the arithmetic calculation of a Conversion Rate, or the applicable Redemption Price (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other party via electronic mail (A) if by the Company, within two (2) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by the Holder at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to promptly resolve such dispute relating to such Closing Bid Price, such Closing Sale Price, such Conversion Price, such Alternate Conversion Price, such Black-Scholes Consideration Value, such VWAP or such fair market value, or the arithmetic calculation of such Conversion Rate or such applicable Redemption Price (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Holder may, at its sole option, select an independent, reputable investment bank to resolve such dispute.
(ii) The Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 22 and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which the Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either the Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and the Holder or otherwise requested by such investment bank, neither the Company nor the Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).
(iii) The Company and the Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and the Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such investment bank shall be borne solely by the Company, and such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.
(b) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 22 constitutes an agreement to arbitrate between the Company and the Holder (and constitutes an arbitration agreement) under § 7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is authorized to apply for an order to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 22, (ii) a dispute relating to a Conversion Price includes, without limitation, disputes as to (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 7(a), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred, (iii) the terms of this Note and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Note and any other applicable Transaction Documents, (iv) the Holder (and only the Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 22 to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 22 and (v) nothing in this Section 22 shall limit the Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in this Section 22).
23. NOTICES; CURRENCY; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
(b) Currency. All dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).
(c) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Buyers, shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of fifteen percent (15%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).
24. CANCELLATION. After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.
25. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.
26. GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Except as otherwise required by Section 22 above, the Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein (i) shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder or (ii) shall limit, or shall be deemed or construed to limit, any provision of Section 22. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
27. JUDGMENT CURRENCY.
(a) If for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 27 referred to as the “Judgment Currency”) an amount due in U.S. dollars under this Note, the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:
(i) the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or
(ii) the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 27(a)(ii) being hereinafter referred to as the “Judgment Conversion Date”).
(b) If in the case of any proceeding in the court of any jurisdiction referred to in Section 27(a)(ii) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.
(c) Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Note.
28. SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
29. MAXIMUM PAYMENTS. Without limiting Section 9(d) of the Securities Purchase Agreement, nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.
30. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:
(a) “1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
(b) “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(c) “Adjustment Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 7) of shares of Common Stock (other than rights of the type described in Section 6(a) hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
(d) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
(e) “Alternate Conversion Floor Amount” means an amount in cash, to be delivered by wire transfer of immediately available funds pursuant to wire instructions delivered to the Company by the Holder in writing, equal to the product obtained by multiplying (A) the VWAP on the day the Holder delivers the applicable Conversion Notice and (B) the difference obtained by subtracting (I) the number of shares of Common Stock delivered (or to be delivered) to the Holder on the applicable Share Delivery Deadline with respect to such Alternate Conversion from (II) the quotient obtain by dividing (x) the applicable Conversion Amount that the Holder has elected to be the subject of the applicable Alternate Conversion, by (y) the applicable Alternate Conversion Price without giving effect to clause (x) of such definition.
(f) “Alternate Conversion Price” means, with respect to any Alternate Conversion that price which shall be the lower of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, (ii) the greater of (x) the Floor Price and (y) the lowest of (A) 80% of the VWAP of the Common Stock as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, (B) 80% of the VWAP of the Common Stock as of the Trading Day of the delivery or deemed delivery of the applicable Conversion Notice and (C) 80% of the price computed as the quotient of (I) the sum of the VWAP of the Common Stock for each of the three (3) Trading Days with the lowest VWAP of the Common Stock during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (II) three (3) (such period, the “Alternate Conversion Measuring Period”). All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such Alternate Conversion Measuring Period.
(g) “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the Subscription Date pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such.
(h) “Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(i) “Black Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be).
(j) “Bloomberg” means Bloomberg, L.P.
(k) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
(l) “Change of Control” means any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification of the shares of Common Stock in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, or (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries.
(m) “Change of Control Redemption Premium” means 125%.
(n) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period.
(o) “Closing Date” shall have the meaning set forth in the Securities Purchase Agreement, which date is the date the Company initially issued Notes pursuant to the terms of the Securities Purchase Agreement.
(p) “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(q) “Conversion Floor Price Condition” means that the relevant Alternate Conversion Price is being determined based on clause (x) of such definitions.
(r) “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(s) “Eligible Market” means The New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq Global Market or the Principal Market.
(t) “Equity Conditions” means, with respect to an given date of determination: (i) on each day during the period beginning thirty calendar days prior to such applicable date of determination and ending on and including such applicable date of determination either (x) one or more Registration Statements filed pursuant to the Registration Rights Agreement shall be effective and the prospectus contained therein shall be available on such applicable date of determination (with, for the avoidance of doubt, any shares of Common Stock previously sold pursuant to such prospectus deemed unavailable) for the resale of all shares of Common Stock to be issued in connection with the event requiring this determination (or issuable upon conversion of the Conversion Amount being redeemed, as applicable, in the event requiring this determination at the Alternate Conversion Price then in effect (without regard to any limitations on conversion set forth herein)) (each, a “Required Minimum Securities Amount”), in each case, in accordance with the terms of the Registration Rights Agreement and there shall not have been during such period any Grace Periods (as defined in the Registration Rights Agreement) or (y) all Registrable Securities shall be eligible for sale pursuant to Rule 144 (as defined in the Securities Purchase Agreement) without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of the Notes, other issuance of securities with respect to the Notes and exercise of the Warrants) and no Current Public Information Failure (as defined in the Registration Rights Agreement) exists or is continuing; (ii) on each day during the period beginning thirty calendar days prior to the applicable date of determination and ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”), the Common Stock (including all Registrable Securities) is listed or designated for quotation (as applicable) on an Eligible Market and shall not have been suspended from trading on an Eligible Market (other than suspensions of not more than two (2) days and occurring prior to the applicable date of determination due to business announcements by the Company) nor shall delisting or suspension by an Eligible Market have been threatened (with a reasonable prospect of delisting occurring after giving effect to all applicable notice, appeal, compliance and hearing periods) or reasonably likely to occur or pending as evidenced by (A) a writing by such Eligible Market or (B) the Company falling below the minimum listing maintenance requirements of the Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (iii) during the Equity Conditions Measuring Period, the Company shall have delivered all shares of Common Stock issuable upon conversion of this Note on a timely basis as set forth in Section 3 hereof and all other shares of capital stock required to be delivered by the Company on a timely basis as set forth in the other Transaction Documents; (iv) any shares of Common Stock to be issued in connection with the event requiring determination (or issuable upon conversion of the Conversion Amount being redeemed in the event requiring this determination) may be issued in full without violating Section 3(d) hereof; (v) any shares of Common Stock to be issued in connection with the event requiring determination (or issuable upon conversion of the Conversion Amount being redeemed in the event requiring this determination (without regards to any limitations on conversion set forth herein)) may be issued in full without violating the rules or regulations of the Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (vi) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall have occurred which has not been abandoned, terminated or consummated; (vii) the Company shall have no knowledge of any fact that would reasonably be expected to cause (1) any Registration Statement required to be filed pursuant to the Registration Rights Agreement to not be effective or the prospectus contained therein to not be available for the resale of the applicable Required Minimum Securities Amount of Registrable Securities in accordance with the terms of the Registration Rights Agreement or (2) any Registrable Securities to not be eligible for sale pursuant to Rule 144 without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of the Notes, other issuance of securities with respect to the Notes and exercise of the Warrants) and no Current Public Information Failure exists or is continuing; (viii) the Holder shall not be in (and no other holder of Notes shall be in) possession of any material, non-public information provided to any of them by the Company, any of its Subsidiaries or any of their respective affiliates, employees, officers, representatives, agents or the like; (ix) on each day during the Equity Conditions Measuring Period, the Company otherwise shall have been in compliance with each, and shall not have breached any representation or warranty in any material respect (other than representations or warranties subject to material adverse effect or materiality, which may not be breached in any respect) or any covenant or other term or condition of any Transaction Document, including, without limitation, the Company shall not have failed to timely make any payment pursuant to any Transaction Document; (x) on each Trading Day during the Equity Conditions Measuring Period, there shall not have occurred any Volume Failure or Price Failure as of such applicable date of determination; (xi) on the applicable date of determination (A) no Authorized Share Failure shall exist or be continuing and the applicable Required Minimum Securities Amount of shares of Common Stock are available under the certificate of incorporation of the Company and reserved by the Company to be issued pursuant to the Notes and (B) all shares of Common Stock to be issued in connection with the event requiring this determination (or issuable upon conversion of the Conversion Amount being redeemed in the event requiring this determination (without regards to any limitations on conversion set forth herein)) may be issued in full without resulting in an Authorized Share Failure; (xii) on each day during the Equity Conditions Measuring Period, there shall not have occurred and there shall not exist an Event of Default or an event that with the passage of time or giving of notice would constitute an Event of Default; (xiii) no bone fide dispute shall exist, by and between any of holder of Notes or Warrants, the Company, the Principal Market (or such applicable Eligible Market in which the Common Stock of the Company is then principally trading) and/or FINRA with respect to any term or provision of any Note or any other Transaction Document and (xiv) the shares of Common Stock issuable pursuant the event requiring the satisfaction of the Equity Conditions are duly authorized and listed and eligible for trading without restriction on an Eligible Market.
(u) “Equity Conditions Failure” means, as of any date of determination, that on any day during the period commencing twenty (20) Trading Days prior to such date of determination, the Equity Conditions have not been satisfied (or waived in writing by the Holder).
(v) “Event Market Price” means, with respect to any Stock Combination Event Date, the quotient determined by dividing (x) the sum of the VWAP of the Common Stock for each of the five (5) Trading Days with the lowest VWAP of the Common Stock during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the sixteenth (16th) Trading Day after such Stock Combination Event Date, divided by (y) five (5).
(w) “Excluded Securities” means (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Company for services rendered to the Company in their capacity as such pursuant to an Approved Stock Plan (as defined above), provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the Subscription Date pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the Subscription Date and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Buyers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Subscription Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered, none of such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities or Options (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; provided, that the terms of the Notes are not amended, modified or changed on or after the Subscription Date (other than antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date), and (iv) the shares of Common Stock issuable upon exercise of the Warrants; provided, that the terms of the Warrants are not amended, modified or changed on or after the Subscription Date (other than antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date).
(x) “Floor Price” means $0.01.
(y) “Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the date of this Note calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.
(z) “GAAP” means United States generally accepted accounting principles, consistently applied.
(aa) “Group” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.
(bb) “Holder Pro Rata Amount” means a fraction (i) the numerator of which is the original Principal amount of this Note on the Closing Date and (ii) the denominator of which is the aggregate original principal amount of all Notes issued to the initial purchasers pursuant to the Securities Purchase Agreement on the Closing Date.
(cc) “Indebtedness” shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(dd) “Interest Date” means, with respect to any given calendar month, the first Trading Day of such calendar month.
(ee) “Interest Rate” means five percent (5%) per annum, as may be adjusted from time to time in accordance with Section 2.
(ff) “Investment” means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of all, or substantially all, of the assets of another Person or the purchase of any assets of another Person for greater than the fair market value of such assets.
(gg) “Maturity Date” shall mean April 10,, 2024; provided, however, the Maturity Date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction is publicly announced or a Change of Control Notice is delivered prior to the Maturity Date, provided further that if a Holder elects to convert some or all of this Note pursuant to Section 3 hereof, and the Conversion Amount would be limited pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be extended until such time as such provision shall not limit the conversion of this Note.
(hh) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
(ii) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
(jj) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and the Other Notes, (ii) Indebtedness set forth on Schedule 3(s) to the Securities Purchase Agreement, as in effect as of the Subscription Date, (iii) Indebtedness incurred in connection with a standby letter of credit facility; provided that a portion of the proceeds therefrom are used to repay the Notes in their entirety in accordance with the terms hereof and (iv) Indebtedness secured by Permitted Liens or unsecured but as described in clauses (iv) and (v) of the definition of Permitted Liens.
(kk) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or Indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, in either case, with respect to Indebtedness in an aggregate amount not to exceed $100,000, (v) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, and (vii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(xii).
(ll) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
(mm) “Price Failure” means, with respect to a particular date of determination, the VWAP of the Common Stock on any Trading Day during the twenty (20) Trading Day period ending on the Trading Day immediately preceding such date of determination fails to exceed $0.01 (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions occurring after the Subscription Date). All such determinations to be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during any such measuring period.
(nn) “Principal Market” means the OTCQB.
(oo) “Redemption Notices” means, collectively, the Event of Default Redemption Notices, the Company Optional Redemption Notices and the Change of Control Redemption Notices, and each of the foregoing, individually, a “Redemption Notice.”
(pp) “Redemption Premium” means 125%.
(qq) “Redemption Prices” means, collectively, Event of Default Redemption Prices, the Change of Control Redemption Prices, and the Company Optional Redemption Prices, and each of the foregoing, individually, a “Redemption Price.”
(rr) “Registration Rights Agreement” means that certain registration rights agreement, dated as of the Closing Date, by and among the Company and the initial holders of the Notes relating to, among other things, the registration of the resale of the Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes and exercise of the Warrants, as may be amended from time to time.
(ss) “SEC” means the United States Securities and Exchange Commission or the successor thereto.
(tt) “Securities Purchase Agreement” means that certain securities purchase agreement, dated as of the Subscription Date, by and among the Company and the initial holders of the Notes pursuant to which the Company issued the Notes, as may be amended from time to time.
(uu) “Subscription Date” means February 17, 2023.
(vv) “Subsidiaries” shall have the meaning as set forth in the Securities Purchase Agreement.
(ww) “Subject Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.
(xx) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
(yy) “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(zz) “Volume Failure” means, with respect to a particular date of determination, the aggregate daily dollar trading volume (as reported on Bloomberg) of the Common Stock on the Principal Market on any Trading Day during the twenty (20) Trading Day period ending on the Trading Day immediately preceding such date of determination (such period, the “Volume Failure Measuring Period”), is less than $5,000.
(aaa) “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded), during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its “VAP” function (set to 09:30 start time and 16:00 end time) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 22. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
(bbb) “Warrants” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all warrants issued in exchange therefor or replacement thereof.
31. DISCLOSURE. Upon delivery by the Company to the Holder (or receipt by the Company from the Holder) of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall on or prior to 9:00 am, New York city time on the Business Day immediately following such notice delivery date, publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the Holder explicitly in writing in such notice (or immediately upon receipt of notice from the Holder, as applicable), and in the absence of any such written indication in such notice (or notification from the Company immediately upon receipt of notice from the Holder), the Holder shall be entitled to presume that information contained in the notice does not constitute material, non-public information relating to the Company or any of its Subsidiaries. Nothing contained in this Section 31 shall limit any obligations of the Company, or any rights of the Holder, under Section 4(i) of the Securities Purchase Agreement.
32. ABSENCE OF TRADING AND DISCLOSURE RESTRICTIONS. The Company acknowledges and agrees that the Holder is not a fiduciary or agent of the Company and that the Holder shall have no obligation to (a) maintain the confidentiality of any information provided by the Company or (b) refrain from trading any securities while in possession of such information in the absence of a written non-disclosure agreement signed by an officer of the Holder that explicitly provides for such confidentiality and trading restrictions. In the absence of such an executed, written non-disclosure agreement, the Company acknowledges that the Holder may freely trade in any securities issued by the Company, may possess and use any information provided by the Company in connection with such trading activity, and may disclose any such information to any third party.
[signature page follows]
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.
CLEAN VISION CORPORATION
|
| By:_________________________________ |
| Name: |
| Title: |
EXHIBIT
I
CLEAN
VISION CORPORATION
CONVERSION NOTICE
Reference is made to the Senior Convertible Note (the “Note”) issued to the undersigned by Clean Vision Corporation, a Nevada corporation (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the Company, as of the date specified below. Capitalized terms not defined herein shall have the meaning as set forth in the Note.
| Date of Conversion: | |||||
| Aggregate Principal to be converted: | |||||
| Aggregate accrued and unpaid Interest and accrued and unpaid Late Charges with respect to such portion of the Aggregate Principal and such Aggregate Interest to be converted: | |||||
| AGGREGATE
CONVERSION AMOUNT TO BE CONVERTED: |
|||||
| Please confirm the following information: | |||||
| Conversion Price: | |||||
| Number of shares of Common Stock to be issued: | |||||
[_] If this Conversion Notice is being delivered with respect to an Alternate Conversion, check here if Holder is electing to use the following Alternate Conversion Price:____________ Please issue the Common Stock into which the Note is being converted to Holder, or for its benefit, as follows: [_] Check here if requesting delivery as a certificate to the following name and to the following address: | |||||
| Issue to: | |||||
| [_] Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows: | |||
| DTC Participant: | |||
| DTC Number: | |||
| Account Number: | |||
Date: _____________ __,
|
|
By:
Tax ID:_____________________ E-mail Address: | |
Exhibit II
ACKNOWLEDGMENT
The Company hereby (a) acknowledges this Conversion Notice, (b) certifies that the above indicated number of shares of Common Stock [are][are not] eligible to be resold by the Holder either (i) pursuant to Rule 144 (subject to the Holder’s execution and delivery to the Company of a customary 144 representation letter) or (ii) an effective and available registration statement and (c) hereby directs _________________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _____________, 20__ from the Company and acknowledged and agreed to by ________________________.
| CLEAN VISION CORPORATION |
| By:_________________________________ |
| Name: |
| Title: |
Exhibit 4.7
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 1(a) OF THIS WARRANT.
Clean Vision Corporation
Warrant To Purchase Common Stock
Warrant No.:
Date of Issuance: April 10, 2023 (“Issuance Date”)
Clean Vision Corporation, a Nevada corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Walleye Opportunities Master Fund Ltd., the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), 17,660,911 (subject to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”, and such number of Warrant Shares, the “Warrant Number”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 19. This Warrant is one of the Warrants to Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of February 17, 2023 (the “Subscription Date”), by and among the Company and the investors (the “Buyers”) referred to therein, as amended from time to time (the “Securities Purchase Agreement”).
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date (an “Exercise Date”), in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant was so exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1st) Trading Day following the date on which the Company has received an Exercise Notice, the Company shall transmit by facsimile or electronic mail an acknowledgment of confirmation of receipt of such Exercise Notice, in the form attached hereto as Exhibit B, to the Holder and the Company’s transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Exercise Notice in accordance with the terms herein. On or before the second (2nd) Trading Day following the date on which the Company has received such Exercise Notice (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade of such Warrant Shares initiated on the applicable Exercise Date), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program (“FAST”), upon the request of the Holder, issue and deliver (via reputable overnight courier) to the address as specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise and upon surrender of this Warrant to the Company by the Holder, then, at the request of the Holder, the Company shall as soon as practicable and in no event later than two (2) Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all transfer, stamp, issuance and similar taxes, costs and expenses (including, without limitation, fees and expenses of the Transfer Agent) that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Notwithstanding the foregoing, except in the case where an exercise of this Warrant is validly made pursuant to a Cashless Exercise, the Company’s failure to deliver Warrant Shares to the Holder on or prior to the later of (i) two (2) Trading Days after receipt of the applicable Exercise Notice (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade of such Warrant Shares initiated on the applicable Exercise Date) and (ii) one (1) Trading Day after the Company’s receipt of the Aggregate Exercise Price (or valid notice of a Cashless Exercise) (such later date, the “Share Delivery Date”) shall not be deemed to be a breach of this Warrant. Notwithstanding anything to the contrary contained in this Warrant or the Registration Rights Agreement, after the effective date of the Registration Statement (as defined in the Registration Rights Agreement) and prior to the Holder’s receipt of the notice of a Grace Period (as defined in the Registration Rights Agreement), the Company shall cause the Transfer Agent to deliver unlegended shares of Common Stock to the Holder (or its designee) in connection with any sale of Registrable Securities (as defined in the Registration Rights Agreement) with respect to which the Holder has entered into a contract for sale, and delivered a copy of the prospectus included as part of the particular Registration Statement to the extent applicable, and for which the Holder has not yet settled. From the Issuance Date through and including the Expiration Date, the Company shall maintain a transfer agent that participates in FAST.
(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.845, subject to adjustment as provided herein.
(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail, for any reason or for no reason, on or prior to the Share Delivery Date, either (I) if the Transfer Agent is not participating in FAST, to issue and deliver to the Holder (or its designee) a certificate for the number of Warrant Shares to which the Holder is entitled and register such Warrant Shares on the Company’s share register or, if the Transfer Agent is participating in FAST, to credit the balance account of the Holder or the Holder’s designee with DTC for such number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise of this Warrant (as the case may be) or (II) if a Registration Statement covering the resale of the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares and the Company fails to promptly, but in no event later than as required pursuant to the Registration Rights Agreement (x) so notify the Holder and (y) deliver the Warrant Shares electronically without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a “Notice Failure” and together with the event described in clause (I) above, a “Delivery Failure”), then, in addition to all other remedies available to the Holder, (X) the Company shall pay in cash to the Holder on each day after the Share Delivery Date and during such Delivery Failure an amount equal to 2% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, multiplied by (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the applicable Exercise Date and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise. In addition to the foregoing, if on or prior to the Share Delivery Date either (I) the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver to the Holder (or its designee) a certificate and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, the Transfer Agent shall fail to credit the balance account of the Holder or the Holder’s designee with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Share Delivery Date the Holder acquires (in an open market transaction, stock loan or otherwise) shares of Common Stock corresponding to all or any portion of the number of shares of Common Stock issuable upon such exercise that the Holder is entitled to receive from the Company and has not received from the Company in connection with such Delivery Failure or Notice Failure, as applicable (a “Buy-In”), then, in addition to all other remedies available to the Holder, the Company shall, within two (2) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, stock loan costs and other out-of-pocket expenses, if any) for the shares of Common Stock so acquired (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate (and to issue such shares of Common Stock) or credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) (and to issue such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such Warrant Shares or credit the balance account of such Holder or such Holder’s designee, as applicable, with DTC for the number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of Warrant Shares multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Exercise Notice and ending on the date of such issuance and payment under this clause (ii) (the “Buy-In Payment Amount”). Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant to the terms hereof. While this Warrant is outstanding, the Company shall cause its transfer agent to participate in FAST. In addition to the foregoing rights, (i) if the Company fails to deliver the applicable number of Warrant Shares upon an exercise pursuant to Section 1 by the applicable Share Delivery Date, then the Holder shall have the right to rescind such exercise in whole or in part and retain and/or have the Company return, as the case may be, any portion of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the rescission of an exercise shall not affect the Company’s obligation to make any payments that have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise, and (ii) if a registration statement covering the issuance or resale of the Warrant Shares that are subject to an Exercise Notice is not available for the issuance or resale, as applicable, of such Warrant Shares and the Holder has submitted an Exercise Notice prior to receiving notice of the non-availability of such registration statement and the Company has not already delivered the Warrant Shares underlying such Exercise Notice electronically without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit / Withdrawal At Custodian system, the Holder shall have the option, by delivery of notice to the Company, to (x) rescind such Exercise Notice in whole or in part and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the rescission of an Exercise Notice shall not affect the Company’s obligation to make any payments that have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise, and/or (y) switch some or all of such Exercise Notice from a cash exercise to a Cashless Exercise.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at the time of exercise hereof a Registration Statement (as defined in the Registration Rights Agreement) is not effective (or the prospectus contained therein is not available for use) for the resale by the Holder of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of Warrant Shares determined according to the following formula (a “Cashless Exercise”):
Net
Number = (A x B) - (A x C)
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
B = as elected by the Holder: (i) the VWAP of the shares of Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Exercise Notice or (z) the Bid Price of the shares of Common Stock as of the time of the Holder’s execution of the applicable Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter pursuant to Section 1(a) hereof, or (iii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on such Trading Day.
C = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
If the Warrant Shares are issued in a Cashless Exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the 1933 Act, the Warrant Shares take on the registered characteristics of the Warrants being exercised. For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the Subscription Date, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Purchase Agreement.
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 15.
(f) Limitations on Exercises. The Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other Attribution Parties collectively would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants, including other SPA Warrants) beneficially owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 1(f)(i). For purposes of this Section 1(f)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice by the Company or the Transfer Agent, if any, setting forth the number of shares of Common Stock outstanding (the “Reported Outstanding Share Number”). If the Company receives an Exercise Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall (i) notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Exercise Notice would otherwise cause the Holder’s beneficial ownership, as determined pursuant to this Section 1(f)(i), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be acquired pursuant to such Exercise Notice (the number of shares by which such purchase is reduced, the “Reduction Shares”) and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon exercise of this Warrant results in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which the Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase (with such increase not effective until the sixty-first (61st) day after delivery of such notice) or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of SPA Warrants that is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f)(i) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f)(i) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Warrant.
(i) Required Reserve Amount. So long as this Warrant remains outstanding, the Company shall at all times keep reserved for issuance under this Warrant a number of shares of Common Stock at least equal to 100% of the maximum number of shares of Common Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock under the SPA Warrants then outstanding (without regard to any limitations on exercise) (the “Required Reserve Amount”); provided that at no time shall the number of shares of Common Stock reserved pursuant to this Section 1(g)(i) be reduced other than proportionally in connection with any exercise or redemption of SPA Warrants or such other event covered by Section 2(a) below. The Required Reserve Amount (including, without limitation, each increase in the number of shares so reserved) shall be allocated pro rata among the holders of the SPA Warrants based on number of shares of Common Stock issuable upon exercise of SPA Warrants held by each holder on the Closing Date (without regard to any limitations on exercise) or increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer any of such holder’s SPA Warrants, each transferee shall be allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any SPA Warrants shall be allocated to the remaining holders of SPA Warrants, pro rata based on the number of shares of Common Stock issuable upon exercise of the SPA Warrants then held by such holders (without regard to any limitations on exercise).
(ii) Insufficient Authorized Shares. If, notwithstanding Section 1(g)(i) above, and not in limitation thereof, at any time while any of the SPA Warrants remain outstanding, the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the SPA Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding shares of Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. In the event that the Company is prohibited from issuing shares of Common Stock upon an exercise of this Warrant due to the failure by the Company to have sufficient shares of Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to the Holder, the Company shall pay cash in exchange for the cancellation of such portion of this Warrant exercisable into such Authorization Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorization Failure Shares and (y) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date the Holder delivers the applicable Exercise Notice with respect to such Authorization Failure Shares to the Company and ending on the date of such issuance and payment under this Section 1(g); and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares, any Buy-In Payment Amount, brokerage commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith. Nothing contained in this Section 1(g) shall limit any obligations of the Company under any provision of the Securities Purchase Agreement.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.
(a) Stock Dividends and Splits. Without limiting any provision of Section 2(b), Section 3 or Section 4, if the Company, at any time on or after the Subscription Date, (i) pays a stock dividend on one or more classes of its then outstanding shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
(b) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or after the Subscription Date, the Company grants, issues or sells (or enters into any agreement to grant, issue or sell), or in accordance with this Section 2 is deemed to have granted, issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities granted issued or sold or deemed to have been granted issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such granting, issuance or sale or deemed granting, issuance or sale (such Exercise Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and the New Issuance Price under this Section 2(b)), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants, issues or sells (or enters into any agreement to grant, issue or sell) any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting, issuance or sale (or the time of execution of such agreement to grant, issue or sell, as applicable) of such Option for such price per share. For purposes of this Section 2(b)(i), the “lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting, issuance or sale (or pursuant to the agreement to grant, issue or sell, as applicable) of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting, issuance or sale (or the agreement to grant, issue or sell, as applicable) of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms of or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells (or enters into any agreement to issue or sell) any Convertible Securities and the lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale (or the time of execution of such agreement to issue or sell, as applicable) of such Convertible Securities for such price per share. For the purposes of this Section 2(b)(ii), the “lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale (or pursuant to the agreement to issue or sell, as applicable) of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale (or the agreement to issue or sell, as applicable) of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issuance or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 2(a)), the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold . For purposes of this Section 2(b)(ii), if the terms of any Option or Convertible Security (including, without limitation, any Option or Convertible Security that was outstanding as of the Subscription Date) are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.
(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Holder, the “Primary Security”, and such Option and/or Convertible Security and/or Adjustment Right, the “Secondary Securities”), together comprising one integrated transaction, (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing) the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued (or was deemed to be issued pursuant to Section 2(b)(i) or 2(b)(ii) above, as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 2(b)(iv). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to this Section 2(a), the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise contained herein).
(d) Holder’s Right of Alternative Exercise Price Following Issuance of Certain Options or Convertible Securities. In addition to and not in limitation of the other provisions of this Section 2, if the Company in any manner issues or sells or enters into any agreement to issue or sell, any Common Stock, Options or Convertible Securities (any such securities, “Variable Price Securities”) after the Subscription Date that are issuable pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock at a price which varies or may vary with the market price of the shares of Common Stock, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting customary anti-dilution provisions (such as share splits, share combinations, share dividends and similar transactions) (each of the formulations for such variable price being herein referred to as, the “Variable Price”), the Company shall provide written notice thereof via facsimile and overnight courier to the Holder on the date of such agreement and the issuance of such Convertible Securities or Options. From and after the date the Company enters into such agreement or issues any such Variable Price Securities, the Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Exercise Price upon exercise of this Warrant by designating in the Exercise Notice delivered upon any exercise of this Warrant that solely for purposes of such exercise the Holder is relying on the Variable Price rather than the Exercise Price then in effect. The Holder’s election to rely on a Variable Price for a particular exercise of this Warrant shall not obligate the Holder to rely on a Variable Price for any future exercises of this Warrant.
(e) Stock Combination Event Adjustment. If at any time and from time to time on or after the Issuance Date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (each, a “Stock Combination Event”, and such date thereof, the “Stock Combination Event Date”) and the Event Market Price is less than the Exercise Price then in effect (after giving effect to the adjustment in clause 2(a) above), then on the sixteenth (16th) Trading Day immediately following such Stock Combination Event, the Exercise Price then in effect on such sixteenth (16th) Trading Day (after giving effect to the adjustment in clause 2(a) above) shall be reduced (but in no event increased) to the Event Market Price. For the avoidance of doubt, if the adjustment in the immediately preceding sentence would otherwise result in an increase in the Exercise Price hereunder, no adjustment shall be made.
(f) Other Events. In the event that the Company (or any Subsidiary (as defined in the Securities Purchase Agreement)) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Exercise Price and the number of Warrant Shares (if applicable) so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 2(f) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error and whose fees and expenses shall be borne by the Company.
(g) Calculations. All calculations under this Section 2 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issuance or sale of Common Stock.
(h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Principal Market, the Company may at any time during the term of this Warrant, with the prior written consent of the Required Holders (as defined in the Securities Purchase Agreement), reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above or Section 4(a) below, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holder’s right to participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to the extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to the extent of any such excess) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Sections 2 or 3 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to the extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to the extent of any such excess) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to the same extent as if there had been no such limitation).
(b) Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents (as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction) and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of each Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of publicly traded common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance with the provisions of this Warrant. Notwithstanding the foregoing, and without limiting Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 4(b) to permit the Fundamental Transaction without the assumption of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of each Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the applicable Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant); provided, however, that, if the Fundamental Transaction is not within the Company's control, including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder.
(c) Black Scholes Value.
(i) Fundamental Transaction Redemption. Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time commencing on the earliest to occur of (x) the public disclosure of any Fundamental Transaction, (y) the consummation of any Fundamental Transaction and (z) the Holder first becoming aware of any Fundamental Transaction through the date that is ninety (90) days after the public disclosure of the consummation of such Fundamental Transaction by the Company pursuant to a Current Report on Form 8-K filed with the SEC, the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Black Scholes Value. Payment of such amounts shall be made by the Company (or at the Company’s direction) to the Holder on or prior to the later of (x) the second (2nd) Trading Day after the date of such request and (y) the date of consummation of such Fundamental Transaction.
(ii) Event of Default Redemption. Notwithstanding the foregoing and the provisions of Section 4(b) above, at the request of the Holder delivered at any time after the occurrence of an Event of Default (as defined in the Notes)(assuming for such purpose that the Notes remain outstanding), the Company or the Successor Entity (as the case may be) shall purchase this Warrant from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Event of Default Black Scholes Value.
(d) Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter receivable upon exercise of this Warrant (or any such other warrant)).
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (a) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (b) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant. Notwithstanding anything herein to the contrary, if after the sixty (60) calendar day anniversary of the Issuance Date, the Holder is not permitted to exercise this Warrant in full for any reason (other than pursuant to restrictions set forth in Section 1(f) hereof), the Company shall use its best efforts to promptly remedy such failure, including, without limitation, obtaining such consents or approvals as necessary to permit such exercise into shares of Common Stock.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, no warrants for fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant (other than the issuance of shares of Common Stock upon exercise in accordance with the terms hereof), including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon each adjustment of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment(s), (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder, (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction and (iv) within one (1) Business Day of the occurrence of an Event of Default (as defined in the Notes), setting forth in reasonable detail any material events with respect to such Event of Default and any efforts by the Company to cure such Event of Default. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of its Subsidiaries, the Company shall simultaneously file such notice with the SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K. If the Company or any of its Subsidiaries provides material non-public information to the Holder that is not simultaneously filed in a Current Report on Form 8-K and the Holder has not agreed to receive such material non-public information, the Company hereby covenants and agrees that the Holder shall not have any duty of confidentiality to the Company, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents with respect to, or a duty to any of the foregoing not to trade on the basis of, such material non-public information. It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9. DISCLOSURE. Upon delivery by the Company to the Holder (or receipt by the Company from the Holder) of any notice in accordance with the terms of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall on or prior to 9:00 am, New York city time on the Business Day immediately following such notice delivery date, publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the Holder explicitly in writing in such notice (or immediately upon receipt of notice from the Holder, as applicable), and in the absence of any such written indication in such notice (or notification from the Company immediately upon receipt of notice from the Holder), the Holder shall be entitled to presume that information contained in the notice does not constitute material, non-public information relating to the Company or any of its Subsidiaries. Nothing contained in this Section 9 shall limit any obligations of the Company, or any rights of the Holder, under Section 4(i) of the Securities Purchase Agreement.
10. ABSENCE OF TRADING AND DISCLOSURE RESTRICTIONS. The Company acknowledges and agrees that the Holder is not a fiduciary or agent of the Company and that the Holder shall have no obligation to (a) maintain the confidentiality of any information provided by the Company or (b) refrain from trading any securities while in possession of such information in the absence of a written non-disclosure agreement signed by an officer of the Holder that explicitly provides for such confidentiality and trading restrictions. In the absence of such an executed, written non-disclosure agreement, the Company acknowledges that the Holder may freely trade in any securities issued by the Company, may possess and use any information provided by the Company in connection with such trading activity, and may disclose any such information to any third party.
11. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f)) may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.
12. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
13. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in Section 9(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
14. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other Transaction Documents unless otherwise consented to in writing by the Holder.
15. DISPUTE RESOLUTION.
(a) Submission to Dispute Resolution.
(i) In the case of a dispute relating to the Exercise Price, the Closing Sale Price, the Bid Price, Black Scholes Consideration Value, Event of Default Black Scholes Value, Black Scholes Value or fair market value or the arithmetic calculation of the number of Warrant Shares (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other party via facsimile (A) if by the Company, within two (2) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by the Holder, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to promptly resolve such dispute relating to such Exercise Price, such Closing Sale Price, such Bid Price, such Black Scholes Consideration Value, Event of Default Black Scholes Value, Black Scholes Value or such fair market value or such arithmetic calculation of the number of Warrant Shares (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Holder may, at its sole option, select an independent, reputable investment bank to resolve such dispute.
(ii) The Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 15 and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following the date on which the Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either the Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and the Holder or otherwise requested by such investment bank, neither the Company nor the Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).
(iii) The Company and the Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and the Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such investment bank shall be borne solely by the Company, and such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.
(b) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 15 constitutes an agreement to arbitrate between the Company and the Holder (and constitutes an arbitration agreement) under the rules then in effect under § 7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is authorized to apply for an order to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 15, (ii) a dispute relating to the Exercise Price includes, without limitation, disputes as to (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 2(b), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred, (iii) the terms of this Warrant and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute (including, without limitation, determining (A) whether an issuance or sale or deemed issuance or sale of Common Stock occurred under Section 2(b), (B) the consideration per share at which an issuance or deemed issuance of Common Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of Common Stock was an issuance or sale or deemed issuance or sale of Excluded Securities, (D) whether an agreement, instrument, security or the like constitutes and Option or Convertible Security and (E) whether a Dilutive Issuance occurred) and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Warrant and any other applicable Transaction Documents, (iv) the Holder (and only the Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 15 to any state or federal court sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 15 and (v) nothing in this Section 15 shall limit the Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in this Section 15).
16. REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Warrant. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without limitation, compliance with Section 2 hereof). The issuance of shares and certificates for shares as contemplated hereby upon the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.
17. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’ rights and involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.
18. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by Section 2(g) of the Securities Purchase Agreement.
19. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
(b) “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(c) “Adjustment Right” means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2) of shares of Common Stock (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
(d) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
(e) “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer or director for services provided to the Company in their capacity as such.
(f) “Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(g) “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of any market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices) as of such time of determination. If the Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 15. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
(h) “Black Scholes Consideration Value” means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be).
(i) “Black Scholes Value” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c)(i), which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the greater of (1) the highest Closing Sale Price of the Common Stock during the period beginning on the Trading Day immediately preceding the announcement of the applicable Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to Section 4(c)(i) and (2) the sum of the price per share being offered in cash in the applicable Fundamental Transaction (if any) plus the value of the non-cash consideration being offered in the applicable Fundamental Transaction (if any), (ii) a strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c)(i), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c)(i) and (2) the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction or as of the date of the Holder’s request pursuant to Section 4(c)(i) if such request is prior to the date of the consummation of the applicable Fundamental Transaction, (iv) a zero cost of borrow and (v) an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the earliest to occur of (A) the public disclosure of the applicable Fundamental Transaction and (B) the date of the Holder’s request pursuant to Section 4(c)(i).
(j) “Bloomberg” means Bloomberg, L.P.
(k) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
(l) “Closing Sale Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing does not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 15. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
(m) “Common Stock” means (i) the Company’s shares of common stock, $0.0001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(n) “Convertible Securities” means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(o) “Eligible Market” means The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.
(p) “Event Market Price” means, with respect to any Stock Combination Event Date, the quotient determined by dividing (x) the sum of the VWAP of the Common Stock for each of the five (5) lowest Trading Days during the twenty (20) consecutive Trading Day period ending and including the Trading Day immediately preceding the sixteenth (16th) Trading Day after such Stock Combination Event Date, divided by (y) five (5). All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
(q) “Event of Default Black Scholes Value” means the value of the unexercised portion of this Warrant remaining on the date of the Holder’s request pursuant to Section 4(c)(ii), which value is calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the highest Closing Sale Price of the Common Stock during the period beginning on the date of the occurrence of the Event of Default through the date all Events of Default have been cured (assuming for such purpose that the Notes remain outstanding) or, if earlier, the Trading Day of the Holder’s request pursuant to Section 4(c)(ii), (ii) a strike price equal to the Exercise Price in effect on the date of the Holder’s request pursuant to Section 4(c)(ii), (iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the greater of (1) the remaining term of this Warrant as of the date of the Holder’s request pursuant to Section 4(c)(ii) and (2) the remaining term of this Warrant as of the date of the occurrence of such Event of Default, (iv) a zero cost of borrow and (v) an expected volatility equal to the greater of 100% and the 30 day volatility obtained from the “HVT” function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following later of (x) the date of the occurrence of such Event of Default and (y) the date of the public announcement of such Event of Default.
(r) “Excluded Securities” means (i) shares of Common Stock or standard options to purchase Common Stock issued to directors, officers or employees of the Company for services rendered to the Company in their capacity as such pursuant to an Approved Stock Plan (as defined above), provided that (A) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the Subscription Date pursuant to this clause (i) do not, in the aggregate, exceed more than 5% of the Common Stock issued and outstanding immediately prior to the Subscription Date and (B) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Buyers; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the Subscription Date, provided that the conversion price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered, none of such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed in any manner that adversely affects any of the Buyers; (iii) the shares of Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes; provided, that the terms of the Notes are not amended, modified or changed on or after the Subscription Date (other than antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date) and (iv) the shares of Common Stock issuable upon exercise of the SPA Warrants; provided, that the terms of the SPA Warrant are not amended, modified or changed on or after the Subscription Date (other than antidilution adjustments pursuant to the terms thereof in effect as of the Subscription Date).
(s) “Expiration Date” means the date that is the fifth (5th) anniversary of the Issuance Date or, if such date falls on a day other than a Trading Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.
(t) “Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the date of this Warrant calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other shareholders of the Company to surrender their shares of Common Stock without approval of the shareholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.
(u) “Group” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.
(v) “Notes” has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all notes issued in exchange therefor or replacement thereof.
(w) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
(x) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
(y) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
(z) “Principal Market” means the OTCQB.
(aa) “Registration Rights Agreement” means that certain registration rights agreement, dated as of the Closing Date, by and among the Company and the initial holders of the Notes relating to, among other things, the registration of the resale of the Common Stock issuable upon conversion of the Notes or otherwise pursuant to the terms of the Notes and exercise of the SPA Warrants, as may be amended from time to time.
(bb) “SEC” means the United States Securities and Exchange Commission or the successor thereto.
(cc) “Subject Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.
(dd) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
(ee) “Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price or trading volume determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
(ff) “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded), during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its “VAP” function (set to 09:30 start time and 16:00 end time) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 15. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
[signature page follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.
Clean Vision Corporation
| By:_________________________________ | Name: Title: |
EXHIBIT A
EXERCISE NOTICE
TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
CLEAN VISION CORPORATION
The undersigned holder hereby elects to exercise the Warrant to Purchase Common Stock No. _______ (the “Warrant”) of Clean Vision Corporation, a Nevada corporation (the “Company”) as specified below. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Aggregate Exercise Price shall be made as:
| [_] | a “Cash Exercise” with respect to _________________ Warrant Shares; and/or |
| [_] | a “Cashless Exercise” with respect to _______________ Warrant Shares. |
In the event that the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder hereby represents and warrants that (i) this Exercise Notice was executed by the Holder at __________ [a.m.][p.m.] on the date set forth below and (ii) if applicable, the Bid Price as of such time of execution of this Exercise Notice was $________.
2. Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________ shares of Common Stock in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, as follows:
[_] Check here if requesting delivery as a certificate to the following name and to the following address:
| Issue to: | |
| [_] | Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows: |
| DTC Participant: |
| DTC Number: | ||
| Account Number: | ||
Date: _____________ __,
|
By:
Tax ID:____________________________ Facsimile:__________________________ E-mail Address:_____________________ |
EXHIBIT B
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 202_, from the Company and acknowledged and agreed to by _______________.
Clean Vision Corporation
| By:_________________________________ | Name: Title: |
Exhibit 5.1
 |
LUCOSKY BROOKMAN LLP 101 Wood Avenue South 5th Floor Woodbridge, NJ 08830 T - (732) 395-4400 F- (732) 395-4401 |
| September 15, 2023 | |
|
111 Broadway New York, NY 10006 |
|
Clean Vision Corporation #1051 Manhattan Beach, CA 90266 |
www. lucbro.com |
| Re: | Registration Statement on Form S-1 |
Ladies and Gentlemen:
We are acting as counsel for Clean Vision Corporation, a Nevada corporation (the “Company”), in connection with the preparation and filing with the U.S. Securities and Exchange Commission (the “Commission”) of a Registration Statement on Form S-1 (the “Registration Statement”). The Company is filing the Registration Statement in connection with the offering from time to time, pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the “Act”), by the Selling Shareholders (as defined below) of up to 820,598,246 shares (the “Shares”) of the Company’s common stock, $0.001 par value per share. The Shares include:
| (i) | up to 269,042,604 Shares issuable pursuant to that certain Securities Purchase Agreement dated May 26, 2023 (the “May Purchase Agreement”) between the Company and an accredited investor (the “May Investor”), which includes (a) 180,904,522 Shares issuable upon conversion of a senior convertible note in the aggregate principal amount of $1,714,285.71 (the “May Note”) and (b) 88,138,082 additional Shares that the Company is required to register pursuant to a registration rights agreement between the Company and the May Investor obligating the Company to register 200% of the maximum number of shares of Common Stock issuable upon exercise of warrants (the “May Warrants”) issued pursuant to the May Purchase Agreement; | |
| (ii) | up to 454,166,752 Shares issuable pursuant to that certain Securities Purchase Agreement dated February 17, 2023 (the “February Purchase Agreement”) between the Company and the May Investor which includes (a) 296,840,276 Shares that we are required to register pursuant to a registration rights agreement between the Company and the May Investor obligating the Company to register 200% of the maximum number of shares of Common Stock issuable upon conversion of senior convertible notes in the aggregate principal amount of $2,812,915 (the “February and April Notes,” and together with the May Note, the “PIPE Notes”) and (b) 157,326,476 additional shares of Common Stock that the Company is required to register pursuant to a registration rights agreement between the Company and the May Investor obligating the Company to register 200% of the maximum number of shares of Common Stock issuable upon exercise of warrants (the “February and April Warrants,” and together with the May Warrants, the “PIPE Warrants”) issued pursuant to the February Purchase Agreement; and | |
1
| (iii) | up to 97,388,890 Shares issued or issuable pursuant to that certain Securities Purchase Agreement dated July 31, 2023 (the “August Purchase Agreement”) between the Company and an accredited investor (the “August Investor,” and together with the May Investor, the “Selling Shareholders”), which includes (a) 76,388,890 Shares, which represents 250% of the aggregate number of shares of Common Stock issuable upon conversion of a senior convertible promissory note in the original principal amount of $500,000 (the “August Note”) and (b) 21,000,000 Shares issued to the August Investor on August 4, 2023 (the “Inducement Shares”). |
The offering of the Shares will be as set forth in the prospectus (the “Prospectus”) contained in the Registration Statement, as amended, and as supplemented from time to time.
In rendering these opinions, we have examined the Company’s Articles of Incorporation and Bylaws, both as amended and currently in effect, the Registration Statement, and the exhibits thereto, and such other records, instruments and documents as we have deemed advisable in order to render these opinions. In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photo static copies and the authenticity of the originals of such latter documents. In providing these opinions, we have further relied as to certain matters on information obtained from officers of the Company. We are opining herein as to the laws of the United States and Chapter 78 of the Nevada Revised Statutes of the State of Nevada, and we express no opinion with respect to any other laws.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof:
| (i) | the issuance of the Shares has been duly authorized by all necessary corporate action of the Company, and when the Shares have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the holder of such Shares and have been issued by the Company upon (i) conversion of the PIPE Notes and August Note by the applicable Selling Shareholder as set forth in the Registration Statement, such Shares will be validly issued, fully paid and non-assessable and (ii) exercise of the PIPE Warrants by the applicable Selling Shareholder against payment therefor as set forth in the Registration Statement, such shares will be validly issued, fully paid and non-assessable; and | |
| (ii) | the Inducement Shares have been duly authorized, validly issued, fully paid and non-assessable. |
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Legal Matters.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
| Very Truly Yours, |
| /s/ Lucosky Brookman LLP | |
| Lucosky Brookman LLP |
2
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
We consent to the inclusion in this Registration Statement to Form S-1, Amendment 1 of our audit report dated April 2, 2023, with respect to the consolidated balance sheets of Clean Vision Corporation and Subsidiaries as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2022.
Our report relating to those financial statements includes an emphasis of matter paragraph regarding substantial doubt as to the Company’s ability to continue as a going concern.
We also consent to the reference to us under the heading “Experts” in such Registration Statement.
Spokane, Washington
September 15, 2023