CW Petroleum Corp S-1, filed Jun 2, 2022
CW Petroleum Corp (CWPE)
As filed with the Securities and Exchange Commission on June 2, 2022.
Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CW Petroleum Corp
(Exact Name of Registrant as Specified in its Charter)
| Wyoming | 5172 | 20-2765559 | ||
| (State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification No.) |
2717 Commercial Center Blvd.
Suite E200 PMB 264
Katy, Texas 77494
(281) 817-8099
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Corporation Service Company
1821 Logan Ave.
Cheyenne, Wyoming 82001
(800) 927-9800
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| Brian
Higley, Esq. Business Legal Advisors, LLC 14888 Auburn Sky Drive Draper, UT 84020 Telephone: (801) 634-1984 |
Ross
David Carmel, Esq. Carmel, Milazzo & Feil LLP 55 W 39th Street, 18th Floor New York, NY 10018 Telephone: (212) 658-0458 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
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. ☒
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 | ☐ |
| Non-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 of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary 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 June __, 2022 |
[*] Units
Each Unit Consisting of
[*] Share of Common Stock and
[*] Warrant to Purchase [*] Share of Common Stock
CW PETROLEUM CORP
This is a firm commitment underwritten public offering of Units (the “Units”) of CW Petroleum Corp, a Wyoming corporation (the “Company,” “we,” “us,” “our”). We expect the initial public offering price to be between $[*] and $[*] per Unit. The final offering price of the Units and exercise price of the Warrants will be determined between us and EF Hutton, division of Benchmark Investments, LLC, the representative of the underwriters (“Representative”). Each Unit consists of [*] share of common stock, $0.0001 par value per share (“Common Stock”), and [*] warrant (each, a “Warrant” and collectively, the “Warrants”) to purchase [*] share of Common Stock from the date of issuance until the [*] anniversary of the date of issuance at an exercise price of $[*] per share (each a “Warrant Share” and collectively, the “Warrant Shares”). The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock and the Warrants comprising the Units are immediately separable and will be issued separately in this offering. Each Warrant offered hereby is immediately exercisable on the date of issuance and will expire [*] years from the date of issuance.
Our Common Stock is currently traded on the OTC Markets under the Symbol “CWPE.” As of May 26, 2022, the reported closing price for our Common Stock as quoted on the OTC Markets was $0.50 per share (or $[*] as adjusted for a reverse stock split of [*]-for-1, which will occur immediately prior to the date we commence the sale of our Units). There is currently no public market for the offered Warrants. We have applied to list our Common Stock and the Warrants on the Nasdaq Capital Market, or Nasdaq, under the symbols “[*]” and “[*]W,” respectively, which listing is a condition for this offering. We will not proceed with this offering in the event the Common Stock and the Warrants are not approved for listing on Nasdaq.
Immediately after the closing of this offering, Mr. Christopher Williams, our Chairman of the Board and Chief Executive Officer will, through his ownership of all of our Series A Preferred Stock that entitles him to 100,000,000 votes, voting with the Common Stock, control all corporate actions requiring a stockholder vote, including the election of all directors, the amendment of our Articles of Incorporation and Bylaws and the approval of any extraordinary corporate transaction such as a merger or sale of all of our assets. As a result, we will be a “controlled company” under the Nasdaq rules which permit us not to comply with certain Nasdaq corporate governance requirements, including the requirement that: (i) a majority of our board of directors consist of “independent directors” as defined under the rules of the Nasdaq; (ii) our director nominees be selected, or recommended for our board of directors’ selection, by a nominating/governance committee comprised solely of independent directors; and (iii) the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors. Following this offering, we intend to utilize all of these exemptions.
Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the material risks of investing in our securities under the heading “Risk Factors” beginning on page 16 of this prospectus as well as other information contained in this prospectus before you invest.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Unit | Total | |||||||
| Public offering price | $ | $ | ||||||
| Underwriting discount and commissions(1) | $ | $ | ||||||
| Proceeds, before expenses, to us(2) | $ | $ | ||||||
(1) |
We have also agreed to issue the Representative warrants to purchase shares of our Common Stock (the “Representative’s Warrants”), to pay the Representative 1.0% of the gross proceeds of this offering as a non-accountable expense, to reimburse the underwriters for certain accountable expenses up to $175,000, and to provide other rights to the Representative. See “Underwriting” for additional information regarding the total underwriter compensation. |
| (2) | The amount of offering proceeds to us presented in this table does not give effect to any exercise of the: (i) the Warrants underlying the Units in this offering, (ii) Underwriters’ Over-Allotment Option we have granted to the underwriters as described below, and (iii) the shares of Common Stock underlying the Representative’s Warrants. |
We have granted the underwriters a 45-day option, exercisable one or more times in whole or in part, to purchase up to [*] additional shares of Common Stock at the public offering price per Unit minus $0.01 and/or Warrants at $0.01 per Warrant, less the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any (the “Over-Allotment Option”). If the underwriters exercise the Over-Allotment Option in full in shares of Common Stock, the total underwriting discounts payable by us will be $[*] and the total proceeds to us, before expenses estimated to be [*], will be $[*].
The underwriters expect to deliver the securities to the investors against payment in this offering on or about [*], 2022.
Sole Book-Running Manager
EF HUTTON,
division of Benchmark Investments, LLC
The
date of this prospectus is _________, 2022.
TABLE OF CONTENTS
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Neither we nor the underwriters have authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus or in any free writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of our Units. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States of America: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering 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 Units and the distribution of this prospectus and any such free writing prospectus outside of the United States.
We will complete a [*]-for-[*] reverse split of our Common Stock immediately prior to the completion of this offering. The purpose of the reverse stock split is to meet minimum stock price requirement of the Nasdaq Capital Market. All share numbers in this prospectus have been adjusted to give effect to this reverse split. Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy and financial results. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our strategies and objectives; | |
| ● | our ability to meet the Nasdaq listing and maintenance requirements; | |
| ● | our other financial operating objectives; | |
| ● | the availability of qualified employees for business operations; | |
| ● | general business and economic conditions; | |
| ● | our ability to meet our financial obligations as they become due; | |
| ● | the positive cash flows and financial viability of our operations and new business opportunities; | |
| ● | our ability to manage growth with respect to our operations and new business opportunities; | |
| ● | our ability to make new technological improvements and developments to our products; | |
| ● | our ability to enter into new partnerships and license agreements for the use of our refined products; and | |
| ● | our ability to be successful in new markets. |
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We describe certain material risks, uncertainties, and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements
INDUSTRY AND MARKET DATA
The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, governmental publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and although we believe these third-party sources are reliable, we have not independently verified the information. Our estimates of the potential market opportunities include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section of this prospectus titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
This summary highlights selected information contained in greater detail elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider in making your investment decision. Before investing in our Units, you should carefully read this prospectus in its entirety, including the “Risk Factors,” “Special Note Regarding Forward Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes to those financial statements in each case included in this prospectus.
As used in this prospectus, unless the context otherwise requires, references to “CW Petroleum,” the “Company,” “we,” “us” and “our” refer to CW Petroleum Corp, a Wyoming corporation.
Our Company
Overview
CW Petroleum Corp was incorporated in the State of Texas on April 29, 2005 and began operations in 2011. On April 14, 2018, CW Petroleum Corp was incorporated in the State of Wyoming (the “Company”). On April 15, 2018, the Texas corporation became a wholly-owned subsidiary of the Company through a share exchange. CW Petroleum Corp (Wyoming) is a holding company and, through our wholly-owned subsidiary, we supply and distribute biodiesel (a renewable, biodegradable fuel manufactured domestically from vegetable oils, animal fats, or recycled restaurant grease), biodiesel blends, ultra-low sulfur diesel, gasoline blends, “renewable gasoline” (a blend of premium gasoline with 12.5% to 16.0% isobutanol, an alcohol derived from agricultural products) and a proprietary EPA-approved reformulated no ethanol gasoline to gasoline distributors, convenience stores, and marinas.
CW Petroleum Corp (Wyoming) is a holding company and has no operations. The purpose in forming the holding company was to limit our corporate liability, create a streamlined management, maintain ownership over our sole subsidiary and establish an organizational structure to facilitate the potential acquisition of other businesses in our industry or complementary to our industry.
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We are a wholesale distributor of non-branded, blended and non-blended diesel fuel and gasoline. Our business primarily involves sending a tank wagon or truck to a fuel rack at the regional fuel terminal that we believe is offering the best price to us on that day. Our tanker loads the fuel at the rack, blends it at a blending station, if necessary, pays the terminal the daily rack price and delivers the fuel to our customers. Our customers include independent fuel retailers (i.e., those not affiliated with the major national and international oil companies like Shell USA, Inc.), independent and chain convenience stores (such as 7-11, Inc. stores) that also sell gasoline and diesel fuel, marinas that sell diesel and gasoline to power boat owners and fuel distributors that deliver to their own customers. For all gallons sold to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of fuel.
We deliver regular gasoline, diesel fuel, biodiesel, biodiesel blends, ultra-low sulfur diesel, gasoline blends, renewable gasoline, and a proprietary United States Environmental Protection Agency (“EPA”)-approved reformulated no ethanol gasoline. The non-ethanol fuel that we deliver uses isobutanol, an organic alcohol compound, in place of ethanol in reformulated gasoline markets (discussed in the paragraph below). The base formula of refined diesel fuel is not significantly different among oil refineries. There are minimum government standards that all diesel fuel must adhere to and the baseline product that flows from the refineries through a network of pipelines, such as the ones owned by Magellan Midstream Partners, LP (“Magellan”), to the fuel terminals are basically the same. Once at the terminal, the fuel is delivered to the wholesale fuel rack where it is pumped into our tanker trucks. If required by our customers, additives are pumped into the base diesel at a blending station creating a fuel “blend,” one of which is based on proprietary formula of our Company, that we market to our customers, advertising various benefits such as better fuel efficiency or being more environmentally friendly.
Due to our market area, much of the fuel currently delivered by us needs to be blended. Reformulated gasoline (“RFG”) is gasoline blended to burn more cleanly than conventional gasoline and to reduce smog-forming and toxic pollutants in the air we breathe. The RFG program was mandated by Congress in the Clean Air Act Amendments of 1990 (the “Clean Air Act”). RFG is required in cities with high smog levels and is optional elsewhere. RFG is currently used in 16 states and the District of Columbia. About 25% of gasoline sold in the U.S. is reformulated.1 The Houston-Galveston-Brazoria nonattainment area is required by the Clean Air Act to use RFG. This eight-county market area includes Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller Counties. These are the principal areas where we have operated since inception.
We maintain an approximately zero to 20 day supply inventory position at Magellan Terminals in Houston, Texas, and are currently seeking fuel inventory positions at other terminals. The various terminals require a user to purchase and maintain agreed upon amounts of inventory with the terminal. This inventory could assist us in potentially hedging against future price increases, thus raising our profit margins where the price we paid is less than the current market price, but could also work against us if the price we pay is higher than at the time we sell that inventory at the then current market price. However, our limited financial resources have restricted our ability to make use of an inventory position at these large terminals, since large purchases are standard for most terminals.
As of the date of this prospectus, we own two semi-trucks and three compartmentalized fuel trailers that can transport diesel fuel/biodiesel and gasoline which can hold between 7,500 gallons of diesel fuel/biodiesel and 8,000 gallons of gasoline. Our four stainless steel trailers can each hold approximately 7,000 gallons of liquid chemicals. Our Chief Executive Officer (“CEO”), Christopher Williams negotiates all contracts with customers.
Our Growth Strategy
Subsequent
to the closing of this offering, we plan to hire a business development person for each new market we are seeking to enter. Those targeted
markets are currently: Baltimore, Maryland and Chicago, Illinois. We also intend to engage a business development person for the Houston/Dallas/Fort
Worth markets. We plan to purchase new semi-trucks and trailers to blend our proprietary reformulated no ethanol gasoline which will
then be loaded into tanker railcars in Houston, Texas, and shipped to these new locations.
In addition, we plan to:
1 https://www.epa.gov/gasoline-standards/reformulated-gasoline
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Open a Specialty Blending Facility – We are in the initial stages of planning the construction of our own blending station that we would locate near a major fuel rack facility. We would stock the blending facility with additives that we would purchase wholesale on the open market, rather than purchase them at a markup at the rack, and resell them to our customers who have a need for specialty blended diesel fuel, providing another source of revenue for our business. Management has recently estimated the cost of constructing this facility to be approximately $500,000 for the land, equipment, and site work. However, we have not purchased any land nor contracted for any equipment or site work as of the date of this prospectus.
Convenience Stores –Management is contemplating, but has no current plan, to purchase individual or a chain of, or to buy land and construct independent convenience stores that will have fuel islands in their parking lots. The idea is to locate these stores in areas inside of RFG requirement zones and areas near the Gulf of Mexico or lakes used by boat owners. We would provide all the fuels sold at these convenience stores and initially engage contract management to manage the retail side of the convenience stores.
No assurances can be given as to whether we will implement any such strategy in the future, and if we do, we cannot assure the likely success that we will have in implementing our plans or, if successful, the timing that it will require to fully and successfully implement our plans.
Risks Associated with our Business
Our ability to execute our future business growth strategy is subject to numerous risks, as more fully described in the section captioned “Risk Factors” immediately following this prospectus summary. An investment in our Units involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the section titled “Risk Factors” following this prospectus summary. These risks include, but are not limited to, the following:
| ● | our ability to continue our business as a going concern and our history of operational financial losses; | |
| ● | our status as a small business in a large fragmented industry; | |
| ● | our ability to manage future growth; | |
| ● | our dependence on the services of our CEO, Christopher Williams; | |
| ● | our management’s lack of experience managing a public company; | |
| ● | our lack of establishment of internal controls with respect to our financial reporting; | |
| ● | the additional accounting and legal fees in connection with the preparation of periodic reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”); | |
| ● | our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates; | |
| ● | general economic, financial and political conditions that are largely out of our control could adversely affect our business, financial condition and results of operations; | |
| ● | volatility in crude oil and wholesale diesel and gasoline costs could adversely affect our business, financial condition and results of operations; | |
| ● | the dangers inherent in the storage and transportation of motor fuel; | |
| ● | a significant decrease in demand for diesel and gasoline, including increased consumer preference for alternative fuels or improvements in fuel efficiency, in the areas we serve would materially affect our revenues and profitability; |
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| ● | the industries in which we operate are subject to seasonal trends; | |
| ● | our operations are subject to stringent environmental laws and regulations; | |
| ● | we are subject to federal laws related to the Renewable Fuel Standard; | |
| ● | we are subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase, store, transport, and sell to our customers; | |
| ● | we may incur substantial losses and be subject to substantial liability claims as a result of our operations; | |
| ● | most of our competitors have significantly greater financial and marketing resources than we do; | |
| ● | our dependence on four principal suppliers for the majority of our fuel; | |
| ● | our fuel sales are generated under contracts that must be renegotiated or replaced periodically; | |
| ● | the effects of severe weather on our business; | |
| ● | the effects of possible future litigation; | |
| ● | our reliance on our information technology systems to manage numerous aspects of our business; | |
| ● | the effects on our business and reputation from failure to protect sensitive customer, employee or vendor data, whether as a result of cyber security attacks or otherwise; | |
| ● | our reliance on our suppliers to provide trade credit terms to adequately fund our ongoing operations; | |
| ● | the decrease in demand for the fuels we sell resulting from laws, regulations, technological, political and scientific developments regarding climate change; | |
| ● | the negative effects on our business resulting from a climate-related decrease in demand for crude oil; | |
| ● | immediate and substantial dilution as a result of this offering; | |
| ● | the discretion of Mr. Christopher Williams to the use of the net proceeds that we will receive from this offering; | |
| ● | the adverse effects on our share price resulting from shares eligible for future sale; | |
| ● | significant dilution of stockholders due to the issuance of convertible financial instruments through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our Common Stock; | |
| ● | the authority of our board of directors, without stockholder approval, to issue preferred stock with terms that may not be beneficial to Common Stockholders; | |
| ● | our CEO controls all corporate activities and can approve all transactions, including mergers, without the approval of other stockholders. | |
| ● | the ability of our CEO to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs. | |
| ● | indemnification of officers and directors provided by our Articles of Incorporation; | |
| ● | the lack of payments of cash dividends in the foreseeable future; | |
| ● | the limited trading market of our Common Stock; |
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| ● | the volatility of the market price for our Common Stock; | |
| ● | the status of our Common Stock as “penny stock;” | |
| ● | lack of assurances that our shares, once listed on Nasdaq, will not be subject to potential delisting; | |
| ● | the effects of proposed reverse stock split on our stock price and the liquidity of shares of our Common Stock; | |
| ● | the speculative nature of the Warrants; | |
| ● | no established market for the Warrants; | |
| ● | our Warrant Agreement will designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our Warrants; | |
| ● | we may become involved in securities class action litigation; | |
| ● | securities analysts may elect not to report on our Common Stock or may issue negative reports; | |
| ● | uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products and services we offer or intend to offer in the future; | |
| ● | our need to raise additional financing to fund daily operations and successfully grow our Company | |
| ● | a slowdown or reduction in our sales due to a reduction in demand, unanticipated competition, regulatory issues, or other unexpected circumstances; | |
| ● | uncertainty associated with our reliance on third-parties, such as Magellan Terminals, for fuel inventory; | |
| ● | uncertainty associated with the volatility of oil prices which is affected by world events, including but not limited to Russia’s invasion of Ukraine, decisions of The Organization of the Petroleum Exporting Countries (“OPEC”) and other non-member countries, the ability of U.S. oil producers to increase production, the import decisions of oil refineries, speculation in the oil and gas commodity markets and their effects the prices of diesel fuel and gasoline inventory we can purchase based on the availably of our cash on hand; | |
| ● | our reliance on exemptions from certain governance requirements as a “controlled company” within the meaning of Nasdaq listing standards; | |
| ● | our ability to retain and recruit appropriate employees; | |
| ● | current and future laws and regulations that could adversely affect our business; | |
| ● | general economic uncertainty, included uncertainty associated with the adverse effects of the COVID-19 pandemic (including new and emerging strains and variants), and its unpredictable duration in regions where we have customers, employees, and suppliers; and | |
| ● | the other factors described in “Risk Factors.” |
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Impacts of the COVID-19 Pandemic
The recent outbreak of the corona virus, also known as “COVID-19,” has spread across the globe and is impacting worldwide economic activity. As of the date of this filing, COVID-19 has had a minimal impact on our business. Our business was already operational, there is minimal labor required to operate our business and energy needs in our market area were stable during the pandemic. The extent to which COVID-19 may impact our operations on an ongoing basis in the future is highly uncertain. It will depend on various factors including the duration and severity of the outbreak, the severity of variants of COVID-19, the effectiveness, acceptance, availability and use of affordable vaccines and pharmaceutical treatments in our market area and new information which may emerge concerning the appropriate responses if and to the continuing pandemic. If the pandemic continues and worsens, we could temporarily lose the services of employees or experience interruptions in our business which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to the COVID-19 pandemic or other similar health crises, or if customers do not perceive our response to be adequate for a particular region or our business as a whole, we could suffer damage to our reputation, which could materially adversely affect our business, financial condition and results of operations in the future. If the pandemic continues and worsens, we could temporarily lose the services of employees or experience interruptions in our business which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to the COVID-19 pandemic or other similar health crises, or if customers do not perceive our response to be adequate for a particular region or our business as a whole, we could suffer damage to our reputation, which could materially adversely affect our business, financial condition and results of operations in the future.
Reverse Stock Split
In order to comply with the initial listing requirements of the Nasdaq that require a minimum stock trading price, we will effect a reverse stock split of our Common Stock at a ratio of [*]-for-1 following the effectiveness of the registration statement of which this prospectus forms a part and prior to the closing of this offering. No fractional shares will be issued in connection with the reverse stock split and all such fractional interests will be rounded up to the nearest whole number of shares of Common Stock. All information presented in this prospectus other than in our consolidated financial statements and the notes thereto assumes a [*]-for-1 reverse stock split of our outstanding shares of Common Stock, and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth in this prospectus have been adjusted to give effect to such assumed reverse stock split. No shares of Preferred Stock will be reverse split.
Listing on the Nasdaq Capital Market
Our Common Stock is currently quoted on the OTC Markets under the symbol “CWPE.” In connection with this offering, we intend to apply to have our Common Stock and Warrants listed on the Nasdaq Capital Market under the symbols “[*]” and “[*]W,” respectively. If our listing application is approved, we expect to list our Common Stock and the warrants offered in this offering on Nasdaq upon consummation of this offering. No assurance can be given that our listing application will be approved. This offering will occur only if Nasdaq approves the listing of our Common Stock and warrants. If Nasdaq does not approve the listing of our Common Stock and warrants, we will not proceed with this offering. There can be no assurance that our Common Stock and warrants will be listed on the Nasdaq.
Going Concern
We have incurred significant operating losses since our inception in 2009 and expect to continue to incur significant and increasing operating losses for the foreseeable future. As of March 31, 2022, we had an accumulated deficit of $1,844,805 and a net loss of $75,056 for the three months then ended. As of December 31, 2021, we had an accumulated deficit of $1,769,749 and a net loss of $1,542,938 for the year then ended. As a result of these conditions, management has concluded that substantial doubt about our ability to continue as a going concern exists as conditions and events, considered in the aggregate, indicate that it is probable that we will be unable to meet our obligations as they become due within one year after the date of this prospectus. The financial information throughout this prospectus and the consolidated financial statements included elsewhere in this prospectus have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business which cannot be assured. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot secure the financing needed to continue as a viable business, our stockholders may lose some or all of their investment in us.
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Corporate Information
CW Petroleum Corp was incorporated in the State of Texas on April 29, 2005, and began operations in 2011. On April 14, 2018, CW Petroleum Corp was incorporated by Christopher Williams in the State of Wyoming. On April 15, 2018, the Texas corporation became a wholly-owned subsidiary of the Company through a share exchange and now CW Petroleum Corp is a holding company. Our principal executive offices are located at 2717 Commercial Center Blvd., Suite E200 PMB 264, Katy, Texas 77494. Our phone number is (832) 817-8099. Our website address is cwpetroleumcorp.com. We do not incorporate the information on or accessible through our website into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
The Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as emerging growth companies. We are an “emerging growth company” within the meaning of the JOBS Act. We may take advantage of certain exemptions from various public reporting requirements, including the requirement that we provide more than two years of audited financial statements and related management’s discussion and analysis of financial condition and results of operations, and that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We intend to take advantage of these exemptions until we are no longer an emerging growth company. We have elected to use the extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company and (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will cease to be an emerging growth company upon the earliest of (1) the end of the fiscal year following the fifth anniversary of this offering; (2) the last day of the fiscal year during which our annual gross revenues are $1.07 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the end of any fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year.
Additionally, we are a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements in our Annual Report on Form 10-K, and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our Common Stock held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our Common Stock held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
See the section titled “Risk Factors— Risks Related to Our Common Stock, Warrants and the Offering—We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our Common Stock less attractive to investors.”
Implication of Being a Controlled Company
After completion of this offering and the application of net proceeds therefrom, Mr. Williams, our CEO, will beneficially own approximately [*]% of the voting power of Common Stock (or approximately [*]% if the underwriters exercise in full their over-allotment option). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that:
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| ● | a majority of our board of directors consist of “independent directors” as defined under the rules of the Nasdaq; | |
| ● | our director nominees be selected, or recommended for our board of directors’ selection, by a nominating/governance committee comprised solely of independent directors; and | |
| ● | the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors. |
Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors, our compensation committee and nominating and governance committee may not consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq.
| Issuer: | CW Petroleum Corp, a Wyoming corporation. | |
| Offered Securities: | [*] Units, each Unit consisting of [*] share of our Common Stock and [*] Warrant to purchase [*] share of our Common Stock from the date of issuance until the [*] anniversary of such date for an assumed $[*] per share ([*]% of the assumed $[*] public offering price of one Unit, the midpoint of the price range set forth on the cover page of this prospectus). The Units will not be certificated or issued in stand-alone form. The shares of our Common Stock and the Warrants underlying the Units are immediately separable upon issuance and will be issued separately in this offering. | |
| Offering Price per Unit (assumed): | Assumed $[*] per Unit (the midpoint of the price range set forth on the cover page of this prospectus). | |
| Over-Allotment Option: | We have granted the underwriters a 45-day option to purchase up to an aggregate of [*] additional shares and/or [*] additional Warrants at the public offering price, less underwriting discounts and commissions, on the same terms as set forth in this prospectus, solely to cover over-allotments, if any. | |
| Description of Warrants: | Each Warrant will have an exercise price per share of [*]% of the public offering price per Unit, will be exercisable immediately, and will expire on the [*] anniversary of the original issuance date. Each Warrant is exercisable for [*] share of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations, or similar events affecting our Common Stock as described herein. Each holder of purchase Warrants will be prohibited from exercising its Warrant for shares of our Common Stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our Common Stock then issued and outstanding. However, any holder may increase such percentage to any other percentage not in excess of 9.99%. The terms of the Warrants will be governed by a Warrant Agent Agreement, dated as of the effective date of this offering, between us and Transfer Online, Inc., as the warrant agent (the “Warrant Agent”). This offering also relates to the offering of the shares of Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares”). For more information regarding the Warrants, you should carefully read the section titled “Description of Securities—Warrants” in this prospectus. |
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| Common Stock Outstanding Before Offering: | 22,345,898 shares |
| Common Stock Outstanding After Offering (1): | [*] shares, or [*] shares of if the underwriters exercise their over-allotment option in full, in each case assuming none of the Warrants issued in this offering are exercised. | |
| Reverse Stock Split | We will complete a [*]-for-[*] reverse split of our Common Stock immediately prior to the completion of this offering. The purpose of the reverse stock split is to meet minimum stock price requirement of the Nasdaq Capital Market. All share numbers in this prospectus have been adjusted to give effect to this reverse split. |
| Use of Proceeds: | We estimate that we will receive net proceeds from this offering of approximately $[*] million, or approximately $[*] million if the underwriters exercise their option to purchase additional shares of Common Stock in full, assuming an initial public offering price of $[*] per Unit, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We currently intend to use the net proceeds from this offering, together with our existing cash to purchase additional inventories of gasoline and isobutanol, to: expand our proprietary fuel sales in Houston, Dallas, Maryland, and Chicago, working capital for expansion of pipeline purchases, hiring additional personnel, purchase of additional equipment (two trucks, two fuel trailers), rental of one rail tank car, the potential acquisition of a truck terminal, convenience stores, and/or a marina. See “Use of Proceeds” below. | |
| Underwriters Compensation: | In connection with this offering, the underwriters will receive an underwriting discount equal to 8% of the gross proceeds from the sale of Units in the offering.
We will also issue to the underwriters or their designees at the closing of the offering and each closing of the Over-Allotment Option (if any), warrants (the “Underwriter’s Warrants”) to purchase shares of Common Stock and/or warrants equal to 5.0% of the aggregate number of shares of Common Stock sold in the offering. The Underwriter’s Warrants will be exercisable at any time and from time to time, in whole or in part, during the 4.5-year period commencing six months from the date of the commencement of sales of the public securities in the offering, at a price per share equal to 100% of the public offering price per Unit. The Underwriter’s Warrants will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights) and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.) and future issuance of Common Stock or Common Stock equivalents at prices (or with exercise and/or conversion prices) below the offering price.
We will be responsible for and will pay all expenses relating to the offering. We will also reimburse the underwriters for certain out-of-pocket actual expenses related to the offering and the representative of the underwriter shall be entitled to a non-accountable expense allowance equal to 1% of the gross proceeds from the offering. We have also agreed to provide other rights to the representative. See “Underwriting” starting on page 71 of this prospectus. |
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| Nasdaq Capital Market Listing and Symbols: | Our Common Stock is presently quoted on the over the counter markets under the symbol “CWPE.” We have applied to list our Common Stock and Warrants on Nasdaq under the symbols “[*]” and “[*]W,” respectively. No assurance can be given that Nasdaq will approve our listing application, and if approved, that we will be able to maintain that listing, or that a trading market will develop for the Common Stock and Warrants. | |
| Lock-Up Agreements: | We and our directors, officers and certain stockholders have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock for a period of 360 days after the date of this prospectus. See “Underwriting-Lock-Up Agreements” on page 73 of this prospectus. | |
| Dividend Policy: | We have not historically paid dividends on our Common Stock and do not intend to do so in the future. | |
| Controlled Company: | Our Series A Preferred Stock is entitled to 100 votes per share and our CEO, Christopher Williams, owns all 1,000,000 of the outstanding shares of such stock, and therefore Mr. Williams (and not investors in this offering) will after the offering control all corporate actions, including the election of our board of directors, the adoption of amendments to our Articles of Incorporation and Bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.
After completion of this offering and the application of net proceeds therefrom, Mr. Williams will beneficially own approximately [*]% of the voting power of our capital stock (or approximately [*]% if the underwriters exercise in full their over-allotment option). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that: |
| ● | a majority of our board of directors consist of “independent directors” as defined under the rules of the Nasdaq; | ||
| ● | our director nominees be selected, or recommended for our board of directors’ selection, by a nominating/governance committee comprised solely of independent directors; and | ||
| ● | the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors. |
| Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors, our compensation committee and nominating and governance committee may not consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq. | ||
| Risk Factors: | An investment in our securities involves a high degree of risk. You should read this prospectus carefully, including the section entitled “Risk Factors” starting on page 16 of this prospectus and the consolidated financial statements and the related notes to those statements included in this prospectus, before deciding to invest in our securities. | |
| Transfer Agent and Warrant Agent: | Transfer Online, Inc. |
| (1) | The number of shares of Common Stock to be outstanding immediately after this offering excludes: | |
| ● | [*] shares of Common Stock issuable upon the exercise of Warrants included in the Units; | |
| ● | [*] shares of Common Stock issuable upon the exercise of the underwriter’s over-allotment option to purchase [*] of additional shares of Common Stock and/or Warrants, in any combination thereof, from us in this offering to cover over-allotments, if any (the “Over-Allotment Option”). |
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Except as otherwise indicated, all information in this prospectus assumes that:
| ● | none of the Warrants underlying the Units in this offering have been exercised; | |
| ● | no conversion of Series A Preferred Stock; | |
| ● | no exercise of the Underwriter’s Warrants; and | |
| ● | no shares of Common Stock or Warrants will be issued pursuant to the Underwriters’ Over-Allotment Option. |
The statement of operations data for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021 have been derived from both our audited and unaudited financial statements included elsewhere in this prospectus. The balance sheet data as of March 31, 2022 and December 31, 2021 have been derived from both our audited and unaudited financial statements included elsewhere in this prospectus. In the opinion of management, the audited financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read the financial data together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and notes thereto, and other financial information are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period and results from our interim period may not necessarily be indicative of the results of the entire year. Pro forma share and per share amounts presented herein reflect the implementation of the [*]-for-1 reverse stock split as if it had occurred at the beginning of the earliest period presented.
Unaudited Consolidated Statements of Operations – Three Months Ended March 31, 2022 and 2021
| 2022 | 2021 | |||||||
| Operations | ||||||||
| Revenue | ||||||||
| Fuel sales | $ | 1,693,968 | $ | 1,682,819 | ||||
| Total revenue | 1,693,968 | 1,682,819 | ||||||
| Cost of revenue | ||||||||
| Cost of fuel sold | 1,353,321 | 1,317,029 | ||||||
| Freight | 19,507 | 40,579 | ||||||
| Transport costs | 25,181 | 28,380 | ||||||
| Total cost of revenue | 1,398,009 | 1,385,988 | ||||||
| Margin on operations | 295,959 | 296,831 | ||||||
| Operating expenses | 355,416 | 253,576 | ||||||
| Earnings (loss) from operations | (59,457 | ) | 43,255 | |||||
| Interest expense | 15,599 | 16,607 | ||||||
| Earnings (loss) before income taxes | (75,056 | ) | 26,648 | |||||
| Income tax provision (recovery) | - | - | ||||||
| Net (loss) income | $ | (75,056 | ) | $ | 26,648 | |||
| Earnings Per Share | ||||||||
| Weighted average shares outstanding | 22,345,898 | 13,304,065 | ||||||
| Basic and fully diluted earnings (loss) per share | $ | (0.00 | ) | $ | 0.00 | |||
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Unaudited Consolidated Balance Sheets – As of March 31, 2022 and December 31, 2021
March 31, 2022 (Unaudited) | December 31, 2021 (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 202,447 | $ | 281,504 | ||||
| Accounts receivable, net | 288,612 | 159,988 | ||||||
| Inventory | - | 127,607 | ||||||
| Other current assets | 8,300 | 8,300 | ||||||
| Total current assets | 499,359 | 577,399 | ||||||
| Property and equipment, net | 315,062 | 357,702 | ||||||
| Other assets | 19,511 | 17,613 | ||||||
| Total assets | $ | 833,932 | $ | 952,714 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 190,714 | $ | 199,948 | ||||
| Short term notes payable – related party | 345,000 | 345,000 | ||||||
| Current maturities of long-term debt | 127,165 | 129,548 | ||||||
| Total current liabilities | 662,879 | 674,496 | ||||||
| Long-term debt, net | 255,504 | 287,613 | ||||||
| Total liabilities | $ | 918,383 | $ | 962,109 | ||||
| Shareholders’ equity | ||||||||
| Preferred stock –1,000,000 shares authorized, issued and outstanding with a par value of $0.0001 per share | 100 | 100 | ||||||
| Common stock – 99,000,000 shares authorized, $0.0001 par value 22,345,898 and 22,345,898 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 2,235 | 2,235 | ||||||
| Stock payable | 300 | 300 | ||||||
| Additional Paid-in capital | 1,757,719 | 1,757,719 | ||||||
| Accumulated deficit | (1,844,805 | ) | (1,769,749 | ) | ||||
| Total shareholders’ equity | (84,451 | ) | (9,395 | ) | ||||
| Total liabilities and shareholders’ equity | $ | 833,932 | $ | 952,714 | ||||
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An investment in our securities is speculative and involves a high degree of risk including the risk of a loss of your entire investment. You should carefully consider the following risk factors. These risk factors contain, in addition to historical information, forward looking statements that involve risks and uncertainties. Our actual results could differ significantly from the results discussed in the forward-looking statements. The occurrence of any of the adverse developments described in the following risk factors and in the documents incorporated herein by reference could materially and adversely harm our business, financial condition, results of operations or prospects. In such event, the value of our securities could decline, and you could lose all or a substantial portion of the money that you pay for our securities. In addition, the risks and uncertainties discussed below are not the only ones we face. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material, and these risks and uncertainties could result in a complete loss of your investment. In assessing the risks and uncertainties described below, you should also refer to the other information contained in this prospectus (as supplemented or amended).
Risks Related to our Business
There are doubts about our ability to continue as a going concern.
We have incurred significant operating losses since our inception in 2009 and expect to continue to incur significant and increasing operating losses for the foreseeable future. As of March 31, 2022, we had an accumulated deficit of $1,844,805 and a net loss of $75,056 for the three months then ended. As of December 31, 2021, we had an accumulated deficit of $1,769,749 and a net loss of $1,542,938 for the year then ended. As a result of these conditions, management has concluded that substantial doubt about our ability to continue as a going concern exists as conditions and events, considered in the aggregate, indicate that it is probable that we will be unable to meet our obligations as they become due within one year after the date of this prospectus. The financial information throughout this prospectus and the consolidated financial statements included elsewhere in this prospectus have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business which cannot be assured. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot secure the financing needed to continue as a viable business, our stockholders may lose some or all of their investment in us.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from this offering, our operations or that funds will be available from external sources, such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations, or to raise capital from external sources would force us to substantially curtail or cease operations and would, therefore, have a material adverse effect on our business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on our existing stockholders.
We intend to overcome the circumstances that impact our ability to remain a going concern through a combination of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. We anticipate raising additional funds through public or private financing, strategic relationships or other arrangements in the near future to support our business operations; however, we do not have commitments from third parties for a sufficient amount of additional capital. We cannot be certain that any such financing will be available on acceptable terms, or at all, and our failure to raise capital, when needed, could limit our ability to continue our operations. Our ability to obtain additional funding will determine our ability to continue as a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and stock price and require us to curtail or cease operations, sell off our assets, seek protection from our creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of our Common Stock, and debt financing, if available, may involve restrictive covenants, and would have a superior claim to our assets over the holders of our Common Stock, and strategic relationships, if necessary, to raise additional funds, and may require that we relinquish valuable rights. Please see Financial Statements – Note 2 - Going Concern for further information.
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We will require additional capital to continue as a going concern and to achieve our business objectives but such capital may not be available to us on reasonable terms or at all.
We believe the proceeds from this offering will be sufficient to further our business plan through April 2023. However, we can give no assurance that all, or even a significant portion of these Units will be sold or, that the monies raised will be sufficient to allow us to continue as a going concern. Further, no assurance can be given if additional capital is needed as to how much additional capital will be required or that additional financing can be obtained, or, if obtainable, that the terms will be satisfactory to us, or at all, or that such financing would not result in a substantial dilution of our stockholders’ interests. A failure to raise capital when needed would have a material adverse effect on our business, financial condition and results of operations. In addition, debt and other debt financing may involve a pledge of assets and may be senior to interests of equity holders. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital or to pursue business opportunities, including potential acquisitions. If adequate funds are not obtained, we may be required to reduce, curtail or discontinue operations.
Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
| ● | investors’ perception of, and demand for, our securities; | |
| ● | conditions of the U.S. and other capital markets in which we may seek to raise funds; and | |
| ● | our future results of operations, financial condition and cash flow. |
We are a small business in a large fragmented industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We are a small, undiversified company in a large fragmented multi-level highly competitive industry which makes it difficult to properly evaluate our business and prospects. We are subject to all the risks inherent in a small company seeking to develop, market and distribute a commodity product in a basic industry. While we offer our customers different blends of gasoline, such blends are widely available from our competitors and may not be sufficiently differentiated to give us a market advantage. The likelihood of our success must be considered, in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the development, introduction, marketing and distribution of commodity products and services in a highly competitive environment.
Such risks include, but are not limited to, dependence on the success and acceptance of our services and the management of growth. In view of our market position and the volatility of prices in our industry, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as an indication of future performance.
We may be unable to manage growth, which may impact our potential profitability.
Successful implementation of our business requires us to manage our growth. Growth could place an increasing strain on our management and financial resources. To manage growth effectively, we will need to:
| ● | Establish definitive business strategies, goals and objectives; | |
| ● | Maintain a system of management controls; and | |
| ● | Attract and retain qualified personnel, as well as develop, train, and manage management-level and other employees. |
If we fail to manage our growth effectively, our business, financial condition, or operating results could be materially harmed, and our stock price may decline.
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We are a “controlled company” within the meaning of Nasdaq listing standards and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements and you will have limited voting power compared to the holder of our Series A Preferred Stock.
After this offering, our CEO, Christopher Williams, the sole holder of our Series A Preferred Stock, will control a majority of the voting power of our Company. For so long as Mr. Williams holds at least [*] shares of Series A Preferred Stock, he is expected to hold a majority of our outstanding voting power and he will control the outcome of matters submitted to a shareholder vote, including the appointment of all Company directors. As a result of the voting power held by Mr. Williams, we will qualify as a “controlled company” within the meaning of Nasdaq’s corporate governance standards. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that: (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to the board by independent directors or an independent nominating committee, and (iii) we have a compensation committee that is composed entirely of independent directors.
Following this offering, we intend to rely on all of these exemptions. As a result, we will not have a majority of independent directors, our directors will not be nominated or selected by independent directors and all compensation decisions will not be made by an independent compensation committee. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq’s corporate governance requirements.
We are and will continue to be completely dependent on the services of our CEO, Christopher Williams, the loss of whose services may cause our business operations to cease, and we will need to engage and retain qualified employees and consultants to further implement our strategy.
Our operations and business strategy are completely dependent upon the knowledge and business connections of Christopher Williams. There is currently no employee of the Company who is capable of succeeding Mr. Williams should he leave our employ, voluntarily or involuntarily. If Mr. Williams should choose to leave us for any reason or if he dies, becomes ill and unable to work for an extended period of time before we have hired someone who could replace him, our operations will likely stagnate or fail. Although we have obtained “key man” insurance that would pay $1,000,000 to our Company in the event of his death or permanent disability, such sum would likely not compensate us for his loss. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described herein. We will fail without the services of Christopher Williams or an appropriate replacement(s). Were Mr. Williams to leave our employ voluntarily or have his employment terminated by our Board of Directors, he would still maintain a controlling interest over our Company by virtue of his voting power to control all aspects of the Company’s governance. Should Mr. Williams become a stockholder hostile to our Board of Directors, he would have the power to remove our Board of Directors, elect new Board members and possibly reinstate his employment even if that was not in the best interests of the Company or its minority stockholders. Our Board has no current plans to search for a potential successor to Mr. Williams.
We have only three directors, one of whom is also an officer. Two of our directors are related.
We have only three directors, one of whom is also an officer and are related to each other as father and son. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like the decisions of the CEO, compensation, corporate governance or audit issues.
Until we have a larger board of directors which could include some independent members, if ever, there will be limited oversight of our CEO’s decisions and activities and little ability for minority stockholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority stockholders.
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Our CEO, Christopher Williams, has no experience managing a public company and no meaningful financial reporting education or experience and, accordingly, our ability to meet our reporting requirements on a timely basis will be dependent to a significant degree upon third party consultants and advisors.
Christopher Williams has no experience managing a public company and no meaningful financial reporting education or experience. He is and will be heavily dependent on engaging and dealing with outside professional advisors, primarily accountants, lawyers and financial advisors who are not and will not be affiliated with our independent auditors. We have no formal arrangements with professionals to help Mr. Williams and cannot provide any assurances that we will be able to establish arrangements with professionals on terms or costs that are acceptable or affordable to us. Upon the closing of this offering we plan on hiring a full-time Chief Financial Officer who has experience working in a public company.
We have not established internal controls with respect to our financial reporting and if we fail to maintain proper and effective internal controls it will impair our ability to produce accurate financial statements on a timely basis.
If we do not establish sufficient internal controls over our financial reporting, we may incur a “material weakness.” A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. This material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. To address our material weakness, we will, in connection with the closing of our initial public offering, seek to hire a chief financial officer.
Our compliance with Section 404 of Sarbanes-Oxley Act requires that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
The measures we have taken to date, and actions we may take in the future, may not be sufficient to remediate any current deficiencies in our internal control over financial reporting or to prevent or avoid potential future material weaknesses. We may not be in a position to identify all material weaknesses. Moreover, our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and 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, which could cause the price of our common stock to decline. In addition, if we are not able to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
We have decided to become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which will require us to incur accounting and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to fund our operations and may prevent us from meeting our normal business obligations.
Although we have been filing reports with the Securities and Exchange Commission pursuant to our obligations under Regulation A of the Securities Act of 1933, as amended (the “Securities Act”) and are current in our filings, we have elected to become subject to file enhanced periodic reporting requirements pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these regulations, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel or other professional would have to review and assist in the preparation of such reports. The future costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys.
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We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly.
Our financial statements may be materially affected if our estimates prove to be inaccurate as a result of our limited experience in making critical accounting estimates.
Financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) require the use of estimates, judgments, and assumptions that affect the reported amounts. Actual results may differ materially from these estimates under different assumptions or conditions. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong, then we face the risk that charges to income will be required. In addition, because we have limited experience in making these estimates, judgments, and assumptions, the risk of future charges to income may be greater than if we had more experience in these areas. Any such charges could significantly harm our business, financial condition, results of operations, and the price of our securities.
General economic, financial and political conditions that are largely out of our control could adversely affect our business, financial condition and results of operations.
Recessionary economic conditions, higher interest rates, higher motor fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors may affect consumer spending or buying habits, and could adversely affect the demand for the fuels we will sell. Unfavorable economic conditions, higher motor fuel prices and unemployment levels can affect consumer confidence, spending patterns and miles driven, with many customers “trading down” to lower priced products in certain categories when unfavorable conditions exist. These factors could lead to sales declines in customer orders, and in turn could have an adverse impact on our business, financial condition and results of operations.
A tightening of credit in the financial markets or an increase in interest rates may make it more difficult for wholesale customers and suppliers to obtain financing and, depending on the degree to which it occurs, may cause a material increase in the nonpayment or other nonperformance by our customers and suppliers. Even if our credit review and analysis mechanisms work properly, we may experience financial losses in our dealings with these third parties. A material increase in the nonpayment or other nonperformance by our wholesale customers and/or suppliers could adversely affect our business, financial condition, and results of operations.
Examples of other general economic, financial and political risks include:
| ● | a general or prolonged decline in, or shocks to, regional or broader macro-economics; | |
| ● | regulatory changes that could impact the markets in which we operate, which could reduce demand for our goods and services or lead to pricing, currency, or other pressures; and | |
| ● | deflationary economic pressures, which could hinder our ability to operate profitably in view of the challenges inherent in making corresponding deflationary adjustments to our cost structure. |
The nature of these types of risks, which are often unpredictable, makes them difficult to plan for, or otherwise mitigate, and they are generally uninsurable, which compounds their potential impact on our business. Any such event could have a material adverse effect on our business, financial condition and results of operations.
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Volatility in crude oil and wholesale diesel and gasoline costs affect our business, financial condition and results of operations.
Wholesale diesel and gasoline costs are directly related to, and fluctuate with, the price of crude oil. Volatility in the price of crude oil, and subsequently wholesale fuel prices, is caused by many factors, including general political, regulatory and economic conditions, acts of war, terrorism or armed conflict, instability in oil producing regions, particularly in the Middle East and South America, refinery capacity and the value of U.S. dollars relative to other foreign currencies, particularly those of oil producing nations. In addition, the supply of fuel and our wholesale purchase costs could be adversely affected in the event of a shortage or oversupply of product, which could result from, among other things, the Russian invasion of Ukraine and the sanctions imposed on Russia and other countries, interruptions of fuel production at oil refineries, new supply sources, sustained increases or decreases in global demand or the fact that we purchase our fuel on the spot market and have no guarantee an uninterrupted, unlimited supply of gasoline or diesel fuels. Significant increases and volatility in wholesale fuel costs could result in lower gross profit dollars, as an increase in the retail price of motor fuel could impact consumer demand for diesel and gasoline and could result in lower wholesale fuel gross profit dollars. As the market prices of crude oil, and, correspondingly, the market prices of wholesale fuels, experience significant and rapid fluctuations, we attempt to pass along wholesale price changes to our customers; however, we are not always able to do so immediately. The timing of any related increase or decrease in sales prices is affected by competitive conditions in our market areas. As such, our revenues and gross profit can increase or decrease significantly and rapidly over short periods of time and potentially adversely impact our business, financial condition, and results of operations. The volatility in crude oil and wholesale fuel costs and sales prices makes it extremely difficult to forecast future gross profits or predict the effect that future wholesale costs and sales price fluctuations will have on our operating results and financial condition.
The dangers inherent in the storage and transportation of motor fuel could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities.
We transport the diesel and gasoline in our own tanker trucks. Our operations are subject to significant hazards and risks inherent in transporting and storing these fuels. These hazards and risks include, but are not limited to, traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and other damage to our properties and the properties of others. Any such event not covered by our insurance could have a material adverse effect on our business, financial condition, results of operations and future prospects.
A significant decrease in demand for diesel and gasoline, including increased consumer preference for alternative fuels or improvements in fuel efficiency, in the areas we serve would materially affect our revenues and profitability.
The Energy Information Administration of the U.S. Department of Energy projects that U.S. motor gasoline consumption will decline at an average rate of 1.1% per year between 2012 and 2040 as improvements in fuel efficiency are expected to outpace increases in miles driven. A significant decrease in demand for these products in the areas we serve could significantly reduce our revenues. Our revenues are dependent on various trends, such as trends in consumer disposable income, the trucking industry, and travel in our market areas, and these trends can change. Regulatory action, including government imposed fuel efficiency standards, may also affect demand for these fuels. Because certain of our operating costs and expenses are fixed and do not vary with the volumes of products we distribute, our costs and expenses might not decrease ratably or at all should we experience such a reduction. As a result, we may experience declines in our profit margin if our fuel distribution volumes decrease.
Any technological advancements, regulatory changes or changes in consumer preferences causing a significant shift toward alternative products could reduce demand for the conventional petroleum based fuels we currently sell. Additionally, a shift toward electric, hydrogen, natural gas or other alternative-power vehicles could fundamentally change our customers’ shopping habits or lead to new forms of fueling destinations or new competitive pressures.
New technologies have been developed and governmental mandates have been implemented to improve fuel efficiency, which may result in decreased demand for petroleum-based fuel. For example, in December 2021, the Biden Administration announced revised GHG emissions standards for light-duty vehicle fleets for Model Years 2023-2026, which some manufacturers may meet by increasing fuel efficiency or increasing the prevalence of zero-emissions vehicles in their fleets. The Biden Administration has also set a goal for federal vehicle acquisitions to be 100% zero-emissions vehicles by 2035, which may further influence the composition of vehicle fleets. Any of these outcomes could result in a reduction in demand from our wholesale customers, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.
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The industries in which we operate are subject to seasonal trends, which may cause our operating costs to fluctuate, affecting our cash flow.
We typically experience more demand for diesel and gasoline in the late spring and summer months than during the fall and winter. Travel, recreation and construction are typically higher in these months in the market areas in which we operate, increasing the demand for fuel that we sell and distribute. Therefore, our revenues and cash flows are typically higher in the second and third quarters of our fiscal year. As a result, our results from operations may vary widely from period to period, affecting our cash flow.
Our operations are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities that could exceed current expectations.
Our operations are subject to stringent and complex federal, state and local laws and regulations governing the release, disposal or discharge of materials into the environment, health and safety aspects of our operations, or otherwise relating to environmental protection. For example, the transportation and storage of refined products over and adjacent to water involves risk and potentially subjects us to strict, joint, and potentially unlimited liability for removal costs and other consequences of an oil spill where the spill is into navigable waters, along shorelines or in the exclusive economic zone of the United States. In the event of an oil spill into navigable waters, substantial liabilities could be imposed upon us. The Clean Water Act imposes restrictions and strict controls regarding the discharge of pollutants into navigable waters, with the potential of substantial liability for the violation of permits or permitting requirements.
The application of specific health and safety criteria addressing worker protection; and the imposition of substantial liabilities for pollution resulting from the ownership or operation of our tanker trucks. Numerous governmental authorities have the power to enforce compliance with these laws and regulations and the permits issued under them. Such enforcement actions often involve taking difficult and costly compliance measures or corrective actions. We may be required to make significant capital and operating expenditures or perform remedial or other corrective actions to comply with the requirements of these environmental laws and regulations or the terms or conditions of permits issued pursuant to such requirements. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of our operations. In addition, we may experience delays in obtaining or be unable to obtain required permits, which may delay or interrupt our operations and limit our growth and revenue. “Business—Regulation of Environmental and Occupational Safety and Health Matters” contains further description of the laws and regulations that affect us.
There is inherent risk of incurring significant environmental costs and liabilities in the performance of our operations due to our handling of petroleum hydrocarbons and other hazardous substances and wastes, as a result of air emissions related to our operations. Spills or other releases of regulated substances, including such spills and releases that occur in the future, could expose us to material losses, expenditures and liabilities under applicable environmental laws and regulations. Under certain of such laws and regulations, we could be held strictly liable for the removal or remediation of previously released hazardous materials or property contamination, regardless of whether we were responsible for the release or contamination and even if our operations met previous standards in the industry at the time they were conducted. In connection with certain acquisitions, we could acquire, or be required to provide indemnification against, environmental liabilities that could expose us to material losses. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the trucking industry could continue, resulting in increased costs of doing business and consequently affecting profitability. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on our industry in general in addition to our own results of operations, competitive position or financial condition. To the extent laws are enacted or other governmental action is taken that restricts development or imposes more stringent and costly operating, disposal and cleanup requirements, our business, prospects, financial condition or results of operations could be materially adversely affected.
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We are subject to federal laws related to the Renewable Fuel Standard.
New laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments could require us to make additional capital expenditures or incur additional liabilities. For example, at times, certain independent refiners have initiated discussions with the EPA to change the way the Renewable Fuel Standard (“RFS”) is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors. Under the RFS, which requires an annually increasing amount of biofuels to be blended into the fuels used by U.S. drivers, refiners/importers are obligated to obtain renewable identification numbers (“RINS”) either by blending biofuel into gasoline or through purchase in the open market. If the obligation was shifted from the importer/refiner to the blender/distributor, we would potentially have to utilize the RINS we obtain through our blending activities to satisfy a new obligation and would be unable to sell RINS to other obligated parties, which may cause an impact on the fuel margins associated with our sale of gasoline. Additionally, the price of RINS is not fixed and is subject to change due to various considerations, including regulatory actions. In December 2021, the EPA proposed to modify the 2021 and 2022 volume targets for renewable fuels and, in light of the impacts of the COVID-19 pandemic, to retroactively reduce the targets for 2020. We cannot predict the impact of such modifications, but any such reduction may decrease demand for RINS and, thus, the prices we are able to realize from the RINS we obtain. The occurrence of any of the events described above could have a material adverse effect on our business, financial condition, results of operations and our future prospects.
We are subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase, store, transport, and sell to our customers.
Various federal, state, and local government agencies have the authority to prescribe specific product quality specifications for certain commodities, including commodities that we distribute. Changes in product quality specifications, such as reduced sulfur content in refined petroleum products, or other more stringent requirements for fuels, could reduce our ability to procure product, require us to incur additional handling costs and/or require the expenditure of capital. If we are unable to procure product or recover these costs through increased selling price, we may not be able to meet our financial obligations. Failure to comply with these regulations could result in substantial penalties.
We may incur substantial losses and be subject to substantial liability claims as a result of our operations. Additionally, we may not be insured for, or our insurance may be inadequate to protect us against, these risks.
Our operations are subject to risks associated with the energy industry, including the possibility of:
| ● | environmental hazards, such as uncontrollable releases of tanker truck emissions, motor fuel, and chemical spills or other pollution into the environment; | |
| ● | personal injuries and death; | |
| ● | natural disasters; and | |
| ● | terrorist attacks targeting oil related facilities and infrastructure. |
Any of these risks could adversely affect our operations and result in substantial loss to us for:
| ● | injury or loss of life; | |
| ● | damage to and destruction of property, natural resources and equipment; | |
| ● | pollution and other environmental and natural resources damages; | |
| ● | regulatory investigations and penalties; | |
| ● | suspension of our operations; and | |
| ● | repair and remediation costs. |
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In accordance with what we believe to be customary industry practice, we maintain insurance against some, but not all, of our business risks. Our insurance may not be adequate to cover any losses or liabilities we may suffer. Also, insurance may no longer be available to us or, and if it is, its availability may be at premium costs that do not justify its purchase. The occurrence of a significant uninsured claim or a claim in excess of the insurance coverage limits we maintain could have an adverse effect on our ability to conduct normal business operations and on our financial condition, results of operations or cash flows. In addition, we may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause us to restrict our operations, which might severely impact our financial condition. We may also be liable for environmental damage caused by previous owners of properties purchased by us that are not covered by insurance.
We may elect not to obtain insurance for any or all of these risks if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition and results of operations.
Most of our competitors have significantly greater financial and marketing resources than we do.
We compete with local, regional and national competitors, such as Sun Coast Resources, Inc. and RelaDyne, Inc. who are located in our market area, as well as national and international companies like Exxon Mobile Corporation and Shell Oil Corporation. Most of our competitors have significantly greater financial and marketing resources than do we. Many of these competitors are vertically integrated, have sophisticated management, are in a position to purchase inventory at the lowest prices and have the ability to advertise in a wide variety of media. Their products are also already well known in the marketplace. There are no assurances that we will be able to successfully compete against all of these entities.
We depend on four principal suppliers for the majority of our fuel. A disruption in supply or a change in our relationship with any one of them could adversely affect our business, financial condition and results of operations.
In 2021, we purchased approximately 70%, 20%, and 10% of our motor fuel from only three fuel suppliers. A change of fuel suppliers, a disruption in supply or a significant change in pricing with any of these suppliers could have a material adverse effect on our business, financial condition and results of operations.
We depend on a few major customers for a majority of our revenues.
Accounts receivable as of December 31, 2021 were concentrated among three customers representing 60%, 21% and 17% of accounts receivable. Accounts receivable as of December 31, 2020 were concentrated among three customers representing 54%, 25% and 21% of accounts receivable. Revenue included a significant concentration among customers for the year ended December 31, 2021 in which one customer represented 81% of revenue. Revenue also included a significant concentration among customers for the year ended December 31, 2020 in which one customer represented 80% of revenue. A change in our relationship with any one of them could adversely affect our business, financial condition and results of operations.
Our fuel sales are generated under contracts that must be renegotiated or replaced periodically. If we are unable to successfully renegotiate or replace these contracts, then our business, financial condition and results of operations could be adversely affected.
Our sales of diesel and gasoline are generated under contracts that must be periodically renegotiated or replaced. We may be unable to renegotiate or replace these contracts when they expire, and the terms of any renegotiated contracts may not be as favorable as the contracts they replace. Whether these contracts are successfully renegotiated or replaced is often times subject to factors beyond our control. Such factors include fluctuations in fuel prices, counterparty ability to pay for or accept the contracted volumes and a competitive marketplace for the services offered by us. If we cannot successfully renegotiate or replace our contracts or must renegotiate or replace them on less favorable terms, sales from these arrangements could decline, which could have a material adverse effect on our business, financial condition and results of operations.
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Severe weather, which may increase in frequency and intensity due to climate change, could adversely affect our business by damaging our suppliers’ or our customers’ facilities or communications networks.
Our market area is located in a region susceptible to severe storms. A severe storm could damage the facilities of our suppliers or our customers, as well as interfere with our ability to distribute fuel to our customers or our customers’ ability to operate their locations. If warmer temperatures, or other climate changes, lead to changes in extreme weather events, including increased frequency, duration or severity, these weather-related risks could become more pronounced. Any weather-related catastrophe or disruption could have a material adverse effect on our business, financial condition and results of operations, potentially causing losses beyond the limits of the insurance we currently carry.
Future litigation could adversely affect our financial condition and results of operations.
We may, in the future, be exposed to various litigation claims in the ordinary course of our wholesale business operations, including industry-wide or class-action claims arising from the products we distribute, the equipment or processes we use or employ or industry-specific business practices. If we were to become subject to any such claims, our defense costs and any resulting awards or settlement amounts may not be fully covered by our insurance policies. We could, in the future, become a party to individual personal injury, property damage, bad fuel, products liability and other legal actions in the ordinary course of our business. While we believe these actions would be generally routine in nature, incidental to the operation of our business and immaterial in scope, if our assessment of any action or actions should prove inaccurate our financial condition and results of operations could be adversely affected. Additionally, several fossil fuel companies have been the targets of litigation alleging, among other things, that such companies created public nuisances by producing and marketing fuels that contributed to climate change or that the companies have been aware of the adverse effects of climate change but failed to adequately disclose those impacts. While we cannot predict the likelihood of success of such suits, to the extent the plaintiffs prevail, we could face significant costs or decreased demand for our services, which could adversely affect our financial condition and results of operations.
We rely on our information technology systems to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.
We depend on our information technology (“IT”) systems to manage numerous aspects of our business transactions and provide analytical information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses, which could result in a loss of sensitive business information, systems interruption or the disruption of our business operations. To protect against unauthorized access or attacks, we have implemented infrastructure protection technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure will not have a material adverse effect on our financial condition or results of operations.
Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cyber security attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
In the normal course of our business as a wholesale fuel distributor, we obtain personal and business data, including credit and debit card information from our customers. While we believe that we maintain adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition. Such a breakdown or breach could also materially increase the costs we incur to protect against such risks. Also, a material failure on our part to comply with regulations relating to our obligation to protect such sensitive data or to the privacy rights of our customers, employees and others could subject us to fines or other regulatory sanctions and potentially to lawsuits. Cyber-attacks are rapidly evolving and becoming increasingly sophisticated. A successful cyber-attack resulting in the loss of sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to upgrade further the security measures that we employ to guard against cyber-attacks.
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We rely on our suppliers to provide trade credit terms to adequately fund our ongoing operations.
Our business is impacted by the availability of trade credit to fund our fuel purchases. An actual or perceived downgrade in our liquidity or operations (including any credit rating downgrade by a rating agency) could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms. Any material changes in our payment terms, including early payment discounts, or availability of trade credit provided by our principal suppliers could impact our liquidity, and results of operations.
We face risks related to Coronavirus (COVID-19) which could significantly disrupt our operations, sales, and financial results.
While the Covid-19 pandemic had a minimal effect on our operations to date, our business could be impacted in the future by the continuing effects of the COVID-19 outbreak. Our and our third-party vendors and our customers could be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our activities or the operations of our third-party vendors, the supply of our products could be delayed, which could adversely affect our business, operations, and customer relationships. There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent periods. The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and will depend on future developments. We do not yet know the full extent of potential impacts on our business, local, national and international oil markets or the global economy as a whole, but any disruption similar to what was experienced in 2020 and 2021 could have a material adverse impact on our operations, financial condition and results of operations.
Laws, regulations, technological, political and scientific developments regarding climate change and fuel efficiency may decrease demand for the fuels we sell.
Developments aimed at reducing greenhouse gas emissions’ contribution to climate change may decrease the demand or increase the cost for the diesel and gasoline fuels we distribute and sell. Attitudes toward these products and their relationship to the environment may significantly affect our effectiveness in marketing and sales. Efforts to steer the public toward hybrid-electric or fully electric vehicles may foster a negative perception toward diesel or gasoline powered automobiles and trucks, increase our rack prices, and decrease our sales over time. New technologies that increase fuel efficiency or offer alternative vehicle power sources or laws or regulations to increase fuel efficiency, reduce consumption or offer alternative vehicle power sources (including electric and hydrogen-powered vehicles) may result in decreased demand for petroleum-based fuel. A number of new legal incentives, regulatory requirements and executive initiatives, including the U.S. Department of Transportation’s National Highway Traffic Safety Administration’s new Corporate Average Fuel Economy (“CAFÉ”) standards that require an industry-wide fleet average of approximately 49 miles per gallon for passenger cars and light trucks in model year 2026 will have the effect of moving automobile and truck manufacturers to electric power sources at a faster rate and will drive down demand for diesel and gasoline. These developments could potentially have a material adverse effect on our business, financial condition, results of operations and future prospects.
A climate-related decrease in demand for crude oil could negatively affect our business.
Supply and demand for crude oil is dependent upon a variety of factors, many of which are beyond our control. These factors include, among others, the potential adoption of new government regulations, including those related to fuel conservation measures and climate change regulations, technological advances in fuel economy and energy generation devices. For example, legislative, regulatory or executive actions intended to reduce emissions of GHGs could increase the cost of consuming crude oil, thereby potentially causing a reduction in the demand for this product. A broader transition to alternative fuels or energy sources, whether resulting from potential new government regulation, carbon taxes or consumer preferences could result in decreased demand for products like crude oil. Any decrease in demand could consequently reduce demand for our services and could have a negative effect on our business.
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Our business operations may be materially adversely affected by negative impacts on the global economy, capital markets, or other geopolitical conditions resulting from the recent invasion of Ukraine by Russia and subsequent sanctions against Russia, Belarus, and related individuals and entities. Current volatility remains in the oil, diesel fuel, and gasoline markets around the globe.
The United States and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the recent invasion of Ukraine by Russia in February 2022. In response to such an invasion, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe. The United States, the United Kingdom, the European Union, and other countries have announced various sanctions and restrictive actions against Russia, Belarus, and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. The invasion of Ukraine by Russia and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing military conflict in Ukraine are highly unpredictable, the conflict could lead to market disruptions, including significant volatility in commodity prices (including the price of crude oil), credit and capital markets, as well as supply chain interruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Any of the abovementioned factors, or any other negative impact on the global economy, capital markets, or other geopolitical conditions resulting from the Russian invasion of Ukraine and subsequent sanctions, could adversely affect our business operations. The rise in the price of crude oil has increased our rack prices and the prices we charge to our customers for diesel and gasoline. As of the date of this prospectus, we have not experienced any decrease in orders from our customers, but continued increases in the price of refined petroleum products could have an adverse impact on demand and result in lower revenues and higher costs for us which could have a material adverse impact to our results of operations, financial condition and prospects.
The extent and duration of the Russian invasion of Ukraine, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Any such disruptions may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to the market for our securities, or our ability to raise equity or debt financing. If these disruptions or other matters of global concern continue for an extensive period of time, our ability to continue business operations may be materially adversely affected.
Risks Related to Our Common Stock, Warrants and the offering
You will experience immediate and substantial dilution as a result of this offering.
The initial offering price of our Units is substantially higher than the net tangible book value per share of our Common Stock immediately after this offering. Therefore, if you purchase our Units in this offering, you will incur an immediate dilution with respect to your ownership of our Common Stock of $[*] (or [*]%) in net tangible book value per share from the price you paid, based upon the assumed initial public offering price of $[*] per Unit. If we raise funds by issuing additional securities, the newly issued securities may further dilute your ownership interest. See “Dilution.”
Mr. Williams will have discretion as to the use of the net proceeds that we will receive from this offering.
Mr. Williams, our CEO, will have complete discretion in the application of the net proceeds that we receive. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on his judgment regarding the application of the net proceeds of this offering. We intend to use these net proceeds for, among other things, (i) expansion of our proprietary fuel sales in Houston, Dallas/Fort Worth, Maryland, and Chicago, (ii) working capital for expansion of pipeline inventory purchases, (iii) the hiring of additional personnel, (iv) the purchase of additional equipment (two trucks, two fuel trailers), (v) the rental of one rail tank car, (vi) the potential acquisition of a truck terminal, convenience stores, and/or a marina, and (vii) general corporate purposes, including working capital and operating expenses. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain profitability or increase our share price.
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Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the amount of cash used in our operations. As a result, Mr. Williams will have broad discretion in the application of the net proceeds, and investors will be relying on his sole judgment regarding the application of the net proceeds of this offering.
The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline. “Use of Proceeds.”
Shares eligible for future sale may have adverse effects on our share price.
Sales of substantial amounts of shares or the perception that such sales could occur may adversely affect the prevailing market price for our shares. In addition, there is risk that market overhang can develop after the lock-up period ends and insiders look to unload their recently acquired shares. We may issue additional shares in subsequent public offerings or private placements to make new investments or for other purposes. Therefore, it may not be possible for existing stockholders to participate in such future share issuances, which may dilute the existing stockholders’ interests in us.
Stockholders may be diluted significantly because of the issuance of convertible financial instruments through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our Common Stock.
Wherever possible, our board of directors will attempt to use unregistered “restricted” shares of our Common Stock or other financial instruments (such as convertible promissory notes) to satisfy our financial obligations Our board of directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued shares of our Common or preferred stock. In addition, we may attempt to raise capital by selling shares of our Common Stock, possibly at a discount to its current market price. These actions will result in dilution of the ownership interests of existing stockholders, will and that dilution may be substantial.
The interests of stockholders may be hurt because we can issue shares of our Common Stock to individuals or entities that support existing management with such issuances serving to enhance management’s ability to maintain control of our Company.
Our management owns a controlling majority of the outstanding votes. In addition, our board of directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued common or preferred shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests of existing management which may not be the same as the interests of other stockholders. Although transactions, other than those described in this prospectus, are not currently being contemplated or discussed, our ability to issue shares without shareholder approval serves to enhance existing management’s ability to maintain its control of our Company or participate in other transactions, including entering into possible business combinations, without the support of our minority stockholders.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to Common Stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control.
Our Articles of Incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders.
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Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. Thus, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of our Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our Common Stock.
Our management controls all corporate activities and can approve all transactions, including mergers, without the approval of other stockholders.
Our CEO, Christopher Williams, holds 1,000,000 shares of our Series A Preferred Stock that gives him the right to 100 votes per share or 100,000,000 votes. Therefore, our management effectively controls all corporate activities and can approve transactions, including possible mergers, issuance of shares and compensation levels, without the approval of other stockholders. The decisions of our management may not be consistent with or in the best interests of other stockholders.
This capital structure may have anti-takeover effects preventing a change in control transaction that the minority owners of our Common Stock might consider in their best interest.
The ability of our management to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.
Our CEO, Christopher Williams, beneficially owns 1,000,000 shares of Series A Preferred Stock that grants him 100 votes per share in all shareholder matters. Because of this beneficial stock ownership, Mr. Williams is in a position to continue to elect our entire board of directors, decide all matters requiring stockholder approval, including potential mergers or business changes, and determine our policies. The interests of our management may differ from the interests of our minority stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. Our minority stockholders have no way of overriding decisions made by our management. This level of control may also have an adverse impact on the market value of our shares because our management may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
Our Articles of Incorporation provide for indemnification of officers and directors at our expense and limit their liability that 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 and/or directors.
Our Articles of Incorporation, as amended, provide that we indemnify our officers and directors to the fullest extent allowed under the laws of the State of Wyoming.
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, if such a market ever develops.
We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our Common Stock. We do not expect to pay cash dividends on our Common Stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements, and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our Common Stock, the return on your investment, if any, will depend solely on an increase, if any, in the market value of our Common Stock and Warrants.
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Our Common Stock has a limited trading market, which could affect your ability to sell shares of our Common Stock and the price you may receive for our Common Stock.
Our Common Stock is currently traded in the over-the-counter market maintained by OTC Markets, Inc. under the symbol “CWPE.” However, these markets are an unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than Nasdaq or other national securities exchanges, there has been only limited trading activity in our Common Stock, and we have a relatively small public float compared to the number of our shares outstanding. Further, while we have applied to list our Common Stock on Nasdaq, we cannot predict whether we will be approved or, if we are approved, the extent to which investors’ interest in our Common Stock will provide an active and liquid trading market. If an active trading market for our Common Stock does not develop or is not sustained following this offering, you may not be able to sell your shares quickly or at the market price. Our ability to raise capital to continue to fund operations by selling shares of our Common Stock and our ability to make acquisitions by using shares of our Common Stock as consideration may also be impaired. The public offering price of our Common Stock will be determined by negotiations between us and the underwriters and may not be indicative of the market prices of our Common Stock that will prevail in the trading market.
The market price for our Common Stock is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, which has led and could, in the future, lead to wide fluctuations our share price. The price at which a stockholder purchases our shares in this offering may not be indicative of the price that will prevail in the trading market. Our stockholders may be unable to sell their Common Stock at or above the purchase price, which may result in substantial losses to our stockholders.
The market price of our Common Stock could fluctuate significantly in response to various factors and events, including, but not limited to:
| ● | the continuing potential impact of COVID-19 pandemic on our business, customers, employees, consultants, service providers, stockholders, investors, and other stakeholders; | |
| ● | our ability to execute our business; | |
| ● | our quarterly operating results falling below expectations; | |
| ● | our issuance of additional securities, including debt or equity or a combination thereof; | |
| ● | announcements of technological innovations or new products by us or our competitors; | |
| ● | loss of any strategic relationship; | |
| ● | industry developments, including, without limitation, changes in competition or practices; | |
| ● | economic and other external factors; | |
| ● | period-to-period fluctuations in our financial results; and | |
| ● | whether an active trading market in our Common Stock develops and is maintained. |
In addition, he securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock.
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The market for our shares of Common Stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our shares are sporadically traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our shares are sold into the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative investment due to, among other matters, our lack of significant revenue or profit to date, and the uncertainty of future market acceptance for our products and services. As a consequence of this enhanced risk, more risk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the securities of a seasoned issuer. The following factors may add to the volatility in the price of our shares: actual or anticipated variations in our quarterly or annual operating results, government regulations, announcements of significant acquisitions, strategic partnerships or joint ventures, our capital commitments, and additions or departures of our key personnel. Many of these factors are beyond our control and may decrease the market price of our shares regardless of operating performance. We cannot make any predictions or projections as to what the prevailing market price for our shares will be at any time, including as to whether our shares will sustain their current market prices, or as to what effect the sale of shares or the availability of shares for sale at any time will have on the prevailing market price.
Our stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include: (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, our management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The possible occurrence of these patterns or practices could increase the volatility of our share price.
Our Common Stock is currently deemed a “penny stock,” which makes it more difficult for our stockholders to sell their shares.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock if and when such shares are eligible for sale and may cause a decline in the market value of our stock.
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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
As an issuer of a “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
There can be no assurances that our shares once listed on Nasdaq will not be subject to potential delisting if we do not continue to maintain the listing requirements of Nasdaq.
We have applied to list the shares of our Common Stock on the Nasdaq Capital Market under the symbol “[*].” Nasdaq has rules for continued listing, including, without limitation, minimum stock price, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed from Nasdaq), would make it more difficult for stockholders to sell our Common Stock and more difficult to obtain accurate price quotations on our Common Stock. This could have an adverse effect on the price of our Common Stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Common Stock is not traded on a national securities exchange.
If Nasdaq does not list our securities, or subsequently delists our securities from trading, we could face other significant consequences, including:
| ● | a limited availability for market quotations for our securities; | |
| ● | reduced liquidity with respect to our securities; | |
| ● | a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Stock; | |
| ● | limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The proposed reverse stock split could cause our stock price to decline relative to its value before the split and decrease the liquidity of shares of our Common Stock.
We will effect a [*]-for-1 reverse stock split of our issued and outstanding Common Stock immediately following the effectiveness but prior to the closing of this offering. There is no assurance that that the reverse stock split will not cause an actual decline in the value of our outstanding Common Stock. The liquidity of the shares of our Common Stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our Common Stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales. In addition, the reverse stock split while decreasing the outstanding number of shares of our Common Stock will not have any effect on our Series A Preferred Stock that provides for 100 votes per share. Mr. Williams, our CEO, owns all 1,000,000 shares of our Series A Preferred Stock. The reverse stock split will thus provide him with an even greater proportion of votes than he had prior to such split.
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Warrants are speculative in nature.
The Warrants will have value only if the trading price of the Warrants exceed the value of the Warrants purchased or if our Common Stock exceeds the exercise price of the Warrant after the exercise of the Warrant. There can be no assurance that the market price of our shares of Common Stock will ever equal or exceed the exercise price of the Warrants. In the event that the stock price of our shares of Common Stock does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable, the Warrants will not have any value. Commencing on the date of issuance, holders of the Warrants may exercise their right to acquire the Common Stock and pay an exercise price of $[*] per share ([*]% of the assumed public offering price of a Unit), prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. In addition, there is no established trading market for the Warrants and, although we have applied to list the Warrants on Nasdaq, there can be no assurance that an active trading market will develop.
Holders of the Warrants will have no rights as a Common Stockholder until they acquire our Common Stock.
Until holders of the Warrants acquire shares of our Common Stock upon exercise of the Warrants, the holders will have no rights with respect to shares of our Common Stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the holder will be entitled to exercise the rights of a Common Stockholder as to the security exercised only as to matters for which the record date occurs after the exercise.
There is no established market for the Warrants to purchase shares of our Common Stock being offered in this offering.
There is no established trading market for the Warrants. Although we have applied to list the Warrants on Nasdaq, under the symbol “[*]W,” there can be no assurance that there will be an active trading market for the Warrants. Without an active trading market, the liquidity of the Warrants will be limited.
Provisions of the Warrants offered by this prospectus could discourage an acquisition of us by a third party.
Certain provisions of the Warrants offered by this prospectus could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the Warrants. These and other provisions of the Warrants offered by this prospectus could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.
Our Warrant Agreement will designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our Warrants, which could limit the ability of Warrant holders to obtain a favorable judicial forum for disputes with our Company.
Our Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any person or entity purchasing or otherwise acquiring any interest in any of our Warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement.
Notwithstanding the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum.
If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Agreement, is filed in a court other than courts of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such Warrant holder in any such enforcement action by service upon such Warrant holder’s counsel in the foreign action as agent for such Warrant holder.
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This choice-of-forum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our Company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and Board of Directors. There is also uncertainty as to whether a court would enforce such provision due to the concurrent jurisdiction of federal and state courts over such Securities Act claims.
We may become involved in securities class action litigation that could divert management’s attention and harm our business.
The stock market, in general, has experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our shares could fall regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. If the market price or volume of our shares suffers extreme fluctuations, then it may become involved in this type of litigation, which would be expensive and divert management’s attention and resources from managing our business.
As a public company, we may also from time to time make forward-looking statements about future operating results and provide some financial guidance to the public markets. Our management has limited experience managing a public company and, as a result, projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC.
Securities analysts may elect not to report on our Common Stock or may issue negative reports that adversely affect the stock price.
At this time, no securities analysts provide research coverage of our Common Stock, and securities analysts may not elect to provide such coverage in the future. It may remain difficult for us, with our small market capitalization, to attract independent financial analysts that will cover our Common Stock. If securities analysts do not cover our Common Stock, the lack of research coverage may adversely affect the stock’s actual and potential market price. The trading market for our Common Stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more analysts elect to cover us and then downgrade the stock, the stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which, in turn, could cause our stock price to decline. This could have a negative effect on the market price of our Common Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should,” “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.
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You should not place undue reliance on forward looking statements. The cautionary statements set forth in this prospectus identify important factors which you should consider in evaluating our forward-looking statements. These risks include, but are not limited to, the following:
| ● | our going concern and history of losses; | |
| ● | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
| ● | a slowdown or reduction in our sales in due to a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances; | |
| ● | our need to raise additional financing to fund daily operations and successfully grow our Company; | |
| ● | changes in the price of and demand for the fuel that we distribute and the fact that we do not hedge the price any fuel we hold in inventory; | |
| ● | our dependence on limited principal suppliers; | |
| ● | competition in the wholesale gasoline and diesel distribution industry; | |
| ● | the public’s changing preferences for alternate fuel sources or improvement in fuel efficiency; | |
| ● | volatility of fuel prices and the effects of the Russian invasion of Ukraine and actions by, or disputes among or between, oil producing countries with respect to matters related to the price or production of oil; | |
| ● | dangers inherent in the transportation of diesel and gasoline fuel; | |
| ● | our reliance on exemptions from certain governance requirements as a “controlled company” within the meaning of Nasdaq listing standards; | |
| ● | our ability to retain and recruit appropriate employees; | |
| ● | environmental, tax and other federal, state and local laws and regulations; | |
| ● | the adverse effects of COVID-19 (including new and emerging strains and variants), including the general economic uncertainty and its unpredictable duration, in regions where we have customers and employee; | |
| ● | our reliance on senior management, supplier trade credit and our information technology; and | |
| ● | the other factors described in “Risk Factors.” |
You should read this prospectus (as it may be supplemented or amended) and the documents that we reference herein and therein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Because the risk factors referred to above, as well as the Risk Factors beginning on page 16 of this prospectus, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business 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. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.
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Except to the extent required by applicable laws or rules, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to publicly update or revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this prospectus and in the documents incorporated by reference in this prospectus. We qualify all of our forward-looking statements by these cautionary statements.
IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE MAY BE OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.
EXPLANATORY NOTE REGARDING REVERSE STOCK SPLIT
We will effect a reverse stock split of our Common Stock at a ratio of [*]-for-1 following the effectiveness of the registration statement of which this prospectus forms a part and prior to the closing of this offering. No fractional shares will be issued in connection with the reverse stock split and all such fractional interests will be rounded up to the nearest whole number of shares of Common Stock. All information presented in this prospectus other than in our financial statements and the notes thereto assumes a [*]-for-1 reverse stock split of our outstanding shares of Common Stock, and unless otherwise indicated, all such amounts set forth in this prospectus have been adjusted to give effect to such assumed reverse stock split.
We estimate that we will receive net proceeds of approximately $[*] million from the sale of the Units offered in this offering, or approximately $[*] million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $[*] per Unit, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us of $[*].
We currently anticipate an approximate allocation of the net proceeds from this offering, together with our existing cash as follows:
| Expansion of our proprietary reformulated 12.5% isobutanol no ethanol gasoline sales in Houston, Dallas, Maryland, and Chicago | $ | 4,000,000 | ||
| Acquisition of additional equipment (two semi-trucks, two compartmentalized fuel trailers, rail tank car rentals) | $ | 1,000,000 | ||
| Acquisition of truck terminal | $ | 1,000,000 | ||
| Acquisition of two convenience stores - equity portion | $ | 3,000,000 | ||
| Acquisition of marina fuel tanks and blend station | $ | 1,000,000 | ||
| Hiring of additional personnel | $ | 1,000,000 | ||
| Working capital for expansion of refined products pipeline sales and trading | $ | 4,000,000 | ||
| Total | $ | 15,000,000 |
We may change the amount of net proceeds to be used specifically for any of the foregoing purposes. The amounts and timing of our actual expenditures will depend upon numerous factors, including our sales and marketing and commercialization efforts, demand for our products, our operating costs and the other factors described under “Risk Factors” in this prospectus. Accordingly, Mr. Williams will have significant discretion and flexibility in applying the net proceeds from this offering. Pending any use, as described above, we intend to invest the net proceeds in high-quality, short-term, interest-bearing securities.
Although we may use a portion of the net proceeds of this offering for the acquisitions of other assets or businesses, or for other strategic investments or opportunities, we have no current understandings, agreements or commitments to do so beyond the itemized expansion costs listed above.
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Each $1.00 increase (decrease) in the assumed initial public offering price of $[*] per Unit would increase (decrease) the net proceeds to us from this offering by approximately $[*] million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 500,000 in the number of Units we are offering would increase (decrease) the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, by $[*] million, assuming the assumed initial public offering price stays the same.
Shares of our Common Stock are currently quoted on the OTC Markets under the symbol “CWPE.” Although our shares have been quoted on the OTC Markets since 2019, because trading on the OTC Markets has been infrequent and limited in volume, the prices at which such transactions occurred may not necessarily reflect the price that would be paid for our Common Stock in a more liquid market.
The following table sets forth the high and low bid of our Common Stock for each quarter within the past two completed fiscal years and the current year. The information below was provided by the OTC Markets Group, Inc.
| 2022: | High | Low | ||||||
| First Quarter | $ | 0.085 | $ | 0.02877 | ||||
| 2021: | High | Low | ||||||
| First Quarter | $ | 2.00 | $ | 0.12 | ||||
| Second Quarter | $ | 1.00 | $ | 0.2604 | ||||
| Third Quarter | $ | 0.85 | $ | 0.0632 | ||||
| Fourth Quarter | $ | 1.05 | $ | 0.1302 | ||||
| 2020: | High | Low | ||||||
| First Quarter | $ | 2.00 | $ | 1.60 | ||||
| Second Quarter | $ | 1.70 | $ | 1.65 | ||||
| Third Quarter | $ | 1.70 | $ | 1.70 | ||||
| Fourth Quarter | $ | 1.70 | $ | 1.3025 | ||||
As of May 26, 2022, the reported closing price for our Common Stock as quoted on the OTC Markets was $0.50 per share (or $[*] as adjusted for a reverse stock split of [*]-for-1, which will occur immediately prior to the date we commence the sale of our Units). Trading activity for our Common Stock can be found at https://www.otcmarkets.com/stock/CWPE/overview.
Holders
As of May 26, 2022, there were approximately 66 record holders of our Common Stock. An additional number of stockholders are beneficial holders of our Common Stock in “street name” through banks, brokers and other financial institutions that are the record holders.
In connection with this offering, we have applied to have our Common Stock and warrants listed on the Nasdaq Capital Market under the symbols “[*]” and “[*]W,” respectively. If our listing application is approved, we expect to list our Common Stock and the warrants offered in this offering on Nasdaq upon consummation of this offering. No assurance can be given that our listing application will be approved. This offering will occur only if Nasdaq approves the listing of our Common Stock and warrants. If Nasdaq does not approve the listing of our Common Stock and warrants, we will not proceed with this offering. There can be no assurance that our Common Stock and warrants will be listed on the Nasdaq.
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We have never declared or paid any cash dividends on our share capital. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business, and therefore do not intend to pay cash dividends on our Common Stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend on, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant. Investors should not purchase our Common Stock with the expectation of receiving cash dividends.
The following table sets forth our capitalization as of March 31, 2022:
| ● | on an actual basis; and | |
| ● | on an as-adjusted basis to reflect the issuance and sale by us of Units at the assumed public offering price of $[*] per Unit (the midpoint of the price range set forth on the cover page of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the proceeds of such sale. |
You should read this information together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
| As of March 31, 2022 | ||||||||
| Actual
(Unaudited) | Pro-Forma (Unaudited) | |||||||
| Cash and cash equivalents | $ | 202,447 | $ | |||||
| Long-term debt, net | $ | 255,504 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock – 99,000,000 shares authorized, $0.0001 par value 22,345,898 issued and outstanding as of March 31, 2022 | 2,235 | |||||||
| Preferred stock –1,000,000 shares authorized, issued and outstanding with a par value of $0.0001 per share | 100 | |||||||
| Additional paid-in capital | 1,757,719 | |||||||
| Accumulated deficit | (1,844,805 | ) | ||||||
| Total stockholders’ equity (deficit) | (84,451 | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 833,932 | $ | |||||
The number of shares of Common Stock to be outstanding after this offering is based on (i) shares outstanding as of March 31, 2022 totaling 22,345,898, and (ii) [*] shares included as part of this offering. The total shares of Common Stock outstanding at March 31, 2022 excludes the following:
| ● | the conversion of 1,000,000 shares of Series A Preferred Stock convertible into 100,000,000 shares of Common Stock. | |
| ● | [*] shares of Common Stock issuable upon the exercise of the Warrants included in the Units in this offering; | |
| ● | [*] shares of Common Stock issuable upon the exercise of the Over-Allotment Option; and | |
| ● | [*] shares of Common Stock issuable upon the exercise of the Underwriter’s Warrants. |
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Unless otherwise indicated, all information in this prospectus reflects or assumes:
| ● | none of the Warrants underlying the Units in this offering have been exercised; | |
| ● | no conversion of Series A Preferred Stock; | |
| ● | no exercise of the Underwriter’s Warrants; and | |
| ● | no shares of Common Stock or Warrants will be issued pursuant to the Underwriters’ Over-Allotment Option. |
The information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $[*] per Unit would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $[*] million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We may also increase or decrease the number of shares we are offering. A 500,000 Unit increase or decrease in the number of Unit offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $[*] million, assuming that the assumed initial offering price to the public remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of Common Stock is exercised in full, (i) an additional [*]shares of Common Stock would be issued and we would receive approximately $[*] million in additional net proceeds, based on an assumed initial offering price per share of Common Stock of $[*], which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us; and (ii) cash and cash equivalents, total stockholders’ equity and total capitalization would each also increase by approximately $[*] million.
If you invest in our Common Stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the public offering price per share of our Common Stock and the as adjusted net tangible book value per share of our Common Stock immediately after this offering.
As of March 31, 2022, our historical net tangible book value was $(84,551), or $(0.004) per share of our Common Stock. Net tangible book value per share represents our total tangible assets (total assets less intangible assets) less total liabilities and convertible preferred stock, divided by the total number of our outstanding shares of Common Stock as of March 31, 2022.
After giving effect to the sale and issuance of Units in this offering, at the assumed public offering price of $[*] per share of Common Stock included in each Unit, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2022 would have been approximately $[*] million, or $[*] per share of our Common Stock. This represents an immediate increase of $[*] in net tangible book value and an immediate increase of approximately $[*] in net tangible book value per share to our existing stockholders and an immediate dilution of $[*] per share to new investors.
Dilution per share to investors participating in this offering is determined by subtracting the as adjusted net tangible book value per share after this offering from the public offering price per share paid by investors participating in this offering. The following table illustrates this dilution (without giving effect to any exercise by the underwriters of their option to purchase additional shares):
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| Assumed public offering price per share | $ | [*] | ||
| Historical net tangible book value per share as of March 31, 2022 | $ | 0.004 | ||
| Increase in net tangible book value per share attributable to investors participating in this offering | $ | [*] | ||
| As adjusted net tangible book value per share immediately after this offering | $ | [*] | ||
| Dilution in as adjusted net tangible book value per share to new investors participating in this offering | $ | ([*] | ) |
The dilution information discussed above is illustrative and will change based on the actual public offering price and other terms of this offering determined at pricing. If the underwriters exercise their option to purchase additional shares in full, our as adjusted net tangible book value per share after this offering would be approximately $[*] per share, and the dilution in as adjusted net tangible book value per share to new investors participating in this offering would be $[*] per share.
An increase (decrease) in the assumed public offering price of $1.00 per share, would increase (decrease) the as adjusted net tangible book value by $[*] per share and the dilution to investors participating in this offering by $[*] per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated expenses payable by us.
Similarly, each increase (decrease) of 500,000 shares in the number of shares offered by us in this offering would increase (decrease) the as adjusted net tangible book value by $[*] per share and the dilution to investors participating in this offering by $[*] per share, assuming the assumed public offering price of $[*] per share, remains the same, assuming the number of shares sold in the concurrent private placements are decreased (increased) accordingly and after deducting estimated underwriting discounts and commissions and estimated expenses payable by us.
The following table summarizes, on an as adjusted basis as of March 31, 2022, the differences between the number of shares of Common Stock purchased from us, the total cash consideration and the average price per share paid to us by existing stockholders and by new investors purchasing shares in this offering at the assumed public offering price of $[*] per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing shares of Common Stock in this offering will pay an average price per share substantially higher than our existing investors paid.
SHARES PURCHASED |
TOTAL CONSIDERATION |
AVERAGE | ||||||||||||||||||
| PRICE PER | ||||||||||||||||||||
| NUMBER | PERCENT | AMOUNT | PERCENT | SHARE | ||||||||||||||||
| Existing stockholders | $ | 22,345,898 | [*] | % | $ 41,500 | [*] | % | $ 0.002 | ||||||||||||
| New investors participating in this offering | [*] | [*] | % | [*] | [*] | % | [*] | |||||||||||||
| Total | $ | [*] | 100 | % | $ [*] | 100 | % | $ [*] | ||||||||||||
If the underwriters exercise their option to purchase additional shares in full, the number of shares of Common Stock held by existing stockholders will be reduced to [*]% of the total number of shares of Common Stock to be outstanding after this offering, and the number of shares of Common Stock held by investors participating in this offering will be further increased to [*]% of the total number of shares of Common Stock to be outstanding after this offering.
The number of shares of Common Stock to be outstanding after this offering is based on shares of Common Stock outstanding at May 26, 2022, and excludes the following:
| ● | shares of Common Stock issuable upon the exercise of Warrants to be issued to investors in this offering; and | |
| ● | shares of Common Stock issuable upon the exercise of the Underwriter Warrants to be issued to the underwriters. |
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Unless otherwise indicated, all information in this prospectus reflects or assumes:
| ● | none of the Warrants underlying the Units in this offering have been exercised; | |
| ● | no conversion of Series A Preferred Stock; | |
| ● | no exercise of the Underwriter’s Warrants; and | |
| ● | no shares of Common Stock or Warrants will be issued pursuant to the Underwriters’ Over-Allotment Option. |
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
CW Petroleum Corp was incorporated in the State of Texas on April 29, 2005 and began operations in 2011. On April 14, 2018, CW Petroleum Corp was incorporated in the State of Wyoming. On April 15, 2018, the Texas corporation became a wholly-owned subsidiary of the Company through a share exchange. CW Petroleum Corp (Wyoming) is a holding company and, through our wholly-owned subsidiary, we supply and distribute biodiesel, biodiesel blends, ultra-low sulfur diesel, gasoline blends, renewable gasoline, and a proprietary EPA-approved reformulated no ethanol gasoline to distributors, convenience stores, and marinas.
CW Petroleum Corp (Wyoming) is a holding company and has no operations. The purpose in forming the holding company was to limit our corporate liability, create a streamlined management, maintain ownership over our sole subsidiary and establish an organizational structure to facilitate the potential acquisition of other businesses in our industry or complementary to our industry.
We are a wholesale distributor of non-branded, blended and non-blended diesel fuel and gasoline. Our business primarily involves sending a tank wagon or truck to a fuel rack at the regional fuel terminal that we believe is offering the best price to us on that day. Our tanker loads the fuel at the rack, blends it at a blending station, if necessary, pays the terminal the daily rack price and delivers the fuel to our customers. Our customers include independent fuel retailers (i.e., those not affiliated with the major national and international oil companies like Shell USA, Inc.), independent and chain convenience stores (such as 7-11, Inc. stores) that also sell gasoline and diesel fuel, marinas that sell diesel and gasoline to power boat owners and fuel distributors that deliver to their own customers. For all gallons sold to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of fuel.
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Effects of the COVID-19 Pandemic
The recent outbreak of COVID-19 has spread across the globe and is impacting worldwide economic activity. As of the date of this filing, COVID-19 has had a minimal impact on our business. Our business was already operational, there is minimal labor required to operate our business and energy needs in our market area were stable during the pandemic. The extent to which COVID-19 may impact our operations on an ongoing basis in the future is highly uncertain. It will depend on various factors including the duration and severity of the outbreak, the severity of variants of the virus, the effectiveness, acceptance, availability and use of affordable vaccines and pharmaceutical treatments in our market area and new information which may emerge concerning the appropriate responses to the continuing pandemic. The COVID-19 pandemic could impact our supply chain for products we sell, particularly as a result of mandatory shutdowns in locations where our products are manufactured or held for distribution. We could also see significant disruptions of the operations of our logistics (e.g. truck driver shortages), service providers, delays in shipments and negative impacts to pricing of certain of our products. If the pandemic continues and worsens, we could temporarily lose the services of employees or experience interruptions in our business which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to the COVID-19 pandemic or other similar health crises, or if customers do not perceive our response to be adequate for a particular region or our business as a whole, we could suffer damage to our reputation, which could materially adversely affect our business, financial condition and results of operations in the future. If the pandemic continues and worsens, we could temporarily lose the services of employees or experience interruptions in our business which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to the COVID-19 pandemic or other similar health crises, or if customers do not perceive our response to be adequate for a particular region or our business as a whole, we could suffer damage to our reputation, which could materially adversely affect our business, financial condition and results of operations in the future.
Effects of the Russian Invasion of Ukraine
In response to Russia’s military action in Ukraine in 2022, the U.S., E.U., U.K. and many other countries have imposed broad economic and trade sanctions. The scope of these sanctions has evolved at pace and continues to do so across various jurisdictions including restrictions on dealing with designated individuals and entities; restrictions on the Russian financial sector; blocking economic activity in the Luhansk and Donetsk regions of Ukraine; and imposing export controls limiting the export of a wide range of goods and technical assistance to Russia. In the U.S., President Biden has issued an Executive Order prohibiting: the importation into the U.S. of crude oil, LNG and various other hydrocarbon products of Russian origin; new investment in the Russian energy sector by U.S. persons; and designates certain participatory actions by U.S. persons or persons within the U.S. in transactions which are prohibited.
In response, Russia has implemented new counter-sanctions including restrictions on the divestment from Russian assets by foreign investors and a temporary prohibition on registrars and depositories from making payment of dividends and interest on Russian securities in favor of foreign investors. Further details including confirmation of the precise terms or application of these counter-sanctions are not yet known.
Aside from the increase in prices of refined diesel and gasoline that we use for our operations, that we inventory and that we distribute to our customers, which increase is a direct or indirect consequence of this conflict, our operations have no direct or indirect exposure to Russia, Belarus or Ukraine. In addition, we have no direct or indirect reliance on goods or services sourced from Russia or Ukraine or any business relationships, connections to or assets in Russia, Belarus or Ukraine. The continuation of, and the failure to diplomatically resolve, the on-going hostilities is expected to have a disruptive effect on the petroleum industry in the United States. We anticipate that the war is likely to continue to keep prices for refined products at current or higher levels and may disrupt our supply if the inventory of petroleum products in the United States tightens more than it has as of the date of this prospectus. Any increase in prices and/or our inability to fill customer orders will have an adverse, and perhaps material adverse, effect on our business, financial condition and results of operations.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
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The prices paid to our fuel suppliers for wholesale diesel and gasoline as well as the additives we use to blend certain gasolines (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale diesel and gasoline, experience significant and rapid fluctuations. For all gallons sold to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of fuel. The remaining gallons are priced based primarily on variable market-based cent per gallon priced contracts.
A majority of our total gallons purchased are subject to discounts for prompt payment and other rebates and incentives from our suppliers for a majority of the gallons of fuel purchased by us, which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of the fuel. The dollar value of these discounts increases and decreases corresponding to motor fuel prices. Therefore, in periods of lower wholesale diesel and gasoline prices, our gross profit is negatively affected, and, in periods of higher wholesale prices, our gross profit is positively affected (as it relates to these discounts).
Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2022 and 2021, respectively. We have derived this data from our unaudited interim consolidated financial statements included elsewhere in this prospectus.
Results of Operations for the Three Months Ended March 31, 2022 and 2021
Our revenue for the three months ended March 31, 2022, was $1,693,968, a 1% increase from the three months ended March 31, 2021 revenue of $1,682,819. We recognized $0 in bonuses or rebates in the three months ended March 31, 2022 as compared to $0 in the three months ended March 31, 2021.
Cost of revenue amounted to $1,398,009 for the three months ended March 31, 2022, a 1% increase from the prior three months ended March 31, 2021 total of $1,385,988, resulting in part from the increase in sales.
Our gross margin on total cost of revenue amounted to approximately $295,959 in the three months ended March 31, 2022, a 0% decrease from the prior three months ended March 31, 2021 total of approximately $296,831.
For the three months ended March 31, 2022, we incurred a net loss of $75,056, which was a $101,704 decrease from the three months ended March 31, 2021 net income of $26,648 resulting primarily from an increase in SEC compliance accounting and legal costs.
We experienced a net loss of $75,056 and had negative earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $(16,817) for three months ended March 31, 2022. EBITDA is a non-GAAP financial measure. We believe the presentation of EBITDA provides useful information to investors in assessing our financial condition and results of operations. However, EBITDA should not be considered as an alternative to net income/loss or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA, has important limitations as an analytical tool because it excludes some but not all items that affect net income. Additionally, because EBITDA may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
In 2021, we purchased approximately 70%, 20%, and 10% of our motor fuel from only three fuel suppliers. A change of fuel suppliers, a disruption in supply or a significant change in pricing with any of these suppliers could have a material adverse effect on our business, financial condition and results of operations.
Results of Operations for the Years Ended December 31, 2021 and 2020
Our revenue for the year ended December 31, 2021, was $8,269,909, a 16% increase from the year ended December 31, 2020 revenue of $7,043,926. We recognized $0 in bonuses or rebates in the year ended December 31, 2021 as opposed to $107,017 in the year ended December 31, 2020, which we recorded as part of other income.
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Cost of revenue amounted to $7,198,588 for the year ended December 31, 2021, a 20% increase from the prior year ended December 31, 2020 total of $6,004,725, resulting in part from the increase in sales.
Our gross margin on total cost of revenue amounted to approximately $1,071,321 in the year ended December 31, 2021, a 3% increase from the prior year ended December 31, 2020 total of $1,039,201.
For the year ended December 31, 2021, we incurred a net loss of $1,542,938, which was a $1,649,777 decrease from the year ended December 31, 2020 net income of $106,839 resulting primarily from non-cash costs related to our initial public offering of $666,017 and shares of common stock issued as officer compensation of $730,800.
We experienced a net loss of $1,542,938 and had negative EBITDA of $(1,305,786) for the year ended December 31, 2021. EBITDA is a non-GAAP financial measure. We believe the presentation of EBITDA provides useful information to investors in assessing our financial condition and results of operations. However, EBITDA should not be considered as an alternative to net income/loss or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA, has important limitations as an analytical tool because it excludes some but not all items that affect net income. Additionally, because EBITDA may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
In 2021, we purchased approximately 70%, 20%, and 10% of our motor fuel from only three fuel suppliers. A change of fuel suppliers, a disruption in supply or a significant change in pricing with any of these suppliers could have a material adverse effect on our business, financial condition and results of operations.
Liquidity and Capital Resources
Our principal liquidity requirements are to finance our operations and to service our debt. Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.
On March 31, 2022, our cash balance amounted to $220,447 compared to $339,997 as of March 31, 2021. Our net working capital has decreased by approximately $643,045 during the same time period.
On December 31, 2021, our cash balance amounted to $281,504 compared to $572,217 as of December 31, 2020. Our net working capital has decreased by approximately $588,692 during the same time period.
All funding to date has been provided by the stockholders through non-convertible debt and equity sales, operations and equipment financing. We regularly evaluate alternate sources of capital to support our liquidity requirements. We expect to use the proceeds of this offering, equipment financing, bank debt, and future sales of convertible debt and equity to finance our future operations. U.S. GAAP requires management to assess a company’s ability to continue as a going concern within one year from the financial statement issuance and to provide related note disclosures in certain circumstances. Although we believe that there is substantial doubt about our ability to continue as a going concern, we believe that, with the proceeds from this offering, we will have sufficient financial resources to continue to operate without the need for additional funding until April 2023. However, we are subject to business and operational risks that could adversely affect our cash flows. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities which could result in our inability to pay our debts as they become due, potentially resulting in our utilization of federal bankruptcy laws or the discontinuation of our business and dissolution.
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Cash Flows
Cash generated from operations for the March 31, 2022, amounted to $(44,565), a 180% decrease from the March 31, 2021, when the total was $55,578. This decrease resulted primarily from an increase in accounts receivable and a decrease in net income.
During the March 31, 2022, our cash used in investing activities was $0, an 0% decrease from the March 31, 2021, when the total was $0.
Cash used in financing activities for the March 31, 2022 was $34,492 due to the debt payments on installment notes on transportation equipment. Cash used in financing activities for the year ended March 31, 2021 was $287,798 due to the deferred offering costs and debt payments on installment notes on transportation equipment and loan payoff on a loan from the U.S. Small Business Administration.
Cash generated from operations for the year ended December 31, 2021, amounted to $224,095, a 67% decrease from the year ended December 31, 2020, when the total was $677,441. This decrease resulted primarily from an increase in accounts receivable and a decrease in net income.
During the year ended December 31, 2021, our cash used in investing activities was $400, an 82% decrease from the year ended December 31, 2020, when the total was $2,245, due to cash paid for additional fixed assets (e.g. semi-trucks and fuel/chemical trailer purchases) in 2020.
Cash used in financing activities for the year ended December 31, 2021 was $514,408 due to the deferred offering costs and debt payments on installment notes on transportation equipment offset by proceeds from the issuance of Common Stock. Cash used in financing activities for the year ended December 31, 2020 was $351,454 due to the deferred offering costs and debt payments on installment notes on transportation equipment offset by proceeds from the U.S. Small Business Administration loan, which has been forgiven.
Trends
Our only trend information relates to the price of oil. We have a limited capacity for inventory storage and containment facilities which limited our ability to generate more revenue. Therefore, increases and decreases in revenue are primarily attributable to the price of diesel fuel and oil.
Seasonality Effects on Volumes
Our business is subject to seasonality due to our business being located in a geographic area that is affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.
Impact of Inflation
Inflation affects our financial performance by increasing certain of our operating expenses and cost of goods sold. Operating expenses include labor costs, leases, and general and administrative expenses. While our business benefits from higher terms discounts as a result of higher fuel costs, inflation could negatively impact our operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future. We also believe that inflation will increase market interest rates that will have a negative impact on our ability to obtain funding at prior lower interest rates and may tighten credit standards which may make it more difficult for a company of our size and financial position to obtain a loan at favorable interest rates or at all.
Critical Accounting Policies
We prepare our financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Note 1 to the financial statements for a summary of our significant accounting policies.
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Critical accounting policies are those we believe are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments, often because we must make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We believe the following policies to be the most critical in understanding the judgments that are involved in preparing our financial statements.
Inventories
Inventories are valued primarily using average cost and are stated at the lower of average cost or market. We utilize a variety of fuel indices and other indicators of market value. Sharp negative changes in these indices can result in reduction of our inventory valuation, which could have an adverse impact on our results of operations in the period in which we take the adjustment. Historically these adjustments have not had a significant impact on our consolidated statements of operations. Components of inventory include fuel purchase costs, the related transportation costs and changes in the estimated fair market values for inventories included in a fair value hedge relationship.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Fuel sales are generated as a fuel reseller as well as from on-hand inventory supply. When acting as a fuel reseller, the Company generally purchases fuel from the supplier, and contemporaneously resells the fuel to the customer, normally taking delivery for purchased fuel at the same place and time as the delivery is made to the customer. The Company records the gross sale of the fuel as we generally take inventory risk, have latitude in establishing the sales price, have discretion in the supplier selection, maintain credit risk and are the primary obligor in the sales arrangement.
The Company records the sale of fuel-related services on a gross basis as we generally have latitude in establishing the sales price, have discretion in supplier selection, maintain credit risk and are the primary obligor in the sales arrangement.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the “FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) guidance on leases, with amendments issued in 2018. The guidance requires lessees to recognize most leases on the balance sheet but does not change the manner in which expenses are recorded in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date. The Company adopted the standard on January 1, 2019. The Company does not have any long-term lease as of March 31, 2022 or December 31, 2021, as such the adoption of the standard has no impact on the Company’s financial statement and disclosures.
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In December 2019 the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740). The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not believe the adoption of ASU-2019-12 will have a material impact on the Company’s financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.
Overview
CW Petroleum Corp was incorporated in the State of Texas on April 29, 2005 and began operations in 2011. On April 14, 2018, CW Petroleum Corp was incorporated in the State of Wyoming. On April 15, 2018, the Texas corporation became a wholly-owned subsidiary of the Company through a share exchange. CW Petroleum Corp (Wyoming) is a holding company and, through our wholly-owned subsidiary, we supply and distribute biodiesel, biodiesel blends, ultra-low sulfur diesel, gasoline blends, renewable gasoline, and a proprietary EPA-approved reformulated no ethanol gasoline to distributors, convenience stores, and marinas.
CW Petroleum Corp (Wyoming) is a holding company and has no operations. The purpose in forming the holding company was to limit our corporate liability, create a streamlined management, maintain ownership over our sole subsidiary and establish an organizational structure to facilitate the potential acquisition of other businesses in our industry or complementary to our industry.
We are a wholesale distributor of non-branded, blended and non-blended diesel fuel and gasoline. Our business primarily involves sending a tank wagon or truck to a fuel rack at the regional fuel terminal that we believe is offering the best price to us on that day. Our tanker loads the fuel at the rack, blends it at a blending station, if necessary, pays the terminal the daily rack price and delivers the fuel to our customers. Our customers include independent fuel retailers (i.e., those not affiliated with the major national and international oil companies like Shell USA, Inc.), independent and chain convenience stores (such as 7-11, Inc. stores) that also sell gasoline and diesel fuel, marinas that sell diesel and gasoline to power boat owners and fuel distributors that deliver to their own customers. Accounts receivable as of December 31, 2021 were concentrated among three customers representing 60%, 21% and 17% of accounts receivable. Accounts receivable as of December 31, 2020 were concentrated among three customers representing 54%, 25% and 21% of accounts receivable. Our revenue included a significant concentration among customers for the year ended December 31, 2021 in which one customer represented 81% of revenue. Our transportation services agreements with our customers generally are terminable upon 90-120 days’ notice, but each of our top 10 accounts have been customers for at least five years. For all gallons sold to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of fuel.
We deliver regular gasoline, diesel fuel, biodiesel, biodiesel blends, ultra-low sulfur diesel, gasoline blends, renewable gasoline, and a proprietary EPA-approved reformulated no ethanol gasoline. The non-ethanol fuel that we deliver uses isobutanol, an organic alcohol compound, in place of ethanol in reformulated gasoline markets (discussed in the paragraph below). The base formula of refined diesel fuel is not significantly different among oil refineries. There are minimum government standards that all diesel fuel must adhere to and the baseline product that flows from the refineries through a network of pipelines, such as the ones owned by Magellan, to the fuel terminals are basically the same. Once at the terminal, the fuel is delivered to the wholesale fuel rack where it is pumped into our tanker trucks. If required by our customers, additives are pumped into the base diesel at a blending station creating a fuel “blend,” one of which is based on proprietary formula of our Company, that we market to our customers, advertising various benefits such as better fuel efficiency or being more environmentally friendly. As of the date of this prospectus, we own two semi-trucks and three compartmentalized fuel trailers that can transport diesel fuel/biodiesel and gasoline which can hold between 7,500 gallons of diesel fuel/biodiesel and 8,000 gallons of gasoline. Our four stainless steel trailers can each hold approximately 7,000 gallons of liquid chemicals. Our CEO, Christopher Williams negotiates all contracts with customers.
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Due to our market area, much of the fuel currently delivered by us needs to be blended. Reformulated gasoline is gasoline blended to burn more cleanly than conventional gasoline and to reduce smog-forming and toxic pollutants in the air we breathe. The RFG program was mandated by Congress in the Clean Air Act Amendments of 1990. RFG is required in cities with high smog levels and is optional elsewhere. RFG is currently used in 16 states and the District of Columbia. About 25% of gasoline sold in the U.S. is reformulated. The Houston-Galveston-Brazoria nonattainment area is required by the Clean Air Act to use RFG. This eight-county market area includes Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller Counties. These are the principal areas where we have operated since inception.
We have developed and are currently selling to convenience stores, marinas, and fuel distributors a proprietary reformulated no ethanol gasoline certified by the EPA and blended by the Company for marine, small engine, classic and high-performance automobile consumers. We blend the product on land we lease, utilize our own blend tank to create, and our own tanker trucks to distribute, our propriety gasoline blends. We currently do not own a bulk distribution plant or lease tanks at a tank terminal or refinery.
We maintain an approximately between one to 20 days of inventory positions at Magellan Terminals in Houston, Texas, and are currently seeking fuel inventory positions at other terminals. The various terminals require a user to purchase and maintain agreed upon amounts of inventory with the terminal. This inventory could assist us in potentially hedging against future price increases, thus raising our profit margins where the price we paid is less than the current market price, but could also work against us if the price we pay is higher than at the time we sell that inventory at the then current market price. However, our limited financial resources have restricted our ability to make use of an inventory position at these large terminals, since large purchases are standard for most terminals.
We also purchase spot volumes of diesel and gasoline from numerous refinery locations, and ship volumes of gasoline and diesel fuel (5,000-25,000 barrels per shipment) to oil companies such as Shell, Exxon, Chevron, Valero, Phillips 66, and Marathon within the Magellan, Colonial and Kinder Morgan SFPP pipeline systems. We currently retain StoneX Group, LLC, a commodities and securities broker, to manage our hedging operation that we utilize from time to time when needed.
We also engage in RIN trading. The EPA created the Renewable Identification Number system to track renewable fuel (fuels that are produced from renewable sources such as corn or biomass) production and compliance with the renewable fuel standard. EPA registered producers of renewable fuel may generate RINs for each gallon of renewable fuel they produce. In the case of biomass-based diesel, generally 1.5 to 1.7 biomass-based diesel RINs may be generated for each gallon of biomass-based diesel produced, based upon the fuel’s renewable energy content. Renewable fuel, including biomass-based diesel, can then be sold with associated RINs attached. RINs may also be separated from the gallons of renewable fuel they represent and once separated they may be sold as a separate commodity. RINs are ultimately used by petroleum refiners and petroleum fuel importers in the 48 contiguous states and Hawaii (“Obligated Parties”) to demonstrate compliance with the EPA’s biomass-based diesel requirement (known as the Renewable Fuel Standard number 2, or RFS2, which became effective in 2010) requiring for the first time that a certain percentage of the diesel fuel consumed in the United States be made from renewable sources. Obligated Parties must obtain and retire the required number of RINs to satisfy their renewable volume obligations during a particular compliance period. An Obligated Party can obtain RINs by buying renewable fuels with RINs attached, buying RINs that have been separated, or producing renewable fuels themselves. All RIN activity under RFS2 must be entered into the EPA’s moderated transaction system, which tracks RIN generation, transfer and retirement. RINs are retired when used for compliance with the RFS2 requirements. The value of RINs can significantly impact to the price of biomass-based diesel. For the year ended December 31, 2021, we received no revenues for our RIN trading activities.
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Our Products and Services
We deliver regular gasoline, diesel fuel and biodiesel fuel. We also can deliver nonethanol fuel that uses Isobutanol in place of ethanol in Reformulated Gasoline Markets. If the fuel to be delivered is a biofuel or needs other blending, our truck goes to a blending station to obtain the fuel needed for the blend. The blending is done in the truck and then delivered.
We provide the following products for sale:
| ● | biodiesel – B100 and B99.9; | |
| ● | reformulated and conventional gasoline with 10% ethanol; | |
| ● | ultra-low sulfur diesel fuel with or without biodiesel blends (5%-20%); | |
| ● | reformulated 12.5% isobutanol blended no ethanol gasoline; and | |
| ● | biodiesel additives – cetane and algae tank sediment mitigation. |
We provide the following services to our customers and are hired by third parties for:
| ● | transportation hauling of refined products and chemicals; | |
| ● | RIN trading – D4, D5, D6 and cellulosic (D3 or D7) RIN trading services; and | |
| ● | tote service – offloading fuels and chemicals directly from our truck into approved 275- or 330-gallon plastic totes; | |
| ● | drumming service - offloading fuels and chemicals directly from our truck into approved 55-gallon drums; | |
| ● | transloading services - offloading fuels and chemicals directly from our truck to and from approved railroad tank cars; and | |
| ● | metered offloads/split drops – we utilize our built-in fuel meters located on our tanker trailers to provide an accurate ticket showing gallons of motor fuels and chemicals delivered at each customer location. |
Government Regulation
We are subject to various federal, state and local laws and regulations relating to our business.
As a motor carrier, we are subject to regulation by the Federal Motor Carrier Safety Administration (“FMCSA”) and the United States Department of Transportation (“DOT”), and by various federal and state agencies. These regulatory authorities exercise broad powers governing various aspects such as operating authority, safety, hours of service, hazardous materials transportation, financial reporting and acquisitions. There are additional regulations specifically relating to the trucking industry, including testing and specification of equipment, product-handling requirements and drug testing of drivers. We currently maintain a satisfactory DOT safety rating. Any downgrade in our DOT safety rating (as a result of new regulations or otherwise) could adversely affect our business. The trucking industry is subject to possible regulatory and legislative changes that may affect the economics of the industry by requiring changes in operating practices, emissions or by changing the demand for common or contract carrier services or the cost of providing trucking services. Possible changes include:
| ● | increasingly stringent environmental regulations, including changes intended to address climate change; | |
| ● | restrictions, taxes or other controls on emissions; | |
| ● | regulation specific to the energy market and logistics providers to the industry; |
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| ● | changes in the hours-of-service regulations, which govern the amount of time a driver may drive in any specific period; | |
| ● | driver and vehicle electronic logging requirements; | |
| ● | requirements leading to accelerated purchases of new tractors; | |
| ● | mandatory limits on vehicle weight and size; | |
| ● | driver hiring restrictions; | |
| ● | increased bonding or insurance requirements; and | |
| ● | mandatory regulations imposed by the Department of Homeland Security. |
From time to time, various legislative proposals are introduced, including proposals to increase federal, state, or local taxes, including taxes on motor fuels and emissions, which may increase our operating costs, require capital expenditures or adversely impact the recruitment of drivers.
Restrictions on emissions or other climate change laws or regulations could also affect our customers that use significant amounts of energy or burn fossil fuels in producing or delivering the products we carry. We also could lose revenue if our customers divert business from us because we have not complied with their sustainability requirements.
In addition, the FMCSA rules provide that a truck driver may work no more than a maximum number of 60 hours within seven consecutive days and 70 hours within eight consecutive days. FMCSA rules further impose a maximum work period of 14 hours (no more than 11 hours of which may be driving time) after first coming on-duty following 10 consecutive hours of off-duty time. FMCSA rules also require that drivers take a 30-minute break prior to driving beyond eight hours. Our drivers utilize electronic logging devices (“ELDs”) for the purpose of recording their hours of service.
We are registered as a motor carrier with the Commercial Driver’s License Drug and Alcohol Clearinghouse, which requires us to check for drug and alcohol violations of current drivers at least annually and prospective employees prior to hiring. We have completed our annual limited query and pre-hire driver authorization queries
Our activities, which involve the blending, transportation, storage and distribution of fuels, are subject to various federal, state and local health and safety laws and regulations relating to the protection of the environment, including, among others, those governing the transportation, management and disposal of hazardous materials, vehicle emissions, and the cleanup of contaminated sites. Our operations involve risks of fuel spillage or seepage, and other activities that are potentially damaging to the environment. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of or liable under applicable laws or regulations, it could significantly increase our cost of doing business.
Our truck terminal and blending facility are located in an industrial area, where groundwater or other forms of environmental contamination may have occurred. Under environmental laws, we could be held responsible for the costs relating to any contamination at those or other of our past or present facilities, including cleanup costs, fines and penalties and personal injury and property damages. Under some of these laws, such as the Comprehensive Environmental Response Compensation and Liability Act (also known as the Superfund law) and comparable state statutes, liability for the entire cost of the cleanup of contaminated sites can be imposed upon any current or former owner or operator, or upon any party who sent waste to the site, regardless of the lawfulness of any disposal activities or whether a party owned or operated a contaminated property at the time of the release of hazardous substances. The discovery of contamination or the imposition of additional obligations or liabilities in the future could result in a material adverse effect on our financial condition, results of operations or our business reputation. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. If we fail to comply with applicable environmental laws and regulations, we could also be subject to substantial fines or penalties and to civil and criminal liability. As a result, our costs of complying with current or future environmental laws or liabilities arising from such laws may have a material adverse effect on our business, results of operations or financial condition.
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New laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments could require us to make additional capital expenditures or incur additional liabilities. For example, at times, certain independent refiners have initiated discussions with the EPA to change the way the Renewable Fuel Standard is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors. Under the RFS, which requires an annually increasing amount of biofuels to be blended into the fuels used by U.S. drivers, refiners/importers are obligated to obtain renewable identification numbers either by blending biofuel into gasoline or through purchase in the open market. If the obligation was shifted from the importer/refiner to the blender/distributor, we would potentially have to utilize the RINS we obtain through our blending activities to satisfy a new obligation and would be unable to sell RINS to other obligated parties, which may cause an impact on the fuel margins associated with our sale of gasoline. Additionally, the price of RINS is not fixed and is subject to change due to various considerations, including regulatory actions. In December 2021, the EPA proposed to modify the 2021 and 2022 volume targets for renewable fuels and, in light of the impacts of the COVID-19 pandemic, to retroactively reduce the targets for 2020. We cannot predict the impact of such modifications, but any such reduction may decrease demand for RINS and, thus, the prices we are able to realize from the RINS we obtain. The occurrence of any of the events described above could have a material adverse effect on our business, financial condition, results of operations and our future prospects.
Licenses
We are licensed to sell motor fuel in:
| ● | Texas: Supplier of Gasoline and Diesel Fuel; | |
| ● | Louisiana: Supplier of Gasoline and Diesel Fuel; | |
| ● | Oklahoma: Exporter, Wholesaler, Fuel Vendor; | |
| ● | California: Supplier Gasoline and Diesel Fuel; | |
| ● | New Jersey: Supplier of Motor Fuels; | |
| ● | Pennsylvania – Class 1 Refiner/Wholesaler (All Fuels); | |
| ● | Maryland – Class B Gasoline Dealer; | |
| ● | Colorado – Diesel Fuel, Exporter; and | |
| ● | Arizona – Supplier of Gasoline and Diesel Fuel. |
We maintain the following blending and pipeline shipping licenses:
| ● | Federal Licenses: IRS 637 (Excise Tax) “S” Position Holder, “M” Blender & “AL” Alternative Fueler | |
| ● | Pipeline Shipper Refined Products: Magellan South and Mountain Pipeline Systems |
| ○ | Kinder Morgan SFPP Pipeline | |
| ○ | Colonial Pipeline |
We have the following EPA Licenses:
| ● | EPA Registered Activities #6026: Renewable Fuels Exporter/Oxygenate Blender/Refiner | |
| ● | EPA Licensed Isobutanol Additive Gasoline Blender |
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Our Growth Strategy
Subsequent to the closing of this offering, we plan to hire a business development person for each new market we are seeking to enter. Those targeted markets are currently: Baltimore, Maryland and Chicago, Illinois. We also intend to engage a business development person for the Houston/Dallas/Fort Worth markets. We plan to purchase new semi-trucks and trailers to blend our proprietary reformulated no ethanol gasoline which will then be loaded into tanker railcars in Houston, Texas, and shipped to these new locations. In addition, we plan to:
Open a Specialty Blending Facility – We are in the initial stages of planning the construction of our own blending station that we would locate near a major fuel rack facility. We would stock the blending facility with additives that we would purchase wholesale on the open market, rather than purchase them at a markup at the rack, and resell them to our customers who have a need for specialty blended diesel fuel, providing another source of revenue for our business. Management has recently estimated the cost of constructing this facility to be approximately $500,000 for the land, equipment, and site work. However, we have not purchased any land nor contracted for any equipment or site work as of the date of this prospectus.
Convenience Stores –Management is contemplating, but has no current plan, to purchase individual or a chain of, or to buy land and construct independent convenience stores that will have fuel islands in their parking lots. The idea is to locate these stores in areas inside of RFG requirement zones and areas near the Gulf of Mexico or lakes used by boat owners. We would provide all the fuels sold at these convenience stores and initially engage contract management to manage the retail side of the convenience stores.
No assurances can be given as to whether we will implement any such strategy in the future, and if we do, we cannot assure the likely success that we will have in implementing our plans or, if successful, the timing that it will require to fully and successfully implement our plans.
Marketing
Our marketing activities are focused on building our relationships with existing customers as well as developing new business opportunities. Mr. Williams has extensive experience in marketing specialized fuels delivery services and maintains regular contact with customers. He is well-positioned to identify the changing transportation needs of customers in their respective market areas. We also actively participate in various trade associations, including the National Tank Truck Carriers Association, various state trucking and petroleum marketing associations and member of the Texas Food & Fuel Association.
Competition
The petroleum product transportation business is extremely competitive and fragmented. We have multiple competitors in our market areas consisting of other carriers of varying sizes as well as our customers’ private fleets. Price, service and location are the major competitive factors in each local market. Most of our competitors have greater financial resources and a more expansive geographic footprint than us. Some of our competitors periodically reduce their prices to gain business, which may limit our ability to maintain or increase prices, implement new pricing strategies or maintain significant growth in our business. Our largest competitors include Texas TransEastern, Inc., United Petroleum Transports, Inc., and Dupré Logistics, Inc. We also compete with smaller carriers in most of our markets.
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With respect to our fuel blending activities, we face competition from producers and suppliers of petroleum-based diesel fuel, other biomass-based diesel producers, marketers, traders and distributors. The size of the biomass-based diesel industry is small compared to the size of the petroleum-based diesel fuel industry and large petroleum companies have greater resources than we do. Our principal competitive differentiators are biomass-based diesel and RIN quality, supply reliability and price. We compete with independent biomass-based diesel producers as well as large, multi-product companies that have greater resources than we do. Ag Processing Inc., Archer Daniels Midland Company, Cargill Incorporated, and Louis Dreyfus Commodities Group are major international agribusiness corporations and biodiesel producers with the financial, feedstock sourcing and marketing resources far greater than ours. However, we are unaware of any other U.S. company currently blending Isobutanol at 12.5% into commercial gasoline for sale at retail stations. While the barriers to entry in our industry are low, there are various state, federal, and EPA licenses needed to create their own proprietary blends of gasoline for commercial sales. Our strategy is to build long-term partnerships with our customers based on the highest level of customer service and reliability. The current trend is that hypermarkets and super regional and national chains have emerged to replace many of the independent convenience stores and service stations historically served by many of our competitors. As this continues, we believe that our size, capabilities, scope of services and geographic reach will provide us a competitive advantage over our competitors.
There is substantial competition for qualified personnel, particularly drivers, in the trucking industry. We operate in a market area where there is currently a shortage of drivers. Regulatory requirements, including electronic logging, and an improving U.S. jobs market, could continue to reduce the number of eligible drivers in our market. Any shortage of drivers could result in temporary under-utilization of our equipment, difficulty in meeting our customers’ demands and increased compensation levels, each of which could have a material adverse effect on our business, results of operations and financial condition. A loss of qualified drivers could lead to an increased frequency in the number of accidents, potential claims exposure and, indirectly, insurance costs.
Technology
We use technology to assist us in the provision of our products and services. To the extent we can afford to do so, we upgrade and enhance our technological capabilities. We employ vehicle safety systems, forward-facing cameras, on-board computer systems, smart phones, freight handling systems and logistics technology to reduce costs and transit times, as well as to meet regulatory requirements. Our computer system is protected through state of the art physical and software safeguards, as well as redundant systems, network security measures and backup systems. We continue to focus on the development and enhancement of the technology used in our operations in order to improve the efficiency and effectiveness of our services.
Insurance
We carry insurance with third-party insurance carriers that provide various levels of protection for our risk exposure, including protection in the areas of property, casualty, cyber, management, and group health, with coverage limits and retention/deductible levels that we believe are reasonable given historical claim activity and severity. We believe that our policy of maintaining self-insured retentions or deductibles under these various insurance programs for a portion of our risks, supported by our safety, claims management and loss prevention programs, is an effective means of managing insurance costs. We periodically review our risk exposure and insurance coverage applicable to those risks and believe that we maintain sufficient insurance coverage.
Our Employees
As of the date of this prospectus, we have two full-time employees, including Christopher Williams, and one contract worker who each devote 100% of their working time to us. Graham Williams works part-time 10-15 hours per week. We currently use contractors to perform all other needed work. Mr. Christopher Williams does not have an employment agreement. Upon a successful capital raise we intend to hire three to four Business Development persons for our targeted expansion markets of Houston/Dallas/Fort Worth, Texas, Baltimore, Maryland, and Chicago, Illinois. Mr. Christopher Williams does not currently have an employment agreement.
Our Properties
Our Corporate office location is 2717 Commercial Center Blvd., Suite E200 PMB 264, Katy, Texas 77494. The office space used by us is provided by Christopher Williams at no cost to us. Our main office telephone number is (281) 817-8099. We also lease five acres of unimproved land from Mr. Williams to store our transportation equipment based on an unwritten understanding with Mr. Williams. Our website address is cwpetroleumcorp.com. We do not incorporate the information on or accessible through our website into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
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Legal Proceedings
We may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to our business. These matters may include product liability, intellectual property, employment, personal injury caused by our employees, and other general claims. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Executive Officers and Directors
The following table sets forth certain information as of the date of this prospectus about our executive officers and members of our Board.
| Name | Age | Title | ||
| Christopher Williams | 45 | President, Chairman of the Board and Director | ||
| Graham Williams | 77 | Director | ||
| Greg Roda | 62 | Director |
Christopher Williams – Mr. Williams founded the Company and has been devoted full-time to it since 2013. With a decade of experience in the energy industry, Mr. Williams brings a vast wealth of knowledge in the physical and financial trading of refined products and renewable fuels. His extensive background with price reporting, acquired during his tenure at Platts/McGraw-Hill Financial, a petroleum industry source for financial and commodities analysis, has led him to understand the market for fuel blending that we tap through our internal fuel trading and customer facing distribution services. Mr. Williams holds a Bachelor of Science from the University of Houston.
Graham Williams – Mr. Williams has worked with us since 2013 and currently serves as a director. Since 2012, he has been president of Tier 3 Capital, a private proprietorship that provides equipment loans, working capital loans, and accounts receivable financing. Mr. Williams holds a Bachelor of Science from Bishop’s University - Sherbrook, Quebec, Canada. We believe Mr. Williams is qualified as a director due to his experience in corporate finance.
Greg Roda – Mr. Roda became a director of the Company in 2018 and actively participates in the business in an advisory capacity. From September 2013 to May 2018, he was the Chief Commercial Officer of Gevo Inc., a technology company that produces Isobutanol from a genetically modified yeast in retrofitted ethanol plants and is headquartered in Englewood, Colorado. Mr. Roda holds a Bachelor of Science in Engineering from the University of Michigan, and an M.B.A. from the University of Chicago.
Family Relationships
Graham Williams is Christopher Williams’ father.
Possible Potential Conflicts
The OTC Markets, on which our shares of Common Stock are quoted, does not currently have any director independence requirements. And, as a “controlled company” under the rules of the Nasdaq Capital Market, if our shares are listed, we will be exempt from the requirement to have independent directors.
No member of management is contracted by us to work on a full-time basis, including our President and Director, Christopher Williams. Accordingly, certain conflicts of interest may arise between us and our officers and directors in that they may have other business interests, now or in the future, to which they devote their attention, and they will continue to do so in the future while they devote time to our business. No member of management has a written non-competition, non-solicitation of customers or a non-solicitation of employees agreement with us and thus is not contractually precluded from engaging in those activities. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer’s understanding of his fiduciary duties to us.
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Each of our officers and directors presently owes various fiduciary duties to the Company, including a duty of loyalty under Wyoming law. The duty of loyalty requires board members to exercise their powers in the interest of the organization and not in their own interest or the interest of another entity, particularly one with which they have a formal relationship. The duty of loyalty also includes a duty of confidentiality. We do not have a policy with respect to business opportunities or resolution of conflicts of interest and would defer to Wyoming law.
Code of Business Conduct and Ethics
We adopted a Code of Ethics and Business Conduct which is applicable to our current and future employees, and which also includes a Code of Ethics for our Chief Executive and other executive officers and any persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
| ● | honest and ethical conduct; | |
| ● | full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements; | |
| ● | compliance with applicable laws, rules, and regulations; | |
| ● | the prompt reporting violation of the code; and | |
| ● | accountability for adherence to the code. |
The full text of our Code of Ethics is published on our website at https://cwpetroleumcorp.com/investors/code-of-ethics.
Board of Directors
We currently have three directors; however, none of our directors have agreements pursuant to which they are contractually obligated to serve as a director for any specific term. Mr. Christopher Williams has the voting power to elect all members of our board of directors and will have that ability after the closing of this offering.
All directors hold office until the completion of their term of office, which is not longer than one year, or until they die, resign, retire, are removed or their successors have been elected. All officers are appointed annually by the board of directors and serve at the discretion of the board. Currently, a person serving as a director receives no compensation for serving in the role as a director. We have not yet determined if we will compensate our directors for attending meetings of the board and its committees or will pay their expenses for such attendance.
If at any point we have an even number of directors, tie votes on issues are resolved in favor of the chairman’s vote.
Controlled Company Status
We have applied to have our Common Stock and Warrants listed on Nasdaq and, if listed, we will be subject to its corporate governance listing standards. Accordingly, we intend to avail ourselves of certain of the “controlled company” exemptions available under the corporate governance rules of Nasdaq. As a result, we will not be required to have a majority of independent directors on our board of directors nor will we be required to have fully independent compensation and nominating and corporate governance committees. The “controlled company” exemption does not modify the independence requirements for the Audit Committee, and we intend to comply with the requirements of the Sarbanes-Oxley Act and Nasdaq, which require that our Audit Committee be composed of at least three members, one of whom must be independent upon the listing of our Common Stock, a majority of whom must be independent within 90 days of listing and each of whom must be independent within one year of listing.
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Director Independence
We have applied to list our Common Stock and Warrants sold in this offering on the Nasdaq Capital Market. Our board of directors has determined currently only one of our directors, Mr. Roda, qualifies as an independent director for purposes of relevant listing standards of Nasdaq and under the SEC rules. In making that determination, our board of directors considered the relationships that each director has with the Company and all other facts and circumstances the board of directors deemed relevant in determining independence, including the potential deemed beneficial ownership of our capital stock by each director, including non-employee directors that are affiliated with certain of our major stockholders. Upon the completion of this offering, we expect that the composition and functioning of our board of directors and each of our committees will comply (unless exempted) with all applicable requirements of Nasdaq and the rules and regulations of the SEC.
We intend to adopt a policy, subject to and effective upon the effectiveness of the registration statement of which this prospectus forms a part, that outlines a process for our securityholders to send communications to the board of directors.
Involvement in Certain Legal Proceedings
During the past ten years, no present director, executive officer, or person nominated to become a director or an executive officer of the Company:
| 1. | had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he/she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he/she was an executive officer at or within two years before the time of such filing; | |
| 2. | was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other similar minor offenses); | |
| 3. | was subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him/her from or otherwise limiting his/her involvement in any of the following activities: |
| i. | acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
| ii. | engaging in any type of business practice; or | |
| iii. | engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or |
| 4. | was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of a federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i), above, or to be associated with persons engaged in any such activity; or | |
| 5. | was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and for which the judgment has not been reversed, suspended, or vacated. |
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Role of Board in the Risk Oversight Process
Our board of directors is responsible for overseeing our overall risk management process. The responsibility for managing risk rests with executive management while our board of directors as a whole participates in the oversight process. Our board of directors’ risk oversight process builds upon management’s risk assessment and mitigation processes, which include reviews of long-term strategic and operational planning, executive development and evaluation, regulatory and legal compliance and financial reporting and internal controls with respect to areas of potential material risk, including operations, finance, legal, regulatory, cybersecurity, strategic and reputational risk.
Committees of the Board of Directors
Our board of directors has not yet established an audit committee, a compensation committee, or a nominating and corporate governance committee. Upon the effectiveness of the registration statement of which this prospectus is a part, unless exempt due to being a “controlled company,” the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq and SEC rules and regulations.
Audit Committee
The responsibilities of the audit committee will be included in a written charter that we will publish on our website. The audit committee will act on behalf of our board of directors in fulfilling our board of directors’ oversight responsibilities with respect to our accounting and financial reporting processes, the systems of internal control over financial reporting and audits of financial statements and reports and also will assist our board of directors in its oversight of the quality and integrity of our financial statements and reports and the qualifications, independence and performance of our independent registered public accounting firm. Under applicable Nasdaq Rules and SEC rules and regulations for companies completing their initial public offering, we are permitted to phase in our compliance with the audit committee independence requirements as follows: (i) one independent member at the time of listing; (ii) a majority of independent members within 90 days of listing; and (iii) all independent members within one year of listing. The audit committee will have at all times at least one “independent director” who is “financially literate” as defined under the Nasdaq listing standards. The Nasdaq listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
Compensation Committee
The compensation committee will, pursuant to its charter that will be published on our website, act on behalf of our board of directors to fulfill our board of directors’ responsibilities in overseeing our compensation policies, plans and programs; and in reviewing and determining the compensation to be paid to our executive officers and non-employee directors. Upon the closing of this offering, one member of the compensation committee will be an independent director as defined by the rules of Nasdaq.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee will act on behalf of our board of directors to fulfill our board of directors’ responsibilities in overseeing all aspects of our nominating and corporate governance functions, including making recommendations to our board of directors regarding corporate governance issues; identifying, reviewing and evaluating candidates to serve as directors (consistent with criteria approved by our board of directors).
Fiscal Year 2021 and 2020 Summary Compensation Table
The following table shows, for the periods ended December 31, 2021, and 2020, all compensation awarded to or paid to, or earned by, our named executive officer.
| Name and principal position | Year | Salary
($) | Stock
Awards ($) | Total
($) | ||||||||||||
| Christopher Williams, CEO and director | 2021 | 50,000 | 243,600 (1) | 293,600 | ||||||||||||
| 2020 | 50,000 | 0 | 50,000 | |||||||||||||
| (1) | On September 23, 2021, Mr. Christopher Williams was issued 3,000,000 shares of our Common Stock under the 2021 Stock Incentive Plan (the “Plan”) for services rendered. These shares were valued based on the closing price of the Common Stock as of September 23, 2021, which was $0.0812. |
We currently have no written employment agreements with our named executive officer.
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Outstanding Equity Awards
As of December 31, 2021, there were no outstanding vested or unvested equity awards to our named executive officer.
Stockholder Advisory Vote on Executive Compensation
We did not hold an advisory vote on executive compensation in 2021 but may take such action in the future. Our Board intends to periodically reevaluate our executive compensation philosophy and practices in light of our performance, needs and developments, including the outcome of future non-binding advisory votes by our stockholders.
Director Compensation Table for Year Ended December 31, 2021
The following table sets forth information regarding compensation earned by each of our directors (excluding Christopher Williams who is also a named executive officer) during the fiscal year ended December 31, 2021:
| Name and principal position | Year | Stock Awards ($) | Total
($) | |||||||
| Greg Roda, Director | 2021 | 243,600 (1) | 243,600 | |||||||
| Graham Williams | 2021 | 243,600 (2) | 243,600 | |||||||
| (1) | On September 23, 2021, Mr. Roda was issued 3,000,000 shares of our Common Stock under the Plan. These shares were valued based on the closing price of the Common Stock as of September 23, 2021, which was $0.0812. | |
| (2) | On September 23, 2021, Mr. Graham Williams was issued 3,000,000 shares of our Common Stock under the Plan for services rendered. These shares were valued based on the closing price of the Common Stock as of September 23, 2021, which was $0.0812. |
On September 1, 2019, we entered into a Consulting Services Agreement with Greg Roda pursuant to which we agreed to compensate Mr. Roda $125 per hour for consulting services as well as reasonable expense reimbursements and equity bonuses, as approved by the Board.
Graham Williams assists Christopher Williams in numerous aspects of the business and is paid on an hourly basis. His current hours vary but average about 20 hours per week. It is planned that he will devote full-time to us when the offering is complete.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than the compensation arrangements described under “Executive Compensation” and “Director Compensation” in this prospectus and the transactions described below, since January 1, 2020, there has not been any transaction or series of similar transactions to which we were, or will be, a party in which the amount involved exceeded, or will exceed, the lesser of (i) $120,000 or (ii) one percent of the average of our total assets for the last two completed fiscal years, and in which any director, executive officer, holder of five percent or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of the foregoing persons, had, or will have, a direct or indirect material interest.
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Christopher Williams is the son of Graham Williams.
We issued 1,000,000 shares of Series A Preferred Stock to Christopher Williams at the time of incorporation in Wyoming in exchange for his organization efforts and business plan. The Series A Preferred Stock gives the holder 100 votes per share held on all shareholder votes, each share converts into 100 shares of Common Stock at the option of the holder, and may receive dividends, if and at amounts declared by the Board of Directors.
As of December 31, 2021, we had borrowed $345,000 from Mr. Christopher Williams and had issued him demand notes that accrue interest at 8% per annum with no date of maturity on each loan. The notes are payable upon demand from Mr. Williams.
The Company leases land for storage of transportation equipment on a month-to-month lease from our President, Mr. Christopher Williams, for $1,500 per month which we believe is represents the fair value of such rental property. The lease is on-going with no expiration date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us regarding beneficial ownership of our Common Stock as of May 26, 2022 by:
| ● | each person or group of affiliated persons known by us to be the beneficial owner of more than five percent of our capital stock; | |
| ● | our named executive officer; | |
| ● | each of our directors; and | |
| ● | all of our executive officers and directors as a group. |
The column entitled “Percentage of Shares Beneficially Owned—Before offering” is calculated based on shares of Common Stock outstanding as of May 26, 2022, assuming the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of shares of our Common Stock. The column entitled “Percentage of Shares Beneficially Owned—After Offering” is based on shares of our Common Stock to be outstanding after this offering, including the shares of our Common Stock that we are selling in this offering.
We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities as well as any shares of Common Stock that the person has the right to acquire within 60 days of May 26, 2022 through the exercise of stock options or other rights. These shares are deemed to be outstanding and beneficially owned by the person holding those exercise rights for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.
Except as otherwise noted below, the address for persons listed in the table is c/o CW Petroleum Corp, 2717 Commercial Center Blvd., Suite E200 PMB 264, Katy, Texas 77494.
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| Name, Title
and Address of Beneficial Owner of Shares | Amount of Beneficial Ownership | Percentage of Shares Beneficially Owned—Before Offering(1) | Percentage of Shares Beneficially Owned—After Offering(2) | |||||||||
| Christopher Williams | 111,853,134 | (3) | 91.42 | % | [*] | % | ||||||
| Graham Williams | 3,000,000 | 13.43 | % | [*] | % | |||||||
| Greg Roda | 3,300,000 | 14.77 | % | [*] | % | |||||||
| All directors and executive officers as a group (three persons) | 120,300,000 | 98.33 | % | [*] | % | |||||||
| (1) | Based on 22,345,898 shares of Common Stock outstanding as of May 26, 2022. | |
| (2) | Assuming the sale and issuance of [*] shares in the offering. | |
| (3) | Assuming the conversion of 1,000,000 shares of Series A Preferred Stock owned by Mr. Williams into 100,000,000 shares of Common Stock. |
Introduction
The Company was incorporated under the laws of the State of Wyoming on April 15, 2018. We are authorized to issue 99,000,000 shares of Common Stock and 1,000,000 shares of preferred stock. All shares have a par value of $0.0001.
Preferred Stock
Our articles of incorporation authorize the issuance of 1,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by our board of directors.
We issued 1,000,000 shares of Series A Preferred Stock to Christopher Williams. The Series A Preferred Stock gives the holder 100 votes per share held on all shareholder votes, each share converts into 100 shares of Common Stock at the option of the holder, and receives dividends, if and at amounts declared by the Board of Directors. Due to this, Mr. Williams’ will control all matters requiring shareholder approval, including the election of directors, amendment of organizational documents, and approval of major corporate transactions, such as a change in control, merger, consolidation, or sale of assets.
Voting Rights of Series A Preferred Stock
Our CEO, Christopher Williams, holds preferred shares that give him the right to 100 votes per share and there are 1,000,000 shares of Series A Preferred Stock issued. In order to continue to control the outcome of matters submitted to stockholders for approval, assuming all shares offered by the prospectus are sold, Mr. Williams would need to maintain control of over 50% of the outstanding votes. This capital structure may have anti-takeover effects preventing a change in control transaction that minority owners of Common Stock might consider in their best interest.
Controlled Company
After this offering, our CEO, Christopher Williams, the sole holder of our Series A Preferred Stock, will control a majority of the voting power of our Company. For so long as Mr. Williams holds at least [*] shares of Series A Preferred Stock, he is expected to hold a majority of our outstanding voting power and he will control the outcome of matters submitted to a shareholder vote, including the appointment of all Company directors. As a result of the voting power held by Mr. Williams, we will qualify as a “controlled company” within the meaning of Nasdaq’s corporate governance standards. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to the board by independent directors or an independent nominating committee and (iii) we have a compensation committee that is composed entirely of independent directors.
Following this offering, we intend to rely on some or all of these exemptions. As a result, we will not have a majority of independent directors, our directors will not be nominated or selected by independent directors and most compensation decisions will not be made by an independent compensation committee. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq’s corporate governance requirements.
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Common Stock
Our articles of incorporation authorize the issuance of 99,000,000 shares of Common Stock with a par value of $0.0001 per share. There are 22,345,898 shares of our Common Stock issued and outstanding at May 26, 2022, that are held by 63 stockholders of record. Holders of our Common Stock:
| ● | have equal ratable rights to dividends from funds legally available for payment of dividends when, as and if declared by the board of directors, subject to the preferential rights of the holders of the Series A Preferred Stock; | |
| ● | are entitled to share ratably in all of the assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of our affairs, subject to the preferential rights of the holders of the Series A Preferred Stock; | |
| ● | do not have pre-emptive, subscription or conversion rights, or redemption or access to any sinking fund; and | |
| ● | are entitled to one vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders. |
In addition, the Board of Directors, without a shareholder vote, has the right to amend our Bylaws to make it harder or easier to effect a change in our control. A plurality of stockholder votes are required for persons to become directors. In addition, stockholders may submit proposals to be voted on at annual meetings, but such items may be rejected by the Board of Directors.
Warrants to be Issued in This Offering
The following summary of certain terms and provisions of the Warrants included in the Units offered hereby is not complete and is subject to and qualified in its entirety by the provisions of the form of the Warrant and the warrant agent agreement (the “Warrant Agent Agreement”), both of which are filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Warrant Agent Agreement, including the annexes thereto, and the form of warrant.
Exercisability. The warrants are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares purchased upon such exercise (except in the case of a cashless exercise as discussed below).
Exercise Limitation. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days following notice from the holder to us.
Exercise Price. The exercise price per share of Common Stock purchasable upon exercise of the warrants is $[*] per share, or [*]% of public offering price of a Unit in this offering, assuming an initial public offering price of $[*] per Unit (which is the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus). The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholders. The warrant exercise price is also subject to downward adjustment in the event we issue shares of Common Stock in a capital raising transaction at a price below the exercise price, subject to a minimum exercise price of $[*].
Failure to Timely Deliver Shares. If we fail for any reason to deliver to the holder the shares subject to an exercise by the date that is the earlier of (i) two (2) trading days and (ii) the number of trading days that is the standard settlement period on our primary trading market as in effect on the date of delivery of the exercise notice, we must pay to the holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of shares subject to such exercise (based on the daily volume weighted average price of our shares of Common Stock on the date of the applicable exercise notice), $10 per trading day (increasing to $20 per trading day on the fifth (5th) trading day after such liquidated damages begin to accrue) for each trading day after such date until such shares are delivered or the holder rescinds such exercise. In addition, if after such date the holder is required by its broker to purchase (in an open market transaction or otherwise) or the holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the holder of the shares which the holder anticipated receiving upon such exercise, then we shall (A) pay in cash to the holder the amount, if any, by which (x) the holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of shares that we were required to deliver to the holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the holder, either reinstate the portion of the warrant and equivalent number of shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the holder the number of shares of Common Stock that would have been issued had we timely complied with our exercise and delivery obligations.
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Fundamental Transactions. If at any time while the Warrant is outstanding, (i) we, directly or indirectly, in one or more related transactions effects any merger or consolidation of our Company with or into another Person (as defined in the warrant agency agreement), (ii) we, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by us or another Person) is completed pursuant to which holders of our Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of our Common Stock, (iv) we, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of our Common Stock or any compulsory share exchange pursuant to which our Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) we, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of our Common Stock (not including any shares of our Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of the warrant, the warrant holder shall have the right to receive, for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the warrant holder (without regard to any limitation in Section 2(e) on the exercise of the warrant), the number of shares of capital stock of the successor or acquiring corporation or of us, if we are the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of our Common Stock for which the warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of the warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one warrant share in such Fundamental Transaction, and we shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of our Common Stock are given any choice as to the securities, cash, or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, we or any Successor Entity (as defined below) shall, at the warrant holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase the warrant from the warrant holder by paying to the warrant holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of the warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within our control, including not approved by our Board of Directors, Holder shall only be entitled to receive from us 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 the warrant, that is being offered and paid to the holders of our Common Stock 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 our 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 our Common Stock are not offered or paid any consideration in such Fundamental Transaction, such holders of our 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. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) 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 public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP 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 warrant holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five (5) Business Days of the warrant holder’s election and (ii) the date of consummation of the Fundamental Transaction. We shall cause any successor entity in a Fundamental Transaction in which we are not the survivor (the “Successor Entity”) to assume in writing all of our obligations under the warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the warrant holder and approved by the warrant holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the warrant holder, deliver to the warrant holder in exchange for the warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the warrant shares acquirable and receivable upon exercise of the warrant (without regard to any limitations on the exercise of the 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 warrant shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such 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 which is reasonably satisfactory in form and substance to the warrant holder. Upon the occurrence of any such 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 the warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise each of our rights and powers and shall assume all of our obligations under the warrant with the same effect as if such Successor Entity had been named as our company herein.
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Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our Common Stock, the holder of a warrant does not have the rights or privileges of a holder of our Common Stock, including any voting rights, until the holder exercises the warrant.
Warrant Agent; Global Certificate. The Warrants will be issued in registered form under a warrant agency agreement between the Warrant Agent and us. The Warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. Our transfer agent, Transfer Online, Inc. will serve as the Warrant Agent.
Governing Law. The Warrants and the Warrant Agency Agreement are governed by New York law.
Jurisdiction. Our Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding, or claim against us arising out of or relating in any way to the Warrant Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our Warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement.
If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Agreement, is filed in a court other than courts of the State of New York or the United States District Court for the Southern District of New York in the name of any holder of our Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions, and (y) having service of process made upon such Warrant holder in any such enforcement action by service upon such Warrant holder’s counsel in the foreign action as agent for such Warrant holder.
This choice-of-forum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our Company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and Board of Directors. There is also uncertainty as to whether a court would enforce such provision due to the concurrent jurisdiction of federal and state courts over such Securities Act claims.
2021 Stock Incentive Plan
On September 23, 2021, the Board of Directors adopted the Plan. The purposes of the Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative, and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our Company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
The Plan is administered by our board of directors; however, the board of directors may designate the administration of the Plan to a committee consisting of at least two independent directors. Only employees of our Company or of an “Affiliated Company,” as defined in the Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers,” as defined in the Plan, are eligible to receive non-qualified options, restricted stock Units, and stock appreciation rights under the Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option award may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability, or death, the optionee has 30 days to exercise his or her options.
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The Plan will continue in effect until all the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the Plan may also be accelerated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer, or other disposition of all or substantially all our assets.
As of December 31, 2021, the Board had granted 9,000,000 shares of Common Stock under the Plan and there are no remaining shares available under the Plan.
Authorized but Unissued Capital Stock
Wyoming law does not require stockholder approval for any issuance of authorized shares. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of un-issued and unreserved Common Stock (and/or preferred stock) may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our board by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of our Common Stock at prices higher than prevailing market prices.
Shareholder Matters
As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us if our shares are considered to be penny stocks which they currently are and probably will be for the foreseeable future. Although the federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any claim that the material provided by us, including this prospectus, contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.
Anti-Takeover Issues
Wyoming does not impose enhanced fiduciary duties on directors in attempted takeover situations. Instead, the “business judgment rule” is applied to the use of antitakeover tactics, which may allow directors to consider the interests of shareholders as just one factor among others.
Our Board of Directors can designate the rights, preferences, privileges and restrictions of series of preferred or common stock without further shareholder action. Cumulative voting is not provided for in our Articles of Incorporation or Bylaws or in the Wyoming Business Corporations Act, which also may make it harder for third parties to gain control over the Company. We do not currently have a staggered Board of Directors, and we have not adopted any shareholders’ rights plans, or so-called poison pills.
Transfer and Warrant Agent
The Transfer Agent and Warrant Agent for our Common Stock is Transfer Online, Inc. Its address is 512 SE Salmon Street Portland, OR 97214. Its telephone number is 503-227-2950.
Nasdaq Listing
Our Common Stock is currently quoted on the OTC Markets under the symbol “CWPE.” In connection with this offering, we have applied to have our Common Stock and Warrants listed on the Nasdaq Capital Market under the symbols “[*]” and “[*]W,” respectively. If our listing application is approved, we expect to list our Common Stock and the Warrants offered in this offering on Nasdaq upon consummation of this offering. No assurance can be given that our listing application will be approved. This offering will occur only if Nasdaq approves the listing of our Common Stock and Warrants. If Nasdaq does not approve the listing of our Common Stock and Warrants, we will not proceed with this offering. There can be no assurance that our Common Stock and Warrants will be listed on the Nasdaq.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, shares of our Common Stock were quoted on the OTC Markets under the symbol “CWPE.” Future sales of our Common Stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our Common Stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.
Based on the number of shares outstanding as of May 26, 2022, upon the completion of this offering, [*] shares of our Common Stock will be outstanding, assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of the Warrants, no conversion of the Series A Preferred Stock and no exercise of the Underwriter’s Warrants. Of the outstanding shares, all of the shares sold in this offering, except that any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below, and shares of our Common Stock are restricted shares of Common Stock subject to time-based vesting terms. All remaining shares of Common Stock held by existing stockholders immediately prior to the completion of this offering, will be “restricted securities” as such term is defined in Rule 144. These restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, summarized below.
Rule 144
In general, a person who has beneficially owned restricted stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Securities Exchange Act of 1934, as amended, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
| ● | 1% of the number of shares then outstanding, which will equal approximately [*] shares immediately after this offering assuming no exercise of the underwriters’ option to purchase additional shares, based on the number of shares outstanding as of May 26, 2022; or | |
| ● | the average weekly trading volume of our Common Stock on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; |
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information, and notice provisions of Rule 144.
Upon waiver or expiration of the 360-day lock-up period described below, approximately [*] shares of our Common Stock will be eligible for sale under Rule 144. We cannot estimate the number of shares of our Common Stock that our existing stockholders will elect to sell under Rule 144.
Rule 701
Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares.
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However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under the section titled “Underwriters” included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
Lock-Up Agreements
We and each of our directors and executive officers intend to sign a lock-up agreement that prevents them from selling any of our Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of not less than 360 days from the date of this prospectus without the prior written consent of the representatives, subject to certain exceptions. See the section entitled “Underwriting” appearing elsewhere in this prospectus for more information.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. AND NON-U.S. HOLDERS
The following is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Common Stock purchased in this offering, which we refer to collectively as our securities, but is for general information purposes only and does not purport to be a complete analysis of all the potential tax considerations. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed Treasury regulations promulgated thereunder, administrative rulings and pronouncements, and judicial decisions, all in effect as of the date hereof. These authorities may change, possibly retroactively, resulting in U.S. federal income and estate tax consequences different from those set forth below. There can be no assurance that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, and do not intend to obtain, an opinion of counsel or ruling from the IRS with respect to the U.S. federal income tax considerations relating to the purchase, ownership or disposition of our securities.
This summary does not address any alternative minimum tax considerations, any considerations regarding the Medicare tax, any considerations regarding the tax on net investment income, or the tax considerations arising under the laws of any state, local or non-U.S. jurisdiction, or under any non-income tax laws, including U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this summary does not address all of the tax consequences that may be relevant to investors, nor does it address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
| ● | banks, insurance companies, or other financial institutions; | |
| ● | tax-exempt entities or governmental organizations, including agencies or instrumentalities thereof; | |
| ● | regulated investment companies and real estate investment trusts; | |
| ● | controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax; | |
| ● | brokers or dealers in securities or currencies; | |
| ● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; | |
| ● | persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below); | |
| ● | tax-qualified retirement plans; | |
| ● | certain former citizens or long-term residents of the United States; |
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| ● | partnerships or entities or arrangements classified as partnerships for U.S. federal income tax purposes and other pass-through entities including S corporations and trusts (and any investors therein); | |
| ● | persons who hold our securities as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated investment; | |
| ● | persons who do not hold our securities as a capital asset within the meaning of Section 1221 of the Code; or | |
| ● | persons deemed to sell our securities under the constructive sale provisions of the Code, or persons holding the securities as part of a “straddle,” hedge, conversion transaction, integrated transaction or other similar transaction. |
In addition, if a partnership (or entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our securities, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our securities, and partners in such partnerships, should consult their tax advisors.
You are urged to consult your own tax advisors with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our securities arising under the U.S. federal estate or gift tax laws or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
CONSEQUENCES TO U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences that will apply to a U.S. holder of our securities. For purposes of this discussion, you are a U.S. holder if, for U.S. federal income tax purposes, you are a beneficial owner of our securities, other than a partnership, that is:
| ● | an individual citizen or resident of the United States; | |
| ● | a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia; | |
| ● | an estate or trust whose income is subject to U.S. federal income tax regardless of its source; or | |
| ● | a trust (x) whose administration is subject to the primary supervision of a U.S. court, and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a “United States person.” |
Dividends
As described in the section titled “DIVIDEND POLICY,” we have never declared or paid cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in the foreseeable future. However, if we do make distributions in cash or other property on our Common Stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent our distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital that will first reduce your basis in our Common Stock, but not below zero, and then will be treated as gain from the sale or other disposition of stock as described below under “Sale, Exchange or Other Taxable Disposition of Common Stock.”
Dividend income may be taxed to an individual U.S. holder at rates applicable to long-term capital gains, provided that a minimum holding period and other limitations and requirements are satisfied with certain exceptions. Any dividends that we pay to a U.S. holder that is a corporation will qualify for the dividends received deduction if the requisite holding period is satisfied, subject to certain limitations. U.S. holders should consult their own tax advisors regarding the holding period and other requirements that must be satisfied in order to qualify for the reduced tax rate on dividends or the dividends-received deduction.
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Sale, Exchange, or Other Taxable Disposition of Common Stock
A U.S. holder will generally recognize capital gain or loss on the sale, exchange, or other taxable disposition of our Common Stock. The amount of gain or loss will equal the difference between the amount realized on the sale and such U.S. holder’s adjusted tax basis in such Common Stock. The amount realized will include the amount of any cash and the fair market value of any other property received in exchange for such Common Stock. A U.S. holder’s adjusted tax basis in its Common Stock will generally equal the U.S. holder’s acquisition cost or purchase price, less any prior distributions treated as a return of capital. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the Common Stock for more than one year. Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility of capital losses is subject to certain limitations.
Information Reporting and Backup Withholding
In general, information reporting requirements may apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our Common Stock, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Unearned Income Medicare Tax.
A 3.8% Medicare contribution tax will generally apply to all or some portion of the net investment income of a U.S. holder that is an individual with adjusted gross income that exceeds a threshold amount ($200,000, or $250,000 if married filing jointly).
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences that will apply to a non-U.S. holder of our securities. A “non-U.S. holder” is a beneficial owner of our securities (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not a U.S. holder. The term “non-U.S. holder” includes:
| ● | a non-resident alien individual (other than certain former citizens and residents of the U.S. subject to U.S. tax as expatriates); | |
| ● | a foreign corporation; | |
| ● | an estate or trust that is not a U.S. holder; or | |
| ● | any other Person that is not a U.S. holder; |
but generally does not include an individual who is present in the U.S. for 183 days or more or who is otherwise treated as a U.S. resident in the taxable year. If you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the acquisition, ownership or sale or other disposition of our securities.
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Distributions
Subject to the discussion below regarding effectively connected income, any distribution paid to a non-U.S. holder, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) generally will constitute a dividend for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the U.S., will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E or other applicable IRS Form W-8 properly certifying qualification for the reduced rate. These forms must be provided prior to the payment of dividends and must be updated periodically. A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty should consult with its individual tax advisor to determine if you may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If a non-U.S. holder holds our securities through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then may be required to provide certification to us or our paying agent, either directly or through other intermediaries.
Dividends received by a non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States) are generally exempt from such withholding tax if the non-U.S. holder satisfies certain certification and disclosure requirements. In order to obtain this exemption, the non-U.S. holder must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated U.S. federal income tax rates applicable to U.S. holders, net of certain deductions and credits. In addition, dividends received by a corporate non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their own tax advisors regarding any applicable tax treaties that may provide for different rules.
Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s adjusted tax basis in its Common Stock and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of the Common Stock, which will be treated as described under “Non-U.S. Holders — Gain on Sale, Exchange or Other Taxable Disposition of Common Stock” below.
Gain on Sale, Exchange or Other Taxable Disposition of Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be required to pay U.S. federal income tax on any gain realized upon the sale, exchange or other taxable disposition of our Common Stock unless:
| ● | the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States); | |
| ● | the non-U.S. holder is a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or | |
| ● | shares of our Common Stock constitute U.S. real property interests by reason of our status as a “United States real property holding corporation” (a USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non- U.S. holder’s holding period for, our Common Stock (provided that an exception does not apply), and, in the case where shares of our Common Stock are regularly traded on an established securities market, the Non-U.S. holder has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such Non-U.S. holder’s holding period for the shares of our Common Stock. |
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We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Common Stock is regularly traded on an established securities market, such Common Stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively hold more than five percent of such regularly traded Common Stock at any time during the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non-U.S. holder’s holding period for, our Common Stock.
If the non-U.S. holder is described in the first bullet above, it will be required to pay tax on the net gain derived from the sale, exchange or other taxable disposition under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a rate of 30%, or (in each case) such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet above will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, exchange or other taxable disposition, which gain may be offset by U.S. source capital losses for the year (provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses). Non-U.S. holders should consult their own tax advisors regarding any applicable income tax or other treaties that may apply.
Federal Estate Tax
Common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence. A Non-U.S. holder may have to comply with certification procedures to establish that it is not a United States person in order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate of withholding under a treaty generally will satisfy the certification requirements necessary to avoid the backup withholding as well for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E or other applicable IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of our securities paid to a “foreign financial institution” (as specially defined under these rules), unless any such institution (1) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (2) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our securities are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of our securities held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (1) certifies to us or the applicable withholding agent that such entity does not have any “substantial United States owners” or (2) provides certain information regarding the entity’s “substantial United States owners,” which will in turn be provided to the U.S. Department of Treasury. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our securities.
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Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, owning and disposing of our securities, including the consequences of any proposed changes in applicable laws.
We are offering $[*] of Units through EF Hutton, division of Benchmark Investments, LLC, who is acting as the representative of the underwriters with respect to the securities subject to this offering. Subject to certain conditions, we have agreed to sell such underwriters such securities listed next to their name in the below table at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus.
| Underwriter | Number of Units | |||
| EF Hutton, division of Benchmark Investments, LLC | ||||
| Total | ||||
The underwriting agreement provides that the obligation of the underwriters to pay for and accept delivery of the securities offered by this prospectus is subject to the approval of certain legal matters by its legal counsel and certain other conditions. Such underwriters are obligated to take and pay for all of the securities if any of the securities are taken. Such underwriters are not, however, required to take or pay for securities covered by the over-allotment option described below.
Over-Allotment Option
Pursuant to the underwriting agreement, we will grant to the underwriters an option to purchase from us up to an additional [*] shares of Common Stock, representing 15% of the shares of Common Stock sold in the offering and/or up to an additional [*] warrants, representing 15% of the warrants sold in the offering, in any combination thereof, solely to cover over-allotments, if any, at the initial public offering price, less the underwriting discounts. The underwriters may exercise this option any time during the 45-day period starting on the closing date of the offering, but only to cover over-allotments, if any. To the extent the underwriters exercise the option, the underwriters will become obligated, subject to certain conditions, to purchase the shares and/or warrants for which they exercise the option.
Underwriting Discounts and Expenses
We have agreed to pay the underwriters a cash fee equal to eight percent (8%) of the aggregate gross proceeds received by the Company from the securities sold in this offering. We have further agreed to pay a non-accountable expense allowance to the representative of the underwriters equal to one percent (1%) of the gross proceeds received by the Company at the closing of the offering. Additionally, we have agreed to reimburse the representative for certain out-of-pocket expenses, including all filing fees and communication expenses associated with the review of the offering by FINRA; up to $20,000 of the representative’s actual accountable road show expenses for the offering; the $29,500 cost associated with the representative’s use of Ipreo’s book building, prospectus tracking and compliance software for the offering; the costs associated with bound volumes of the offering materials as well as commemorative mementos and lucite tombstones in an aggregate amount not to exceed $5,000; and the fees for EF Hutton’s legal counsel, not to exceed $175,000 in the aggregate. We have provided an advance against out-of-pocket accountable expenses to the representative in the amount of $25,000 upon the execution of our engagement agreement with the representative. The advance shall be applied towards out-of-pocket accountable expense set forth herein and any portion of the advance shall be returned to us to the extent not actually incurred.
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The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to us. The information assumes either no exercise or full exercise of the option we granted to the representative.
| Per Unit | Total with No Over-Allotment | Total with Over-Allotment | ||||||||||
| Initial public offering price | $ | $ | $ | |||||||||
| Underwriting discounts to be paid by us | $ | $ | $ | |||||||||
| Proceeds, before expenses to us | $ | $ | $ | |||||||||
We estimate that our total expenses of this offering, including background checks on management for which we have paid for ourselves, but excluding underwriting discounts, will be approximately $[*], which includes a maximum of $175,000 of out of pocket expenses for “road show,” diligence, and reasonable legal fees and disbursements for underwriters’ counsel, subject to a maximum of $50,000 in the event that this offering is not consummated.
Representative’s Warrants
In addition, we have agreed to issue to the underwriters warrants to purchase a number of shares of Common Stock equal to five percent (5%) of the aggregate number of shares sold in the offering (including those securities sold upon exercise of the over-allotment option). The underwriters’ warrants will be exercisable at any time and from time to time, in whole or in part, during the four-and-½-year period commencing six months from the date of commencement of sales of the Units this offering, at a price per share equal to $[*] which is 100% of the initial public offering price per Unit. Such underwriter’s warrants are exercisable on a cash or cashless basis. The underwriters’ warrants and the underlying shares will be deemed compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e). In accordance with FINRA Rule 5110(e)(1), and except as otherwise permitted by FINRA rules, neither the representative’s warrants nor any of our shares issued upon exercise of the representative’s warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days beginning on the date of commencement of the public sales of the Units in the offering. In addition, although the representative’s warrants and the underlying shares are being registered in the registration statement of which this prospectus forms a part, we have also agreed that the warrants will provide for registration rights in certain cases. These registration rights apply to all of the securities directly and indirectly issuable upon exercise of the underwriter warrants. The one demand registration right provided will not be greater than five years from the commencement of sales of the public offering in compliance with FINRA Rule 5110(g)(8)(C). The unlimited piggyback registration right provided will not be greater than seven years from the commencement of sales of the public offering in compliance with FINRA Rule 5110(g)(8)(D). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the Representative Warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the representative warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend, or our recapitalization, reorganization, merger, or consolidation.
Indemnification
Pursuant to the underwriting agreement, we have agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Right of First Refusal
We have granted the representative an irrevocable right of first refusal, for a period of twelve (12) months from the closing of the offering, to act as sole investment banker, sole book-runner, and/or sole placement agent, at the representative’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings, subject to certain exceptions (each being referred to as a subject transaction), during such twelve (12) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the representative for such subject transactions. The representative shall have the sole right to determine whether or not any other broker dealer shall have the right to participate in the subject transaction and the economic terms of such participation.
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Tail Financing
We have granted to the representative the right to receive a cash fee of eight percent (8%) of the aggregate gross proceeds received by the Company from the sale of any equity and/or debt and/or equity derivative securities sold to any investor actually introduced by the representative to the Company during the period of engagement of the representative in connection with any public or private financing or capital raise (“Tail Financing”), and such Tail Financing is consummated at any time during the representative’s period of engagement (the “Tail Period”), provided that such Tail Financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party’s participation. In compliance with FINRA Rule 5110(g)(5)(B), the “tail fee” will not be payable for greater than one year and our entire engagement agreement with the representative is terminable if the representative materially breaches the engagement agreement or fails to materially perform the underwriting services contemplated in the engagement agreement. The termination of such agreement will eliminate the obligation of the Company to pay the tail fee.
Lock-Up Agreements
Pursuant to “lock-up” agreements, we, all of our directors, executive officers, and all of our stockholders have agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or caused to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise, in each case without the prior written consent of the representative for a period of 360 days after the date of this prospectus, other than the shares to be sold hereunder and certain other exceptions.
Pricing of the Offering
Prior to this offering, there has only been a limited public market for our Common Stock. The public offering price will be determined by negotiations between us and the representative of the underwriters. In determining the public offering price, we and the representative of the underwriters expect to consider a number of factors including:
| ● | the information set forth in this prospectus and otherwise available to the representative; | |
| ● | our prospects and the history and prospects for the industry in which we compete; | |
| ● | an assessment of our management; | |
| ● | our prospects for future earnings; | |
| ● | the general condition of the securities markets at the time of this offering; | |
| ● | the recent market prices of, and demand for, publicly traded Common Stock of generally comparable companies; and | |
| ● | other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our Common Stock, or that the shares will trade in the public market at or above the public offering price.
| 73 |
Electronic Offer, Sale, and Distribution
A prospectus in electronic format may be made available on a website maintained by the representative and may also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of Units to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters that may make internet distributions on the same basis as other allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically.
The underwriters have informed us that they do not expect to confirm sales of Units offered by this prospectus to accounts over which they exercise discretionary authority.
Other than the prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Price Stabilization, Short Positions and Penalty Bids
The underwriters have advised us that, following the completion of this offering, they currently intend to make a market in our Common Stock and Warrants as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for our Common Stock or Warrants, that you will be able to sell any of the Common Stock or Warrants held by you at a particular time, or that the prices that you receive when you sell will be favorable.
The underwriters have advised us that they, pursuant to Regulation M under the Exchange Act, certain persons participating in the offering may engage in short sale transactions, stabilizing transactions, syndicate covering transactions, or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the Common Stock or the Warrants at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either “covered” short sales or “naked” short sales.
“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of our Common Stock in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares of our Common Stock or purchasing shares of our Common Stock in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares.
“Naked” short sales are sales in excess of the option to purchase additional shares of our Common Stock. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our Common Stock in the open market after pricing that could adversely affect investors who purchase in this offering.
A stabilizing bid is a bid for the purchase of shares of Common Stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the Common Stock. A syndicate covering transaction is the bid for or the purchase of shares of Common Stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our Common Stock or preventing or retarding a decline in the market price of our Common Stock. As a result, the price of our Common Stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the Common Stock originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.
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Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Common Stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.
The underwriters may also engage in passive market making transactions in our Common Stock on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M during a period before the commencement of offers or sales of shares of our Common Stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
Affiliations
Each underwriter and its respective affiliates are a full-service financial institution engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The underwriters may in the future receive customary fees and commissions for these transactions.
In the ordinary course of its various business activities, each underwriter and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for its own account and for the accounts of its customers, and such investment and securities activities may involve securities and/or instruments of the issuer. Each underwriter and its respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Other Relationships
Except as set forth below, we are not under any contractual obligation to engage the underwriters to provide any services for us after this offering. Pursuant to the Engagement Agreement, dated December 10, 2021, between the Company and the representative, the representative agreed to provide general financial advisory services to the Company such as introducing the Company to investors and assisting the Company in financings or other transactions (the “Advisory Services”).
If within twelve (12) months from the effective date of the termination or expiration of the Engagement Agreement, pursuant to FINRA Rule 5110(j)(16) either the Company or any party to whom the Company was actually directly introduced by the Representative in connection with its Advisory Services for the Company, proposes a financing (“Financing”) or any transaction with the Company, including, without limitation, a merger, acquisition or sale of stock or assets (in which the Company may be the acquiring or the acquired entity), joint venture, strategic alliance or other similar transaction (any such transaction, an “M&A Transaction”), then, if any such Financing or an M&A Transaction is consummated, the Company shall pay fees to the representative. Under the agreement, as consideration for the Advisory Services in connection with a private placement of equity securities, the Company has agreed to pay the representative a cash fee of 8% of the amount of capital raised, invested or committed. For debt placements, the Company has agreed to pay the representative a cash fee of 6% of the amount of capital raised, invested, or committed. As additional compensation for the Advisory Services, the Company has also agreed to issue the representative warrants at the closing of an equity offering to purchase shares of Common Stock equal to 5% of the aggregate proceeds sold in the equity offering, exercisable, at any time in whole or in part, during the four-and-½-year period commencing six months from the date of commencement of sales of the Units this offering at a price per share equal to the offering price. These warrants, which would be in addition to the Representative’s Warrants earned as a result of the closing of the Company’s public offering of the Units, will provide for piggyback registration rights, Black Scholes change in control provisions and customary anti-dilution provisions and adjustments in the number and price of such warrants and the shares underlying such warrants resulting from corporate events which would include dividends, reorganizations, or mergers, and future issuance of Common Stock or Common Stock equivalents at prices or with exercise and/or conversion prices below the offering price as permitted under FINRA Rule 5110(g). In connection with an M&A Transaction, the Company has agreed to pay the representative 5% of the total transaction consideration.
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Notwithstanding the foregoing, the representative will not receive any fees or warrants in connection with a Financing or M&A Transaction unless FINRA determines that such payment would not be deemed underwriters’ compensation in connection with this offering.
Selling Restrictions
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on our behalf, other than offers made by the underwriters and their respective affiliates, with a view to the final placement of the securities as contemplated in this document. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of shares on our behalf or on behalf of the underwriters.
Offering Restrictions Outside the United States
Other than in the United States of America, no action has been taken by us or the underwriters that would permit a public offering of the Units in any jurisdiction where action for that purpose is required. None of the Units included in this offering may be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sales of any of the Units being offered hereby be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to this offering of Units and the distribution of this prospectus. This prospectus is neither an offer to sell nor a solicitation of any offer to buy our Units in any jurisdiction where that would not be permitted or legal.
The validity of the shares of Common Stock offered by this prospectus will be passed upon for us by Brian Higley, Esq. of Business Legal Advisors, LLC of Draper, Utah. Certain legal matters relating to this offering will be passed upon for the underwriters by Carmel, Milazzo & Feil LLP, New York, New York.
M&K CPAS, PLLC, an independent registered public accounting firm, has audited our consolidated financial statements on December 31, 2021 and 2020, and for each of the two years in the period ended December 31, 2021, as set forth in their report. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on M&K CPAS, PLLC’s report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have been filing reports with the Securities and Exchange Commission pursuant to our obligations under Regulation A of the Securities Act upon the qualification of our Form 1-A, as originally qualified on October 4, 2018 (File Number 024-11446). We are current with our filings under Regulation A. We have filed with the SEC a registration statement on Form S-1 (File Number 333-[*]) under the Securities Act with respect to the units we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our securities, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. All filings we make with the SEC are available on the SEC’s website at www.sec.gov.
Once the registration statement is declared effective, we will be subject to the periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available on the website of the SEC referred to above. We maintain a website at cwpetroleumcorp.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge on the SEC’s website or at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We have not incorporated by reference into this prospectus the information contained in, or that can be accessed through, our website, and you should not consider it to be a part of this prospectus.
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CW PETROLEUM CORP
| F-1 |
CW PETROLEUM CORP
March 31, 2022 (Unaudited) | December 31, 2021 (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 202,447 | $ | 281,504 | ||||
| Accounts receivable, net | 288,612 | 159,988 | ||||||
| Inventory | - | 127,607 | ||||||
| Other current assets | 8,300 | 8,300 | ||||||
| Total current assets | 499,359 | 577,399 | ||||||
| Property and equipment, net | 315,062 | 357,702 | ||||||
| Other assets | 19,511 | 17,613 | ||||||
| Total assets | $ | 833,932 | $ | 952,714 | ||||
| LIABILITES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 190,714 | $ | 199,948 | ||||
| Short term notes payable – related party | 345,000 | 345,000 | ||||||
| Current maturities of long-term debt | 127,165 | 129,548 | ||||||
| Total current liabilities | 662,879 | 674,496 | ||||||
| Long-term debt, net | 255,504 | 287,613 | ||||||
| Total liabilities | $ | 918,383 | $ | 962,109 | ||||
| Shareholders’ equity | ||||||||
| Preferred stock –1,000,000 shares authorized, issued and outstanding with a par value of $0.0001 per share | 100 | 100 | ||||||
| Common stock – 99,000,000 shares authorized, $0.0001 par value 22,345,898 and 22,345,898 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 2,235 | 2,235 | ||||||
| Stock payable | 300 | 300 | ||||||
| Additional Paid-in capital | 1,757,719 | 1,757,719 | ||||||
| Accumulated deficit | (1,844,805 | ) | (1,769,749 | ) | ||||
| Total shareholders’ equity | (84,451 | ) | (9,395 | ) | ||||
| Total liabilities and shareholders’ equity | $ | 833,932 | $ | 952,714 | ||||
The accompanying notes are an integral part of these interim consolidated financial statements
| F-2 |
CW PETROLEUM CORP
Consolidated Statements of Operations
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
| 2022 | 2021 | |||||||
| Operations | ||||||||
| Revenue | ||||||||
| Fuel sales | $ | 1,693,968 | $ | 1,682,819 | ||||
| Total revenue | 1,693,968 | 1,682,819 | ||||||
| Cost of revenue | ||||||||
| Cost of fuel sold | 1,353,321 | 1,317,029 | ||||||
| Freight | 19,507 | 40,579 | ||||||
| Transport costs | 25,181 | 28,380 | ||||||
| Total cost of revenue | 1,398,009 | 1,385,988 | ||||||
| Margin on operations | 295,959 | 296,831 | ||||||
| Operating expenses | 355,416 | 253,576 | ||||||
| Earnings (loss) from operations | (59,457 | ) | 43,255 | |||||
| Interest expense | 15,599 | 16,607 | ||||||
| Income (loss) before income taxes | (75,056 | ) | 26,648 | |||||
| Income tax provision (recovery) | - | - | ||||||
| Net (loss) income | $ | (75,056 | ) | $ | 26,648 | |||
| Earnings Per Share | ||||||||
| Weighted average shares outstanding | 22,345,898 | 13,304,065 | ||||||
| Basic and fully diluted earnings (loss) per share | $ | (0.00 | ) | $ | 0.00 | |||
The accompanying notes are an integral part of these interim consolidated financial statements
| F-3 |
CW PETROLEUM CORP
Consolidated Statements of Shareholders’ Equity
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Three Months Ended March 31, 2022
| Common Stock | Preferred Stock | Paid-In | Stock | Accumulated | ||||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Total | ||||||||||||||||||||||||
| Balance December 31, 2021 | 22,345,898 | 2,235 | 1,000,000 | 100 | 1,757,719 | 300 | (1,769,749 | ) | (9,395 | ) | ||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | - | - | - | - | - | - | (75,056 | ) | (75,056 | ) | ||||||||||||||||||||||
| Balance March 31, 2022 | 22,345,898 | 2,235 | 1,000,000 | 100 | 1,757,719 | 300 | (1,844,805 | ) | (85,451 | ) | ||||||||||||||||||||||
Three Months Ended March 31, 2021
| Common Stock | Preferred Stock | Paid-In | Stock | Accumulated | ||||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Total | ||||||||||||||||||||||||
| Balance December 31, 2020 | 13,304,065 | 1,331 | 1,000,000 | 100 | 681,164 | 300 | (226,811 | ) | 456,084 | |||||||||||||||||||||||
| Shares issued for services | - | - | - | - | 105,003 | - | - | 105,003 | ||||||||||||||||||||||||
| Net income for the three months ended March 31, 2021 | - | - | - | - | - | - | 26,648 | 26,648 | ||||||||||||||||||||||||
| Balance March 31, 2021 | 13,304,065 | 1,331 | 1,000,000 | 100 | 786,167 | 300 | (200,163 | ) | 587,735 | |||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements
| F-4 |
CW PETROLEUM CORP
Consolidated Statements of Cash Flow
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | (75,056 | ) | $ | 26,648 | |||
| Depreciation | 42,640 | 40,017 | ||||||
| Services paid for with common stock | - | 105,003 | ||||||
| Bad debt expense | 11,588 | - | ||||||
| Changes in | ||||||||
| Accounts receivable | (140,212 | ) | (147,193 | ) | ||||
| Inventory | 127,607 | - | ||||||
| Other assets | (1,898 | ) | (1,897 | ) | ||||
| Accounts payable and accrued expenses | (9,234 | ) | 33,000 | |||||
| NET CASH PROVIDED BY (USED IN) OPERATIONS | (44,565 | ) | 55,578 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Deferred offering costs | - | (105,003 | ) | |||||
| Repayment of SBA loan | - | (149,900 | ) | |||||
| Principal payments on debt | (34,492 | ) | (32,895 | ) | ||||
| CASH FLOWS (USED IN) FINANCING ACTIVITIES | (34,492 | ) | (287,798 | ) | ||||
| Change in cash and cash equivalents | (79,057 | ) | (232,220 | ) | ||||
| Beginning of year | 281,504 | 572,217 | ||||||
| End of year | $ | 202,447 | 339,997 | |||||
Supplemental disclosures | ||||||||
| Cash paid for income taxes | $ | - | - | |||||
| Cash paid for interest | $ | 8,729 | 8,872 | |||||
The accompanying notes are an integral part of these interim consolidated financial statements
| F-5 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
Note 1 - Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
CW Petroleum Corp was incorporated in the State of Texas on April 29, 2005 and began operations in 2011. On April 14, 2018, CW Petroleum Corp was incorporated in the State of Wyoming (the “Company”). On April 15, 2018, the Texas corporation became a wholly-owned subsidiary of the Company through a share exchange. CW Petroleum Corp (Wyoming) is a holding company and, through its wholly-owned subsidiary, it supplies and distributes biodiesel (a renewable, biodegradable fuel manufactured domestically from vegetable oils, animal fats, or recycled restaurant grease), biodiesel blends, ultra-low sulfur diesel, gasoline blends, “renewable gasoline” (a blend of premium gasoline with 12.5% to 16.0% isobutanol, an alcohol derived from agricultural products) and a proprietary EPA-approved reformulated no ethanol gasoline to gasoline distributors, convenience stores, and marinas.
CW Petroleum Corp (Wyoming) is a holding company and has no operations. The purpose in forming the holding company was to limit corporate liability, create a streamlined management, maintain ownership over its sole subsidiary and establish an organizational structure to facilitate the potential acquisition of other businesses in its industry or complementary to its industry.
The transaction in which CW became a Wyoming C corporation has been accounted for in a manner similar to a recapitalization for financial reporting purposes. The accompanying financial statements have been prepared as if the transaction had occurred on the first day of the first period included in the financial statements, and all operating data represents an ongoing continuation of the Company’s operations.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, CW Petroleum Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
Estimates and Assumptions
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could materially differ from estimated amounts. We evaluate our estimated assumptions based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Cash and Cash Equivalents
Our cash equivalents consist principally of overnight investments, bank money market accounts and bank time deposits which have an original maturity date of less than 90 days. These securities are carried at cost, which approximates market value. There were no cash equivalents as of March 31, 2022 or December 31, 2021.
Accounts Receivable and Allowance for Bad Debt
CW performs ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of our customer’s credit information. We extend credit on an unsecured basis to most of our customers. Accounts receivables are deemed past due based on contractual terms agreed to with our customers. Although we analyze customers’ payment history and creditworthiness, we cannot predict with certainty that the customers to whom we extend credit will be able to remit payments on a timely basis, or at all. Because we extend credit on an unsecured basis to most of our customers, there is a possibility that any accounts receivable not collected will ultimately need to be written off. CW continuously monitors collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience with our customers, current market and industry conditions affecting our customers and any specific customer collection issues that we have identified.
| F-6 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
Inventories
Inventories are valued primarily using average cost and are stated at the lower of average cost or market. CW utilizes a variety of fuel indices and other indicators of market value. Sharp negative changes in these indices can result in reduction of our inventory valuation, which could have an adverse impact on our results of operations in the period in which we take the adjustment. Historically these adjustments have not had a significant impact on our consolidated statements of operations. Components of inventory include fuel purchase costs, the related transportation costs and changes in the estimated fair market values for inventories included in a fair value hedge relationship.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which are all five years.
Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The Company records the gross sale of the fuel as we generally take inventory risk, have latitude in establishing the sales price, have discretion in the supplier selection, maintain credit risk and are the primary obligor in the sales arrangement. Based on this evaluation, adoption does not have a material impact on our financial position, results of operations, or cash flows. Related disclosures have been expanded in line with the requirements of the standard.
Earnings per Common Share
Basic earnings per common share is computed by dividing net income attributable to CW Petroleum Corp and available to common shareholders by the sum of the weighted average number of shares of common stock. Diluted earnings per common share is computed by dividing net income attributable to us and available to common shareholders by the sum of the weighted average number of shares of common stock and the number of additional shares of common stock that would have been outstanding if our outstanding potentially dilutive securities had been issued. We had no potentially dilutive securities at March 31, 2022 or March 31, 2021.
| F-7 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
Note 2 - Accounts Receivable
CW has accounts receivable of $288,612 and $159,888 net of an allowance for bad debt of $22,932 and $11,373, as of March 31, 2022 and December 31, 2021, respectively. Accounts receivables are written off when it becomes apparent based upon age or customer circumstances that such amounts will not be collected.
The following table sets forth activities in our allowance for bad debt:
| (Unaudited) | ||||||||
| Description | March 31, 2022 | December 31, 2021 | ||||||
| Balance as of beginning of period | $ | 11,373 | $ | 8,118 | ||||
| Charges to provision for bad debt | 11,559 | 3,255 | ||||||
| Write-off of uncollectible accounts receivable | - | - | ||||||
| Recoveries of bad debt | - | - | ||||||
| Balance as of end of period | $ | 22,932 | $ | 11,373 | ||||
Note 3 – Inventories
Inventories as of March 31, 2022 and December 31, 2021, consists of the following:
| (Unaudited) | ||||||||
| Description | March 31, 2022 | December 31, 2021 | ||||||
| Tank Heel Inventory | $ | - | $ | 127,607 | ||||
| Total | $ | - | $ | 127,607 | ||||
Tank heel inventory represents the cost of fuel maintained in storage tanks owned by other parties to assure maintenance of capacity.
Note 4 - Property and Equipment
The amount of property and equipment as of March 31, 2022 and December 31, 2021, consisted of the following:
| (Unaudited) | ||||||||
| Description | March 31, 2022 | December 31, 2021 | ||||||
| Furniture, fixtures and equipment | $ | 17,932 | $ | 17,932 | ||||
| Transportation equipment | 1,097,523 | 1,097,523 | ||||||
| Total property cost | $ | 1,115,455 | $ | 1,115,455 | ||||
| Accumulated depreciation | 800,393 | 757,753 | ||||||
| Property and equipment, net | $ | 315,062 | $ | 357,702 | ||||
For the three months ended March 31, 2022 and 2021, CW recorded depreciation expense of $42,640 and $40,017, respectively.
| F-8 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
NOTE 5 - Debt
CW has installment notes payable secured by our transportation equipment. Interest rates range from 2% to 18% per annum and averaged 9.58% and 8.14% as of March 31, 2022 and December 31, 2021, respectively. The terms of these notes range from 36 to 72 months and average 64. During the three months ended March 31, 2022 and 2021, CW made repayments of $34,492 and $32,895, respectively.
Economic Injury Disaster Loan
On May 31, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $149,900, with proceeds to be used for working capital purposes. The Company has secured an EIDL loan in the amount of $149,900. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 31, 2021 (twelve months from the date of the SBA Loan Agreement) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan Agreement. In connection therewith, the Company received a $2,000 advance, which does not have to be repaid and was recorded as a portion of other income for the year ended December 31, 2020. This loan was repaid in full during the three months ended March 31, 2021.
As of March 31, 2022, the aggregate annual maturities of debt are as follows:
| Current | Long-Term | |||||||
| 2022 | $ | 95,056 | $ | - | ||||
| 2023 | 32,109 | 68,416 | ||||||
| 2024 | 88,768 | |||||||
| 2025 | 61,935 | |||||||
| 2026 | 29,365 | |||||||
| Thereafter | 7,020 | |||||||
| Total | $ | 127,165 | $ | 255,504 | ||||
Note 6 – Related Party Transactions
Short term notes payable includes $345,000 and $345,000 as of March 31, 2022 and December 31, 2021, respectively, of loans from related parties. Interest expense of $6,900 and $5,900 was accrued for the three months ended March 31, 2022 and 2021, respectively.
The Company leases land for storage of transportation equipment on a month-to-month lease from its President for $1,500 month to month.
Note 7 – Stockholders’ Equity
There were no equity transactions during the three months ended March 31, 2022.
During the three months ended March 31, 2021, the Company recorded $105,003 for services rendered in 2021 related to shares previously issued in 2020.
Note 8 – Concentrations
Accounts receivable as of March 31, 2022 were concentrated among two customers representing 80% and 20% of accounts receivable. Accounts receivable as of December 31, 2021 were concentrated among three customers representing 60%, 21% and 17% of accounts receivable.
Revenue included a significant concentration among customers for the three months ended March 31, 2022 in which two customers represented 60% and 18% of revenue.
Revenue included a significant concentration among customers for the three months ended March 31, 2021 in which one customer represented 89% of revenue.
Note 9 – Subsequent Events
Subsequent events have been evaluated through June 2, 2022, the date these financial statements were available to be released and noted no other events requiring disclosure.
| F-9 |
INDEX TO FINANCIAL STATEMENTS
CW PETROLEUM CORP
| F-10 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CW Petroleum Corp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CW Petroleum Corp. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the company has suffered net losses from operations in recent years and had a stockholders’ deficit as of December 31, 2021 and 2020, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. 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 audits 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 the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern Analysis
As discussed in Note 2, the Company had a going concern due to net losses from operations in recent years and has an accumulated deficit as of December 31, 2021 and 2020.
Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are difficult to substantiate.
To evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.
/s/ M&K CPAS, PLLC
M&K CPAS, PLLC
We have served as the Company’s auditor since 2018
Houston, TX
April 29, 2022
| F-11 |
CW PETROLEUM CORP
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 281,504 | $ | 572,217 | ||||
| Accounts receivable, net | 159,988 | 74,603 | ||||||
| Inventory | 127,607 | 127,607 | ||||||
| Deferred offering costs | - | 350,008 | ||||||
| Other current assets | 8,300 | 8,300 | ||||||
| Total current assets | 577,399 | 1,132,735 | ||||||
| Property and equipment, net | 357,702 | 449,136 | ||||||
| Other assets | 17,613 | 10,026 | ||||||
| Total assets | $ | 952,714 | $ | 1,591,897 | ||||
| LIABILITES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 199,948 | $ | 220,396 | ||||
| Short term notes payable – related party | 345,000 | 295,000 | ||||||
| Current maturities of long-term debt | 129,548 | 125,744 | ||||||
| Total current liabilities | 674,496 | 641,140 | ||||||
| Long-term debt, net | 287,613 | 494,673 | ||||||
| Total liabilities | $ | 962,109 | $ | 1,135,813 | ||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock –1,000,000 shares authorized, issued and outstanding with a par value of $.0001 per share | 100 | 100 | ||||||
| Common stock – 99,000,000 shares authorized, $0.0001 par value 22,345,898 and 13,304,065 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | 2,235 | 1,331 | ||||||
| Stock payable | 300 | 300 | ||||||
| Additional paid-in capital | 1,757,719 | 681,164 | ||||||
| Accumulated deficit | (1,769,749 | ) | (226,811 | ) | ||||
| Total stockholders’ equity (deficit) | (9,395 | ) | 456,084 | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 952,714 | $ | 1,591,897 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-12 |
CW PETROLEUM CORP
Consolidated Statements of Operations
For the Years Ended December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Operations | ||||||||
| Revenue | ||||||||
| Fuel sales | $ | 8,269,909 | $ | 7,043,926 | ||||
| Total revenue | 8,269,909 | 7,043,926 | ||||||
| Cost of revenue | ||||||||
| Cost of fuel sold | 6,869,111 | 5,651,724 | ||||||
| Freight | 201,182 | 218,931 | ||||||
| Transport costs | 128,295 | 134,070 | ||||||
| Total cost of revenue | 7,198,588 | 6,004,725 | ||||||
| Margin on operations | 1,071,321 | 1,039,201 | ||||||
| Operating expenses | 1,149,917 | 976,105 | ||||||
| Offering costs | 666,017 | - | ||||||
| Officer compensation | 730,800 | - | ||||||
| Earnings (loss) from operations | (1,475,413 | ) | 63,096 | |||||
| Interest expense | 63,031 | 63,900 | ||||||
| Other (income) | - | (110,138 | ) | |||||
| Loss before income taxes | (1,538,444 | ) | 109,334 | |||||
| Income tax provision (recovery) | ||||||||
| Current | 4,494 | 2,495 | ||||||
| Deferred | - | - | ||||||
| Total income tax provision (recovery) | 4,494 | 2,495 | ||||||
| Net (loss) income | $ | (1,542,938 | ) | $ | 106,839 | |||
| Earnings Per Share | ||||||||
| Weighted average shares outstanding | 15,776,494 | 13,031,782 | ||||||
| Basic and fully diluted earnings (loss) per share | $ | (0.10 | ) | $ | 0.01 | |||
The accompanying notes are an integral part of these consolidated financial statements
| F-13 |
CW PETROLEUM CORP
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2021 and 2020
| Common Stock | Preferred Stock | Paid-In | Stock | Accumulated | ||||||||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Total | ||||||||||||||||||||||||
| Balance December 31, 2019 | 12,973,500 | $ | 1,297 | 1,000,000 | $ | 100 | $ | 404,690 | $ | 300 | $ | (333,650 | ) | $ | 72,737 | |||||||||||||||||
| Shares issued for services | 330,565 | 34 | - | - | 279,974 | - | - | 280,008 | ||||||||||||||||||||||||
| Share buybacks | - | - | - | - | (3,500 | ) | - | - | (3,500 | ) | ||||||||||||||||||||||
| Net income (loss) for the year ended December 31, 2020 | - | - | - | - | - | - | 106,839 | 106,839 | ||||||||||||||||||||||||
| Balance December 31, 2020 | 13,304,065 | 1,331 | 1,000,000 | 100 | 681,164 | 300 | (226,811 | ) | 456,084 | |||||||||||||||||||||||
| Shares issued for services | - | - | - | - | 315,009 | - | - | 315,009 | ||||||||||||||||||||||||
| Shares issued for cash | 43,333 | 4 | - | - | 31,896 | - | - | 31,900 | ||||||||||||||||||||||||
| Shares issued for officer compensation | 9,000,000 | 900 | - | - | 729,900 | - | 730,800 | |||||||||||||||||||||||||
| Share buybacks | (1,500 | ) | - | - | - | (250 | ) | - | - | (250 | ) | |||||||||||||||||||||
| Net loss for the year ended December 31, 2021 | - | - | - | - | - | - | (1,542,938 | ) | (1,542,938 | ) | ||||||||||||||||||||||
| Balance December 31, 2021 | 22,345,898 | 2,235 | 1,000,000 | 100 | 1,757,719 | 300 | (1,769,749 | ) | (9,395 | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-14 |
CW PETROLEUM CORP
Consolidated Statements of Cash Flow
For the Years Ended December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | (1,542,938 | ) | $ | 106,839 | |||
| Gain on sale of an asset | - | (1,120 | ) | |||||
| Depreciation | 169,627 | 157,647 | ||||||
| Services paid for with common stock | 315,009 | 280,008 | ||||||
| Officer compensation | 730,800 | - | ||||||
| Bad debt expense | 3,255 | (15,000 | ) | |||||
| Changes in | ||||||||
| Accounts receivable | (88,640 | ) | 117,427 | |||||
| Other current assets | 665,017 | (6,300 | ) | |||||
| Other Assets | (7,587 | ) | (6,792 | ) | ||||
| Accounts payable and accrued expenses | (20,448 | ) | 44,732 | |||||
| NET CASH PROVIDED BY OPERATIONS | 224,095 | 677,441 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for purchase of fixed assets | (400 | ) | (5,345 | ) | ||||
| Proceeds sale of asset | - | 3,100 | ||||||
| NET CASH (USED IN) INVESTING ACTIVITIES | (400 | ) | (2,245 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of stock | 31,900 | - | ||||||
| Buybacks of shares | (250 | ) | (3,500 | ) | ||||
| Proceeds from SBA loan | - | 149,900 | ||||||
| Deferred offering costs | (315,009 | ) | (350,008 | ) | ||||
| Principal payments on debt | (281,049 | ) | (142,846 | ) | ||||
| Proceeds from short term notes payable – related party | 50,000 | - | ||||||
| Principle payments on debt – related party | - | (5,000 | ) | |||||
| CASH FLOWS (USED IN) FINANCING ACTIVITIES | (514,408 | ) | (351,454 | ) | ||||
| Change in cash and cash equivalents | (290,713 | ) | 323,742 | |||||
| Beginning of year | 572,217 | 248,475 | ||||||
| End of year | $ | 281,504 | 572,217 | |||||
Supplemental disclosures | ||||||||
| Cash paid for income taxes | $ | - | - | |||||
| Cash paid for interest | $ | 63,031 | 73,995 | |||||
Non-cash financing and investing activities | ||||||||
| Installment notes issued for property acquisitions | $ | 77,793 | 76,843 | |||||
The accompanying notes are an integral part of these consolidated financial statements
| F-15 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Note 1 - Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
CW Petroleum Corp (CW or the Company) was incorporated in the state of Texas in 2005 and supplies biodiesel, biodiesel blends, ultra-low sulfur diesel and gasoline blends to distributors and end users. It reincorporated in Wyoming in April 2018.
The transaction in which CW became a Wyoming C corporation has been accounted for in a manner similar to a recapitalization for financial reporting purposes. The accompanying financial statements have been prepared as if the transaction had occurred on the first day of the first period included in the financial statements, and all operating data represents an ongoing continuation of the Company’s operations.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, CW Fuel Transport Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
Estimates and Assumptions
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could materially differ from estimated amounts. We evaluate our estimated assumptions based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications
Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings, financial position, or cash flows.
Cash and Cash Equivalents
Our cash equivalents consist principally of overnight investments, bank money market accounts and bank time deposits which have an original maturity date of less than 90 days. These securities are carried at cost, which approximates market value. There were no cash equivalents as of December 31, 2021 or 2020.
Accounts Receivable and Allowance for Bad Debt
CW performs ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of our customer’s credit information. We extend credit on an unsecured basis to most of our customers. Accounts receivables are deemed past due based on contractual terms agreed to with our customers. Although we analyze customers’ payment history and creditworthiness, we cannot predict with certainty that the customers to whom we extend credit will be able to remit payments on a timely basis, or at all. Because we extend credit on an unsecured basis to most of our customers, there is a possibility that any accounts receivable not collected will ultimately need to be written off. CW continuously monitors collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience with our customers, current market and industry conditions affecting our customers and any specific customer collection issues that we have identified.
| F-16 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Inventories
Inventories are valued primarily using average cost and are stated at the lower of average cost or market. CW utilizes a variety of fuel indices and other indicators of market value. Sharp negative changes in these indices can result in reduction of our inventory valuation, which could have an adverse impact on our results of operations in the period in which we take the adjustment. Historically these adjustments have not had a significant impact on our consolidated statements of operations. Components of inventory include fuel purchase costs, the related transportation costs and changes in the estimated fair market values for inventories included in a fair value hedge relationship.
Fair Value of Financial Instruments
Financial instruments include accounts receivable, accounts payable and notes payable and are considered reflected a market value based on the short-term nature of these instruments.
Deferred offering Costs
Deferred offering costs consist primarily of legal, accounting, consulting, and other direct and incremental fees and expenses related to the Company’s Investment Bank, Cappello Global, LLC. At December 31, 2021 and 2020, deferred offering costs of $0 and $350,008 respectively, were recorded to the consolidated balance sheet. The deferred offering costs amount of $350,008 was expensed as part of offering costs in the statement of operations as of December 31, 2021. Total offering costs related to this offering were $666,017 and $0 as of December 31, 2021 and 2020, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets which are all five years.
Costs of major additions and improvements are capitalized while expenditures for maintenance and repairs, which do not extend the life of the asset, are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to income. Long-lived assets held and used by us are reviewed based on market factors and operational considerations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The Company records the gross sale of the fuel as we generally take inventory risk, have latitude in establishing the sales price, have discretion in the supplier selection, maintain credit risk and are the primary obligor in the sales arrangement. Based on this evaluation, adoption does not have a material impact on our financial position, results of operations, or cash flows. Related disclosures have been expanded in line with the requirements of the standard.
| F-17 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and income tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income 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 income tax rates is recognized in the income tax provision in the period that includes the enactment date.
CW must assess the likelihood that its deferred tax assets will be recovered from our future taxable income, and to the extent CW believes that recovery is not likely, CW must establish a valuation allowance against those deferred tax assets. Deferred tax liabilities generally represent items for which CW has already taken a deduction in our income tax return, but we have not yet recognized the items as expenses in our results of operations.
The state of Texas has a franchise tax based on earnings. This tax is considered a local income tax and is expensed in the year incurred.
Earnings per Common Share
Basic earnings per common share is computed by dividing net income attributable to CW Petroleum Corp and available to common stockholders by the sum of the weighted average number of shares of Common Stock. Diluted earnings per common share is computed by dividing net income attributable to us and available to common stockholders by the sum of the weighted average number of shares of Common Stock and the number of additional shares of Common Stock that would have been outstanding if our outstanding potentially dilutive securities had been issued. We currently have no Common Stock equivalents.
Recent Accounting Pronouncements
In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) guidance on leases, with amendments issued in 2018. The guidance requires lessees to recognize most leases on the balance sheet but does not change the manner in which expenses are recorded in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date. The Company adopted the standard on January 1, 2019. The Company does not have any long-term lease as of December 31, 2021, as such the adoption of the standard has no impact on the Company’s financial statement and disclosures.
There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.
NOTE 2 – Going Concern
U.S. GAAP requires management to assess a company’s ability to continue as a going concern within one year from the financial statement issuance and to provide related note disclosures in certain circumstances.
The accompanying 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. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
| F-18 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
As reflected in the accompanying consolidated financial statements, that have been prepared on a going concern basis, the Company had an accumulated deficit of $1,769,749 as of December 31, 2021 and a net loss of $1,542,938 for the year ended December 31, 2021. The loss includes “non-cash” transactions such as, offering costs of $666,017, depreciation expense of $169,627, and officer compensation of $730,800, totaling $1,495,444 in non-cash expenses for the year ended December 31, 2021. Based on its current forecast and budget, management believes that its cash resources will be sufficient to fund its operations at least until the end of first quarter 2023.
Our ability to continue as a going concern in the foreseeable future is dependent upon our ability to generate revenues. Management has evaluated these conditions and plans to raise capital as needed to grow and to generate additional revenues to satisfy our capital needs. No assurance can be given that we will be successful in these efforts.
Note 3 - Accounts Receivable
CW has accounts receivable of $171,361 and $82,721 net of an allowance for bad debt of $11,373 and $8,118, as of December 31, 2021 and 2020, respectively. Accounts receivables are written-off when it becomes apparent based upon age or customer circumstances that such amounts will not be collected.
The following table sets forth activities in our allowance for bad debt:
| Description | December 31, 2021 | December 31, 2020 | ||||||
| Balance as of beginning of period | $ | 8,118 | $ | 23,118 | ||||
| Charges to provision for bad debt | 3,255 | (15,000 | ) | |||||
| Write-off of uncollectible accounts receivable | - | - | ||||||
| Recoveries of bad debt | - | - | ||||||
| Balance as of end of period | $ | 11,373 | $ | 8,118 | ||||
Note 4 – Inventories
Inventories as of December 31, 2021 and 2020, consists of the following:
| Description | December 31, 2021 | December 31, 2020 | ||||||
| Tank Heel Inventory | $ | 127,607 | $ | 127,607 | ||||
| Total | $ | 127,607 | $ | 127,607 | ||||
Tank heel inventory represents the cost of fuel maintained in storage tanks owned by other parties to assure maintenance of capacity.
| F-19 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Note 5 - Property and Equipment
The amount of property and equipment as of December 31, 2021 and 2020, consist of the following:
| Description | December 31, 2021 | December 31, 2020 | ||||||
| Furniture, fixtures and equipment | $ | 17,932 | $ | 17,932 | ||||
| Transportation equipment | 1,097,523 | 1,019,330 | ||||||
| Total property cost | $ | 1,115,455 | $ | 1,037,262 | ||||
| Accumulated depreciation | 757,753 | 588,126 | ||||||
| Property and equipment, net | $ | 357,702 | $ | 449,136 | ||||
For the year ended December 31, 2021 and 2020, CW recorded depreciation expense of $169,627 and $157,647, respectively. We acquired equipment of $78,193 and $82,188 during the year ended December 31, 2021 and 2020 respectively. There were no disposals in 2021. In 2020, we had net disposals of $1,980 and recognized a gain on sale of asset of $1,120.
NOTE 6 - Debt
CW has installment notes payable secured by our transportation equipment. Interest rates range from 2% to 18% per annum and averaged 9.58% and 8.14% as of December 31, 2021 and 2020, respectively. The terms of these notes range from 36 to 72 months and average 64. In 2021, CW acquired notes of $77,793 for property and equipment and made repayments of $281,049 and acquired notes of $76,843 for property and equipment and made repayments of $142,846 in 2020. The balances of these notes payable as of December 31, 2021 and 2020 were $417,161 and $620,417, respectively.
Economic Injury Disaster Loan
On May 31, 2020, The Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan is up to $149,900, with proceeds to be used for working capital purposes. The Company has secured an EIDL loan in the amount of $150,000. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 31, 2021 (twelve months from the date of the SBA Note (defined below)) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Note. In connection therewith, the Company received a $2,000 advance, which does not have to be repaid and was recorded as a portion of other income for the year ended December 31, 2020. As of December 31, 2021, CW had paid off the SBA loan of $149,900 in full.
As of December 31, 2021, the aggregate annual maturities of debt are as follows:
| Year Ending December 31, 2021 | Amount | |||
| 2022 | $ | 129,548 | ||
| 2023 | 100,525 | |||
| 2024 | 88,768 | |||
| 2025 | 61,935 | |||
| 2026 | 29,365 | |||
| Thereafter | 7,020 | |||
| Total | $ | 417,161 | ||
| F-20 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Note 7 – Income Taxes
The income tax provision for the years ended December 31, 2021 and 2020 reflect current tax payments for state franchise taxes which are considered an income tax. There are no provisions or recoveries for current or deferred federal income taxes.
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
| Description | 2021 | 2020 | ||||||
| Tax provision at federal statutory tax rate | $ | (324,017 | ) | $ | 22,436 | |||
| Permanent and temporary differences | 157,897 | 44,844 | ||||||
| Change in valuation allowance | 166,120 | (67,280 | ) | |||||
| Federal income tax provision | $ | - | $ | - | ||||
The statutory rates noted above were 21% in 2021 and 2020.
Deferred tax assets consisted of the following at December 31, 2021 and 2020.
| Description | 2021 | 2020 | ||||||
Deferred tax assets | ||||||||
| Net operating loss carryforward | $ | 1,840,127 | $ | 733,433 | ||||
| Deferred tax at 21% statutory rate | 386,427 | 162,421 | ||||||
| Less: valuation allowance | (386,427 | ) | (162,421 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
As of December 31, 2021 CW has net operating losses (“NOLs”) of approximately $1,840,127. This NOL expires according to the following table:
| Year Ending December 31, | Amount | |||
| 2038 | 205,471 | |||
| Indefinite | 1,634,656 | |||
| Total | $ | 1,840,127 | ||
CW assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $386,427 has been recorded to recognize the portion of the deferred tax asset that is more likely than not to be realized, which is zero. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as growth projections.
Open tax years that could potentially be examined and changed by the IRS are 2014-2020, 2021 has not yet been filed.
| F-21 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Note 8 – Related Party Transactions
Short term notes payable includes $345,000 and $295,000 as of December 31, 2021 and 2020, respectively, of loans from related parties. Interest expense of $23,600 was accrued for the year ended December 31, 2021 and $23,600 was accrued for the year ended December 31, 2020.
The Company leases land for storage of transportation equipment on a month-to-month lease from its President for $1,500 per month.
Note 9 - Officer Compensation
During the year ended December 31, 2021, the Company issued 9,000,000 shares of restricted stock under the “2021 Stock Incentive Plan” to three directors in equal parts as officer compensation. These shares were valued at the closing price of $0.08 per share and are reflected as a non-cash expense of $730,800 in the statement of operations.
Note 10 – Stockholders’ Equity
During the year ended December 31, 2021, 1,500 shares were returned to the Company, of which 1,400 shares are related to 2020 share buybacks and 100 shares are related to 2021 share buybacks. These transactions have been reflected on the statement of stockholders’ equity for the year ended December 31, 2021.
During the year ended December 31, 2021, 43,333 shares were issued for $31,900 to two stockholders at a price of $0.75 per share.
During the year ended December 31, 2021, 9,000,000 shares were issued to three directors in equal parts as officer compensation. These shares were valued at the closing price of $0.08 per share on the date of issuance.
During the year ended December 31, 2021, the Company recorded $315,009 for services rendered in 2021 related to the 175,005 shares previously issued in 2020.
During the year ended December 31, 2020, the Company issued an aggregate of 330,565 shares of Common Stock of which, 175,005 Common Stock shares were issued but not recorded due to the shares relating to 2021 services to be provided and 155,560 shares of Common Stock were issued and recognized for services to be rendered which along with $70,000 cash payments was recorded as deferred offering costs totaling $350,008 on the consolidated balance sheet. These shares were valued at the closing price of $1.80 per share on the agreement date.
Common Stock.
During the year ended December 31, 2020, the Company bought back an aggregate of 1,400 shares of Common Stock for a price of $2.50 per share. These shares were returned to the Company in 2021.
Common Stock.
Note 11- Supplemental Cash Flow Disclosures
Supplemental cash flow disclosures for the year ended December 31, 2021 and 2020, are as follows:
| Description | 2021 | 2020 | ||||||
| Cash payments for | ||||||||
| Income taxes | $ | - | $ | - | ||||
| Interest | $ | 63,031 | $ | 73,995 | ||||
| Non-cash financing and investing activities | ||||||||
| Installment notes issued for property acquisitions | $ | 77,793 | $ | 76,843 | ||||
| F-22 |
CW PETROLEUM CORP
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
Note 12 – Concentrations
Accounts receivable as of December 31, 2021 are concentrated among three customers representing 60%, 21% and 17% of accounts receivable. Accounts receivable as of December 31, 2020 are concentrated among three customers representing 54%, 25% and 21% of accounts receivable.
Revenue includes a significant concentration among customers for the year ended December 31, 2021 in which one customer represented 81% of revenue.
Revenue includes a significant concentration among customers for the year ended December 31, 2020 in which one customer represented 80% of revenue.
Note 13 – Subsequent Events
Subsequent events have been evaluated through April 29, 2022, the date these financial statements were available to be released and noted no other events requiring disclosure.
| F-23 |
[*] Units
Each Unit Consisting of
[*] share of Common Stock and
[*] Warrant to Purchase [*] Share of Common Stock
CW PETROLEUM CORP
Sole Book-Running Manager
EF HUTTON,
division of Benchmark Investments, LLC
, 2022
Through and including [*], 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of Common Stock being registered. All amounts are estimates except for the SEC registration fee, and the Financial Industry Regulatory Authority, or FINRA, filing fee.
| Item | Amount
to be paid | |||
| SEC registration fee | $ | 3,276 | ||
| FINRA filing fee | 5,000 | |||
| Printing fees and expenses | 10,000 | |||
| Legal fees and expenses | 200,000 | |||
| Accounting fees and expenses | 30,000 | |||
| Transfer agent’s fees and expenses | 7,500 | |||
| Miscellaneous fees and expenses | [*] | |||
| Total | $ | [*] | ||
| * | To be filed by amendment. |
Item 14. Indemnification of Directors and Officers
Our officers and directors are indemnified as provided by the 2017 Wyoming Statute and our bylaws.
Under the 2017 Wyoming Statute, a corporation may indemnify an individual who is a party to a proceeding because the individual is a director against liability incurred in the proceeding if:
| 1. | (A) The director conducted him or herself in good faith; and |
| (B) The director reasonably believed that his or her conduct was in or at least not opposed to the corporation’s best interests; and | |
| (C) In the case of any criminal proceeding, the director had no reasonable cause to believe his conduct was unlawful; or |
2. The director engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation, as authorized by Wyoming Statute 17-16-202(b)(v).
Our bylaws provide that we will advance all expenses incurred by an officer or director in defending a civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding on receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company. Such expenses incurred by other employees and agents may be so paid on such terms and conditions, if any, as the board of directors deems appropriate.
Our bylaws also provide that, to the extent that a director, officer, employee, or agent of the Company has been successful on the merits or otherwise in defense of any action, suit, or proceeding or in defense of any claim, issue, or matter referred to in the bylaws, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith. Any other indemnification, unless ordered by a court, shall be made by the Company only in a specific case in which a determination is made that indemnification of the director, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard or conduct set forth in sections 8.01 or 8.02 of the bylaws. Such determination shall be made either (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding, (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders by a majority vote of a quorum of stockholders at any meeting duly called for such purpose.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to provisions of the State of Wyoming, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Securities Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
On September 26, 2019, Edward Heil was issued 200,000 shares of our Common Stock in exchange for Consulting Services.
On September 26, 2019, Gary Wolff was issued 200,000 shares of our Common Stock in exchange for Consulting Services.
On September 26, 2019, Greg Roda was issued 200,000 shares of our Common Stock in exchange for Consulting Services.
On September 26, 2019, Tommy Myrick was issued 50,000 shares of our Common Stock in exchange for Consulting Services.
On November 5, 2019, One Parkplace Investments, LLC was issued 275,000 shares of our Common Stock in exchange for Consulting Services.
On November 11, 2019, Bruce Abbott was issued 100,000 shares of our Common Stock in exchange for Consulting Services.
On November 11, 2019, Jeremy Patrick was issued 200,000 shares of our Common Stock in exchange for Consulting Services.
On November 11, 2019, Tommy Myrick was issued 50,000 shares of our Common Stock in exchange for Consulting Services.
On May 5, 2020, Maricopa Capital, LLC was issued 19,455 shares of our Common Stock in exchange for Consulting Services.
On June 1, 2020, Maricopa Capital, LLC was issued 19,455 shares of our Common Stock in exchange for Consulting Services.
On July 2, 2020, Maricopa Capital, LLC was issued 19,455 shares of our Common Stock in exchange for Consulting Services.
On August 4, 2020, Maricopa Capital, LLC was issued 19,455 shares of our Common Stock in exchange for Consulting Services.
On September 1, 2020, Maricopa Capital, LLC was issued 19,455 shares of our Common Stock in exchange for Consulting Services.
On October 1, 2020, Maricopa Capital, LLC was issued 233,340 shares of our Common Stock in exchange for Consulting Services.
On April 1, 2021, Tri-Bridge Ventures LLC was issued 33,333 shares of our Common Stock in exchange for cash.
On May 18, 2021, Phillip Cooper was issued 10,000 shares of our Common Stock in exchange for cash.
On September 23, 2021, Christopher Williams was issued 3,000,000 shares of our Common Stock under the Plan for services rendered.
On September 23, 2021, Graham Williams was issued 3,000,000 shares of our Common Stock under the Plan for services rendered.
On September 23, 2021, Greg Roda was issued 3,000,000 shares of our Common Stock under the Plan for services rendered.
All issuances were exempt from the registration requirements of the Securities Act as they did not involve a public offering either under (i) Section 4(a)(2) of the Securities Act, (ii) Rule 506 of Regulation D, or (iii) Regulation A, and were issued as restricted securities, as defined in Rule 144 of the Securities Act (unless issued under Regulation A).
Item 16. Exhibits and Financial Statement Schedules
| (a) | Exhibits |
| Incorporated by Reference | ||||||||||||
| Exhibit Number |
Exhibit Description | Form | File No. | Exhibit | Filing
Date |
Filed
or Furnished Herewith | ||||||
| 1.1 | Form of Underwriting Agreement | X | ||||||||||
| 3.1 | Articles of Incorporation | 1-A | 024-11446 | 2.1 | 2/9/21 | |||||||
| 3.2 | Amendment to Articles of Incorporation | 1-A | 024-11446 | 2.2 | 2/9/21 | |||||||
| 3.3 | By-Laws | 1-A POS | 024-10846 | 3.2 | 9/30/19 | |||||||
| 3.4 | Certificate of Designation for Series A Preferred Stock | 1-K | 24R-00176 | 2.4 | 4/29/22 | |||||||
| 4.1 | Specimen Stock Certificate of CW Petroleum Corp’s Common Stock | S-1 | 333- | 4.1 | 2/10/22 | |||||||
| 4.2* | Form of Warrant Agency Agreement | |||||||||||
| 4.3 | Form of Representative’s Warrant (included in Exhibit 1.1) | - | ||||||||||
| 4.4 | Form of Warrant Agreement | X | ||||||||||
| 4.5 | 2021 Stock Incentive Plan | 1-K | 24R-00176 | 99.1 | 4/29/22 | |||||||
| 5.1* | Opinion of Business Legal Advisors, LLC | |||||||||||
| 10.1 | Form of Lock-up Agreement (included in Exhibit 1.1) | - | ||||||||||
| 10.2 | Consulting Agreement Dated September 1, 2019 with Greg Roda | X | ||||||||||
| 14.1 | Code of Ethics | 1-A POS | 024-10846 | 14.1 | 9/30/19 | |||||||
| 21.1 | List of Subsidiaries | X | ||||||||||
| 23.1 | Consent of M&K CPAS, PLLC | X | ||||||||||
| 23.2* | Consent of Business Legal Advisors, LLC (included in Exhibit 5.1) | |||||||||||
| 24.1 | Power of Attorney (included on the signature page to this Registration Statement) | |||||||||||
| 107 | Filing Fee Table | X | ||||||||||
| * | To be filed by amendment. |
(b) Financial Statement Schedules
Schedules not listed have been omitted because the information required to be set forth therein is not applicable, not material or is shown in the financial statements or notes thereto.
Item 17. Undertakings
| (a) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement 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. | |
| (b) | 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 SEC such indemnification is against public policy as expressed in the Securities 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 Securities Act and will be governed by the final adjudication of such issue. |
| (c) | The undersigned Registrant hereby undertakes that: |
| (1) | 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. |
| (2) | 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. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Katy, Texas, on June 2, 2022.
| CW Petroleum Corp | ||
| By: | /s/ Christopher Williams | |
| Name: | Christopher Williams | |
| Title: | President
and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher Williams as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Christopher Williams | Chief Executive Officer, President, and Director (Principal Executive Officer and Principal Financial and Accounting Officer) | June 2, 2022 | ||
| Christopher Williams | ||||
| /s/ Graham Williams | Director | June 2, 2022 | ||
| Graham Williams | ||||
| /s/ Greg Roda | Director | June 2, 2022 | ||
| Greg Roda |
Exhibit 1.1
UNDERWRITING AGREEMENT
between
CW PETROLEUM CORP
and
EF HUTTON,
DIVISION OF BENCHMARK INVESTMENTS, LLC
AS REPRESENTATIVE OF THE UNDERWRITERS
| Page 1 of 66 |
TABLE OF CONTENTS
| Page | ||
| Section 1. | Purchase and Sale of Units and Over-Allotment Option | 3 |
| Section 2. | Representations and Warranties of the Company | 5 |
| Section 3 | Covenants of the Company | 19 |
| Section 4 | Conditions of Underwriters’ Obligations | 25 |
| Section 5 | Indemnification | 28 |
| Section 6 | Default by an Underwriter | 31 |
| Section 7 | Additional Covenants | 32 |
| Section 8 | Effective Date of This Agreement and Termination Thereof | 32 |
| Section 9 | Miscellaneous | 33 |
| SIGNATURES | 36 | |
| Schedule 1 | List of Underwriters | 37 |
| Schedule 2-A | Pricing Information | 38 |
| Schedule 2-B | Issuer General Use Free Writing Prospectuses | 39 |
| Schedule 2-C | Written Testing-The-Waters Communications | 40 |
| Schedule 3 | Lock-Up Parties | 41 |
| Exhibit A | Form of Representative’s Warrant | 42 |
| Exhibit B | Company Lock-Up Agreement | 54 |
| Exhibit C | Lock-Up Agreement for Officers, Directors, and 5% or Greater Shareholders | 55 |
| Exhibit D | Press Release | 59 |
| Exhibit E | Opinion of Business Legal Advisors, LLC | 60 |
| Exhibit F | Negative Assurance Letter of Business Legal Advisors, LLC | 62 |
| Exhibit G | Officers’ Certificate | 63 |
| Exhibit H | Secretary’s Certificate | 65 |
| Page 2 of 66 |
CW PETROLEUM CORP
UNDERWRITING AGREEMENT
New York, New York
[_*_], 2022
EF Hutton,
Division of Benchmark Investments, LLC
As Representative of the several Underwriters named on Schedule 1 attached hereto
590 Madison Avenue, 39th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, CW Petroleum Corp, a Wyoming corporation (the “Company”), hereby confirms its agreement (this “Agreement”) with EF Hutton, division of Benchmark Investments, LLC, (hereinafter referred to as “you,” “EF Hutton,” or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) an aggregate of [*] units, (the “Units”), each unit consisting of [*] share(s) of common stock, $0.0001 par value per share, (“Common Stock and the Common Stock sold as part of the Units, the (the “Firm Shares”)) together with [*] warrant(s) to purchase [*] share(s) of Common Stock (the “Firm Warrant”) at an exercise price equal to [*]% of the public offering price of one Unit, and at the election of the Representative, (i) up to an additional [*] share(s) of Common Stock (the “Over-Allotment Shares” and together with the Firm Shares, the “Shares”) and/or (ii) up to an additional [*] warrants to purchase [*] shares of Common Stock (the “Option Warrants” and together with the Firm Warrants, the “Warrants”). The Units, the Firm Shares, and the Firm Warrants are collectively referred to as the “Firm Securities” and the Option Shares and the Option Warrants are collectively referred to as the “Option Securities.” The Firm Securities, the Option Securities, and the Common Stock underlying the Warrants are collectively referred to as the “Public Securities.” The offering and sale of the Securities contemplated by this Agreement are referred to herein as the “Offering.”
The Units will not be issued or certificated. The Firm Shares and the Firm Warrants that comprise the Units are immediately separable and will be issued separately, but must be purchased together as a Unit in this Offering.
1. Purchase and Sale of Units; Representative’s Warrants; Over-Allotment Option.
1.1 Units.
1.1.1. Nature and Purchase of Firm Securities and Representative’s Warrants.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to several Underwriters, severally and not jointly and the Underwriters, severally and not jointly, agree to purchase from the Company the Units set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of $[*] per Unit.1 The Units are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1 92% of the per Unit offering price.
| Page 3 of 66 |
(ii) The Company further agrees on the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth to register, issue and sell to the Representative on the Closing Date and each Option Closing Date (as defined below) the warrants as set forth in Exhibit A, attached hereto and made a part hereof (the “Representative’s Warrants”). The Representative’s Warrants shall consist of warrants to purchase the number of shares of Common Stock (“Representative’s Warrant Shares”) equal to 5% of the aggregate number of shares of Common Stock sold on the Closing Date and the applicable Option Closing Date. The said Representative’s Warrants will be exercisable at any time and from time to time, in whole or in part, during the four-and-a-half-year period commencing six (6) months after the date of the commencement of sales of the Public Securities, will be exercisable at a per share price equal to 100.0% of the per Unit offering price and will be in form and substance satisfactory to the Representative. The Representative’s Warrants will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights) and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.) and future issuance of Common Stock or Common Stock equivalents at prices (or with exercise and/or conversion prices) below the Offering price as permitted under FINRA Rule 5110(f)(2)(G).
1.1.2. Payment and Delivery of the Firm Securities.
(i) Delivery and payment for the Units shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Carmel, Milazzo & Feil LLP, 55 West 39th Street, 18th Floor, New York, New York 10018 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmissions) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Units are called the “Closing Date.”
(ii) Payment for the Units shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares and the Firm Warrants (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Shares and the Firm Warrants shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Units except upon tender of payment by the Representative for all of the Units. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday, or a day on which banking institutions are authorized or obligated by law to close in New York, New York; 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.
1.2 Over-allotment Option.
1.2.1. Option Securities. For the purposes of covering any over-allotments in connection with the distribution and sale of the Units, the Company hereby grants to the Underwriters an option to purchase up to fifteen percent (15%) of the total number of Securities offered by the Company in the offering (the “Over-allotment Option”). Upon the purchase of such additional Option Shares and/or Option Warrants, the net proceeds will be deposited in the Company’s account. The purchase price to be paid per Option Share shall be equal to $[*]2 and the purchase price to be paid per Option Warrant shall be $0.0092 per Option Warrant.
2 Unit offering price minus $0.01 multiplied by 92%
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1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares and the Option Warrants or the Option Shares or the Option Warrants within forty-five (45) days after the Effective Date. The Underwriters shall not be under any obligation to purchase any Option Shares or Option Warrants prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares and/or Option Warrants to be purchased and the date and time for delivery of and payment for the Option Shares and/or Option Warrants (the “Option Closing Date”), which shall not be later than the third (3rd) full Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmissions) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares and/or Option Warrants does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Shares and the Option Warrants or the Option Shares or the Option Warrants, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares and/or Option Warrants specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Shares and/or Option Warrants then being purchased as set forth in Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for the Option Shares and/or the Option Warrants shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares and/or Option Warrants (or through the facilities of DTC) for the account of the Underwriters. The Option Shares and/or Option Warrants shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) full Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares and/or the Option Warrants except upon tender of payment by the Representative for applicable Option Shares and/or Option Warrants.
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date, and as of the Option Closing Date, if any, as follows:
2.1 Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-[ ]), including any related prospectus or prospectuses, for the registration of the Public Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits, and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
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Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [ ], 2022, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means [ ] [a.m./p.m.], Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including, without limitation, any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus, and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number [ ]) providing for the registration, pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Common Stock. The registration of the Common Stock under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing. The Company’s Common Stock has been approved for listing on the Nasdaq Capital Market (the “Exchange”), and the Company has taken no action designed to, or likely to have the effect of, delisting the Common Stock from the Exchange, nor has the Company received any written notification that the Exchange is contemplating terminating such listing.
2.3 No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus, or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information. For purposes of this Agreement, the term “Company’s knowledge” means the knowledge of the Board of Directors and executive officers of the Company after due inquiry.
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2.4 Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with the Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to Commission’s EDGAR filing system (“EDGAR”), except to the extent permitted by Regulation S-T promulgated under the Securities Act.
(ii) The Registration Statement, when it became effective. did not contain, and any amendment thereto, as of the date of such amendment will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: the names of the Underwriters, the information under the subsections “Price Stabilization, Short Positions, and Penalty Bids,” and “Electronic Offer, Sale and Distribution, (collectively, the “Underwriters’ Information”).
(iii) The Pricing Disclosure Package, as of the Applicable Time, did not, and at the time of each sale of the Public Securities in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date, the Pricing Disclosure Package, as then amended or supplemented by the Company, if applicable, will not, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus, if any, as of its date, did not conflict in any material respect with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that these representations and warranties with respect to the Pricing Disclosure Package and any Limited Use Free Writing Prospectus shall not apply to statements made or statements omitted in reliance upon and in conformity with the Underwriters’ Information; and
(iv) The Prospectus, as of its date, does not contain any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with the Underwriters’ Information.
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2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and except for any unenforceability that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in material default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder except for such defaults that would not reasonably be expected to result in a Material Adverse Change (as defined in Section 2.5.1 below). To the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations, that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change as defined in Section 2.5.1 below.
2.4.3. Prior Securities Transactions. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package, and the Prospectus concerning the effects of federal, state, local, and all foreign regulation on the Offering and the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company, nor, to the Company’s knowledge, any development that, singularly or in the aggregate, would reasonably be expected to result in a material adverse change, in or affecting the condition (financial or otherwise), results of operations, business or assets of the Company (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its Common Stock, or series A senior convertible preferred stock (collectively, the “capital stock”).
2.6 Independent Accountants. To the knowledge of the Company, M&K CPAS, PLLC (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package, and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. To the knowledge of the Company, the Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
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2.7 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, fairly present in all material respects the financial position and the results of operations of the Company as of the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with the U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement, if any, present fairly in all material respects the information required to be stated therein. No historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package, or the Prospectus under the Securities Act or the Securities Act Regulations. Each of the Registration Statement, the Pricing Disclosure Package, and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons, if any, that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) the Company has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
2.8 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued, and outstanding share capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, the Company will have on the Closing Date the adjusted authorized, issued, and outstanding share capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no share options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued shares of the Company or any security convertible or exercisable into shares of the Company, or any contracts or commitments to issue or sell Common Stock or any such options, warrants, rights or convertible securities.
2.9 Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no contractual or other rights of rescission or the ability to force the Company or any of its Subsidiaries to repurchase such securities with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights, rights of first refusal or rights of participation of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Common Stock conforms in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package, and the Prospectus. The Company has taken all necessary company action to cause the Articles of Incorporation and the Bylaws to be in full force and effect in accordance with the Wyoming Business Corporation Act on the Closing Date. The offers and sales of the outstanding shares of Common Stock were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such stock, exempt from such registration requirements. All securities of each subsidiary are wholly owned by the Company. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable. The description of the Company’s stock option, stock bonus and other related incentive plans or arrangements, and options and/or other rights granted thereunder, as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, accurately and fairly present, in all material respects, the information required to be shown with respect to such plans, arrangements, options, and rights.
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2.9.2. Securities Sold Pursuant to this Agreement. The Public Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid, and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all Company action required to be taken for the authorization, issuance, and sale of the Public Securities has been duly and validly taken. The Public Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package, and the Prospectus.
2.10 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, no contracts, agreements, or understandings between the Company and any person granting such person the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
2.11 Authorization and Delivery of the Agreement. This Agreement has been duly authorized, executed, and delivered by the Company.
2.12 No Conflicts, etc. The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not, with or without the giving of notice or the lapse of time or both: (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party and that is material to the Company; (ii) result in any violation of the provisions of the Company’s Articles of Incorporation or the Bylaws (as the same may be amended or restated from time to time, the “Charter”) of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof, except in the case of clauses (i) and (iii) for such breach, conflict, default or violation which would not reasonably be expected to cause a Material Adverse Change.
2.13 No Defaults; Violations. No material default exists in the due performance and observance of any term, covenant, or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject, except for any such default that would not be reasonably expected to result in a Material Adverse Change. The Company is not in violation of any term or provision of its Charter, or in violation of any franchise, license, permit, applicable law, rule, regulation, judgment, or decree of any Governmental Entity, except for such violations that would not be reasonably expected to result in a Material Adverse Change.
2.14 Company Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates, and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business in all material respects as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals, and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement, except (A) the registration under the Securities Act of the Public Securities, which has been effected, (B) the necessary filings and approvals from the Exchange to list the Public Securities, (C) such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws and the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) in connection with the purchase and distribution of the Public Securities by the Underwriters, (D) such consents and approvals as have been obtained and are in full force and effect, and (E) such consents, approvals, orders, authorizations and filings the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Change.
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2.15 D&O Questionnaires. To the Company’s knowledge, all information contained in the director and officer questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.16 Litigation; Governmental Proceedings. There are no actions, suits, proceedings, inquiry, arbitrations, investigations, litigations, or governmental proceedings pending or, to the Company’s knowledge, threatened against, or involving the Company which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and actions, suits or proceedings that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change or materially and adversely affect the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by each of the Registration Statement, the Pricing Disclosure Package and the Prospectus or (ii) that are required to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus and are not so described. To the Company’s knowledge, the Company’s listing application for the listing of the Public Securities on the Exchange does not omit any required disclosures with respect to actions suits or proceedings, if any, involving the Company and its executive officer and directors.
2.17 Good Standing. The Company has been duly organized and is validly existing as a Corporation and is in good standing under the laws of the State of Wyoming as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.18 Insurance. The Company carries or is entitled to the benefits of insurance, with insurers of recognized financial responsibility, in such amounts and covering such risks which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal to $[*] and all such insurance are in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.
2.19 Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, there are no claims, payments, arrangements, agreements, or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.19.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities, or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
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2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. To the Company’s knowledge, there is no (i) officer or director of the Company, (ii) beneficial owner of 10% or more of any class of the Company’s securities, or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.19.5. Information. To the Company’s knowledge, all information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct, and complete in all material respects.
2.20 Foreign Corrupt Practices Act. None of the Company or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Compliance with OFAC. None of the Company or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any other person acting on behalf of the Company, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22 Money Laundering Laws. The operations of the Company are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.
2.23 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24 Lock-Up Agreements. (a) The Company has delivered to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit B (the “Company Lock-Up Agreement”), prior to the execution of this Agreement.
(b) Each director, officer, and greater than 5% stockholder has delivered to the Representative an executed Lock-Up Agreement in the form attached hereto as Exhibit C (the “Lock-Up Agreement for Officers, Directors, and 5% or Greater Shareholders”), prior to the execution of this Agreement.
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2.25 Subsidiaries. All direct and indirect subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company taken as a whole. The Company’s ownership and control of each subsidiary are as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus.
2.26 Related Party Transactions. Except as described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, there are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus that have not been described as required.
2.27 Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange, including the phase-in rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. Due to the fact that the Company will qualify as a “controlled company” pursuant to the rules of the Exchange, at least a majority of the persons serving on the Board of Directors will not qualify as “independent,” as defined under the listing rules of the Exchange.
2.28 Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. The Company has designed a system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act Regulations) that will comply with the requirements of the Exchange Act within the time period required and has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.
2.28.2. Compliance. The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act that are then in effect and with which the Company is required to comply with as of the Applicable Time or on the Closing Date, and has taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act then applicable to the Company.
2.29 Accounting Controls. The Company maintains a system of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. To the Company’s knowledge, the Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
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2.30 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31 No Labor Disputes. No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent.
2.32 Intellectual Property Rights. The Company owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets, and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to own, possess or have valid rights to use any of the foregoing would not reasonably be expected to have a material adverse effect on the Company. To the knowledge of the Company, no action or use by the Company necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus would reasonably be expected to involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. The Company has not received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses, or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package, and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package, and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. The Company has not committed any act or omitted to undertake any act the effect of such commission or omission would be expected to result in a legal determination that any item of Intellectual Property Rights thereby was rendered invalid or unenforceable in whole or in part. The manufacture, use, and sale of the product candidates described in the Registration Statement, the Pricing Disclosure Package, and the Prospectus as under development by the Company fall within the scope of one or more claims of the patents or patent applications included in the Intellectual Property Rights. Other than information disclosed in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, no government funding, facilities, or resources of a university, college, other educational institution, or research center was used in the development of any Intellectual Property Rights that are owned or purported to be owned by the Company that would confer upon any governmental agency or body, university, college, other educational institution or research center any claim or right in or to any such Intellectual Property Rights.
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2.33 Taxes. Except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company, (i) the Company has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof, and (ii) the Company has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and have paid all taxes imposed on or assessed against the Company. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no material issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company. The term “taxes” means all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements, and other documents required to be filed in respect to taxes.
2.34 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35 Compliance with Laws. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the Company, including, without limitation, all statutes, rules, or regulations relating to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company and, without limiting the foregoing, include (i) the Federal Trade Commission Act of 1914 (the “FTC Act”), (ii) the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act and Laws applicable to hazardous or regulated substances and radioactive or biologic materials, (iii) the federal Anti-Kickback Statute, (iv) the False Claims Act, (v) laws relating to the conduct of business in the internet, including but not limited to, data privacy laws such as the Children’s Online Privacy Protection Act, the Gramm Leach Bliley Act and the Fair Credit Reporting Act, (vi) the Consumer Product Safety Act and the Federal Hazardous Substances Act, (vii) state laws relating to the same, and (ix) licensing and certification Laws covering any material aspect of the business of the Company (“Applicable Laws”), except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or written notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws and/or to carry on its business as now conducted (“Authorizations”); (C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any product operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding that if brought, would result in a Material Adverse Change, nor, to the Company’s knowledge, has there been any material noncompliance with or violation of any Applicable Laws by the Company that could reasonably be expected to require the issuance of any such communication or result in an investigation, corrective action, or enforcement action by any Governmental Entity; (E) has not received written notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity has threatened or is considering such action; (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed in all material respects (or were corrected or supplemented by a subsequent submission); and (G) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall and, to the Company’s knowledge, no Governmental Entity has initiated, conducted or intends to initiate any such notice or action.
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2.36 Environmental Laws. The Company is in compliance with all foreign, federal, state, and local rules, laws, and regulations relating to the use, treatment, storage, and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company’s knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.
2.37 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
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2.38 Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real which are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, and under which the Company and its subsidiaries hold properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company to the continued possession of the leased or subleased premises under any such lease or sublease.
2.39 Title to Personal Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title to, or have valid rights to lease or otherwise use, all items of personal property (other than Intellectual Property, which is addressed in Section 2.32 hereof) which are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any subsidiary to the continued possession of the leased or subleased personal property under any such lease or sublease.
2.40 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business), or guarantees or indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.41 Integration. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities issued in such prior offerings under the Securities Act.
2.42 Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.43 Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package, and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
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2.44 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations), and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
2.45 Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
2.46 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.47 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the shares of Common Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.48 Dividends and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement, and the Prospectus, no subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company.
2.49 Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
2.50 Confidentiality and Non-Competitions. To the Company’s knowledge, no director, officer, key employee or consultant of the Company or any subsidiary is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the Company or such subsidiary or be expected to result in a Material Adverse Change.
2.51 Corporate Records. The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes of all material meetings and actions of the Board of Directors (including each board committee) and shareholders of the Company, and (ii) reflect all material transactions referred to in such minutes.
2.52 Diligence Materials. The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material respects to the diligence request submitted to the Company or Company Counsel by the Representative.
2.53 Stabilization. Neither the Company nor, to its knowledge, any of its or its subsidiaries’ employees, directors or shareholders (without the consent of the Representative) has taken, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
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3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1. (a) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements, and other documents required to be filed by the Company under the Securities Act, including Regulation A for the three years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Prospectus, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, to the knowledge of the Company, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has been subject to Rule 144(i) under the Securities Act; it has filed all reports and other materials required to be filed by Regulation A during the preceding 48 months. The financial statements of the Company included in the Registration Statement, the Form1-K, the Forms 1-SA, 1-U, the Preliminary Prospectus, the Prospectus comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with the United States generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. The agreements and documents described in the Registration Statement, the Preliminary Prospectus, and the Prospectus, and the SEC Reports conform in all material aspects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the rules and regulations thereunder to be described in the Registration Statement, the Preliminary Prospectus, the Prospectus or the SEC Reports or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed.
(b) Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will, during the period required to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus, notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use commercially reasonable efforts to prevent the issuance of any stop order, prevention, or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
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3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act, and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will make available to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, (i) the Company shall use its reasonable best efforts to maintain the registration of the shares of Common Stock under the Exchange Act, and (ii) the Company shall not deregister any of the Common Stock under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
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3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and counsel for the Representative, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain effective with a current prospectus for at least 9 months after the Applicable Time, and shall notify the Representative promptly and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall use its commercially reasonable efforts to obtain promptly the lifting of such order.
3.6 Retention of Auditor; Review of Financial Statements. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall: (i) retain a nationally recognized, Public Company Accounting Oversight Board qualified accounting firm; and (ii) cause such independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
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3.7 Listing. As of the Effective Date and for three (3) years thereafter, the Company shall use its reasonable best efforts to effect and maintain the listing of the Common Stock (including the Public Securities) on the Exchange.
3.8 Financial Public Relations Firm; Financial Printer; S&P. As of the Effective Date, the Company shall have retained: (i) a financial public relations firm reasonably acceptable to the Representative and the Company, which shall initially be [ ], which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders; (ii) a financial printer acceptable to the Representative; and (iii) registration with the Corporation Records Service (including annual report information) published by Standard & Poor’s Corporation for a period of three (3) years from the Closing Date.
3.9 Transfer Agent. As of the Effective Date and for three (3) years thereafter, the Company shall have retained a transfer agent for the Common Stock reasonable acceptable to the Representative and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. Transfer Online, Inc. is acceptable to the Representative to act as Transfer Agent for the shares of Common Stock.
3.10 Key Man Insurance. As of the Effective Date and for three years thereafter, the Company shall have obtained “key man insurance” with an insurer rated at least AA or better in the most recent edition of “Best’s Life Reports” on the life of Mr. Christopher Williams.
3.11 Payment of Expenses.
3.11.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and expenses relating to the registration of the Public Securities with the Commission; (b) all fees and expenses relating to the listing of the Common Stock on a national securities exchange; (c) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as EF Hutton may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company’s “blue sky” counsel, which will be EF Hutton’s counsel) unless such filings are not required in connection with the Company’s proposed listing on a national exchange, if applicable; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as EF Hutton may reasonably designate; (e) the costs of all mailing and printing of the Offering documents; (f) transfer and/or stamp taxes, if any, payable upon the transfer of the Public Securities from the Company to EF Hutton; (g) the fees and expenses of the Company’s accountants; (h) all filing fees and communication expenses associated with the review of the Offering by FINRA; (i) up to $20,000 of EF Hutton’s actual accountable road show expenses for the Offering; (j) the $29,500 cost associated with EF Hutton’s use of Ipreo’s book building, prospectus tracking and compliance software for the offering; (k) the costs associated with bound volumes of the Offering materials as well as commemorative mementos and lucite tombstones in an aggregate amount not to exceed $5,000; and (l) the fees for EF Hutton’s legal counsel, in an amount not to exceed $175,000. For the sake of clarity, it is understood and agreed that the Company shall be responsible for EF Hutton’s external counsel legal costs detailed in this Section irrespective of whether the Offering is consummated or not, subject to $50,000 in the event that there is not a Closing. Upon the execution of this engagement letter, the Company shall at its own expense conduct background checks, by a background search firm acceptable to EF Hutton, on the Company’s senior management and board of directors. Additionally, the Company has provided an expense advance (the “Advance”) to EF Hutton of $25,000 upon the execution of the engagement letter. The Advance shall be applied towards out-of-pocket accountable expense set forth herein and any portion of the Advance shall be returned back to the Company to the extent not actually incurred. EF Hutton may deduct from the net proceeds of the Offering payable to the Company on the date of Closing, or the closing of the Over-Allotment Option, if any, the expenses set forth herein to be paid by the Company to the underwriters.
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3.11.2. Non-accountable Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.11.1, on the Closing Date, it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of the Public Securities.
3.12 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package, and the Prospectus.
3.13 Delivery of Earnings Statements to Security Holders. The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the Securities Act.
3.14 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors, or shareholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3.15 Reports to the Representative.
3.15.1. Periodic Reports, etc. On or prior to the date of this Agreement, the Company shall register the Common Stock under the provisions of Section 12(b) or 12(g) of the Exchange Act. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; (v) a copy of each report or other communication furnished to shareholders and (vi) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Representative pursuant to this Section 3.14.1.
3.15.2 Trading Reports. For a period of three (3) years after the date of this Agreement, during such time as the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request.
3.16 FINRA. For a period of sixty (60) days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 10% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement. The Company agrees that any and all decisions, acts, actions, or omissions with respect to the Offering shall be the sole responsibility of the Company, and that the performance by the Representative and the Underwriters hereunder shall in no way expose the Representative or the Underwriters to any liability for any such decisions, acts, actions or omissions of the Company.
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3.18 Lock-Up Agreements.
3.18.1. Restriction on Sales of Capital Stock. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 360 days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit or senior credit facility with a traditional bank, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.. The restrictions contained in this Section 3.17.1 shall not apply to (i) the Common Stocks to be sold hereunder (including the Common Stocks issuable upon the exercise of the Representative’s Warrant), (ii) the issuance by the Company of Common Stocks upon the exercise of an outstanding stock option or warrant or the conversion of security outstanding on the date hereof, of which the Representative has been advised in writing, or (iii) any issuance of securities disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus.
3.18.2 Insider Lock-Up. The Company’s directors and officers and any holder(s) of five percent (5%) or more of the outstanding shares of Common Stock of the Company as of the effective date of the Registration Statement (and all holders of securities exercisable for or convertible into shares of Common Stock) as listed on Schedule 3 hereto shall enter into “lock-up” agreements in favor of EH Hutton, in the form set forth in Exhibit C hereto, pursuant to which such persons and entities shall agree, for a period of 360 days after the Closing of Offering, that they shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company.
3.19 Blue Sky Qualifications. The Company shall use its commercially reasonable efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.20 Press Releases. Prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs, or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.
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3.21 Sarbanes-Oxley. The Company shall at all times comply in all material respects with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
3.22 IRS Forms. If requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service (“IRS”) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.
3.23 Corporation Records Service. As of the date hereof and for a period of three (3) years from the Closing Date, the Company shall have registered and shall continue to maintain its registration with the Corporation Records Service (including annual report information) published by the Standard & Poor’s Corporation.
4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 4:00 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the Securities Act Regulations.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Clearance. On the Closing Date, the Company’s Common Stock, including the Firm Shares, and the Company’s Firm Warrants shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Company’s Common Stock, including the Option Shares, and the Company’s Option Warrants shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsel. On the Closing Date, the Representative shall have received the favorable opinion as set forth in Exhibit E hereto and written statement providing certain “10b-5” negative assurances as set forth in Exhibit F hereto of Business Legal Advisors, LLC (“Company Counsel”), counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
4.2.2. Option Closing Date Opinion of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinion of counsel and negative assurance statement listed in Section 4.2.1, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel in their respective opinion delivered on the Closing Date.
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4.2.3. Reliance. In rendering such opinions, such counsel may reasonably rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative Counsel if requested. The opinion of Business Legal Advisors, LLC and any opinion relied upon by Business Legal Advisors, LLC shall include a statement to the effect that it may be relied upon by Representative’s Counsel in its opinion delivered to the Underwriters.
4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed you shall have received a cold comfort letter containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package, and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to you and to the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate substantially in the form required by Exhibit G attached hereto, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to their knowledge, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of such date, and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, any Material Adverse Change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a Material Adverse Change, in or affecting the condition (financial or otherwise), results of operations, business, or assets of the Company, except as set forth in the Prospectus.
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4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, substantially in the form required by Exhibit H attached hereto, dated the Closing Date or the Option Closing Date, as the case may be, respectively, certifying: (i) that the Charter is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; and (iii) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.4.3 Good Standing Certificates. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the secretary of state or other official dated the Closing Date and each Option Closing Date, certifying that the Company and each Subsidiary is in existence, is active and is in good standing in such jurisdiction.
4.5 No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
4.6 No Material Misstatement or Omission. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of Representative Counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.
4.7 Company Proceedings. All Corporation proceedings and other legal matters incident to the authorization, form, and validity of each of this Agreement, the Public Securities, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement, the Representative’s Warrant Agreement and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
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4.8 Delivery of Agreements.
4.8.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative an executed copy of the Lock-Up Agreement as set forth in Exhibit B hereto and the persons set forth in Schedule 3 have delivered to the Representative executed copies of the Lock-Up Agreement as set forth in Exhibit B.
4.8.2. Representative’s Warrants. On the Closing Date, the Company shall have delivered to the Representative an executed copy of the Representative’s Warrants as set forth in Exhibit A hereto.
4.9 Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representative and Representative Counsel.
4.10 Compliance. At all times prior to and following the effectiveness of the Registration Statement, the Company, and its officers, directors, and related parties will abide by all rules and regulations of the Commission relating to public offerings, including, without limitation, those relating to public statements (i.e., “gun jumping”) and disclosures of material non-public information.
5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1. General. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates (as defined in Rule 405 under the Securities Act) and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense, joint or several, whatsoever (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries (a “Claim”), (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in, or the omission or alleged omission of a material fact necessary in order to make the statements, in light of the circumstances under which they were made not misleading in any (A) the Registration Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, any Prospectus Supplement or in any Issuer Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented), including information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Securities Act and the rules and regulations thereunder, as applicable; (B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company filed with the Commission or submitted to the Exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information or (ii) in whole or in part any inaccuracy in any material respect in the representations and warranties of the Company contained herein; or (iii) otherwise arising in connection with or allegedly in connection with the Offering. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement, Pricing Disclosure Package, or Prospectus, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Public Securities to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.4 hereof. The Company also agrees that it will reimburse each Underwriter Indemnified Party for all fees and expenses (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending any Claim. In the event that an Underwriter Indemnified Party is required to appear as a witness in any action brought by or on behalf of or against the Company in which such Underwriter Indemnified Party is not named as a defendant, the Company agrees to promptly reimburse the Underwriter Indemnified Party on a monthly basis for all expenses incurred by it in connection with such Underwriter Indemnified Party’s appearing and preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel.
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5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Any failure or delay by an Indemnified Party to give the notice referred to in this paragraph shall not affect such Indemnified Party’s right to be indemnified hereunder, except to the extent that such failure or delay causes actual material harm to the Company, or materially prejudices its ability to defend such action, suit or proceeding on behalf of such Indemnified Party. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, with the fees and expenses of such counsel shall be at the expense of the Underwriter Indemnified Party unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) the Underwriter Indemnified Party has reasonably concluded (based upon advice of counsel to the Underwriter Indemnified Party) that there are legal defenses available to the Underwriter Indemnified Party that are not available to the Company, or that there exists a conflict or potential conflict of interest (based upon advice of counsel to the Underwriter Indemnified Party) between the Indemnified Party and the Company that makes it impossible or inadvisable for counsel to the Company to conduct the defense of both parties (in which case the Company will not have the right to direct the defense of such action on behalf of the Indemnified Party), or (iii) the Company has not in fact employed counsel reasonably satisfactory to the Indemnified Party to assume the defense of such action within a reasonable time after receiving notice of the action, suit or proceeding, in each of which cases the reasonable fees, disbursements and other charges of such counsel will be at the expense of the Company; provided, further, that in no event shall the Company be required to pay fees and expenses for more than one firm of attorneys (and local counsel) representing the Underwriter Indemnified Party. The Company shall not be liable for any settlement of any action effected without its prior written consent (which shall not be unreasonably withheld, conditioned, or delayed) or to the extent that any loss, claim, damage, or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted primarily from the Indemnified Party’s willful misconduct or gross negligence or to the extent that such loss, claim, liability, expense or damage is based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with the Underwriter’s Information. The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract, tort, or otherwise) to the Company or its security holders or creditors related to or arising out of the engagement of the Representative pursuant to, or the performance of the Representative of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted primarily from such Indemnified Party’s willful misconduct or gross negligence. In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification, or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party. If multiple claims are brought with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the Company agrees that any judgment or arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the judgment or arbitration award expressly states that it, or any portion thereof, is based solely on a claim as to which indemnification is not available.
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5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement, and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors, or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the Offering of the Public Securities, whether or not the Offering is consummated or (ii) if, but only if, the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Representative, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering of the Public Securities purchased under this Agreement (before deducting expenses) received or contemplated to be received by the Company, as set forth in the table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received or to be received by the Representative with respect to the Common Stock purchased or to be purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties, and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Representative agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by the Representative (excluding reimbursable expenses) with respect to the Offering of the Public Securities exceeds the amount of any damages that such Representative has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
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5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit, or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit, or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action, or proceeding affected by such party seeking contribution on account of any settlement of any claim, action, or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act, or otherwise available. Each Underwriter’s obligations to contribute pursuant to this Section 5.3 are several and not joint.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Securities or Option Securities. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Units, or Option Securities if the Over-allotment Option is exercised hereunder, and if the number of the securities with respect to which such default relates does not exceed in the aggregate 10% of the number of Units or Option Securities, as applicable, that all Underwriters have agreed to purchase hereunder, then such Units or Option Securities to which the default relates shall be purchased, severally and not jointly, by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Units or Option Securities. In the event that the default addressed in Section 6.1 relates to more than 10% of the Units or Option Securities, the Representative may in its discretion arrange for itself or for another party or parties to purchase such Units or Option Securities to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the Units or Option Securities, the Representative does not arrange for the purchase of such Units or Option Securities, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Units or Option Securities on such terms. In the event that neither the Representative nor the Company arranges for the purchase of the Units or Option Securities to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares or Option Warrants, this Agreement will not terminate as to the Units; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder. For the avoidance of doubt, nothing contained in this Section shall excuse a default by the Representative (in its capacity as an Underwriter) in its obligations to purchase the Units or the Option Securities, if the Over-allotment Option is exercised hereunder.
6.3 Postponement of Closing Date. In the event that the Units or Option Securities to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Units or Option Securities.
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7. Additional Covenants.
7.1 Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, the Exchange Act, and the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the fortieth (40th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
7.3 Tail Financing. In the event that the Company does not consummate the Offering as contemplated by this Agreement, the Representative shall be entitled to a cash fee equal to eight percent (8%) of the gross proceeds received by the Company from the sale of the securities to any investor actually introduced by the Representative to the Company(the “Tail Financing”), since December 10, 2021, through December 10, 2022 (the “Engagement Period”) and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the expiration of the Engagement Period, provided that such financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party’s participation and not a party that the Company can demonstrate was already known to the Company.
7.4 Right of First Refusal. Following the Closing of the Offering, EF Hutton shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period of twelve (12) months after the date the Offering is completed (the “RoFR Period”), to act as sole investment banker, sole book-runner, and/or sole placement agent, at EF Hutton’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twelve (12) month period, of the Company, or any successor to or any current or future subsidiary of the Company, on terms and conditions customary to EF Hutton for such Subject Transactions. EF Hutton shall have the sole right to determine whether or not any other broker dealer shall have the right to participate in a Subject Transaction and the economic terms of such participation. For the avoidance of any doubt, the Company shall not retain, engage or solicit any additional investment banker, book-runner, financial advisor, underwriter and/or placement agent in a Subject Transaction without the express written consent of EF Hutton.
8. Effective Date of this Agreement and Termination Thereof.
8.1 Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative’s reasonable opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative’s reasonable opinion, make it inadvisable to proceed with the delivery of the Units or Option Securities ; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of a Material Adverse Change, or an adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
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8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel up to $50,000), less the $25,000 advance for accountable expenses previously paid by the Company to the Representative (the “Advance”) and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).
8.4 Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties, and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
9. Miscellaneous.
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by email and confirmed and shall be deemed given when so delivered or emailed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
EF Hutton
590 Madison Avenue, 39th Floor
New York, New York 10022
Attn: Mr. Joseph T. Rallo, Head of Investment Banking
Email: jrallo@efhuttongroupcm.com
with a copy (which shall not constitute notice) to:
Ross Carmel, Esq.
Carmel, Milazzo & Feil LLP
55 West 39th Street, 18th Floor
New York, New York 10018
Email: rcarmel@cmfllp.com
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If to the Company:
CW Petroleum Corp
2717 Commercial Center Blvd.
Suite E200 PMB 264
Katy, Texas 77494
Attn: Mr. Christopher Williams, Chief Executive Officer
Email: chris@cwpetroleumcorp.com
with a copy (which shall not constitute notice) to:
Brian Higley, Esq
Business Legal Advisors, LLC
14888 Auburn Sky Drive
Draper, UT 84020
Email: brian@businesslegaladvisor.com
9.2 Headings; Interpretation. The headings contained herein are for the sole purpose of convenience of reference and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. References to the Company herein shall include each of its subsidiaries as the context may require.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof to the extent that such principles or rules would require or permit the application of the laws of any jurisdiction other than those of the State of New York. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding, or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance, or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.9 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | ||
| CW PETROLEUM CORP | ||
| By: | ||
| Name: | Christopher Williams | |
| Title: | President and Chief Executive Officer | |
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
| EF HUTTON, | ||
| Division of Benchmark Investments, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
[Signature Page to Underwriting Agreement]
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SCHEDULE 1
| Underwriter | Total
Number | Number of Option Shares to be Purchased if the Over- Allotment Option is Fully Exercised | Number of Option Warrants to be Purchased if the Over- Allotment Option is Fully Exercised | |||||||||
| EF Hutton, division of Benchmark Investments, LLC | ||||||||||||
| TOTAL | ||||||||||||
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SCHEDULE 2-A
Pricing Information
Number of Units: __________
Number of Firm Shares: _________
Number of Firm Warrants: ________
Number of Option Shares:________
Number of Option Warrants: _______
Public Offering Price per Unit: $_____
Public Offering Price per Option Share: $_____
Underwriting Discount per Unit: $_____
Underwriting Discount per Option Share: $_____
Underwriting Non-accountable expense allowance per Unit: $_____
Underwriting Non-accountable expense allowance per Option Share: $_____
Proceeds to Company per Unit (before expenses): $______
Proceeds to Company per Option Share (before expenses): $______
Proceeds to Company per Option Warrant (before expenses): $________
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SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
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SCHEDULE 2-C
Written Testing-the-Waters Communications
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SCHEDULE 3
Lock-Up Parties
Christopher Williams
Graham Williams
Greg Roda
[Independent Director #1]
[Independent Director #2]
[Independent Director #3]
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EXHIBIT A
Form of Representative’s Warrant
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC. OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC. OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [DATE THAT IS SIX MONTHS FROM THE DATE OF THE COMMENCEMENT OF SALES OF THE PUBLIC SECURITIES IN THE INITIAL PUBLIC OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING].
COMMON STOCK PURCHASE WARRANT
For the Purchase of [____] Shares of Common Stock3
of
CW PETROLEUM CORP
1. Purchase Warrant. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of EF Hutton, division of Benchmark Investments, LLC. (“Holder”), as registered owner of this Purchase Warrant, CW Petroleum Corp, a Wyoming corporation (the “Company”), Holder is entitled, at any time or from [________________] [DATE THAT IS SIX MONTHS FROM THE DATE OF THE COMMENCEMENT OF SALES OF THE PUBLIC SECURITIES IN THE INITIAL PUBLIC OFFERING] (the “Commencement Date”), and at or before 5:00 p.m., Eastern time, [____________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING] (the “Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [____]4 common stock of the Company (the “Shares”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[●] [100% OF THE PUBLIC OFFERING PRICE OF ONE UNIT SOLD IN THE OFFERING] per Share; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context. The term “Effective Date” shall mean [________], 2022, the date on which the Registration Statement on Form S-1 (File No. 333-[_______]) of the Company (“Registration Statement”) was declared effective by the Securities and Exchange Commission (“Commission”). This Purchase Warrant and the Shares exercisable hereby have been registered with the Commission on the Registration Statement and are thus freely tradeable.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed, and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
3[*]% of the aggregate number of Common Stock sold in the Offering (including Option Shares).
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2.2 Cashless Exercise. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
| X | = | Y(A-B) | |
| A |
| Where, | |||
| X | = | The number of Shares to be issued to Holder; | |
| Y | = | The number of Shares for which the Purchase Warrant is being exercised; | |
| A | = | The fair market value of one Share; and | |
| B | = | The Exercise Price. |
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
| (i) | if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or | |
| (ii) | if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors. |
3. Transfer Restrictions.
3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant for a period of one hundred eighty (180) days following the date of the commencement of sales of the Company’s public securities to anyone other than: (i) EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of EF Hutton or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(e)(1), or (b) for a period of one hundred eighty (180) days following the date of the commencement of sales of the Company’s public securities, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after 180 days after the date of the commencement of sales of the Company’s public securities, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
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4. Registration Rights.
4.1 Demand Registration.
4.1.1 Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holders of at least 51% of the Purchase Warrants and/or the underlying Ordinary Shares, agrees to register, on one (1) occasion, all or any portion of the Ordinary Shares underlying the Purchase Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice. Notwithstanding anything to the contrary, the obligations of the Company pursuant to this Section 4.1 shall not be applicable so long as the Company’s Registration Statement on Form S-1 (File No. 333-[●]) covering the Registrable Securities remains effective.
4.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holders; provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).
4.2 “Piggy-Back” Registration.
4.2.1 Grant of Rights. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than seven (7) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Ordinary Shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities. Notwithstanding anything to the contrary, the obligations of the Company pursuant to this Section 4.2 shall not be applicable so long as the Company’s Registration Statement on Form S-1 (File No. 333-[●]) covering the Registrable Securities remains effective.
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4.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days’ written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; provided, however, that such registration rights shall terminate on a date that is four and a half-years from the Commencement Date.
4.3 General Terms.
4.3.1 Indemnification. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [●], 2022. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense, or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
4.3.2 Exercise of Purchase Warrants. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditor, and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to the information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records, and properties, and opportunities to discuss the business of the Company with its officers and independent auditor, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
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4.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder, and such managing underwriters, and shall contain such representations, warranties, and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties, and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares, and their intended methods of distribution.
4.3.5 Documents to be Delivered by Holders. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
4.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
4.4 Termination of Registration Rights. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form F-1 or Form F-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder (including on a cashless basis) within a 90 day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I no. 201.04 (April 2, 2007) or similar interpretive guidance).
5. New Purchase Warrants to be Issued.
5.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
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6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar events, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination, or reclassification of Shares or other similar events, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.
6.1.3 Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales, or other transfers.
6.1.4 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.
6.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.
6.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
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7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties, or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable, and not subject to preemptive rights of any shareholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.
8.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets, and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents, and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to the following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
EF Hutton
590 Madison Avenue, 39th Floor
New York, New York 10022
Attn: Mr. Joseph T. Rallo, Head of Investment Banking
Email: jrallo@efhuttongroupcm.com
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with a copy (which shall not constitute notice) to:
Ross Carmel, Esq.
Carmel, Milazzo & Feil LLP
55 West 39th Street, 18th Floor
New York, New York 10018
Email: rcarmel@cmfllp.com
If to the Company:
CW Petroleum Corp
2717 Commercial Center Blvd.
Suite E200 PMB 264
Katy, Texas 77494
Attn: Mr. Christopher Williams, Chief Executive Officer
Email: chris@cwpetroleumcorp.com
with a copy (which shall not constitute notice) to:
Brian Higley, Esq
Business Legal Advisors, LLC
14888 Auburn Sky Drive
Draper, UT 84020
Email: brian@businesslegaladvisor.com
9. Miscellaneous.
9.1 Amendments. The Company and EF Hutton may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EF Hutton may deem necessary or desirable and that the Company and EF Hutton deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding, or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding, or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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9.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance, or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmissions.
9.8 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and EF Hutton enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
[Signature Page Follows]
| Page 50 of 66 |
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2022.
| CW PETROLEUM CORP | ||
| By: | ||
| Name: | Christopher Williams | |
| Title: | President and Chief Executive Officer | |
| Page 51 of 66 |
[Form to be used to exercise Purchase Warrant]
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Common Stock (the “Shares”), of CW Petroleum Corp, a Wyoming corporation (the “Company”), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:
| X | = | Y(A-B) | ||
| A |
| Where, | ||||
| X | = | The number of Shares to be issued to Holder; | ||
| Y | = | The number of Shares for which the Purchase Warrant is being exercised; | ||
| A | = | The fair market value of one Share which is equal to $_____; and | ||
| B | = | The Exercise Price which is equal to $______ per share |
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the n
Signature: _________________________
Print Name:
Signature Guaranteed: ______________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES:
Name: ______________________________________________________
Address: ____________________________________________________
____________________________________________________________
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
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[Form to be used to assign Purchase Warrant]
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, __________________ does hereby sell, assign, and transfer unto the right to purchase Common Stock of CW Petroleum Corp., a Wyoming corporation (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: __________, 20__
| Signature |
| Signature Guaranteed |
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
| Page 53 of 66 |
EXHIBIT B
Lock-Up Agreement
_______________, 2022
EF Hutton,
division of Benchmark Investments, LLC
590 Madison Avenue, 39th Floor
New York, New York 10022
As Representative of the several Underwriters named on Schedule 1 to the Underwriting Agreement referenced below
Ladies and Gentlemen:
The undersigned understands that EF Hutton, division of Benchmark Investments, LLC (the “Representative”), proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with CW Petroleum Corp, a Wyoming corporation (the “Company”), providing for the initial public offering (the “Public Offering”) of its common stock (the “Common Stock”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth for them in the Underwriting Agreement.
To induce the Representative to continue its efforts in connection with the Public Offering, the Company, on behalf of itself and any successor entity, hereby agrees that, without the prior written consent of the Representative, the Company will not, during the period commencing on the date hereof and ending three hundred and sixty (360) days after the date of the Underwriting Agreement relating to the Public Offering (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any capital stock (as defined in the Underwriting Agreement) or any securities convertible into or exercisable or exchangeable for its capital stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) file or caused to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (3) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (4) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (1), (2), (3) or (4) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward the consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s successors and assigns.
The undersigned understands that, if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.
| Very truly yours, | ||
| CW PETROLEUM CORP | ||
| By: | ||
| Name: | Christopher Williams | |
| Title: | President and Chief Executive Officer | |
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EXHIBIT C
Form of Lock-Up Agreement
Lock-Up Agreement
for
Officers, Directors, and 5% or Greater Shareholders
March [●], 2022
EF HUTTON,
division of Benchmark Investments, LLC
as Representative of the several Underwriters named on Schedule 1 attached hereto 590 Madison Avenue, 39th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, an officer, director and/or holder of common stock (the “Common Stock”), or rights to acquire shares of Common Stock (the “Shares”) of CW Petroleum Corp (the “Company”), understands that you are the representative (the “Representative”) of several underwriters (collectively, the “Underwriters”), named or to be named in the final form of Schedule 1 to the underwriting agreement (the “Underwriting Agreement”) to be entered into among the Underwriters and the Company, providing for the public offering (the “Public Offering”) of securities of the Company (the “Securities”) pursuant to a registration statement (No. 333-[●]) filed (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) on [●].
In consideration of the Underwriters’ agreement to enter into the Underwriting Agreement and to proceed with the Public Offering of the Securities, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Undersigned hereby agrees, for the benefit of the Company, the Representative and the other Underwriters that, without the prior written consent of the Representative, the Undersigned will not, during the period commencing on the date of this Lock-up Agreement and continuing and including the date that is three hundred and sixty (360) days after the closing of the Public Offering (the “Lock-Up Period”), unless otherwise provided herein, directly or indirectly (a) offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, encumber, assign, borrow or otherwise dispose of (each a “Transfer”) any Relevant Security (as defined below) or otherwise publicly disclose the intention to do so, or (b) establish or increase any “put equivalent position” or liquidate or decrease any “call equivalent position” with respect to any Relevant Security (in each case within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder) with respect to any Relevant Security or otherwise enter into any swap, derivative or other transaction or arrangement that Transfers to another, in whole or in part, any economic consequence of ownership of a Relevant Security, whether or not such transaction is to be settled by the delivery of Relevant Securities, other securities, cash or other consideration, or otherwise publicly disclose the intention to do so. As used herein, the term “Relevant Security” means any Share, any unit, any warrant to purchase Shares or any other security of the Company or any other entity that is convertible into, or exercisable or exchangeable for, Shares or any other equity security of the Company, in each case owned beneficially or otherwise by the Undersigned on the date of closing of the Public Offering or acquired by the Undersigned during the Lock-Up Period.
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The restrictions in the foregoing paragraph shall not apply to (a) any exercise (including a cashless exercise or broker-assisted exercise and payment of tax obligations), vesting or settlement, as applicable, by the Undersigned of options or warrants to purchase Shares or other equity awards pursuant to any stock incentive plan or stock purchase plan of the Company; provided that any Shares received by the Undersigned upon such exercise, conversion or exchange will be subject to the Lock-Up Period, (b) any establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the Transfer of Shares (a “Trading Plan”); provided that (i) the Trading Plan shall not provide for or permit any Transfers, sales or other dispositions of Shares during the Lock-Up Period and (ii) the Trading Plan would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (c) any Transfer of Shares acquired in open market transactions following the closing of the Public Offering, provided the Transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made, (d) the Transfer of the Undersigned’s Shares or any security convertible into or exercisable or exchangeable for Common Stock to the Company in connection with the termination of the Undersigned’s employment with the Company or pursuant to contractual arrangements under which the Company has the option to repurchase such shares, provided that no filing by any party under the Exchange Act shall be required or shall be made voluntarily within 45 days after the date the Undersigned ceases to provide services to the Company, and after such 45th day, if the Undersigned is required to file a report under the Exchange Act reporting a reduction in beneficial ownership of shares of Common Stock during the Lock-Up Period, the Undersigned shall clearly indicate in the footnotes thereto that the filing relates to the termination of the Undersigned’s employment, and no other public announcement shall be made voluntarily in connection with such transfer (other than the filing on a Form 5 made after the expiration of the Lock-Up Period), (e) the conversion of the outstanding securities into Shares, provided that any such Shares received upon such conversion shall be subject to the restrictions on Transfer set forth in this Lock-Up Agreement, or (f) the Transfer of Shares or any security convertible into or exercisable or exchangeable for Shares pursuant to a bona fide third-party tender offer for securities of the Company, merger, consolidation or other similar transaction that is approved by the board of directors of the Company, made to all holders of Common Stock involving a change of control (as defined below), provided that all of the Undersigned’s Relevant Securities subject to this Lock-Up Agreement shall remain subject to the restrictions herein. For purposes of this Lock-Up Agreement, “change of control” means any bona fide third party tender offer, merger, consolidation, or other similar transaction, in one transaction or a series of related transactions, the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of affiliated persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% or more of the total voting power of the voting stock of the Company (or the surviving entity).
In addition, the Undersigned further agrees that, except for the Registration Statement or any registration statement on Form S-8, during the Lock-Up Period, the Undersigned will not, without the prior written consent of the Representative: (a) file or participate in the filing with the SEC any registration statement or circulate or participate in the circulation of any preliminary or final prospectus or other disclosure documents, in each case with respect to any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned, or (b) exercise any rights the Undersigned may have to require registration with the SEC of any proposed offering or sale of a Relevant Security beneficially owned by the Undersigned.
In furtherance of the Undersigned’s obligations hereunder, the Undersigned hereby authorizes the Company during the Lock-Up Period to cause the transfer agent for the Relevant Securities to decline to Transfer, and to note stop transfer restrictions on the stock register and other records relating to, Relevant Securities for which the Undersigned is the record owner and the Transfer of which would be a violation of this Lock-Up Agreement and, in the case of the Relevant Securities for which the Undersigned is the beneficial owner but not the record owner, the Undersigned agrees that during the Lock-Up Period it will use its reasonable best efforts to cause the record owner to authorize the Company to cause the relevant transfer agent to decline to transfer, and to note stop transfer restrictions on the stock register and other records relating to such Relevant Securities to the extent such transfer would be a violation of this Lock-Up Agreement.
Notwithstanding the foregoing or anything contained herein to the contrary, the Undersigned may transfer the Undersigned’s Relevant Securities:
| (i) | as a bona fide gift or gifts; | |
| (ii) | To any immediate family member of the Undersigned, or to any trust, partnership, limited liability company, or other legal entity commonly used for estate planning purposes that are established for the direct or indirect benefit of the Undersigned or a member or members of the immediate family of the Undersigned; |
| Page 56 of 66 |
| (iii) | if the Undersigned is a corporation, partnership, limited liability company, trust, or other business entity, (1) to another corporation, partnership, limited liability company, trust, or other business entity that is a direct or indirect Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Undersigned, (2) to partners, limited liability company members or stockholders of the Undersigned or holders of similar equity interests in the Undersigned, or (3) in connection with a sale, merger or transfer of all or substantially all of the assets of the Undersigned or any other change of control of the Undersigned, not undertaken for the purpose of avoiding the restrictions imposed by this Lock-Up Agreement; | |
| (iv) | if the Undersigned is a trust, to the trustee or beneficiary of such trust or to the estate of a beneficiary of such trust; | |
| (v) | by testate or intestate succession; | |
| (vi) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement; | |
| (vii) | pursuant to the Underwriting Agreement; or | |
| (viii) | the withholder of Shares by, or surrender of Shares to, the Company pursuant to a “net” or “cashless” exercise or settlement feature to cover taxes due upon or the consideration required in connection with the exercise of securities issued under an equity incentive plan or stock purchase plan of the Company; |
provided, in the case of clauses (i)-(vi), that (A) such transfer shall not involve a disposition for value, (B) the transferee agrees in writing with the Underwriters and the Company to be bound by the terms of this Lock-Up Agreement, and (C) such transfer would not require any filing under Section 16(a) of the Exchange Act and no such filing is voluntarily made.
For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage, or adoption, not more remote than the first cousin.
If the Undersigned is an officer or director of the Company, (i) the Representative agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a Transfer of Shares, the Representative will notify the Company of the impending release or waiver and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release as set forth in Exhibit D through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
The Undersigned, whether or not participating in the Public Offering, understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.
The Undersigned hereby represents and warrants that the Undersigned has full power and authority to enter into this Lock-Up Agreement and that this Lock-Up Agreement has been duly authorized (if the Undersigned is not a natural person) and constitutes the legal, valid, and binding obligation of the Undersigned, enforceable in accordance with its terms. Upon request, the Undersigned will execute any additional documents necessary in connection with the enforcement hereof. Any obligations of the Undersigned shall be binding upon the successors and assigns of the Undersigned from the date of this Lock-Up Agreement.
| Page 57 of 66 |
This Lock-Up Agreement shall automatically terminate and be of no further effect upon the earliest to occur, if any, of the following: (i) prior to the execution of the Underwriting Agreement, upon such date the Company, on the one hand, or you, on the other hand, notifies the other in writing that it does not intend to proceed with the Public Offering, (ii) the Underwriting Agreement is not executed before [●], 2022 (provided that the Company may, by written notice to the undersigned prior to [●], 2022, extend such date for a period of up to an additional three months in the event that the Underwriting Agreement has not been executed by such date), (iii) the date that the Company withdraws the registration statement related to the Public Offering, or (iv) upon the termination (other than the provisions thereof that survive termination) of the Underwriting Agreement in accordance with the terms thereof prior to payment for and delivery of the Shares to be sold thereunder.
This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof. Delivery of a signed copy of this Lock-Up Agreement by facsimile or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
In witness whereof, the Undersigned hereby agrees to the above on the date set forth above.
| By: | ||
| Name: | ||
| Title: |
| Page 58 of 66 |
EXHIBIT D
FORM OF PRESS RELEASE
CW Petroleum Corp
March [___], 2022
CW Petroleum Corp (the “Company”) announced today that EF Hutton, division of Benchmark Investments, LLC, acting as representative for the underwriters in the Company’s recent public offering of [ ] shares of the Company’s common stock, is [waiving] [releasing] a lock-up restriction with respect to [ ] shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on [ ], 20[ ], and the securities may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
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EXHIBIT E
Opinion of Business Legal Advisors, LLC
We have acted as United States counsel to CW Petroleum Corp, a Wyoming corporation (the “Company”), in connection with the preparation and filing of the Company’s registration statement on Form S-1 (File No. 333-[*]) (“Registration Statement”), as amended, for the offering of [*] Units, each Unit consisting of [*] shares of common stock, $0.0001 par value per share (“Common Stock”) and [*] Warrant to purchase [*] share of common stock, of the Company and at the election of the Representative, (i) up to an additional [*] shares of Common Stock5 pursuant to that certain Underwriting Agreement, dated [*], 2022, by and between the Company and EF Hutton, division of Benchmark Investments, LLC as representative (the “Representative”) of the underwriters (the “Underwriters”) named in Schedule 1 to the Underwriting Agreement (the “Underwriting Agreement”). This opinion is given to you pursuant to Section 4.2.2 of the Underwriting Agreement. Unless defined herein, capitalized terms have the meanings given to them in the Underwriting Agreement.
Based upon and subject to the foregoing and the qualifications and limitations, it is our opinion that:
1. The Company is a corporation duly incorporated and validly existing as a corporation in good standing under the laws of the State of Wyoming. The Company has the corporate power and authority to own, lease and operate its properties and assets and to carry on its business as described in the Registration Statement or the Prospectus.
2. The authorized capital stock of the Company is as set forth in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus under the caption “Description of Capital Stock.” The Firm Shares delivered by the Company on the date hereof have been duly authorized and, when issued and paid for as applicable and in accordance with the Underwriting Agreement, will be validly issued, fully paid, and nonassessable. The Warrant Shares, upon proper exercise and payment therefor, have been duly authorized and, when issued and paid for as applicable and in accordance with the Representative’s Warrant, will be validly issued, fully paid, and nonassessable. The issuance and sale of the Firm Shares and the Warrant Shares, by the Company to the Underwriters pursuant to the Underwriting Agreement are not subject to any written preemptive rights, written right of the first offer, or written right of first refusal in each case, pursuant to the Company’s Articles of Incorporation and Bylaws, or the laws of the State of Wyoming that have not otherwise been waived or satisfied.
3. The Underwriting Agreement and the Representative’s Warrant have been duly and validly authorized and executed by the Company. The Company has all the requisite corporate power and authority to enter into the Underwriting Agreement and the Representative’s Warrant and to perform its obligations thereunder.
4. The Underwriting Agreement and the Representative’s Warrant constitute the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its respective terms.
5. The execution, delivery and performance of the Underwriting Agreement and the Representative’s Warrant and compliance by the Company with the terms and provisions thereof and the consummation of the transactions contemplated thereby, and the issuance and sale of the Common Stock and the Representative’s Warrant do not and will not, with or without the giving of notice or the lapse of time, or both, (a) conflict with, or result in a breach of, any of the terms or provisions of, or constitute a default under, or result in the creation or modification of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company pursuant to the terms of any agreement filed as an exhibit to the Registration Statement or (b) result in any violation of the provisions of the Company’s Articles of Incorporation or Bylaws, as amended or (c) result in any violation of any Federal or State law or regulation or (d) result in any violation of any Material Contract (defined below).
6. The execution and delivery by the Company of the Underwriting Agreement and the Representative’s Warrant, the performance by the Company of its obligations under the Underwriting Agreement and the Representative’s Warrant, and the issuance of the Firm Shares and the Warrant Shares do not violate any judgment or order of any Federal or State governmental authority.
5 Which shall equal [*] % of the total shares of Common Stock sold in the offering.
| Page 60 of 66 |
7. To our knowledge, other than as set forth in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus, there are no legal or governmental proceedings pending to which the Company or any director or officer or controlling shareholder is a party or of which any property of the Company is or the subject which, if determined adversely to the Company, a director, officer or controlling shareholder would have or may reasonably be expected to have a Material Adverse Effect on the general affairs, business, prospects, management, financial position, shareholders’ equity or results of operations of the Company or would prevent or impair the consummation of the transactions contemplated by the Underwriting Agreement, or which are required to be described in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus.
8. The information in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus under the headings “Business – Legal Proceedings”, “Description of Capital Stock,” and in Part II of the Registration Statement under Items 14 and 15, in each case insofar as such statements purport to constitute summaries of legal matters or specific provisions of documents referred to therein, fairly summarize in all material respects the matters referred to therein.
9. The Firm Shares, the Representative’s Warrant, and the Warrant Shares have been or will be issued in compliance with applicable United States securities laws, rules and regulations and conform in all material respects to the descriptions thereof contained in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus.
10. No consent, approval, authorization or other order of, or registration or filing with, any Federal or State governmental or regulatory authority or agency is required for the execution, delivery, and performance by the Company of the Underwriting Agreement, and the issuance and sale of the Firm Shares and the Representative’s Warrants except for (i) the registration of the offer and sale of the Firm Shares and the Representative’s Warrant and the Warrant Shares under the Securities Act of 1933, as amended, which has been effected, and (ii) such consents, approvals, authorizations, orders and registrations or filings as may be required (A) under applicable State securities laws, as to which we express no opinion, (B) from the Financial Industry Regulatory Authority, Inc. as to which we express no opinion, and (C) from The Nasdaq Capital Market in connection with the purchase and distribution of the Firm Shares by the Underwriters, which has been obtained.
11. To our knowledge, other than the contracts that described or referred to in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus or are filed as exhibits to the Registration Statement (“Material Contract”), no other contracts are required to be described or referred to in or filed as exhibits to the Registration Statement or the Prospectus.
12. Except as set forth in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus, the Company is not a party to any written agreement granting any holders of securities of the Company rights to require the registration under the Securities Act of resales of such securities.
13. To our knowledge, other than as set forth in the Registration Statement, the Time of Sale Disclosure Package, and the Final Prospectus, there are no legal or governmental proceedings pending to which the Company, any director, officer, or controlling shareholder is a party or of which any property of the Company is or the subject which, if determined adversely to the Company would have or may reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, shareholders’ equity or results of operations of the Company, or any director, officer or controlling shareholder, or would prevent or impair the consummation of the transactions contemplated by the Underwriting Agreement, or which are required to be described in the Registration Statement and the Prospectus.
14. The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus, will not be an “investment company” as defined in the Investment Company Act of 1940, as amended.
15. The Registration Statement was declared effective by the Commission on [*], 2022. No stop order suspending the effectiveness of the Registration Statement has been issued by the U.S. Securities and Exchange Commission (“Commission”) and to our knowledge, no proceeding for that purpose has been instituted by the Commission. The Prospectus was filed with the Commission pursuant to Rule 424(b) under the Securities Act in the manner and within the time period required by such Rule 424(b).
16. The Registration Statement and the Time of Sale Disclosure Package including any information deemed to be part of the Registration Statement pursuant to Rule 430A under the Securities Act, as of its effective date, and the Final Prospectus and as of its date (and, in each case, other than the Company financial statements and related schedules, and other financial and statistical data, contained therein or omitted therefrom, as to which we express no opinion or belief), appeared on their face to comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations of the Commission promulgated thereunder.
We confirm to you that we are not representing the Company in any pending litigation in which the Company is a named defendant that challenges the validity or enforceability of the Underwriting Agreement or seeks to enjoin the performance of the Underwriting Agreement.
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EXHIBIT F
Negative Assurance Letter of Business Legal Advisors, LLC
We have acted as United States counsel to CW Petroleum Corp, a Wyoming corporation (the “Company”), in connection with the preparation and filing of the Company’s registration statement on Form S-1 (File No. 333-[*]) (“Registration Statement”), as amended, for the offering of [*] Units, each Unit consisting of [*] shares of common stock, $0.0001 par value per share (“Common Stock”) and [*] Warrant to purchase [*] Share of Common Stock, of the Company and at the election of the Representative, (i) up to an additional [*] shares of Common Stock6 pursuant to that certain Underwriting Agreement, dated [*], 2022, by and between the Company and EF Hutton, division of Benchmark Investments, LLC as representative (the “Representative”) of the underwriters (the “Underwriters”) named in Schedule 1 to the Underwriting Agreement (the “Underwriting Agreement”). This opinion is given to you pursuant to Section 4.2 of the Underwriting Agreement. Unless defined herein, capitalized terms have the meanings given to them in the Underwriting Agreement.
As counsel to the Company, we have participated in the preparation of the Registration Statement on Form S-1 (File No. 333-[*]) filed with the Securities and Exchange Commission (the “Commission”) on [*], 2022 under the Securities Act of 1933, as amended (the “Securities Act”) (including any documents incorporated by reference therein, the “Registration Statement,” and the Final Prospectus supplement dated [*], 2022, as filed by the Company with the Commission on [*], 2022 pursuant to Rule 424(b)(4)) under the Securities Act (the “Final Prospectus”) and have participated in discussions with directors, officers and other representatives of the Company and its subsidiaries and their independent auditors and with you and your representatives and your legal counsel at which the contents of the Registration Statement, Prospectus, and the Final Prospectus were discussed and have reviewed certain corporate records and documents furnished to us by the Company. We have not independently verified and are not passing upon and do not assume responsibility for, explicitly or implicitly, the accuracy, completeness, or fairness of the statements contained in the Registration Statement, the Prospectus, or the Final Prospectus.
Based on the foregoing and on our understanding of the United States federal securities laws and the experience we have gained in our practice thereunder, and relying as to certain factual matters on the representations and statements of the officers and other representatives of the Company and on the representations, warranties, and covenants contained in the Underwriting Agreement no fact has come to our attention that causes us to believe that the Registration Statement, at the time it became effective, the Prospectus or the Final Prospectus, as of its date and date hereof, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
Our comments above do not extend to, and we express no opinion or view with respect to, the financial statements, the supporting schedules, and notes or other financial or accounting data or forecasts or estimates, included in or omitted from the Registration Statement, the Prospectus or the Final Prospectus, or the statements contained in the exhibits to the Registration Statement, as to which we have not been requested to comment. The purpose of our professional engagement was not to establish or confirm factual matters set forth in the Registration Statement, the Prospectus, or the Final Prospectus, and we have not undertaken any obligation to verify independently any of the factual matters set forth in the Registration Statement, the Prospectus or the Prospectus.
This letter is rendered solely to you for the benefit of the Underwriters pursuant to Section 4.2 of the Underwriting Agreement in connection with the offer and sale of the Shares pursuant to the Underwriting Agreement. This letter may not be relied upon by any person other than the Underwriters without our express prior written consent. This letter is rendered to you for the benefit of the Underwriters as of the date hereof and is not to be deemed to have been reissued by any subsequent delivery as permitted above, and we assume no obligation to advise you or any other person hereafter with regard to any change after the date hereof in the circumstances or the law that may bear on the matters set forth herein even though the change may affect the legal analysis or a legal conclusion or other matters in this letter.
6 Which shall equal [*]% of the total shares of Common Stock sold in the offering.
| Page 62 of 66 |
EXHIBIT G
OFFICER’S CERTIFICATE
OF
CW PETROLEUM CORP
[●], 2022
Reference is hereby made to the Underwriting Agreement, dated as of [●], 2022 (the “Underwriting Agreement”), by and between EF Hutton, division of Benchmark Investments, LLC, as Representative of the underwriters named on Schedule 1 to the Underwriting Agreement (the “Representative”), and CW Petroleum Corp, a Wyoming corporation (the “Company”). Capitalized terms used herein and not defined have the meanings ascribed to them in the Underwriting Agreement.
The undersigned officers hereby certify, solely in their capacity as officers of the Company and not in their individual capacities, that they are the duly authorized Chief Executive Officer and Chief Financial Officer of the Company, and do hereby further certify that:
| i. | the condition set forth in section 4 of the Underwriting Agreement has been satisfied, | |
| ii. | as of the date hereof, the representations and warranties of the Company set forth in Section 2 of the Underwriting Agreement are accurate, | |
| iii. | as of the date hereof, all agreements, conditions and obligations of the Company to be performed or complied with pursuant to the Underwriting Agreement on or prior to the date hereof have been duly performed or complied with, | |
| iv. | for the period from and including the date of the Underwriting Agreement through and including the date hereof, the Company has not: (i) sustained any material loss or interference with its respective businesses, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, or (ii) any change in the capital stock (other than the issuance of Common Stock, Warrants to purchase Common Stock, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement and the Prospectus) or long term debt of the Company, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, | |
| v. | no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission, | |
| vi. | there are no pro forma or as adjusted financial statements that are required to be included or incorporated by reference in the Registration Statement and the Prospectus pursuant to the Rules and Regulations which are not so included or incorporated by reference, | |
| vii. | such officers have examined the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, and the Pricing Prospectus and after reasonable investigation, the Registration Statement and each amendment thereto, the Preliminary Prospectus, any Issuer Free Writing Prospectus and the Pricing Prospectus, as of the effective date of the Registration Statement and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, | |
| viii. | no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this Certificate is provided to the Representative, | |
| ix. | there has been no action suit or proceeding, at law or in equity, pending or threatened against the Company or any affiliate of the Company before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement, Preliminary Prospectus and Pricing Prospectus, and |
subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus there has not been any Material Adverse Change or any development involving a prospective Material Adverse Effect, whether or not arising from transactions in the ordinary course of business.
| Page 63 of 66 |
IN WITNESS WHEREOF, the undersigned have signed this certificate as of the date set forth above.
| CW PETROLEUM CORP | ||
| By: | ||
| Christopher Williams, President and Chief Executive Officer | ||
| Page 64 of 66 |
EXHIBIT H
SECRETARY’S CERTIFICATE
OF
CW PETROLEUM CORP
[*], 2022
Reference is hereby made to the Underwriting Agreement, dated as of [*], 2022 (the “Underwriting Agreement”), between EF Hutton, division of Benchmark Investments, LLC, as Representative of the underwriters named on Schedule 1 to the Underwriting Agreement (the “Representative”), and CW Petroleum Corp, a Wyoming corporation (the “Company”). Capitalized terms used herein and not defined have the meanings ascribed to them in the Underwriting Agreement.
The undersigned hereby certifies, solely in his capacity as the Secretary of the Company and not in his individual capacity, that he is the duly authorized Secretary of the Company, and does hereby further certify that:
1. A true and correct copy of the Articles of Incorporation of the Company, together with all amendments to date, is attached hereto as Exhibit A and the bylaws of the Company, together with all amendments to date are attached as Exhibit B. The Articles of Incorporation, as amended, and the bylaws, as amended (collectively, the “Charter Documents”) are in full force and effect on the date hereof. No action has been taken by the Board of Directors or the stockholders of the Company for the purpose of effecting any further amendment to or modification of the Charter Documents.
2. No action or proceeding for the dissolution, merger, consolidation, liquidation or reorganization of the Company, or for the sale, lease or other transfer of all or substantially all of any of its assets, is pending, and to the best knowledge of the undersigned, no such action or proceeding is contemplated by the Company, its stockholders, directors or officers.
3. A true and correct copy of the resolutions of the Board of Directors of the Company, duly adopted and approved by the Board of Directors of the Company, is attached hereto as Exhibit C. Such resolutions have not been amended, modified or rescinded since their adoption and are in full force and effect as of the date hereof, and are the only resolutions relating to (a) the execution and delivery of the Underwriting Agreement, (b) the issuance and sale by the Company under the Underwriting Agreement of the Public Securities and the payment of the underwriters’ compensation, (c) the filing of the Company’s Registration Statement with the Commission, and (d) the authorization of all actions required to be taken, or other documents required to be executed and delivered, in connection with any of the foregoing. The resolutions were duly adopted and constitute all of the resolutions of the Board, with respect to the issuance, offering and sale of the Securities and the authorization of the actions to be taken in connection with the transactions described in the Registration Statement and the Pricing Prospectus.
4. Attached hereto as Exhibit D is a true, correct, and complete specimen of the certificate representing the Common Stock.
5. The Underwriting Agreement, as executed and delivered by the Company, is in substantially the form approved by the Board of Directors in the resolutions referred to in paragraph 3 above and has been duly executed and delivered on behalf of the Company by an appropriate officer of the Company.
6. After giving effect to the issuance and registration of the Common Stock described in the Underwriting Agreement, the Company has an aggregate of [___] shares of Common Stock issued and outstanding as of the date hereof.
7. Each person who, as a director or officer of the Company, signed, and delivered by facsimile, portable document file (.pdf) or otherwise, (a) the Underwriting Agreement, (b) the Registration Statement, and (c) any and all other documents or instruments executed and delivered to the Representative in connection with the transactions contemplated by the Underwriting Agreement, was, at all times, duly elected or appointed, qualified and acting as such director or officer, and was duly authorized to execute and deliver such documents or other instruments at the respective times of such execution and delivery and, in the case of the certificates for the Common Stock, the Warrants, or the Representative’s Warrant, the making of true facsimiles or portable document files thereof, and, the signature of each such person (including any electronic signature covered by the U.S. Federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) appearing on each such document is the genuine signature of such director, officer or attorney-in-fact.
8. The minute books, records and other documents of the Company relating to all proceedings of the stockholders, the Board of Directors and the committees of the Board of Directors made available to Business Legal Advisers, LLC and Carmel Milazzo & Feil LLP are the original minute books and records of the Company, or are true, correct and complete copies thereof in all material respects, with respect to all proceedings of said stockholders, Board of Directors and committees of the Board of Directors as of the date hereof, other than meetings for which minutes in draft form were provided. There have been no material changes, additions or alterations in said minute books, records and other documents that have not been provided to Business Legal Advisers, LLC and Carmel Milazzo & Feil LLP.
9. Transfer Online, Inc. has been duly appointed by the Company to serve as the transfer agent and registrar for the Company’s Common Stock and as warrant agent for the Company’s Warrants and, as of the date hereof, serves in such capacity for the Company’s Common Stock and Warrants, respectively.
[Signature page follows.]
| Page 65 of 66 |
IN WITNESS WHEREOF, the undersigned has signed this certificate as of the date set forth above.
| CW PETROLEUM CORP | ||
| By: | ||
| Name: | Christopher Williams | |
| Title: | Secretary | |
I, Christopher Williams, President and Chief Executive Officer of the Company, do hereby certify that [●] is the duly elected, qualified, and acting Secretary of the Company and that the signature set forth above her/his name is her/his genuine signature.
| By: | ||
| Name: | Christopher Williams | |
| Title: | President and Chief Executive Officer |
| Page 66 of 66 |
Exhibit 4.4
COMMON STOCK PURCHASE WARRANT
CW PETROLEUM CORP
| Warrant Shares: [●] | Initial Exercise Date: [●], 20[●] |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [●] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on [●], 20[●] (the “Termination Date”) but not thereafter, to subscribe for and purchase from CW Petroleum Corp, a Wyoming corporation (the “Company”), up to [●] shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one Warrant Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant shall initially be issued and maintained in the form of a security held in book-entry form and the Depository Trust Company or its nominee (“DTC”) shall initially be the sole registered holder of this Warrant, subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Board of Directors” means the board of directors of the Company.
“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.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant, or other instruments that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
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“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers or directors of the Company or consultants to the Company pursuant to any stock or option plan or other written agreement duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, provided, however, such issuance (A) shall not exceed fifteen percent (15%) of the Common Stock issued and outstanding as of the date hereof, (B) shall be at no less than fair market value (as measured by the closing price of the Common Stock on the Trading Market on the date of issuance) and (C) in the first year from the date hereof shall be issued as restricted securities; (ii) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities; (iii) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith, and provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities; (iv) shares of Common Stock, options or convertible securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by a majority of the disinterested directors of the Company but shall not include a transaction in which the company is primarily issuing Common Stock or Common Stock Equivalents primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities; (v) shares of Common Stock, options or convertible securities issued in connection with the provision of goods or services pursuant to transactions approved by a majority of the disinterested directors of the Company but shall not include a transaction in which the company is issuing Common Stock or Common Stock Equivalents primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities; and (vi) shares of Common Stock, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, investor or public relations, marketing or other similar agreements or strategic partnerships approved by a majority of the disinterested directors of the Company but shall not include a transaction in which the Company is primarily issuing Common Stock or Common Stock Equivalents primarily for the purpose of raising capital or to a person or an entity whose primary business is investing in securities.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof), or other entity of any kind.
“Registration Statement” means the Company’s registration statement on Form S-1, as amended (File No.333-[●]).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
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“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the Common Stock is traded on a Trading Market.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or OTCQB or OTCQX (or any successors to any of the foregoing).
“Transfer Agent” means Transfer Online, Inc., the current transfer agent of the Company, with a mailing address of 512 SE Salmon Street Portland, OR 97214, a telephone number of 503-227-2950, and any successor transfer agent of the Company.
“Underwriting Agreement” means the underwriting agreement, dated as of [●], 2022, among the Company and EF Hutton, division of Benchmark Investments, LLC, as representative of the underwriters named therein, as amended, modified, or supplemented from time to time in accordance with its terms.
“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Warrant Agency Agreement” means that certain warrant agency agreement, dated on or about the Initial Exercise Date, between the Company and the Warrant Agent.
“Warrant Agent” means the Transfer Agent and any successor warrant agent of the Company.
“Warrants” means this Warrant and other Common Stock purchase warrants issued by the Company pursuant to the Registration Statement.
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Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other types of guarantees or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
Notwithstanding the foregoing in this Section 2(a), a holder whose interest in this Warrant is a beneficial interest in certificate(s) representing this Warrant held in book-entry form through DTC (or another established clearing corporation performing similar functions), shall effect exercises made pursuant to this Section 2(a) by delivering to DTC (or such other clearing corporation, as applicable) the appropriate instruction form for exercise, complying with the procedures to effect exercise that is required by DTC (or such other clearing corporation, as applicable), subject to a Holder’s right to elect to receive a Warrant in certificated form pursuant to the terms of the Warrant Agency Agreement, in which case this sentence shall not apply.
b) Exercise Price. The exercise price per Warrant Share under this Warrant shall be $[●], subject to adjustment hereunder (the “Exercise Price”), provided that in no case shall the exercise price be less than the par value of the Common Stock. The Holder shall not be entitled to the return or refund of all, or any portion, of such pre-paid aggregate exercise price under any circumstance or for any reason whatsoever, including in the event this Warrant shall not have been exercised prior to the Termination Date.
c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) | = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) 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 Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; |
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| (B) | = the Exercise Price of this Warrant, as adjusted hereunder; and | |
| (X) | = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
Notwithstanding anything herein to the contrary, but without limiting the rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to this Section 2(c) or to receive cash payments pursuant to Section 3(d)(i) and Section 3(d)(iv) herein, the Company shall not be required to make any cash payments or net cash settlement to the Holder in lieu of delivery of the Warrant Shares. If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c). Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit and Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, 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 of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 12:00 p.m. (New York City time) on the Initial Exercise Date, which may be delivered at any time after the time of execution of the Underwriting Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date.
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ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant Certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Warrant Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Warrant Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a 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 Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole Warrant Share.
vi. Charges, Taxes, and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Warrant Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Warrant Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing 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 or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock and such other capital stock of the Company (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell, enter into an agreement to sell, or grant any option to purchase, or sell, enter into an agreement to sell, or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price provided that the Base Share Price shall not be less than $[●] (subject to adjustment for reverse and forward stock splits, recapitalizations and similar transactions following the Initial Issuance Date). Notwithstanding the foregoing, no adjustments shall be made, paid, or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any shares of Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued shares of Common Stock or Common Stock Equivalents at the lowest possible price, conversion price, or exercise price at which such securities may be issued, converted or exercised.
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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents 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 on exercise hereof, including without limitation, the Beneficial Ownership Limitation) 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 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 exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders 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) (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 Warrant Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of 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 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 exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
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e) Fundamental Transaction. If, at any time while this Warrant is outstanding,(i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of capital stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Warrant Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash, or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; 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. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) 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 public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP 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 this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five (5) Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, 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 which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Warrant Shares 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 Warrant Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such 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 which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such 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 Warrant 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 with the same effect as if such Successor Entity had been named as the Company herein.
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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
h) Voluntary Adjustment by Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, 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.
Section 4. Transfer of Warrant.
a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
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b) New Warrants. If this Warrant is not held in global form through DTC (or any successor depositary), this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Issuance Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Warrant Agent and/or the Company (with regard to any portion of the Warrant in certificated form issued pursuant to the terms of the Warrant Agency Agreement) shall register this Warrant, upon records to be maintained by the Warrant Agent and/or the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company and the Warrant Agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Shareholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Governing Law. All questions concerning the construction, validity, enforcement, and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement, and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees, or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party 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 improper or is an inconvenient venue for such proceeding. Each party 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 via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit, or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers, or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
| Page 13 of 17 |
h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 2717 Commercial Center Blvd. Suite E200 PMB 264, Katy, Texas 77494, Attention: Chief Executive Officer, e-mail: chris@cwpetroleumcorp.com, telephone number (713) 857-8142, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Warrant Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended, or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder or the beneficial owner of this Warrant, on the other hand.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
o) Warrant Agency Agreement. If this Warrant is held in global form through DTC (or any successor depositary), this Warrant is issued subject to the Warrant Agency Agreement. To the extent any provision of this Warrant conflicts with the express provisions of the Warrant Agency Agreement, the provisions of this Warrant shall govern and be controlling.
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(Signature Page Follows)
| Page 14 of 17 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| CW PETROLEUM CORP | ||
| By: | ||
| Name: | Christopher Williams | |
| Title: | President and Chief Executive Officer | |
[SIGNATURE PAGE OF COMMON STOCK PURCHASE WARRANT]
| Page 15 of 17 |
EXHIBIT A
NOTICE OF EXERCISE
TO: CW PETROLEUM CORP
(1) The undersigned hereby elects to purchase Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4) Accredited Investor. If the Warrant is being exercised via cash exercise, the undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Date:
| Page 16 of 17 |
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | ||
| (Please Print) | ||
| Address: | ||
| (Please Print) | ||
| Phone Number | ||
| Email Address | ||
| Dated: , | ||
| Holder’s Signature: | ||
| Holder’s Address: | ||
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
| Page 17 of 17 |
Exhibit 10.2
Exhibit 21.1
LIST OF SUBSIDIARIES
CW PETROLEUM CORP
CW Petroleum Corp, a Wyoming corporation, has the following subsidiaries:
| 1. | CW Petroleum Corp, a Texas corporation (wholly-owned). |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Registration Statement on Form S-1/A of our report, which includes an explanatory paragraph as to the company’s ability to continue as a going concern, dated April 29, 2022 relating to the audit of the consolidated financial statements of CW Petroleum Corp for the years ending December 31, 2021 and 2020 and the reference to our firm under the caption “Experts” in the Registration Statement.
| /s/ M&K CPAS, PLLC | |
| www.mkacpas.com | |
| Houston, Texas | |
| June 2, 2022 |